SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
X Annual Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended December 31, 1999
or
Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ______ to ________
Commission file no. 333-41545
ebank.com, Inc.
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(Name of Small Business Issuer in Its Charter)
Georgia 58-2349097
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2410 Paces Ferry Road
Atlanta, Georgia 30339
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(Address of Principal Executive Offices) (Zip Code)
(770) 863-9225
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Issuer's Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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 past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.[X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 15, 2000, was $9,831,428. This calculation is based
upon a value of $7.00 per share, which was the average bid and asked price of
the common stock on the over-the-counter market on such date.
There were 1,630,688 shares of the Company's common stock issued and
outstanding as of March 31, 2000.
Transitional Small Business Disclosure Format. (Check one): Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
None.
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Item 1. Description of Business
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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. The primary risks and uncertainties are described
under the heading "Risk Factors" and in other sections of this Item 1. 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.
General
We incorporated ebank.com, Inc. in Georgia in August 1997 under the
name Southeast Commerce Holding Company and commenced banking operations in
August 1998. We conduct all of our banking operations through our subsidiary
federal savings bank, which obtained its thrift charter in August 1998 from the
Office of Thrift Supervision under the name Commerce Bank. We changed our name
to ebank.com, Inc. in April 1999 and the name of the bank to ebank in October
1999 and commenced our efforts to offer Internet banking services. We own the
domain name "ebank.com." We are currently in a trademark dispute with Huntington
Bancshares Incorporated, which owns the federally registered service mark "E -
BANK."
ebank.com, Inc. provides banking and other financial services to small
business and retail customers. We opened for business in August 1998 in one
location in suburban Atlanta, Georgia as a traditional community bank. In April
1999, we acquired the Internet domain name ebank.com, and on June 30, 1999, we
commenced Internet banking services. As of December 31, 1999, we had $52.1
million in total assets, $47.9 million in loans, $41.6 million in deposits, and
$9.9 million in shareholders' equity.
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Strategy and Marketing Focus
Our objective is to become a leading Internet-based provider of and
portal for financial products and services for small business and retail
customers. In January 2000, we launched our new business strategy, which we are
promoting through an integrated national marketing campaign. The five key
components of our strategy are:
Expand the Internet presence of our Web site
o We own the domain name ebank.com.
o We have a fully functional financial services Web site designed to
assist small business and retail customers with their financial needs.
o We offer Internet-based products and services, including sweep
accounts, electronic bill payment, and money market and other deposit
products.
o We provide attractive interest rates on deposits and low banking fees
through the anytime, anywhere access of the Internet.
o We expect to generate significant fees from the products and services
we market on our Web site.
o We have a co-branded business center with Office.com on our Web site
that will include much of the small business-oriented content contained
on the Office.com site.
o We offer additional small business products and services via the
Internet, including equipment leasing, health insurance, secured real
estate lending, and SBA loans through our strategic alliance partners.
Develop our ebank.com points of presence network
o Our points of presence network will be an interactive network providing
financial products and services initially through our Web site,
Internet-enabled ATMs, and "smart chip cards," as well as eventually
through cellular telephones and handheld computing devices. All
financial transactions will be conducted on a secure virtual private
network.
o We have a strategic alliance with Talisman Technologies, Inc., which is
the developer of the technology that will enable this secure virtual
private network. Talisman creates system architecture and software that
enables seamless e-commerce transaction and payment activities over a
secure virtual private network.
o We intend to construct this ATM network using Diebold ATM machines that
are powered by Compaq hardware and operated with the Talisman
technology.
o We intend to begin issuing ebank.com "smart chip cards" in the third
quarter of 2000. The cards will initially function as traditional
credit and ATM cards and eventually link our Web site with the entire
points of presence network via the Internet and the Talisman
technology.
o Our points of presence network will serve as an alternative delivery
network for such items as event ticketing, payroll, bill payment, cash
transfer, and online shopping.
o We will develop our Internet-enabled ATM network, with the Talisman
technology, through a combination of installing our own PC-based ATMs,
partnering with or acquiring existing independent ATM networks, and
integrating the ATMs of our partner community banks with our own
network. We expect our initial Internet-enabled ATMs to be operational
beginning in the fourth quarter of 2000.
o We intend to develop customized marketing based on our profile of each
individual customer using the points of presence network, which should
generate revenues from targeted advertising and third-party transaction
fees.
Enter into strategic alliances
o In addition to our strategic alliance with Talisman, we have entered
into and are developing additional strategic alliances with technology
and financial services companies to generate fees
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and other revenue, increase our access to online customers, build brand
recognition, and expand the products and services that we provide to
our customers.
o Office.com - Office.com developed a co-branded business center for the
ebank.com Web site that includes much of the content contained on the
Office.com site. Office.com, Inc., which is jointly owned by Winstar
Communications, Inc. and CBS, has created an online destination site
for small businesses that provides news, information, tools, services,
and products for people in business across industries and professions.
We are also promoted on the Office.com site through banner ads and
periodic references to ebank.com in the Office.com weekly newsletter.
o ADP - ADP's human resource products and services, including Internet
payroll processing, tax filing services, and 401(k) and IRA services,
will be available to our customers on our Web site. ADP will pay us a
fee for every customer that links to ADP's Web site and subscribes to
any of ADP's products and services. ADP, Inc. is the largest payroll
and human resources servicer in the United States.
o RealCall - RealCall's technology allows our potential customers to
click a button on our Web site requesting that a representative from
our call center call them back almost immediately while their interest
is fresh. RealCall's customer support software was first used by
Barclays Bank in the United Kingdom, and we are RealCall's first bank
customer in the United States. RealCall will also pay us a continuing
percentage of the revenue it receives from all banks in the United
States and Canada that sign up to use the RealCall technology before
June 30, 2000, as well as from banks and other companies that we direct
to them.
o Other Alliances - We have also entered into agreements to provide
equipment leasing, health insurance, and bill payment services. We are
continuing to look for new strategic alliance partners that will expand
our product and service offerings and create additional fee and other
revenues.
Form ebank.com partnerships with community banks
o We intend to form partnerships with community banks in desirable
locations where we have no geographic presence.
o We intend to link our partner community banks' back-end software
systems with our Web site and allow their customers access to our
points of presence network, as well as to our products and services.
o We expect to generate revenue from implementation, maintenance, and
click-through fees and by selling our products and services through our
ebank.com partners.
o We expect to generate loan origination fees by providing loan referrals
to our partners.
o We expect to sign our first partners in the third quarter of 2000 and
to expand the program in 2001.
Establish ebank.com centers
o We intend to establish low cost loan production facilities, or
ebank.com centers.
o We expect to open three ebank.com centers in 2000 in Atlanta, Georgia,
Charlotte, North Carolina, and Tampa, Florida.
o We expect to build our ebank.com centers around experienced high volume
commercial lenders who focus on the small business market.
o Our Atlanta headquarters will provide operational support to the
ebank.com centers.
Competitive Advantage
We believe we have several advantages over other Internet and
traditional banks:
o We intend to become a full service financial portal for small business
and retail customers, which will allow us to generate higher fees as a
percentage of revenue than most traditional and Internet banks. This
revenue will come from a number of sources, including customer referral
fees for insurance, payroll services, and equipment leases, credit card
fees, sweep account fees, investment
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management fees, securities brokerage services, and other financial
management products and services.
o We believe our points of presence network, supported by the advanced
Talisman technology, will provide our customers with greater access to
financial and other products and services and the convenience of "smart
chip cards." This network will also provide us with customized
marketing capability and new revenue streams.
o Our strategic alliances will permit us to offer our customers a more
extensive array of products and services than are typically offered by
either Internet banks or traditional banks.
o Our small business customers should provide us with significant
commercial and retail loan opportunities. We believe that originating
our own loans can earn us higher yields and establish a higher quality
loan portfolio than if we purchased most of our loans, as most other
Internet banks do.
o By generating our loans through our low cost ebank.com centers, rather
than through an extensive bricks and mortar branch network, we believe
we will have lower operating costs than a typical traditional bank. We
also believe that these personal relationships will create more
cross-marketing opportunities for us than those available to pure
Internet banks that rely on a largely retail customer base.
Marketing Strategy
Our strategy creates a virtual and physical points of presence network
that will fully benefit from a national branding campaign. In order to increase
brand awareness and build brand loyalty, in January 2000, we launched an
extensive regional public relations and advertising campaign. We also plan to
enter into additional co-branding relationships similar to our agreement with
Office.com.
We have selected four agencies to lead our integrated marketing
campaign: Gotham, Inc., Affiliate Network Services, Stanton Crenshaw
Communications, and Nicholson NY. These agencies have helped establish the
Internet presence of companies such as E*TRADE, IBM, Sony, Fidelity Investments,
and Starbucks.
Talisman Transaction
On March 16, 2000, we entered into an exclusive 15-year license
agreement with Talisman Technologies, Inc. to use its Internet ATM technology in
our installation and operation of ATMs within the United States, and we granted
Talisman a 15-year license to use our banking knowledge and know-how,
trademarks, business plans, and marketing materials outside the United States.
As consideration for these licenses, we issued 161,438 shares of our common
stock to Talisman, which represented 9.9% of our 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, we have 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. We will need a substantial amount of capital to
implement the outsourcing agreement. If we fail to enter into this agreement
within this period, Talisman reserves the right to rescind the entire
transaction, including the license transfers and share issuances. Services and
third party vendors under the outsourcing agreement will be provided by Talisman
according to our needs and specifications, subject to the approval of the Office
of Thrift Supervision. We have also granted Talisman the right to nominate two
individuals to our board of directors. We will have the right to nominate one
individual to Talisman's board of directors. 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.
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Operations
Products and Services
We currently provide a broad array of financial products and services
to our small business and retail customers, including checking accounts, money
markets, CDs, sweep accounts, ATM cards, home loans, commercial loans, credit
cards, bill payment services, equipment leasing, and human resource services.
Our complete line of products and services should eventually include insurance
products, "smart chip cards" via our points of presence network, and other
financial products and services designed to serve our small business and retail
customers. Some of our signature products and services include the following:
Current Products & Services
eSweep account - A sophisticated money management tool, our eSweep (sm)
account links a commercial checking account with an investment account,
optimizing returns on working capital by investing idle funds until the moment
needed to cover disbursements.
Human Resource Services - We offer human resource services through ADP,
including Internet payroll processing, tax filing services, and 401(k) and IRA
services.
Equipment Leasing - We offer competitive business equipment leasing on
a nationwide basis through GoRate.com. Through this service, our customers will
have access to GoRate.com's online lease quote and application system.
Health Insurance - We offer health insurance to our customers through
ehealthinsurance.com. This service permits our customers to access health
insurance information, apply for their insurance online, and obtain quick
approval. We are in the process of developing a co-branded Web site with
ehealthinsurance.com that is similar to our ebank.com Web site.
ATM Cards - Each customer automatically receives a free ATM card when
he or she opens an account. Customers can access their accounts at ATMs
affiliated with the Cirrus, Honor, and Avail networks. We currently do not
charge any ATM fees. In addition, although the operator of the ATM generally
imposes fees, we currently reimburse these fees to our customers for their first
four ATM usages each month.
Online Account Statements - Customers can track the activity in their
accounts directly through the Internet at any time, obtaining account balances
and transaction history, transferring funds between various accounts, and even
downloading account statements.
Future Products & Services
Smart Chip Cards - We intend to begin distributing "smart chip cards"
to our customers in the third quarter of 2000. In addition to acting as
traditional ATM and credit cards, these "smart" cards retain customer
information and store cash equivalent value. We expect these cards to become an
integral part of our points of presence network and to be available in the third
quarter of 2000.
Investments - We expect to enter into an agreement to offer investment
information and trading services on our Web site.
Financial Planning - We expect to offer investment planning services,
including mortgages and auto options, college and retirement planning, online
tax help, and financial management resources.
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Customer Service and Support
Our customer support center provides the Internet user's first
impression of ebank.com. We currently have ten employees in this center, and we
expect to have 20 employees by the first quarter of 2001. We believe that an
effective customer service team must provide excellent customer service, and
that our achievement of this goal is critical to our success. Our customer
service professionals are specifically trained to profile potential and existing
customers to match the customers' needs with the appropriate products and
services that we offer. This process enables us to increase the number of
value-added services we sell to our customers, thereby increasing their loyalty
to us and also providing us with a source of new customer referrals.
Our customer service team's mission is to provide assistance to
customers for online services, handle product and service inquiries, and render
up-to-date financial information upon request. Our customer service team also
makes outbound welcome calls to enhance customer satisfaction and to generate
more account relationships.
The customer service department ensures that accounts opened via our
Internet marketing channel are accurate. Customers have access to their accounts
24 hours a day, seven days a week, and they can view balances, transfer funds,
pay bills, and send e-mails to our customer call center over the Internet. Our
policy is to attempt to respond to all customer e-mails within 24 hours.
We have purchased a license to use WebTone Lyric, a software based
telephony product that allows us to streamline our customer service processes to
ensure consistently high levels of support. We anticipate having this product
installed in the second quarter of 2000. WebTone Lyric was developed by WebTone
Technologies, Inc., a leading provider of integrated, Web-based customer service
solutions. With WebTone Lyric, we will receive all customer requests in a
central location where we can prioritize them according to urgency or type of
request. With WebTone Lyric, we will be able to route our customer e-mail and
phone inquiries to the customer service representative best equipped to handle
the particular request, helping us to ensure prompt responses to each request.
We have also implemented RealCall's callback technology which links our
Web site to our call center. To request an immediate call-back, a customer
merely has to click a button on our Web page. This feature enables our
representatives to follow through immediately on new customer inquiries and help
requests, which we believe will make it easier for our customers to complete
their online banking transactions.
Our operating hours are 8:00 a.m. to 7:00 p.m. EST, Monday through
Friday and 12:00 noon to 4 p.m. EST on Sundays. Our call center is staffed by
customer service representatives who are specifically trained to handle customer
requests professionally and confidentially both online and by telephone. We
continually monitor our call center activity to enhance our customer service
levels. Our goal is for our combination of fast response time, product
knowledge, and customer education efforts to set our customer service apart from
the rest of the online banking industry.
We offer incentives to our customer service representatives through a
competitive compensation package that rewards new account generation, high
quality customer service, and long-term employee loyalty. Customer service
representatives are compensated through an annual salary, stock options, and a
monthly performance bonus. Customer service representatives also participate in
our standard benefits plan.
Technology Operations
Account Activity. Customers can access ebank.com through any Internet
service provider by means of an acceptable secure Web browser. In doing so,
customers can apply for loans, review account activity, enter transactions into
an online account, pay bills electronically, receive statements by mail, and
print bank statement reports from any personal computer with a secure Web
browser, regardless of its location. To open a new account, the customer
completes the online enrollment form on our Web site, prints the signature card,
signs it,
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and mails it to us. Customers can make deposits into an open account at ebank
through direct deposit programs, by transferring funds between ebank accounts,
by wire transfer, or by mail. Customers can also make withdrawals and have
access to their accounts at ATMs that are affiliated with the Cirrus, Honor, and
Avail networks.
Back-office Service Providers. We have negotiated relationships with a
select group of service providers. Because we outsource many functions to third
party service providers that have the capacity to process a high volume of
transactions, we can respond easily to growth. We believe that through this
outsourcing strategy we have preserved a degree of flexibility that enables us
to assess and evaluate our product offerings and delivery structure on an
ongoing basis and to incorporate other alliance opportunities that may become
available. We also believe that, if any of our service providers are not able to
continue to support us as we grow, we will be able to secure corresponding
services from an alternative source without material interruption of our
operations. Our principal service providers are described below:
Fiserv. Fiserv is our partner for financial data processing and
information management services. Fiserv maintains all imaging and proof services
in its Atlanta location. Fiserv is known as an industry leader in financial
management services.
OneWeb Systems. OneWeb Systems is our Web site developer. OneWeb also
built our back-end database system to allow us to capture data provided by
customers in a format that we can use with data-mining tools. Through
data-mining, we have a leverageable and efficient system that provides accurate
data on our customers to facilitate the introduction of additional banking
products and services. OneWeb also built our interface links to the SEI sweep
account to create a seamless information stream between SEI's main data terminal
and our Phoenix database.
Phoenix International. Through its client-server technology, Phoenix
International supports the core areas of the bank data processing, including
system administration, account processing, nightly processing, teller functions,
and general ledger.
SEI. SEI serves as our eSweep account facilitator. SEI is a third party
provider of investment services, including the sweep account technology. SEI has
approximately $45 billion under management.
Security
The security of our Internet banking applications is of utmost
importance, and we are committed to providing the highest precautions
appropriate to ensure that our customer information is safeguarded. We regularly
evaluate the latest changes in Internet banking system security to ensure that
our security measures meet the highest standards of security.
We address our system security at three levels. First, our primary
concern is to ensure the security of customer information as it is sent from the
customer's personal computer to our Web server. Second, we have taken steps to
ensure the security of the environment in which our Internet banking server and
customer information database reside. Third, we have implemented Internet
security measures to prevent unauthorized users from logging in to the online
banking section of our Web site. The following section describes these areas and
other security measures that we have in place.
Encrypted transactions. We use a security protocol called Secure
Sockets Layer (SSL) to provide security to all data transmitted between a
customer's browser and our Web server. SSL is an advanced encryption mechanism
supported by leading suppliers of browser software, including Netscape Navigator
and Microsoft Internet Explorer. SSL provides data encryption, server
authentication, and message integrity for all of our banking transactions and
Internet communications.
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Secure Logon. To eliminate the possibility that a third party might
download ebank.com's or a customer's password information, we have restricted
all access to our Internet banking server through the use of encrypted customer
access numbers, user names, and passwords, and we do not store these customer
access numbers, user identifications, or passwords on our Web server or Internet
banking server. The World Wide Web interface receives SSL input and sends
requests through a filtering router and firewall over a dedicated private
network to the Internet banking server. This interface is the only process
capable of communicating to the Internet banking server, so only authenticated
requests can communicate with the Internet banking server.
Service Continuity. To ensure reliable access to ebank.com, we have
implemented a redundant network and a server "mirroring" to reduce any service
outage due to hardware failures or software bugs to no more than a few minutes.
"Mirroring" creates a continuous backup of all data and is stored in two
physical locations for assurance of customer access reliability. In the event of
an interrupted access over the Internet, a customer will continue to have access
to their funds through several means, including ATM/debit cards, our ebank.com
centers, and paper checks.
Environmental and Physical Security. We have implemented a single
public entry point to provide a buffer between Internet banking access and our
core consumer retail operations. All of our Internet servers are located at a
secure site where access is restricted to key card holders and is monitored by
security cameras. We also restrict access to our computer operations areas to
only those employees with proper identification, and we have installed dual
password protection to the computer consoles. We contracted the services of an
independent security consulting company to provide vulnerability testing on both
our internal and external network structure, as well as enhanced Internet
penetration testing. The effectiveness of the results from these audits have
been substantiated through the use of the leading Internet/network vulnerability
detection tools available from Internet Security Systems.
Security Monitoring. We monitor all Internet and network traffic to our
Web site and have the ability to detect and disarm unwanted entries. We also
retain records of and review this traffic history, as well as a transactional
log of our customer transactions, to assist us in maintaining a proactive
approach to our security needs.
We use a combination of proprietary and industry standard security
measures to protect customers' assets. Customers are assigned unique account
numbers, user identifications, and passwords that must be used each time they
log on to the system. We rely on encryption and authentication technology,
including public key cryptography technology, to provide the security and
authentication necessary to effect the secure exchange of information. Telephone
transactions are secured through a personal identification number -- the same
technology used in ATMs.
Although we have implemented the security measures described above to
ensure that our Internet operations are set up in a secure manner, we believe
the risk of fraud presented by Internet banking is not materially different from
the risk of fraud inherent in any other banking relationship. We believe the
three principal reasons for a breach in bank security are misappropriation from
the user of the user's account number or password, penetration of the bank's
server by an outside "hacker," and fraud committed by an employee of the bank or
one of its service providers. Both traditional banks and Internet banks are
vulnerable to these types of fraud. By establishing the security measures
described above, we believe we have reduced our vulnerability to the first two
types of fraud. To counteract the third type of fraud, we have established
internal procedures and policies designed to ensure that, as in any bank, we
exercise proper control and supervision over our employees, associates, and
consultants. We also counteract all types of fraud through daily examination of
our transactional logs.
Asset Quality Control
Maintaining asset quality control is of paramount importance to us.
Because we expect to generate most of our own loans, we believe we will be able
to earn significantly higher yields than the online banks which purchase most of
their loans from third parties. We will also be in a better position to control
our asset quality,
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both by following strict lending policies when we originate loans and by
carefully monitoring and managing the loan portfolios we generate in each of our
ebank.com centers. We adhere to a comprehensive credit administration policy
designed to ensure that we accomplish these objectives.
We intend to build most of our commercial lending portfolio through our
lenders' business development activities. We expect that our lenders most
successful business development strategies will include building business
networks with other professionals, including attorneys and accountants, small
business owners, corporate executives, and community leaders. Our lenders will
build these relationships by participating in business and civic organizations
in the communities in which each ebank.com center is located and by introducing
themselves directly to individuals and groups who can potentially become our
customers or who can provide referrals to potential customers. We also will
generate leads through the products and services we offer through our Internet
strategy.
Because we intend to focus on small businesses, we believe that the
majority of our loan portfolio will be in the commercial area, with an emphasis
placed on commercial and industrial loans secured by real estate, accounts
receivable, inventory, property, and plant and equipment. However, in an effort
to maintain a high level of credit quality, we expect that the commercial real
estate loans will be made to borrowers who occupy the real estate securing the
loans or where a creditworthy tenant is involved.
Loan Policy. We have developed a uniform loan policy to guide our
lending activities at both our main office and in each of our ebank.com centers.
All loans which we originate must meet the minimum underwriting criteria
established in our ebank loan policy. Our loan policy is designed to help us
achieve the following objectives:
o Establishing and maintaining a sound asset structure, including
generating profitable long-term loan and deposit customers;
o Maximizing short-term and long-term earnings within managed risk
limitations and in compliance with applicable laws and regulations;
o Providing a liquid, yet profitable loan portfolio which protects our
depositors' funds;
o Promoting the stable economic growth and development of the trade areas
that our ebank.com centers serve; and
o Adapting our activities to changing economic, technological,
regulatory, and competitive conditions.
Our chief credit officer, who oversees all our credit operations from
our Atlanta headquarters, is responsible for maintaining a quality loan
portfolio and developing a strong credit culture throughout the entire
organization. The chief credit officer is also responsible for developing and
updating our credit policy and procedures. In addition, this officer will work
closely with each lender at the ebank.com centers to ensure that the business
being solicited is of the quality and structure that fits our desired risk
profile.
Underwriting Process. Once we have identified a potential borrower, our
loan officers ask questions to understand the borrower's individual needs and
financial situation. The loan officer determines the purpose of the loan and how
the borrowed funds fit into the overall business plan of the borrower. The loan
officer also becomes knowledgeable about the prospective borrower's industry and
its unique characteristics. The loan officer evaluates the borrower's corporate
structure, including its ownership structure, its management depth, its track
record, and the integrity of its management.
We compile various independent and internal financial information
regarding each prospective borrower, which may include a loan application form,
personal and business financial statements, personal and business tax returns,
credit bureau information, and Dun & Bradstreet information. For loans secured
by real estate, we also
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obtain environmental reports, as needed, independent appraisals provided by
appraisers on our approved appraiser list, and flood certification reports. The
loan officer then prepares a financial analysis of the prospective borrower and
includes all this information in a credit file for the borrower. We have also
established maximum loan-to-value ratios that we follow for both our real estate
loans and loans secured by collateral other than real estate.
Loan Approval Process. We will use a tiered joint approval authority
system to approve loans. Each commercial loan requires an independent review and
approval by one of our credit analysts/credit managers. The originating lender
will obtain a concurring approval to complete the loan approval. If the next
approval authority is not available, the lender will go to the next successive
available authority for concurring approval. However, every loan must be
approved by at least one credit officer.
Our loan committee meets on a weekly basis and communicates with our
ebank.com center lenders through video conferencing. Any loan requests exceeding
a city lender's limit must be approved at the headquarters level. Loan requests
exceeding joint approval limits are submitted to the directors' credit committee
for final approval. The directors' credit committee currently consists of four
outside directors and meets on a regular basis in order to provide timely
responses to our customers.
We will more closely monitor and review the lending activities of newly
opened ebank.com centers to ensure that the credit discipline of the loan
officers fully complies with our loan policies and to familiarize ourselves with
local conditions of the center.
Credit Administration. Our credit administration function includes an
internal review and the regular use of an outside loan review firm. Our credit
committee reviews on a regular basis a list of all new commercial loans and
other commitments which result in a total direct and indirect liability of
between $100,000 and $500,000. After an initial loan is approved, each
relationship related to that loan that exceeds $100,000 in direct or indirect
debt is reviewed at least annually to determine continued credit quality.
Certain loans may be exempted from review, including loans in which the total
relationships is less than $100,000, loans with unpaid balances under $250,000
where the majority of the debt is fully amortizing real estate debt fully
secured and amortizing as agreed, and loans where the debt is fully secured by
cash or equivalent collateral.
We currently use an outside consulting firm to conduct loan reviews. We
have conducted two loan reviews since the bank opened in August 1998. However,
we anticipate that, as we grow, it will become more efficient to perform the
loan review function internally by our full-time employees. Eventually, we
anticipate engaging a staff of at least three full-time review officers. In
either case, the loan reviewers report directly to our chief credit officer. We
will review the loan portfolios of each of our ebank.com centers six months
after opening and again after twelve months. We will then maintain a minimum
review cycle of twelve months. We anticipate a review cycle of two weeks for
each ebank.com center, one week to perform the review and one week to complete
the report. City center credit officers will supplement the review team by
serving as guest reviewers on a rotating basis. Each guest reviewer will travel
outside his or her home region to assist the review team. This will give each
guest reviewer a cross sample of other ebank.com center's business discipline
and also introduce new views to the reviewed ebank.com center.
We continuously review and evaluate the quality of our loan portfolio.
We have an internal loan rating system under which each loan is rated according
to asset quality. Loans classified as normal up through loans classified as
being uncollectible must be reported to the credit committee regularly. We
prepare a classified loan management report on a monthly basis to list
classified loans, indicate the current action plan for resolving classified
assets, and current performance against the action plan. Each loan should be
evaluated to determine whether the credit has strengthened, weakened, or
remained the same. The credit committee reviews the classified loan management
report on a monthly basis. In addition, directors' credit committee and chief
credit officer meet at least once a month and review delinquencies,
non-performing assets, classified assets, and other pertinent issues.
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We also prepare a monthly report of past due loans, loans deemed
uncollectible, and loans charged off during the prior month. This report is
prepared monthly and presented to the credit committee and to the full board of
directors at its regularly scheduled meeting. The past due report includes any
loans 30 days or more past due. We discontinue accruing interest on loans 90
days or more past due or whenever we question a borrower's ability to pay
interest.
Our credit committee reviews and evaluates economic conditions in the
national and local economies, past due loans as a percentage of total loans, any
delinquency trends in the loan portfolio, and loans classified by either our
internal review program or by the Office of Thrift Supervision. We maintain a
loan loss reserve established by this monthly review of the loan portfolio. The
loss reserve is dynamic and is based on the changing condition of the individual
classified loans. We make specific allocations to the reserve based on the
collateral, financial strength, and repayment capacity of the borrower and
appropriate guarantors. We also make general allocations based on overall trends
and historical experience.
We will allocate a portion of the loan loss reserve pending final
disposition of a credit when we believe we will have a probable credit loss for
which an exact amount cannot yet be determined. We will write down a loan where
final disposition is reasonably certain and prospects of future recovery are
low. Recovery efforts of loans written off, including nonaccrued interest, are
an integral part of the ongoing management of our loan portfolio.
Our policy is to avoid any concentration of credit in which obligations
from a single borrower, an affiliated group of borrowers, borrowers engaged in
or dependent on one industry, or the acquisition of loans from a single source,
regardless of the diversity of the individual borrowers, exceeds 25% of our
bank's capital structure. Our credit committee reviews loan concentrations on a
quarterly basis and makes adjustments to loan concentration comfort levels based
on economic conditions, loss experience, and sound credit practices.
Intellectual Property
We believe that our success will be attributable primarily to our
integrated financial services delivery system and customer service rather than
our technology and other proprietary rights, although our success and ability to
compete also depend in part upon our proprietary rights. We rely on a
combination of copyright, trademark, and trade secret laws and contractual
restrictions to establish and protect our technology and other proprietary
rights. We generally require employees and consultants and, when possible,
suppliers to execute confidentiality agreements upon the commencement of their
relationships with us. Nevertheless, the steps we have taken may not be adequate
to prevent misappropriation of our technology, or our competitors may
independently develop technologies that are substantially equivalent or superior
to our technology.
Our corporate name is "ebank.com, Inc.," and we operate our subsidiary
bank, "ebank," under a thrift charter granted to us by the Office of Thrift
Supervision. We also own the domain name "ebank.com," which is registered with
Network Solutions. We have filed a federal trademark application for the name
"ebank.com" with our logo and have submitted for filing a federal trademark
application for the name "ebank" with our logo. However, we have received notice
from Huntington Bancshares Incorporated asserting that it has superior trademark
rights in the name "E - BANK." We also know of several other banks that are
using or plan to use "ebank" in connection with Internet banking service. There
is a risk that one or more of these other banks could succeed in claiming
trademark rights superior to ours. This could severely limit or prevent our
further use of the term "ebank" and our use of the Internet domain name
"ebank.com." 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.
We believe the most serious challenge to our name will come from
Huntington Bancshares Incorporated. In late May 1999, we received a notice from
Huntington 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 how it proposed to use the term "E - BANK" in
1994, we believe that even if Huntington used the term prior to us, its use was
limited to a description of a system platform that Huntington at one time
offered or planned to offer on a wholesale basis to
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other banks. We do not believe that Huntington has used the term in connection
with offering financial services to the public prior to our use of "ebank."
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. We are currently
involved in litigation with Huntington over this issue. For more information,
please see the discussion under Item 3 "Legal Proceedings."
Our other proprietary rights reside in our plan of operations and our
customer lists. We attempt to protect these assets through a combination of
copyright, trademark, and trade secret laws, using employee and third party
confidentiality agreements, and other methods. We do not have any patents or
registered copyrights for any of our systems or products and services, as most
of our technology is supplied and owned by third parties. As with all
businesses, other parties may attempt to copy aspects of our technology,
products, and services or to otherwise obtain and use information that we regard
as proprietary, despite our efforts to protect them. Third parties may claim
that our current or future products and services infringe on their patent,
copyright, or trademark rights. Although we know of no other party making any
such claims today other than the claims discussed above, we cannot be sure that
no such claim will be made in the future. Any such claims, whether with or
without merit, could be costly and time consuming, cause delays in introducing
new or improved products and services, require us to enter royalty or licensing
agreements or discontinue using the challenged technology, and otherwise could
have a material adverse effect on us.
Competition
The financial services industry in the United States is highly
competitive and characterized by rapid change. We face competition from numerous
sectors, and we expect competition in many of these sectors to increase:
We compete with Internet-only banks such as NetB@nk, CompuBank, and
Telebanc, which was recently acquired by E*TRADE, and Internet versions of
traditional branch-based banks such as Citibank and WingspanBank.com, which was
developed by Bank One.
We compete for deposits with traditional banks, thrifts, credit unions,
and other financial institutions, some of whom also offer Internet based
services, other financial service providers of direct-marketed savings and
investment products, and other Internet-based financial institutions. We also
face competition from traditional branch-based and other financial service
providers, including savings and commercial banks, credit unions, mutual fund
companies, and brokerage companies.
In connection with our ebank.com partnership program, we compete with
companies that provide outsourced Internet banking services to community banks,
such as Corillian Corporation and Digital Insight Corporation.
We compete with Internet portals such as E*TRADE, Yahoo!, E-LOAN, and
Lending Tree.com, which serve as an alternative to financial institutions' Web
sites.
Employees
As of December 31, 1999 we had 35 full-time employees. As we implement
our expanded strategy, we expect that we will increase the staff appropriately,
including adding support people in our telephone and Internet support center.
This number could be higher or lower depending on market conditions and our
success in attracting customers.
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SUPERVISION AND REGULATION
Thrift holding companies and federal savings banks are extensively
regulated under both federal and state law. The following is a brief summary of
banking statutes and rules and regulations that affect ebank.com, Inc. and
ebank. These laws and regulations are generally intended to protect depositors,
not shareholders. These regulations are very complex and we refer you to the
particular statutory and regulatory provisions for a thorough understanding.
Gramm-Leach-Bliley Act
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 Office of Thrift Supervision
after May 4, 1999. However, a grandfathered unitary thrift holding company, such
as ebank.com, retains its authority to engage in nonfinancial activities.
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.
Supervision of ebank.com, Inc.
We are a registered holding company under the Savings and Loan Holding
Company Act and the Financial Institutions Code of Georgia. We are regulated
under these acts by the Office of Thrift Supervision and the Georgia Department
of Banking and Finance. As a thrift holding company, we are required to file
various reports with, and are subject to examination by, the Office of Thrift
Supervision. Under the terms of our charter, during our first three years of
operation, we also must obtain formal Office of Thrift Supervision approval at
least 30 days prior to commencing any new holding company activity. On October
26, 1999, we received approval of our current business plan, which includes the
implementation of our Internet strategy and our plans to open three ebank.com
centers in 2000. On February 8, 2000 we also received approval to begin
implementation of our points of presence network and the ebank.com partnership
strategy.
The Office of Thrift Supervision assessed a $100,000 civil money
penalty against us because it concluded that we began to implement our new
business strategy in June 1999 prior to obtaining its approval. While neither
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admitting nor denying the Office of Thrift Supervision's assertions, in
September 1999 we consented to and paid this penalty.
As a thrift holding company owning only one savings institution, we are
considered a unitary thrift holding company. This means that, as long as our
subsidiary ebank continues to qualify as a "qualified thrift lender" as
described below, we may engage in a broad range of business activities not
permitted to commercial bank holding companies or multiple thrifts holding
companies. See "Supervision and Regulation - Qualified Thrift Lender
Requirements."
We would be required to obtain approval from the Office of Thrift
Supervision in order to acquire control of another savings association or thrift
holding company. We may, however, acquire as much as 5% of the voting stock of a
savings institution or savings and loan holding company without seeking
regulatory approval.
Supervision of ebank
General. ebank operates as a federal savings bank incorporated under
the laws of the United States. ebank's primary federal regulator is the Office
of Thrift Supervision, but the bank is also regulated by the FDIC and the
Georgia Department of Banking and Finance. The Office of Thrift Supervision
conducts regular examinations of ebank and regulates or monitors virtually all
areas of the bank's operations, including:
o security devices and procedures,
o adequacy of capitalization and loss reserves,
o loans,
o investments,
o borrowings,
o deposits,
o mergers,
o issuances of securities,
o payment of dividends,
o interest rates payable on deposits,
o interest rates or fees chargeable on loans,
o establishment of branches,
o corporate reorganizations,
o maintenance of books and records, and
o adequacy of staff training to carry on safe lending and deposit
gathering practices.
Capital Requirements. The Office of Thrift Supervision requires that
all savings institutions maintain an amount of capital in excess of certain
minimum levels and has implemented regulations imposing three different capital
tests. These regulations require that ebank maintain:
"Tangible capital" in an amount of not less than 1.5% of total assets.
"Tangible capital" generally is defined as:
o core capital,
o less intangible assets and investments in certain subsidiaries, and
o excluding purchased mortgage-servicing rights.
"Core capital" in an amount not less than 3.0% of total assets. "Core
capital" generally includes:
o common shareholders' equity,
o noncumulative perpetual preferred stock and related surplus,
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o minority interests in the equity accounts of consolidated subsidiaries
less unidentifiable intangible assets (other than certain amounts of
supervisory goodwill),
o certain investments in certain subsidiaries, and
o 90% of the fair market value of readily marketable purchased
mortgage-servicing rights and purchased credit card relationships.
"Risk-based capital" equal to 8.0% of "risk-weighted assets."
"Risk-based capital" includes core capital plus supplementary capital, less
certain deductions. Supplementary capital includes preferred stock, subordinated
debt, and general loan and lease loss allowances up to 1.25% of risk-weighted
assets. The amount of supplementary capital included as risk-based capital
cannot exceed 100% of core capital. To determine total risk-weighted assets:
o each off-balance sheet asset must be converted to its on-balance sheet
credit equivalent amount by multiplying the face amount of each such
item by a credit conversion factor ranging from 0% to 100% (depending
upon the nature of the asset);
o the credit equivalent amount of each off-balance sheet asset and each
on-balance sheet asset must be multiplied by a risk factor ranging from
0% to 200% (again depending upon the nature of the asset); and
o the resulting amounts are added together and constitute total
risk-weighted assets.
The risk-based capital standards also take into account interest rate
risk, concentration of credit risk, risk from nontraditional activities and
actual performance, and expected risk of loss on multi-family mortgages. In
addition, the regulations require an institution to maintain a minimum ratio of
core capital to total risk-weighted assets of 4%.
The Office of Thrift Supervision may impose capital requirements which
are higher than the generally applicable minimum requirements if it determines
that our capital is or may become inadequate.
In addition, the Georgia Department of Banking and Finance requires
thrift holding companies to maintain a 5% Tier 1 capital ratio on a consolidated
basis. Tier 1 capital is substantially the same as core capital.
Deposit Insurance. Deposits at ebank are insured by the FDIC up to
$100,000 for each insured depositor. The FDIC establishes rates for the payment
of premiums by federally insured commercial banks and savings banks, or thrifts,
for deposit insurance. The FDIC maintains a separate Bank Insurance Fund for
banks and Savings Association Insurance Fund for savings banks and thrifts.
Insurance premiums are charged to financial institutions in each category and
are used to offset losses from insurance payouts when banks and thrifts fail.
Since 1993, insured banks and thrifts have paid for deposit insurance under a
risk-based premium system, with higher risk institutions paying higher premiums.
Risk is determined by each institution's federal regulator on a semi-annual
basis and based on its capital reserves and other factors. Increases in deposit
insurance premiums or changes in risk classification would increase ebank's cost
of funds.
As an insurer, the FDIC issues regulations, conducts examinations, and
generally supervises the operations of its insured institutions. The FDIC has
the power to sanction, and may suspend or terminate the deposit insurance held
by, any insured institution which does not operate in accordance with or conform
to applicable laws and regulations. The FDIC may suspend or terminate deposit
insurance if it finds that an institution has engaged in unsafe or unsound
practices or is operating in an unsafe or unsound condition. The FDIC requires
an annual audit by independent accountants and also has the authority to examine
insured institutions itself.
Transactions With Affiliates and Insiders. The bank is subject to
restrictions on the amount of loans or credit to and investments it may make
with directors and other affiliates. The aggregate of all covered transactions
is limited in amount, as to any one affiliate, to 10% of the bank's capital and
surplus and, as to all affiliates combined, to 20% of the bank's capital and
surplus. Certain covered transactions must also meet
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specified collateral requirements. We must also comply with certain provisions
designed to prevent us from taking low quality assets.
ebank may not engage in transactions with affiliates unless the
transactions are on substantially the same terms, or at least as favorable to
the bank, as those prevailing at the time for comparable transactions with
non-affiliated companies. Extensions of credit to affiliates must be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with third parties and must
not involve more than the normal risk of repayment or present other unfavorable
features.
Dividends. ebank is subject to regulatory restrictions on the payment
of dividends, including a prohibition on payment of dividends from its capital.
All dividends may only be paid out of the bank's currently available profits
less expenses, including losses and bad debts. The bank must notify the Office
of Thrift Supervision prior to the payment of any dividends. In addition, under
the FDIC Improvement Act, the bank may not pay a dividend if it would cause the
bank to become undercapitalized.
Branching. As a federal savings bank, ebank does not have any
regulatory restrictions on its ability to branch in any state, except that we
must first obtain the approval of the Office of Thrift Supervision.
Community Reinvestment Act. The Community Reinvestment Act requires the
Office of Thrift Supervision to evaluate our record of meeting the credit needs
of our local community, including low and moderate-income neighborhoods. The
Office of Thrift Supervision must also consider these factors when it evaluates
mergers, acquisitions, and applications to open a branch or facility. Failure to
meet these standards could result in restrictions on our operations.
Liquidity. Federal regulations require us to maintain an average daily
balance of liquid assets based on the amount of our deposits and short-term
borrowings. Liquid assets include cash, certain time deposits, certain bankers'
acceptances, certain corporate debt securities and highly rated commercial
paper, securities of certain mutual funds, and specified United States
government, state, or federal agency obligations. This liquidity requirement may
be changed from time to time by the Office of Thrift Supervision to any amount
from 4% to 10% depending upon economic conditions and the deposit flows of
member institutions. The current number is 5%. The Federal Reserve Board has
also adopted regulations that require savings associations to maintain
nonearning reserves against their transaction accounts, primarily NOW and
regular checking accounts. These reserves may be used to satisfy liquidity
requirements imposed by the Office of Thrift Supervision. Because required
reserves must be maintained in the form of cash or a non-interest-bearing
account at a Federal Reserve Bank, this reserve requirement will reduce the
amount of the bank's interest-earning assets.
Qualified Thrift Lender Requirement. In order to exercise the powers
granted to federally chartered savings associations and maintain full access to
Federal Home Loan Board advances, ebank must meet the definition of a "qualified
thrift lender." ebank will qualify as a qualified thrift lender as long as its
"qualified thrift investments" equal or exceed 65% of its "portfolio assets" on
a monthly average basis in nine out of every 12 months. Qualified thrift
investments generally consist of small business loans, as well as various
housing related loans and investments such as residential construction and
mortgage loans, home improvement loans, mobile home loans, home equity loans and
mortgage-backed securities, certain obligations of the FDIC, and shares of stock
issued by any Federal Home Loan Board, the FHLMC, or the FNMA. Qualified thrift
investments also include certain other specified investments, subject to a
percentage of portfolio assets limitation. For purposes of the qualified thrift
lender test, the term "portfolio assets" means the savings institution's total
assets minus goodwill and other intangible assets, the value of property used by
the savings institution to conduct its business, and liquid assets held by the
savings institution in an amount up to 20% of its total assets.
Office of Thrift Supervision regulations provide that any savings
association that fails to meet the definition of a qualified thrift lender must
either convert to a national bank charter or limit its future investments and
activities (including branching and payments of dividends) to those permitted
for both savings associations and national banks. Further, within one year of
the loss of qualified thrift lender status, a holding company of a
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savings association that does not convert to a bank charter must register as a
bank holding company and will be subject to all statutes applicable to bank
holding companies.
Loans to One Borrower Limitations. The Home Owners Loan Act will
generally require that we comply with the limitations on loans to a single
borrower applicable to national banks. National banks generally may make loans
to a single borrower in amounts up to 15% of their unimpaired capital and
surplus, plus an additional 10% of capital and surplus for loans secured by
readily marketable collateral. The Home Owners Loan Act provides exceptions
under which a savings association may make loans to one borrower in excess of
the generally applicable national bank limits under one of the following
circumstances: for any purpose, in any amount not to exceed $500,000; or to
develop domestic residential housing units, in an amount not to exceed the
lesser of $30 million or 30% of the savings association's unimpaired capital and
unimpaired surplus, provided other conditions are satisfied.
Commercial Real Property Loans. The Home Owners Loan Act limits the
aggregate amount of commercial real estate loans that a federal savings
association may make to an amount not in excess of 20% of the savings
association's total assets. Also, the amount in excess of 10% of total assets
must be devoted to small business real property loans.
Other Regulations. Interest and certain other charges collected or
contracted for by ebank are subject to state usury laws and certain federal laws
concerning interest rates. The bank's loan operations are also subject to
certain federal laws applicable to credit transactions, including the following:
o the federal Truth-In-Lending Act, governing disclosures of credit terms
to consumer borrowers;
o the Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and public
officials to determine whether a financial institution will be
fulfilling its obligation to help meet the housing needs of the
community it serves;
o the Equal Credit Opportunity Act, prohibiting discrimination on the
basis of race, creed, or other prohibited factors in extending credit;
o the Fair Credit Reporting Act of 1978, governing the use and provision
of information to credit reporting agencies;
o the Fair Debt Collection Act, governing the manner in which consumer
debts may be collected by collection agencies; and
o the rules and regulations of the various federal agencies charged with
the responsibility of implementing such federal laws.
The deposit operations of ebank are also subject to certain federal
laws, including:
o the Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures
for complying with administrative subpoenas of financial records;
o the Electronic Funds Transfer Act and Regulation E, which governs
automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated
teller machines and other electronic banking services; and
o the Truth-in-Savings Act and Regulation DD, which requires disclosure
and imposes certain interest rate disclosure requirements in connection
with consumer deposit accounts.
Effect of Governmental Monetary Policies. Our earnings are affected by
domestic economic conditions and the monetary and fiscal policies of the United
States government and its agencies. The Federal Reserve Board's monetary
policies have had, and will likely continue to have, an important impact on the
operating results of commercial banks through its power to implement national
monetary policy in order, among other things, to curb inflation or combat a
recession. The monetary policies of the Federal Reserve Board have major effects
upon the levels of bank loans, investments, and deposits through its open market
operations in United States government securities, and through its regulation of
the discount rate on borrowings of member banks and the
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reserve requirements against member bank deposits. It is not possible to predict
the nature or impact of future changes in monetary and fiscal policies.
Risk Factors
In the following section we summarize what we believe are the primary
risks of an investment in our common stock. There may also be other risks. Some
risks are not yet known to us and there are others we do not currently believe
are material but could later turn out to be so.
Risks Related to ebank.com
Because we have a limited operating history in a rapidly evolving industry, it
is difficult to evaluate our business and prospects.
We commenced banking operations on August 17, 1998 and did not commence
Internet operations until June 30, 1999. As a result, we have a very limited
operating history for you to evaluate, and our business model and strategy are
continually evolving. In addition, we do not expect to complete initial
deployment of our new business strategy until late 2000. Because we are in an
early stage of our development, there is a risk that our business plan will not
be successful, and we will likely face greater risks, expenses, and difficulties
than would a more mature operating company.
We may not succeed in implementing our new business strategy.
We are implementing a new business strategy to provide financial
products and services to small businesses and retail consumers through the
various components of our ebank.com network. We currently anticipate that our
ebank.com network will consist of our Internet operations, our ebank.com points
of presence network, which will include our Internet-enabled ATMs and chip
cards, our ebank.com partners, and our ebank.com centers. We may also add other
components to our ebank.com network. To date, we have launched only our Internet
operations, and each of the other components of our network is still under
development. We may not successfully implement the remaining components of our
ebank.com network, and we may not be able to adapt our business strategy over
time as needed. For example, we have not yet entered into any partner
relationships with community banks, and it is possible that our partnership
strategy will not be successful.
We must obtain the prior approval of the Office of Thrift Supervision before we
implement new business strategies, including our partnership program.
We are closely regulated by the Office of Thrift Supervision and the
FDIC. Under the terms of our charter, during our first three years of operation,
we must obtain formal Office of Thrift Supervision approval at least 30 days
prior to commencing any new holding company activity, including our plans for
the ebank.com partnership strategy. This regulatory oversight may delay or
prevent us from introducing new products and services, changing our operations,
adapting to changes in our business or technical environment, or taking
advantage of new opportunities. The Office of Thrift Supervision assessed a
$100,000 civil money penalty against us because it concluded that we began to
implement our new business strategy in June 1999 prior to obtaining its
approval. While neither admitting nor denying the Office of Thrift Supervision's
assertions, in September 1999 we consented to and paid this penalty.
In October 1999, the Office of Thrift Supervision approved our revised
business plan, which includes the implementation of our Internet strategy and
our plans to open three ebank.com centers in 2000. In February 2000, we received
approval from the Office of Thrift Supervision to begin implementation of our
Internet-enabled ATM network and the ebank.com partnership strategy. However,
the Office of Thrift Supervision will continue to supervise our deployment of
these strategies and may from time to time require us to modify one or more
aspects of either strategy.
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Our operations are highly dependent upon technology, and we could lose customers
if we experience technological delays or problems.
Our success will also depend on our ability to develop and introduce a
variety of Internet products and services and to support these products and
services with reliable technology. The Talisman technology is currently being
incorporated into a limited number of ATM networks in Australia, and its first
use in the United States will be in our network. There can be no assurance that
the technology will function as effectively as we anticipate. Other
technological difficulties could delay or prevent our introduction of products
and services. Significant delays, technical problems, or service problems could
cause our customers to switch to our competitors. We must also respond to
technological advances and evolving industry standards and practices on a timely
and cost-effective basis. Some of these advances will be funded by competitors
with significantly greater financial and personnel resources.
We expect to continue to incur losses and there is a risk we will never become
profitable.
We incurred net losses of $3,793,472 from our inception through
December 31, 1999, and we expect to incur substantial losses for the foreseeable
future, as we plan to increase our marketing expenses significantly in 2000. In
order for us to become profitable, we will need to attract a large number of
customers to deposit and borrow money, and we will need to offer products and
services that generate noninterest income, both of which will take time. We
expect to incur large initial expenses and do not expect to be profitable for at
least several years. Although we expect to become profitable, there is a risk
that we may never become profitable and that you will lose all or part of your
investment.
Other companies may have superior rights to our corporate name, and we may lose
the name "ebank" and have to pay damages.
Although we own the rights to the domain name ebank.com, we are aware
of other companies that may have superior trademark rights to the name "ebank."
One of these companies, Huntington Bancshares Incorporated, has a federally
registered trademark for the term "E - BANK." Huntington or one of these other
companies could succeed in claiming trademark rights greater than ours. On June
30, 1999, we filed suit in federal court in Georgia against Huntington
requesting a declaratory judgment that our use of the name "ebank.com" does not
infringe upon Huntington's trademark. Rather than answering our complaint,
Huntington filed suit against us on August 10, 1999 in federal court in Ohio,
alleging trademark infringement from our use of the name "ebank.com." 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 Huntngton. As of April 3, 2000, the Ohio court has not
ruled on our motion to dismiss.
If Huntington or one of these other companies succeeds in claiming
trademark rights superior than ours, our use of the name "ebank" and the domain
name "ebank.com" could be severely limited or prohibited. 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 resulting from our use of the name "ebank,"
and even punitive damages. If we lose our name, we would lose the value we had
built in the "ebank.com" brand, and we would incur significant expense building
a new brand identity.
Several state and local governments are attempting to ban ATM surcharge fees,
which could reduce the profitability of ATM operations and curtail our efforts
to implement our ATM growth strategy.
State and local authorities in California, Connecticut, and Iowa are
attempting to prevent banks from charging non-customers a fee for using their
ATMs. These moves are being challenged in the courts by several large banks and
federal regulatory agencies. On November 15, 1999, a California court granted a
preliminary injunction against enforcement of the ban on ATM fees. In addition,
on November 22, 1999, our primary
19
<PAGE>
regulator, the Office of Thrift Supervision, issued a response letter to First
Federal Bank of California concluding that a local California ordinance banning
ATM fees does not apply to federal savings associations, such as ebank, because
it is preempted by federal law. In December 1999, the Connecticut Supreme Court
overturned the Connecticut Banking Commissioner's ban on ATM surcharges. The
Connecticut Banking Commissioner has suggested that he would seek legislation
that would expressly outlaw the surcharge fees. If these efforts to ban ATM
surcharge fees are upheld, many ATMs could not continue to be operated
profitably. Part of our strategic plan involves our building and affiliating
with or purchasing a national ATM network. Although our ATM strategy is not
centered around surcharges, a ban on ATM surcharge fees may nevertheless force
us to modify or even abandon our plans. As a result, our projected revenue
stream from this source would be reduced and our national branding initiative
would be adversely affected.
The failure or loss of third parties who provide much of our technology and
outsourced products and services could result in interruptions to our
operations.
We receive and will continue to receive technology, information
processing services, and technical and customer service support from third
parties. These companies provide check processing, check imaging, Internet
processing, Internet software, core banking software, home page hosting, and
statement rendering services. We also have entered into agreements with other
independent providers to sell their products and services through our Web site.
We expect to use independent providers for additional products and services in
the future. Some of the agreements with these service providers may be canceled
without cause by either party upon specified notice periods, and future
agreements may contain similar clauses. If one of our service providers
terminates its agreement with us or fails to provide the services for which we
have contracted, we may not be able to enter into a new agreement on similar
terms, and our operations may be interrupted. Also, if we grow rapidly, we may
exceed the capacity constraints of our providers. These constraints may result
in slower response time or system failure. If our systems failed, or if they
were interrupted or measurably slowed down for a significant period of time, we
could lose customers and revenues.
We will need additional financing to implement our business plan, and we may not
be able to secure funds to support our growth plans.
We will need a substantial amount of capital to implement our
outsourcing agreement with Talisman, develop our Internet-enabled ATM network,
implement the other components of our business plan, and otherwise expand our
operations. There is a risk that additional financing will not be available when
needed on favorable terms, if at all. If we cannot raise adequate funds to
satisfy our capital requirements, we may have to limit our operations
significantly.
The loss of or failure to hire additional key personnel could hurt our business.
Our future success depends upon the continued service of our senior
management team and key technical personnel, as well as our ability to attract
and retain a chief operating officer and other qualified personnel. If we lose
the services of our key personnel, or are unable to attract additional qualified
personnel, our business could be materially adversely affected. In the current
market, competition for qualified employees is intense. In our experience, it
can take a significant period of time to identify and hire personnel with the
combination of skills and attributes required to carry out our strategy.
We have grown rapidly and may not be successful in continuing or managing our
growth.
We have grown rapidly and expect to grow even more rapidly now that we
have commenced our Internet operations. Our rapid growth has and will continue
to place significant demands on all aspects of our business, including our
systems, management, and personnel. We may not be able to fund our growth,
manage our costs, adapt our operating systems, respond to changing business
conditions, or otherwise manage our growth and improve our operating
performance.
20
<PAGE>
Our operations are more sensitive to price and technology competition than
traditional financial services firms.
Because we rely on remote access tools such as the Internet, we believe
our customers may be more price sensitive and more willing to try new
technologies than customers of typical financial services firms that rely more
on branches and face-to-face customer service. Consequently, the following
competitive factors are particularly important to our profitability:
o price competition for deposits and borrowings;
o introduction of new products and services by us and our competitors;
o changes in the mix of products and services we sell; and
o the level of use of the Internet and online services.
Competition with other financial institutions may cause us to increase marketing
expenses, resulting in reduced profitability.
We face intense competition in the financial services industry from
providers of direct-marketed savings and investment products and other
Internet-based financial institutions, including E*Trade, Netb@nk, and Wingspan
Bank. Additionally, because there are few barriers to market entry, traditional
branch-based and other financial services companies may be able to adopt
business strategies similar to ours with relative ease. Most of our competitors
have significantly greater capital and management resources, longer operating
histories, greater brand recognition, and larger customer bases. Increased
competition could cause us to increase marketing expenses and pay higher rates
of interest to attract deposits, resulting in reduced profitability.
An economic downturn could reduce our customer base, our level of deposits, and
demand for financial products and services such as loans.
An economic downturn could likely contribute to the deterioration of
the quality of our loan portfolio and reduce the level of deposits in the bank.
This would hurt our business. Interest received on loans represented
approximately 83% of our interest income for the year ended December 31, 1999.
If an economic downturn occurs in the economy as a whole, or in a region
representing a significant concentration of loans in our loan portfolio,
borrowers may be less likely to repay their loans as scheduled. This could
result in losses that materially adversely affect our business.
Recent legislation will change the way financial institutions conduct their
business, and we cannot predict the effect it will have upon us.
The Gramm-Leach-Bliley Act was signed into law 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. It
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 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 competition we face
from larger banks and other companies. 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 future fiscal or
monetary policies, economic controls, or new federal or state legislation.
Changes in interest rates may reduce our profitability.
Our results of operations depend in large part upon the level of our
net interest income, that is, the difference between interest income from
interest-earning assets, such as loans and mortgage-backed securities, and
21
<PAGE>
interest expenses on interest-bearing liabilities, such as deposits and other
borrowings. Many factors cause changes in interest rates, including governmental
monetary policies and domestic and international economic and political
conditions. If we are unsuccessful in managing the effects of changes in
interest rates, our financial condition and results of operations could suffer.
Our computer systems, and those of others on whom we rely, may not operate
properly on Year 2000-sensitive dates.
Like many financial institutions, we rely upon computers for conducting
our business and for information systems processing. 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. The Office of Thrift
Supervision has 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.
Based on information currently available, we believe that we will not incur
significant 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.
Risks related to online commerce and the Internet
Our strategy depends on the continued growth in the use of the Internet and the
adequacy of the Internet infrastructure.
Our success depends substantially on continued growth in the use of the
Internet. The market for financial products and services through the Internet is
new and evolving, and the degree to which customers will use the Internet for
their financial transactions is not yet fully determined. Our customer base will
grow only if small businesses and retail consumers who have historically used
traditional means of banking begin to use our electronic services for this
purpose.
Concerns over security and the privacy of users may inhibit the growth
of the Internet and other online services generally, especially as a means of
conducting commercial transactions. Any well publicized compromise of security
could deter people from using the Internet or using it to conduct transactions
that involve transmitting confidential information. Such an event could deter
potential customers or cause customers to leave us and thereby materially
adversely affect our business and financial condition. In addition, deficiencies
in the Internet's technical infrastructure could adversely affect our growth. If
the number of Internet users and the level of use continues to grow, the
Internet's technical infrastructure may not be able to support the demands
placed upon it. Even if the necessary infrastructure or technologies are
developed, we may have to spend additional funds to adapt our systems to these
changes.
Government regulation of the Internet may adversely affect our ability to
conduct business.
Congress and various state and local governments, as well as the
European Union, have recently passed legislation that regulates various aspects
of the Internet, including online content, copyright infringement, user privacy,
taxation, access charges, liability for third party activities, and
jurisdiction. These laws, as well as any new laws or regulations relating to the
Internet, could increase the cost of providing our services and harm our
financial condition. In particular, laws and regulations may be adopted in the
future that address the pricing of Internet access. Several telecommunications
companies have petitioned the Federal Communications Commission
22
<PAGE>
to regulate Internet services providers and online service providers in a manner
similar to long distance telephone carriers and to impose access fees on these
companies. This could increase the cost of providing our systems over the
Internet.
Our security could be breached, which could damage our reputation, deter
customers from using our services, and expose us to potential liability.
We must protect our computer systems and network from physical
break-ins, security breaches, and other disruptive problems caused by the
Internet or other users. Computer break-ins or other security breaches could
jeopardize the security of information stored in and transmitted through our
computer systems and network and may result in interruptions, delays or
cessations of service to users accessing Web sites that deliver our services.
Any interruption would likely adversely affect our ability to retain or attract
customers, could damage our reputation, and could subject us to litigation. We
may need to expend significant capital or other resources to protect against the
threat of security breaches or alleviate problems caused by breaches. To date,
we have not experienced any known security breaches that compromised either
customer data or our network. However, we cannot assure you that we will not
experience any security breaches in the future.
We could also be subject to liability if third parties penetrate our
network security or otherwise misappropriate our users' personal information or
credit card information. This liability could include claims for unauthorized
purchase with credit card information, impersonation, or other similar fraud
claims. In addition, the Federal Trade Commission and state agencies have been
investigating various Internet companies regarding their use of personal
information. We could incur additional expenses if new regulations regarding the
use of personal information are introduced or if privacy practices are
investigated.
Item 2. Description of Property.
- ---------------------------------
Our principal executive offices are located at 2410 Paces Ferry Road,
Atlanta, Georgia 30339, and our telephone number is (770) 863-9229. Our existing
full-service branch is also located at 2410 Paces Summit, Suite 190, Atlanta,
Georgia 30339. Our Internet banking, operations, and mortgage processing
divisions are located at 2690 Cumberland Parkway, Suite 230, Atlanta, Georgia
30339. You may view our Web site at www.ebank.com, but this report does not
incorporate by reference any information on our Web site. We are providing our
Internet address for reference purposes only.
Item 3. Legal Proceedings.
- --------------------------
We filed a suit in federal court asking for a declaratory judgment that
our use of the term "ebank.com" does not infringe the federal trademark
registration for the term "E - BANK" owned by Huntington Bancshares
Incorporated.
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 federal registration of the term "E - BANK." 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 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 Huntngton. As of April
3, 2000, the Ohio court has not ruled on our motion to dismiss.
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 change our
23
<PAGE>
name, change our subsidiary bank name, and choose a new domain name from which
to host our Internet operations. We also could be required to pay damages, which
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 we or any of our
properties are subject.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
Item 5. Market for Common Equity and Related Stockholder Matters.
- -----------------------------------------------------------------
Since our initial public offering on August 6, 1998, our common stock
has been quoted on the OTC Bulletin Board, originally under the symbol "STCH"
and, since May 3, 1999, under the symbol "EBDC." The following table sets forth
for the periods indicated the high and low sales prices per share of common
stock as reported on the OTC Bulletin Board.
High Low
---- ---
1998
----
Third quarter (commencing August 6, 1998)...... $ 12.38 $ 8.25
Fourth quarter................................. $ 9.75 $ 7.75
1999
----
First quarter.................................. $ 9.50 $ 8.00
Second quarter................................. $ 17.88 $ 12.88
Third quarter.................................. $ 18.50 $ 9.75
Fourth quarter................................. $ 13.88 $ 8.00
(b) Pursuant to Commission Rule 463, the Company previously reported on
the use of proceeds from its initial public offering, noting that approximately
$4,000,000 was invested in cash. These funds are being used as general working
capital for the Company.
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<PAGE>
Item 6. Management's Discussion and Analysis of Results of Operation
- ---------------------------------------------------------------------
Selected Consolidated Financial Data
The following selected consolidated financial data for the years ended
December 31, 1999 and 1998 are derived from our financial statements and other
data about us. The consolidated financial statements for both years were audited
by BDO Seidman, LLP, our independent certified public accountants. Nevertheless,
many factors, including the market's acceptance of online banking and general
market conditions can affect our performance. The selected consolidated
financial data should be read in conjunction with our financial statements
included elsewhere in this annual report.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1999 1998
---------------- -----------------
(Dollars in thousands, except per share data)
---------------------------------------------
<S> <C> <C>
Statement of Operations Data:
Interest income......................................... $ 3,390 $ 577
Interest expense........................................ 1,481 110
------------- -------------
Net interest income................................ 1,909 467
Provision for loan losses............................... 565 165
------------- -------------
Net interest income after provision for loan losses 1,344 302
Noninterest income...................................... 280 1
Noninterest expense..................................... 4,302 1,259
Cumulative effect of change in accounting principle..... -- 85
------------- -------------
Net loss........................................... $ (2,678) $ (1,041)
============= =============
Weighted average shares outstanding..................... 1,469,250 704,435
Net loss per share...................................... $ (1.82) $ (1.48)
Balance Sheet Data (at period end):
Total assets............................................ $ 52,063 $ 25,500
Earning assets.......................................... 50,492 23,888
Federal funds sold and investment securities............ 1,828 13,482
Loans, net of unearned income........................... 48,597 10,406
Allowance for loan losses............................... 730 165
Deposits................................................ 41,611 12,801
Borrowings.............................................. 240 --
Shareholders' equity.................................... 9,942 12,621
Book value per share.................................... $ 6.77 $ 8.59
Performance Ratios:
Return on average assets................................ (6.17%) (10.62%)
Return on average equity................................ (24.24%) (14.48%)
Interest rate spread.................................... 3.09% 1.05%
Net interest margin..................................... 4.63% 5.09%
Asset Quality Ratios:
Allowance for loan losses to period end loans........... 1.50% 1.59%
Net charge-offs to average loans........................ -- --
Nonperforming loans to period end loans ................ .19% --
Nonperforming assets to period end total assets......... .18% --
Capital and Liquidity Ratios:
Leverage (4.00% required minimum)....................... 19.1% 49.5%
Risk-based capital
Tier 1................................................ 20.1% 92.3%
Total................................................. 21.6% 93.6%
Average loans to average deposits....................... 93.9% 91.9%
Average equity to average assets........................ 25.5% 73.4%
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We were incorporated in August 1997 for the purpose of forming and
operating ebank, formerly known as Commerce Bank, a federal savings bank. We
completed our initial public offering in July 1998, raising $14.7 million, with
net proceeds after offering expenses of $13.7 million, and we obtained final
FDIC and Office of Thrift Supervision approvals to open ebank in August 1998.
ebank opened for business on August 17, 1998. Initially, we operated ebank as a
traditional community bank, emphasizing personalized service and the banking
needs of individuals and small businesses. From the outset, however, we intended
to enhance our delivery of these services through the use of state-of-the-art
technology. We also planned to capitalize on the flexibility provided by our
thrift charter to pursue strategic opportunities in related areas of commerce.
We have grown rapidly since we opened in August 1998. We also expect to
grow even more rapidly now that we have commenced our marketing and advertising
campaign and are beginning to implement our new strategy. However, the following
discussion only reflects our growth through December 31, 1999, before the full
implementation of our new strategy. In addition, we have omitted information
from our discussion for the period from our inception, August 22, 1997 through
December 31, 1997, because we did not commence operations until August 17, 1998,
and this information would not be meaningful. The following discussion should be
read with these points in mind. The following discussion also should be read in
conjunction with our consolidated financial statements and the other financial
data included in this annual report.
Results of Operations
Net Income. We completed our first full year of operations in 1999. We
incurred a loss of $(2,678,000), or $(1.82) per share for the year ended
December 31, 1999. We earned $1,909,000 in net interest income and $280,000 in
noninterest income for the year, but these amounts were offset by noninterest
expense of $4,302,000, and a provision for possible loan losses of $565,000.
Our net loss for the year ended December 31, 1998 was $(1,041,000), or
$(1.48) per share. We earned net interest income of $467,000 for the period, but
this amount was offset by noninterest expense of $1,259,000, and a provision for
possible loan losses of $165,000. Our net loss included approximately $503,000
in pre-opening expenses we incurred in preparing the bank for opening. The
pre-opening expenses also included $85,000 in organizational costs we expensed
due to a change in an accounting principle for organizational costs. We had
deferred these costs at December 31, 1997. The loss also includes $646,000 in
salaries and employee benefit expenses, as we became fully staffed in early
August 1998 for training in preparation of the bank's opening on August 17,
1998.
Net Interest Income. Our primary source of revenue is net interest
income, which is the difference between income on interest-earning assets and
expense on interest-bearing liabilities. Our net interest income was $1,909,000
for the year ended December 31, 1999. Net interest spread, the difference
between the yield we earn on interest-earning assets and the rate we pay on
interest-bearing liabilities, was 3.09% for the year ended December 31, 1999.
Our net interest margin, which is net interest income divided by average
interest-earning assets, was 4.63% for the year ended December 31, 1999. Average
loans comprised 72.0% of our average earning assets in 1999.
Our net interest income totaled $467,000 for the year ended December
31, 1998, which included operations beginning on August 17, 1998, the date we
opened the bank. Our net interest spread was 1.05% and our net interest margin
was 5.09% for the year ended December 31, 1998.
Since loans often provide a higher yield than other types of earning
assets, in the long term we intend to increase our loan portfolio as a
percentage of our total earning assets. In the short term, however, we
anticipate that the amount of deposits we generate through our Internet strategy
will exceed the amount of loans we will
26
<PAGE>
originate through our ebank.com centers. In this event, we would invest the
excess funds in investment securities or loans we purchase from other banks.
Average Balances, Income and Expenses, and Rates. The following table
depicts, for the periods indicated, information related to our average balance
sheet. The average yields on assets and average costs of liabilities represent
the annualized rates for December 31, 1999 and 1998. We derived these yields by
dividing income or expense by the average balance of the corresponding assets or
liabilities. We derived average balances from daily averages. We had only one
nonaccrual loan totaling $93,000 during these periods.
<TABLE>
<CAPTION>
Average Balances, Income and Expenses, and Rates
Year Ended December 31, Year Ended December 31,
1999 1998
---------------------------------------- -----------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
---------------------------------------- -----------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest Earning assets:
Loans.................................. $ 29,713 $ 2,823 9.50% $ 2,114 $ 207 9.82%
Investment securities.................. 5,000 249 4.97 923 47 5.04
Federal funds sold..................... 6,551 318 4.85 6,140 323 5.27
------------- ----------- ------ ----------- --------- -------
Total interest earning assets 41,264 3,390 8.22 9,177 577 6.29
Other assets........................... 2,080 624
------------- -----------
Total assets......................... $ 43,344 $ 9,801
============= ===========
Liabilities
Interest-bearing liabilities:
Interest-bearing transaction accounts.. $ 1,225 34 2.81% $ 1,963 99 4.99%
Money market accounts.................. 14,326 724 5.05 -- -- --
Savings deposits....................... 24 1 2.36 -- -- --
Time deposits.......................... 13,030 701 5.38 -- -- --
Other short-term borrowing............. 246 21 8.39 140 12 8.67
------------- ----------- --------- ----------- --------- -------
Total interest-bearing liabilities..... 28,851 1,481 5.13 2,103 110 5.24
Noninterest-bearing deposits........... 3,048 337
Other liabilities...................... 398 170
Shareholders' equity................... 11,047 7,191
------------- -----------
Total liabilities and shareholders'
equity $ 43,344 $ 9,801
============= ===========
----------
Net interest spread.................... 3.09% 1.05%
----------- ========== --------- ========
Net interest income/margin............. $ 1,909 4.63% $ 467 5.09%
=========== ========== ========= ========
</TABLE>
Interest Rate Sensitivity. A significant portion of our assets and
liabilities are monetary in nature, and consequently they are very sensitive to
changes in interest rates. This interest rate risk is our primary market risk
exposure, and it can have a significant effect on our net interest income and
cash flows. We review our exposure to market risk on a regular basis, and we
manage the pricing and maturity of our assets and liabilities to diminish the
potential adverse impact that changes in interest rates could have on our net
interest income.
One monitoring technique we employ is the measurement of our interest
rate sensitivity "gap," which is the difference between the amount of
interest-earning assets and interest-bearing liabilities that mature or may
reprice within a given period of time. A gap is considered positive when the
amount of interest-rate sensitive assets exceeds the amount of interest-rate
sensitive liabilities, and it is considered negative when the amount of
interest-rate sensitive liabilities exceeds the amount of interest-rate
sensitive assets. We generally would benefit from increasing market interest
rates when we have an asset-sensitive, or a positive, interest rate gap and we
would generally benefit from decreasing market interest rates when we have
liability-sensitive, or a negative,
27
<PAGE>
interest rate gap. When measured on a "gap" basis, we currently are
liability-sensitive over the cumulative one-year time frame as of December 31,
1999. However, gap analysis is not a precise indicator of our 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. For
example, rates paid on a substantial portion of core deposits may change
contractually within a relatively short time frame, but we believe those rates
are significantly less interest-sensitive than market-based rates such as those
paid on non-core deposits.
Net interest income is also affected by other significant factors,
including changes in the volume and mix of interest-earning assets and
interest-bearing liabilities. We perform asset/liability modeling to assess the
impact of varying interest rates and the impact that balance sheet mix
assumptions will have on net interest income. We attempt to manage interest rate
sensitivity by repricing assets or liabilities, selling securities
available-for-sale, replacing an asset or liability at maturity, or adjusting
the interest rate during the life of an asset or liability. Managing the amount
of assets and liabilities that reprice in the same time interval helps us to
hedge risks and minimize the impact on net interest income of rising or falling
interest rates. We evaluate interest sensitivity risk and then formulate
guidelines regarding asset generation and repricing, funding sources and
pricing, and off-balance sheet commitments in order to decrease interest rate
sensitivity risk.
We anticipate that a large portion of our deposits will be obtained over the
Internet, and that these deposits will be generally more susceptible to
withdrawal by depositors who are particularly rate-sensitive. To manage the
interest rate risk associated with these deposits, we have implemented the
following strategies:
o We will attempt to minimize the amount of long-term, fixed rate
residential mortgages that we hold in our loan portfolio;
o We will price our loans to encourage borrowing at variable interest
rates and, when necessary, we will price fixed rate commercial loans so
that we obtain favorable pricing on the loans in exchange for providing
a fixed rate; and
o We will maintain a short duration in our investment portfolio to lower
the average maturity of our assets to more closely match the average
maturity of our liabilities.
In structuring our assets, we expect our loan portfolio to have a large portion
of variable rate loans, while our investment portfolio will be limited to
average maturities of two to four years. We expect a significant portion of our
fixed rate assets to be funded by either noninterest bearing commercial
deposits, less interest rate-sensitive retail transaction accounts, or cash
generated by future capital raising efforts, if necessary. We will fund our
variable rate assets with money market deposits and certificates of deposit.
Since certificates of deposit generally are concentrated in one-year maturities,
the average remaining maturities of these deposits at any one time should be
approximately six months, providing a reasonable funding match for shorter-term
and variable and adjustable rate assets. We believe this balance sheet strategy
will manage our gap risk within acceptable levels of risk.
28
<PAGE>
The following tables summarize the amounts of interest-earning assets
and interest-bearing liabilities outstanding at December 31, 1999 and 1998 that
are expected to mature, prepay, or reprice in each of the future time periods
shown. Except as stated in the following tables, the amount of assets or
liabilities that mature or reprice during a particular period was determined in
accordance with the contractual terms of the asset or liability. Adjustable rate
loans are included in the period in which interest rates are next scheduled
adjust rather than in the period in which they are due, and fixed rate loans are
included in the periods in which they are anticipated to be repaid based on
scheduled maturities. The bank's savings accounts and interest-bearing demand
accounts (NOW and money market deposit accounts), which are generally subject to
immediate withdrawal, are included in the "Three Months or Less" category,
although historical experience has proven these deposits to be more stable over
the course of a year.
<TABLE>
<CAPTION>
Interest Rate Sensitivity Analysis
December 31, 1999
-----------------------------------------------------------------------------------
After three but After one After five
Within within but within years or
three months twelve months five years nonsensitive Total
-------------- ------------------ ------------ -------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans............................ $ 25,790 $ 2,971 $ 14,018 $ 5,885 $ 48,664
Investment securities............ 995 -- -- 213 1,208
Federal funds sold .............. 620 -- -- -- 620
------------ ------------ ---------- --------- ---------
Total interest-earning assets.. $ 27,405 $ 2,971 $ 14,018 $ 6,098 $ 50,492
============ ============ ========== ========= =========
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits
Money market and NOW
Accounts....................... $ 14,154 $ -- $ -- $ -- $ 14,154
Savings deposits.................
21 -- -- -- 21
Time deposits.................... 425 20,731 2,361 -- 23,517
------------ ------------ ---------- --------- ---------
Total interest-bearing deposits 14,600 20,731 2,361 37,692
Other short-term borrowings...... 240 -- -- -- 240
------------ ------------ ---------- --------- ---------
Total interest-bearing liabilities $ 14,840 $ 20,731 $ 2,361 $ $ 37,932
============ ============ ========== ========= =========
Interest rate sensitivity gap per
period........................... $ 12,565 $ (17,760) $ 11,657 $ 6,098 $ 12,560
============ ============= ========== ========= =========
Cumulative interest rate sensitivity
gap.............................. $ 12,565 $ (5,195) $ 6,462 $ 12,560 $ 12,560
============ ============= ========== ========= =========
Ratio of interest sensitivity gap to
total earning assets................ 24.88% (35.17)% 23.09% 12.08%
Ratio of cumulative gap to total
earning assets.................... 24.88% (10.29)% 12.80% 24.88%
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------------------------------------
After three but After one After five
Within within but within years or
three months twelve months five years nonsensitive Total
--------------- ------------------ ------------ ---------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Interest-earning assets
Loans............................ $ 5,122 $ 763 $ 2,822 $ 1,699 $ 10,406
Investment securities............ 3,986 -- -- 176 4,162
Federal funds sold .............. 9,320 -- -- -- 9,320
------------ ------------ ---------- --------- ---------
Total interest-earning assets.. $ 18,428 $ 763 $ 2,822 $ 1,875 $ 23,888
============ ============ ========== ========= =========
Liabilities
Interest-bearing liabilities
Interest-bearing deposits
Money market and NOW
Accounts....................... $ 5,210 $ -- $ -- $ -- $ 5,210
Savings deposits................. 19 -- -- -- 19
Time deposits.................... 50 6,318 178 -- 6,546
------------ ------------ ---------- --------- ---------
Total interest-bearing deposits 5,279 6,318 178 -- 11,775
Other short-term borrowings... -- -- -- -- --
------------ ------------ ---------- --------- ---------
Total interest-bearing liabilities $ 5,279 $ 6,318 $ 178 $ -- $ 11,775
============ ============ ========== ========= =========
Interest rate sensitivity gap per
period........................... $ 13,149 $ (5,555) $ 2,644 $ 1,875 $ 12,113
============ ============= ========== ========= =========
Cumulative interest rate sensitivity
gap.............................. $ 13,149 $ 7,594 $ 10,238 $ 12,113 $ 12,113
============ ============ ========== ========= =========
Ratio of interest sensitivity gap to
total earning assets................ 55.04% (23.25)% 11.07% 7.85%
Ratio of cumulative gap to total
earning assets...................... 55.04% 31.79% 42.86% 50.71%
</TABLE>
Rate/Volume Analysis of Net Interest Income. The following table reflects the
effect on interest income, interest expense, and net interest income, in the
periods indicated, of changes in average balance and rate from the corresponding
prior period. We have determined the effect of a change in average balance by
applying the average rate in the earlier period to the change in average balance
in the later period, as compared with the earlier period. We have included
changes resulting from average balance/rate variances in changes resulting from
rate. The balance of the change in interest income or expense and net interest
income is attributed to a change in average rate.
30
<PAGE>
<TABLE>
<CAPTION>
Rate / Volume Analysis
Year Ended December 31, 1999
as compared to the Year Ended December 1998
----------------------------------------------------
Net Increase Increase Increase
(Decrease) (Decrease) (Decrease)
Due to Rate Due to Volume
----------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Assets
Interest earning assets
Loans...................................... $ 2,616 $ (93) $ 2,709
Investment securities...................... (75) (15) (60)
Federal funds sold......................... 271 (12) 283
------------- ------------ ------------
Total interest income................... 2,812 (120) 2,932
------------- ------------ ------------
Interest-bearing liabilities--deposits......... 1,362 (32) 1,330
Short-term borrowing.......................... 9 -- 9
------------- ----------- ------------
Total interest expense................... 1,371 (32) 1,339
------------- ------------ ------------
Change in net interest income................. $ 1,441 $ (152) $ 1,593
============= ============ ============
</TABLE>
We have not included a comparison of the 1998 results to the 1997 results
because the consolidated company was not operational as of December 31, 1997.
Provision and Allowance for Loan Losses. We have established an
allowance for loan losses through a provision for loan losses charged to
expense. The allowance represents an amount which we believe will be adequate to
absorb probable losses on existing loans that may become uncollectible. Our
judgment in determining the adequacy of the allowance is based on evaluations of
the collectibility of loans, including consideration of such factors as the
balance of impaired loans, changes in the nature and volume of the loan
portfolio, current economic conditions that may affect the borrower's ability to
pay, overall portfolio quality, and a review of specific problem loans. We
adjust the amount of the allowance periodically based in changing circumstances.
Recognized losses are charged to the allowance for loan losses, while subsequent
recoveries are added to the allowance. A loan is impaired when it is probable
that we will be unable to collect all principal and interest payments due in
accordance with the terms of the loan agreement. Individually identified
impaired loans are measured based on the present value of expected payments,
using the contractual loan rate as the discount rate. Alternatively, measurement
may be based on observable market prices, or, for loans that are solely
dependent on the collateral for repayment, the fair value of the collateral. If
the recorded investment in the impaired loan exceeds the measure of fair value,
a valuation allowance is established as a component of the allowance for loan
losses. Changes to the valuation allowance are recorded as a component of the
provision for loan losses.
In addition, regulatory agencies, as an integral part of their
examination process, periodically review our allowance for loan losses, and they
may require us to record additions to the allowance based on their review of
information available to them at the time of their examinations.
At December 31, 1999, our allowance for loan losses amounted to
$730,000, or 1.50% of outstanding loans. At December 31, 1998, our allowance for
loan losses amounted to $165,000, representing 1.59% of outstanding loans. Our
provision for loan losses for the years ended December 31, 1999 and 1998 was
$565,000 and $165,000, respectively.
We discontinue accrual of interest on a loan when we conclude it is
doubtful that we will be able to collect interest from the borrower. We reach
this conclusion based on the borrower's financial condition, economic and
business conditions, and the results of our previous collection efforts.
Generally, we will place a delinquent loan in
31
<PAGE>
nonaccrual status when the loan becomes 90 days or more past due. When we place
a loan in nonaccrual status, we reverse all interest which has been accrued on
the loan but remains unpaid and we deduct this interest from earnings as a
reduction of reported interest income. We do not accrue any additional interest
on the loan balance until we conclude the collection of both principal and
interest is reasonably certain. We had one non-performing loan totaling $93,000
at December 31, 1999 and no non-accrual, restructured, or non-performing loans
at December 31, 1998. At December 31, 1999, we had four loans totaling
$1,960,000 that were delinquent by more than 30 days. At December 31, 1998, we
did not have any other loans that were delinquent by more than 30 days.
We do not include loans that are current as to principal and interest
in our nonperforming assets categories. However, we will still classify a
current loan as a potential problem loan if we develop serious doubts about the
borrower's future performance under the terms of the loan contract. We consider
the level of potential problem loans in our determination of the adequacy of the
allowance for loan losses. As noted above, on December 31, 1999 we only had one
loan totaling $93,000 which we considered to be a potential problem loan. At
December 31, 1998 we did not have any loans we considered to be potential
problem loans.
The following table sets forth an analysis of our allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
Allowance for Loan Losses
Year Ended Year Ended
December 31, December 31,
1999 1998
------------------- ---------------
(Dollars in thousands)
<S> <C> <C>
Average loans outstanding............................ $ 29,713 $ 2,114
============= ==============
Loans outstanding at period end...................... $ 48,664 $ 10,425
============= ==============
Total nonperforming loans............................ $ 93 $ --
============= ==============
Beginning balance of allowance....................... $ 165 $ --
Loans charged off.................................... -- --
Recoveries of previous charge-offs................... -- --
Net loans charged-off................................ -- --
Provision for loan losses............................ 565 165
------------- --------------
Balance at period end................................ $ 730 $ 165
============= ==============
Net charge-offs to average loans..................... -- --
Allowance as percent of total loans.................. 1.50% 1.59%
Nonperforming loans as a percentage of total loans... .19% --%
Allowance as a percent of nonperforming loans........ 784.9% N/A
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1999 and 1998, the allowance was allocated as follows:
Percentage of Percentage of
Year ended loans in each Year ended loans in each
December 31, category to December 31, category to
1999 total loans 1998 total loans
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Commercial.............................. $ 181,860 24.91% $ 55,226 33.47%
Real Estate - individual................ 43,400 5.95% 32,116 19.46%
Real Estate - commercial................ 425,950 58.35% 56,420 34.19%
Installment loans to individuals........ 48,790 6.68% 11,238 6.81%
Unallocated............................. 30,000 4.11% 10,000 6.06%
------------- --------------- -------------- --------------
Total................................... $ 730,000 100.00% $ 165,000 100.00%
============= =============== ============== ==============
</TABLE>
Noninterest Income. Currently, our primary sources of noninterest
income are mortgage origination fees and service charges on deposit accounts. We
generated $209,450 and $33,829 in mortgage origination fees and deposit service
charges, respectively, during the year ended December 31, 1999, which
represented 74.8% and 12.1%, respectively, of the total noninterest income of
$279,994 we earned during the year. On an annualized basis, our noninterest
income represented only 0.53% of our total assets at December 31, 1999. This
figure is relatively low because in order to attract new banking relationships,
we have charged lower fees than most other banks. Our other sources of
noninterest income included loan maintenance fees, bankcard fees, commissions on
check sales, safe deposit box rent, ATM fees, wire transfer fees, and official
check fees. Our noninterest income for the year ended December 31, 1998 was
$662.
Now that we have begun to implement our new ebank.com business plan,
including our Internet business strategy and our ebank.com center strategy, we
anticipate generating noninterest income from a number of other sources,
including investment management fees, eSweep account fees, and fees related to
our financial management and insurance products. We also anticipate generating
noninterest income through a variety of nondeposit products, such as credit
cards, business equipment leases, insurance, and securities brokerage services.
Noninterest Expense. Our noninterest expense for the years ended
December 31, 1999 and 1998 totaled $4,302,000 and $1,259,000, respectively. We
incurred significant professional and other outside services expenses in 1999,
including legal, advertising, and public relations expenses to establish,
promote, and implement our revised Internet business strategy. The following
table sets forth the primary components of noninterest expense for these
periods. As we commenced banking operations on August 17, 1998, the expenses
for the year ended December 31, 1998 include approximately $503,000 in
pre-opening expenses.
Noninterest Expense
Year Ended Year Ended
December 31, December 31,
1999 1998
----------------- ---------------
(Dollars in thousands)
Salaries and other compensation......... $ 1,495 $ 556
Employee benefits....................... 435 89
Net occupancy and equipment expense..... 592 156
Professional and other outside services. 1,086 224
Other expense........................... 694 234
--------- -----------
Total................................... $ 4,302 $ 1,259
========= ===========
Income Tax Expense. As of December 31, 1999, our cumulative net
operating loss was approximately $3,794,000. We had a cumulative net operating
loss carryforward of approximately $1,034,000 for financial
33
<PAGE>
reporting purposes and $678,000 for income tax purposes for the year ended
December 31, 1998. Our ability to realize a deferred tax benefit as a result of
net operating losses will depend upon whether we have sufficient taxable income
of an appropriate character in the carryforward periods. We recognize deferred
tax assets for future deductible amounts resulting from differences in the
financial statement and tax bases of assets and liabilities and operating loss
carryforwards. We then establish a valuation allowance to reduce the deferred
tax asset to the level that it is "more likely than not" that we will realize
the tax benefit. We have fully offset the deferred tax assets resulting
primarily from the provision for loan losses and the operating loss carry
forwards by a valuation allowance in the same amount.
Analysis of Financial Condition
Loans. Loans often provide higher yields than the other types of
earning assets, and thus one of our goals is for loans to be the largest
category of our earning assets. At December 31, 1999 and 1998, loans accounted
for 97% and 44%, respectively of our earning assets. Loans averaged $29.7
million and $2.1 million for the years ended December 31, 1999 and 1998,
respectively.
The following table shows the composition of our loan portfolio by
category:
<TABLE>
<CAPTION>
Composition of Loan Portfolio
December 31, December 31,
1999 1998
---------------------------- ----------------------------
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial and
Agricultural................. $ 12,644 25.98% $ 3,714 35.63%
Real estate-commercial.......... 29,613 60.85% 3,795 36.40%
Real estate-individual.......... 3,019 6.20% 2,160 20.72%
Consumer and other.............. 3,388 6.97% 756 7.25%
------------- --------- ------------- ------
Total loans................ 48,664 100.00% 10,425 100.00%
========= =======
Less:
Net deferred loan fees....... (67) (19)
Allowance for loan losses.... (730) (165)
------------- -------------
Total net loans............ $ 47,867 $ 10,241
============= =============
</TABLE>
In the context of this discussion, we define a "real estate loan" as
any loan, other than loans for construction purposes, secured by real estate,
regardless of the purpose of the loan. We follow the common practice of
financial institutions in our market area of obtaining a security interest in
real estate whenever possible, in addition to any other available collateral. We
take this collateral to reinforce the likelihood of the ultimate repayment of
the loan; however, this tends to increase the magnitude of our real estate loan
portfolio component. Generally, we limit our loan-to-value ratio to 80%. Our
largest category of loans, commercial real estate loans, totaled $29.6 million
and represented 61% of the loan portfolio at December 31, 1999, compared to $3.8
million and 36% at December 31, 1998. A significant portion of our commercial
loans provide working capital to small businesses. Due to the short amount of
time this loan portfolio has existed, the current ratios and amounts may not be
indicative of the ongoing portfolio mix.
The repayment of loans in the loan portfolio as they mature is one of
our sources of liquidity. The following table sets forth our loans maturing
within specified intervals at December 31, 1999 and 1998. This information is
based on the contractual maturities of individual loans, including loans that
may be subject to
34
<PAGE>
renewal at their contractual maturity. Of course, loan renewals are subject to
our review and credit approval, as well as modification of the original loan
terms.
Loan Maturity Schedule and Sensitivity to Changes in Interest Rates
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------------------------------
Over One Year
One Year Through Over Five
or Less Five Years Years Total
------------- ------------------- --------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural..... $ 6,278 $ 5,542 $ 824 $ 12,644
Real estate-commercial..................... 9,500 13,286 6,827 29,613
Real estate-individual..................... 459 928 1,632 3,019
All other loans............................ 1,826 1,180 382 3,388
---------- --------------- ----------- -----------
$ 18,063 $ 20,936 $ 9,665 $ 48,664
========== =============== =========== ===========
Loans maturing after one year with:
Fixed interest rates.................................................................................... $ 20,981
Floating interest rates................................................................................. 9,620
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------------------------------------------
Over One Year
One Year Through Over Five
or Less Five Years Years Total
------------- ------------------- --------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural..... $ 1,762 $ 1,144 $ 808 $ 3,714
Real estate-commercial..................... 1,536 1,516 743 3,795
Real estate-individual..................... 435 482 1,243 2,160
All other loans............................ 481 275 -- 756
---------- --------------- ----------- -----------
$ 4,214 $ 3,417 $ 2,794 $ 10,425
========== =============== =========== ===========
Loans maturing after one year with:
Fixed interest rates.................................................................................... $ 3,420
Floating interest rates................................................................................. 2,791
</TABLE>
Investment Securities. Our investment securities portfolio represented
15% and 10% of our average earning assets for the years ended December 31, 1999
and 1998, respectively. We attempt to maintain a portfolio of high quality,
highly liquid investments with returns competitive with short term U.S. Treasury
or agency obligations. This objective will be particularly important as we
continue to emphasize increasing the percentage of our loan portfolio to total
earning assets. We have made most of our investments in securities of U.S.
Government agencies with maturities less than one year. Other investments
consist of investments in common stock in the Federal Home Loan Bank of Atlanta
and in The Godfrey Bank.
35
<PAGE>
The following table summarizes the book value of securities for the
dates indicated.
Securities Portfolio
December 31, December 31,
1999 1998
----------------- -------------------
(Dollars in thousands)
Available-for-sale
U.S. Government agencies......... $ 995 $ 3,986
Common stock..................... 150 150
Other stock...................... 63 26
----------- ------------
Total............................ $ 1,208 $ 4,162
=========== ============
The following table shows, at carrying value, the scheduled maturities
and average yields of securities held at December 31, 1999 and 1998.
Investment Securities Maturity Distribution and Yields
<TABLE>
<CAPTION>
December 31, 1999
- -----------------
After One
But Within After
Within One Year Five Years Five Years
------------------------- ------------------------ ------------------------
Amount Yield Amount Yield Amount Yield
------------- -------- ------------ --------- ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Available-for-sale:
U.S. government
agencies.............. $ 995 5.43% $ -- % $ -- --%
Common stock (1) -- -- -- -- 150 --
Other stock............. -- -- -- 63 7.75
---------- ------ -------- --------- ---------- ---------
Total investment
securities......... $ 995 5.43% $ -- % $ 213 7.75%
========== ====== ======== ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
- -----------------
After One
But Within After
Within One Year Five Years Five Years
------------------------- ------------------------ -----------------------
Amount Yield Amount Yield Amount Yield
------------- -------- ------------ --------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Available-for-sale:
U.S. government
agencies.............. $ 3,986 5.00% $ -- % $ -- --%
Common stock (1) -- -- -- -- 150 --
Other stock............. -- -- -- -- 26 7.50
---------- ----- -------- ------- --------- -----
Total investment
securities......... $ 3,986 5.00% $ -- % $ 176 7.50%
========== ===== ======== ======= ========= =====
</TABLE>
(1) Yield based on dividends paid.
Short-Term Investments. Our short-term investments, which consist of
federal funds sold, averaged $6.6 million and $6.1 million for the years ended
December 31, 1999 and 1998. These funds are a primary source of our liquidity
and are generally invested in an earning capacity on an overnight basis.
36
<PAGE>
Deposits and Other Interest-Bearing Liabilities. Average
interest-bearing liabilities totaled $2.1 million, or 21.5% of average assets in
1998. Interest-bearing liabilities averaged $28.9 million, or 66.6% of average
assets, for the year ended December 31, 1999, reflecting our general growth
during our first full year of operations.
Deposits. Average interest-bearing deposits totaled $28.6 million and
$2.0 million for the years ended December 31, 1999 and 1998. At December 31,
1999, total deposits were $41.6 million and averaged $31.9 million for the year
then ended. The following table sets forth our deposits by category for the
periods indicated.
<TABLE>
<CAPTION>
Deposits
December 31, December 31,
1999 1998
------------------------------ ---------------------------------
Percent of Percent of
Amount Deposits Amount Deposits
------------- -------------- ------------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Demand deposit accounts...... $ 3,918 9.42% $ 1,025 8.01%
NOW accounts................. 1,175 2.82% 653 5.10%
Money market accounts........ 12,980 31.19% 4,558 35.60%
Savings accounts............. 21 0.05% 19 0.15%
Time deposits
less than $100,000......... 14,290 34.34% 3,612 28.21%
Time deposits
of $100,000 or over........ 9,227 22.18% 2,935 22.93%
----------- ------ ------------ ------
Total deposits............. $ 41,611 100.00% $ 12,801 100.00%
=========== ======= ============ =======
</TABLE>
The following table reflects the maturity distribution of our
certificates of deposit of $100,000 or more at December 31, 1999 and 1998.
Maturities of Certificates of Deposits of $100,000 or more
After Six
Within After Three Through
Three Through Twelve After Twelve
Months Six Months Months Months Total
-------- ------------ ---------- -------- -------
(Dollars in thousands)
December 31, 1998...... $ -- $ -- $ 2,833 $ 102 $ 2,935
====== ======= ======= ======= ========
December 31, 1999...... $ 317 $ 1,276 $ 6,683 $ 951 $ 9,227
====== ======= ======= ======= ========
Borrowed funds. At December 31, 1999 and 1998, we had outstanding
balances of $240,000 (consisting of federal funds purchased) and $0,
respectively. During 1997 and 1998, we had a line of credit with a bank that was
used to finance the purchase of leasehold improvements and furniture, fixtures,
and equipment and to pay operating expenses we incurred while still in
organization. The maximum amount of borrowings outstanding at any month end was
$377,000. The average rate we paid on short-term borrowings for the years ended
December 31, 1999 and 1998 was 6.31% and 8.50%, respectively. We repaid the
pre-opening line of credit in full once we were capitalized in 1998. We did not
have any other outstanding balances in borrowed funds as of December 31, 1998.
37
<PAGE>
Capital
Total shareholders' equity at December 31, 1999 and 1998 was $9.9
million, compared with shareholders' equity $12.6 million, as of December 31,
1998. This decrease was attributable to a net loss for the year ended December
31, 1999 of $(2,677,694) and a $1,411 decrease in the market value of investment
securities available-for-sale.
We are subject to various regulatory capital requirements administered
by the federal banking agencies. Our failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on our consolidated financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, we must
meet specific capital guidelines that involve quantitative measures of our
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. Our capital amounts and classifications are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. In addition, under regulatory guidelines, ebank,
our banking subsidiary, may not pay a dividend to ebank.com, Inc., if doing so
would cause ebank to be less than adequately capitalized.
Quantitative measures established by regulation to ensure capital
adequacy require ebank to maintain minimum amounts and ratios. The primary
regulatory agency for ebank, the Office of Thrift Supervision, requires ebank to
maintain minimum ratios of tangible capital to tangible assets of 1.5%, core
capital to tangible assets of 3.0%, and total risk-based capital to
risk-weighted assets of 8.0%. At December 31, 1999, ebank had total, core,
tangible, and Tier 1 capital to risk weighted assets ratios of 15.7%, 13.8%,
13.8% and 14.4%, respectively. We believe that ebank currently meets all the
capital adequacy requirements to which it is subject and is well capitalized
under the regulatory framework for prompt corrective action.
Liquidity Management
Liquidity management involves monitoring our sources and uses of funds
in order to meet our day-to-day cash flow requirements while maximizing profits.
Liquidity represents the ability of a company to convert assets into cash or
cash equivalents without significant loss and to raise additional funds by
increasing liabilities. Liquidity management is made more complicated because
different balance sheet components are subject to varying degrees of management
control. For example, the timing of maturities of the investment portfolio is
very predictable and subject to a high degree of control at the time investment
decisions are made. However, net deposit inflows and outflows are far less
predictable and are not subject to the same degree of control. Asset liquidity
is provided by cash and assets which are readily marketable, which can be
pledged, or which will mature in the near future. Liability liquidity is
provided by access to core funding sources, principally the ability to generate
customer deposits in our market area. In addition, liability liquidity is
provided through the ability to borrow against approved lines of credit (federal
funds purchased) from correspondent banks and to borrow on a secured basis
through securities sold under agreements to repurchase.
We sold 1,469,250 shares during our initial public offering in 1998,
with net proceeds after offering expenses of $13.7 million. We used
approximately $8.5 million of the proceeds of the offering to capitalize ebank,
and we retained the remaining offering proceeds to provide working capital for
ebank.com, Inc. With the successful completion of the initial public offering,
we have maintained a high level of liquidity that has been adequate to meet
planned capital expenditures, as well as providing our necessary cash
requirements for operations. Our funds sold position, which is usually our
primary source of liquidity, averaged $5.0 million and $6.1 million for the
years ended December 31, 1999 and 1998, respectively. The actual funds sold
position was $.6 million and $9.3 million on December 31, 1999 and 1998,
respectively.
We regularly review our liquidity position and have implemented
internal policies which establish guidelines for sources of asset-based
liquidity and limit the total amount of purchased funds used to support the
balance sheet and funding from non-core sources.
38
<PAGE>
Accounting Matters
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Under SFAS 133, which is effective for
fiscal years beginning after June 15, 2000, a company will 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 must 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. We do not expect the
adoption of SFAS 133 to have a significant effect on our financial condition or
results of operations.
Year 2000
Like many financial institutions, we rely on computers to conduct our
business and 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. Although this did not happen, some
experts remain concerned that computer malfunctions may occur on other key dates
during 2000, such as October 10, 2000.
In accordance with bank regulatory guidelines, we developed and
executed a plan to ensure that our computer and telecommunication systems do not
have these Year 2000 problems. We rely on third party vendors to supply our
computer and telecommunication systems and other office equipment, and to
process our data and account information. Because we commenced operations only
last year, we had the ability to choose vendors that we believed to be ready for
the Year 2000. Our Year 2000 plan extends to all of our vendors, including our
vendors for core data processing system, ATM hardware, account origination
software, telephone systems, and suppliers of office equipment, such as copy and
fax machines. Under our plan, we reviewed the test results, assurances, and
warranties of all of these vendors, and we believe that all these systems are
Year 2000 compliant. Our technology and processing vendors work with many other
financial institutions, all of which, like us, are required by their bank
regulators to be Year 2000 compliant. Because our systems are substantially
similar to those used in many other banks, we believe that the scrutiny imposed
by our regulatory and the banking industry in general have significantly reduced
the Year 2000 related risks we might otherwise have faced.
We incurred approximately $30,000 in expenses in 1999 to implement our
Year 2000 plan. Under our plan, we will continue to monitor the situation
throughout 2000. We are executing this plan under the supervision of our chief
financial officer and vice president of operations, with oversight from our
board of directors.
Our agreements with each of our primary vendors include contractual
assurances and warranties regarding Year 2000 compliance. Some of these
warranties are limited by disclaimers of liability which specifically exclude
special, incidental, indirect, and consequential damages. These limitations
could limit our ability to obtain recourse against a vendor who is not Year 2000
compliant by excluding damages for things such as lost profits and customer
lawsuits.
We have also evaluated our worst case scenario and developed
contingency plans in case Year 2000 issues do arise. In the worst case, our
systems would be down for a period of time and we would be required to complete
all transactions and keep all records manually. We will have all required forms
and procedures in place for manual processing, and believe we can do this for at
least a week without serious disruption of our business. We do not believe we
will encounter any issues that cannot be resolved within this period. Any
affected systems which cannot be fixed will be replaced with alternatives,
although this is unlikely to be necessary.
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<PAGE>
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 our customers' experience caused by Year 2000 issues could impair
their ability to repay loans to the bank.
We did not have any significant Year 2000 problems on January 1, 2000,
and we do not expect to experience any significant Year 2000 problems. We also
believe that we will be able to continue to operate the business if one or more
of our vendors experience unanticipated Year 2000 problems.
Item 7. Financial Statements.
- ------------------------------
The financial statements are located at the end of this Form 10-K.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- --------------------------------------------------------------------------------
None.
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
- --------------------------------------------------------------------------------
Executive Officers and Directors
The following table presents information about our executive officers,
key employees, and directors as of December 31, 1999:
Name Age Position
---- --- --------
Richard A. Parlontieri 54 Chairman and Chief Executive Officer,
Class III Director
Louis J. Douglass, III 55 President and Chief Executive Officer of
ebank, Class II Director
Mark D. Little 40 Chief Financial Officer
Lawrence W. Bourne 52 Senior Vice President and Senior Credit
Officer of ebank
Melissa Ricketts 31 Vice President of Operations/Technology
William W. Klenk 42 Vice President of Internet Banking Services
Gary M. Bremer 60 Class II Director
Richard C. Carter 50 Class II Director
Terry L. Ferrero 48 Class I Director
Stephen R. Gross 52 Class III Director
G. Webb Howell 46 Class I Director
Frank E. Perisino 55 Class III Director
Richard A. Parlontieri has served as our chairman and chief executive
officer since our formation in August 1997. From July 1994 until January 1998,
Mr. Parlontieri was president and chief executive officer of Habersham Resource
Management, a consulting firm in the financial services industry. He was an
organizer of Fayette County Bank and served as a director of that bank until
December 1998. Mr. Parlontieri has been one of our directors since our
formation. He was also an organizer and is a director of ebank.
Louis J. Douglass, III has been the president and chief executive
officer of ebank since it opened in August 1998. From 1993 until he joined
ebank, he served as a director and an executive vice president of Regions Bank,
Forsyth County, Georgia (formerly Peoples Bank of Forsyth, an affiliate of First
National Bancorp, Gainesville, Georgia), where he was responsible for branch
managers, commercial lenders, the construction lending department, loan
operations, and day-to-day activities of managing the bank. Prior to his
community bank experience, Mr. Douglass worked for Citizens and Southern
National Bank for over 20 years.
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<PAGE>
While at C&S, he was responsible for both the commercial and retail sides of the
bank in several districts which ranged in size from 16 to 24 branches. Mr.
Douglass was also an organizer and is a director of ebank.
Mark D. Little has served as our chief financial officer since June
1998. From April 1997 until he joined us in June 1998, Mr. Little was vice
president at HomeBanc Mortgage Corporation, which originates residential
mortgages. From December 1995 to April 1997, he served as chief financial
officer of Bank of North Georgia, a federal savings bank in Atlanta, Georgia.
From July 1993 to December 1995, Mr. Little served as controller of The Peoples
Bank of Forsyth County. Mr. Little is a certified public accountant, and his
experience includes asset liability management, strategic business planning, and
financial reporting.
Lawrence W. Bourne has served as the senior vice president and senior
credit officer of ebank since June 1998. From 1996 until he joined ebank, Mr.
Bourne served as a commercial lender at Regions Bank. He also served as a Senior
Credit Officer from 1987 to 1994 for Merchant Bank (acquired by Bank South in
1994) and Bank South. Mr. Bourne served as a credit officer for Citicorp in
Atlanta. Mr. Bourne has over 27 years of commercial lending and credit
management experience, having worked with money center, regional, community
banks as well as with national commercial equipment lending companies.
Melissa Ricketts has served as our Vice President of Operations and
Technology since June 1998. Ms. Ricketts is responsible for all areas
representing loan and deposit operations from backend processing to front line
management. She also manages the maintenance and implementation of all our
information systems. Prior to joining ebank.com, Ms. Ricketts served in loan
operations from 1991 through 1998 at Premier Bancshares in Atlanta, Georgia and
was an integral part of their mergers and acquisitions team. She adds more than
ten years experience in developing, testing, and evaluating banking
hardware/software in a variety of banking environments. She is certified in ISS
RealSecure Network Security Software and is a certified analyst in banking
conversions.
William W. Klenk joined ebank.com in February 1999 as Vice President of
Internet Banking Services, bringing more than a decade of Internet, operations,
and financial services experience to the bank. Mr. Klenk is currently
responsible for the day-to-day management of all Internet-related operations,
including the strategic direction and implementation of new Internet bank
products and technologies, management of our Web site, and the construction and
development of a reporting system to facilitate our sales and marketing efforts.
Prior to joining ebank.com, Mr. Klenk served as a database developer at HomeBanc
Mortgage Corporation from 1996 to 1999, and as Vice President - Finance at Banas
Mortgage Corporation from 1993 to 1996.
Gary M. Bremer has been one of our directors since our formation in
August 1997. From October 1996 until he retired in July 1998, Mr. Bremer was the
chairman of Simione Central Holdings, Inc., a publicly traded information
systems and management services company in the home health industry. He also
served as Simione Central's chief executive officer from October 1996 to April
1997. From 1978 until October 1996, Mr. Bremer served as president and chief
executive officer of Central Health Holding Company, Inc. and its subsidiary,
Central Health Services, Inc. He is the co-founder and a director for the
Foundation for Medically Fragile Children, a member of the board for the
Foundation for Hospice and Home Care, and a co-founder of the HUG Center (a
non-profit organization which provides day care services to chronically ill
children). Until December 1998, Mr. Bremer was a director of Fayette County
Bank. Mr. Bremer was also an organizer and is a director of ebank.
Richard C. Carter has been one of our directors since our formation in
August 1997. Since October 1998, Mr. Carter has served as a health care
development manager with State Farm Life Insurance. From 1996 until he joined
State Farm, Mr. Carter was a vice president of marketing with Life of the South
Insurance Company. He has over 20 years experience in marketing and management
of health and financial services insurance products. Mr. Carter was also an
organizer and is a director of ebank.
Terry L. Ferrero has been one of our directors since our formation in
August 1997. Since 1991, Mr. Ferrero has served as president and chief executive
officer of American Wholesale Building Supply Company, a wholesale distributor
of building supplies in Georgia, Alabama, Florida, South Carolina, and
Tennessee. From
41
<PAGE>
1976 until he founded American Wholesale in 1991, Mr. Ferrero was a sales
executive with the Building Products Division of United States Steel
Corporation. Mr. Ferrero was also an organizer and is a director of ebank.
Stephen R. Gross has been one of our directors since September 1998.
Mr. Gross is a co-founder of HLB Gross Collins, P.C., a full-service CPA firm in
Atlanta, Georgia, and has been a member of that firm since 1979. Mr. Gross also
serves as a director of M2 Direct, Inc., a direct marketing company; the Concert
Investment Series Funds, a $7 billion family of mutual funds managed by Salomon
Smith Barney, Inc.; Ikon Ventures, Inc., a public specialty chemical company
based in London; and SuperCorp, Inc., a financial services company. Mr. Gross
was also an organizer and is a director of ebank.
G. Webb Howell, who has been one of our directors since our formation
in August 1997, is an agency field executive for State Farm Insurance in
Marietta, Georgia. Mr. Howell has been in the State Farm organization since
1974. He was an organizer of Fayette County Bank and served as a director of
that bank until December 1998. Mr. Howell was also an organizer and is a
director of ebank.
Frank E. Perisino has been one of our directors since our formation in
August 1997. Since 1983, Mr. Perisino has owned and operated FMK Enterprises,
Inc., which operates X-Press Car Rental and Leasing in Atlanta, Georgia, and the
National Car rental franchise for Albany, Georgia. Mr. Perisino also owns
X-Press Car Rental, Inc., a Florida corporation. He has held management
positions with Hertz and Budget Rent-A-Car, and has worked as a consultant to
car rental companies throughout the East Coast. Mr. Perisino was also an
organizer and is a director of ebank.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
As required by Section 16(a) of the Securities Exchange Act of 1934,
the company's directors, its executive officers, and certain individuals are
required to report periodically their ownership of the company's common stock
and any changes in ownership to the SEC. Based on a review of Forms 3, 4, and 5
and any representations made to the company, it appears that all such reports
for these persons were filed in a timely fashion during 1999.
Item 10. Executive Compensation.
- ---------------------------------
Compensation of Directors and Executive Officers
Summary of Cash and Certain Other Compensation
Executive Compensation. The following table shows the cash compensation
we paid to the chief executive officer and president of each of ebank.com, Inc.
and ebank for the years ended December 31, 1997, 1998, and 1999. We did not have
any other executive officers who earned total annual compensation, including
salary and bonus, in excess of $100,000 in 1999.
42
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards
-------------------------------------- -----------------------
Other annual Number of Securities
Name and Principal Position Year Salary Bonus compensation Underlying Options
- --------------------------- ---- ------ ----- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Richard A. Parlontieri 1999 $ 125,000 $ 15,000 $ 13,095 47,000
Chairman and Chief Executive 1998 $ 125,000 $ 11,000
Officer of ebank.com, Inc. 1997 $ 41,664 $ 600
Louis J. Douglass, III 1999 $ 110,000 $ 15,375 22,000
President and Chief Executive 1998 $ 110,000 $ 15,000 $ 11,000
Officer of ebank 1997 $ 9,167 $ 600
Lawrence W. Bourne 1999 $ 95,000 $ 5,664 10,000
Senior Vice President and Senior 1998 $ 46,871 $ 3,047
Credit Officer of ebank 1997 $ 0
</TABLE>
Employment Agreements. In March 2000, we entered into an employment
agreement with Mr. Parlontieri, which was approved by the Office of Thrift
Supervision, and which includes the following principal terms:
Richard A. Parlontieri
o Serves as chairman and chief executive officer of ebank.com, Inc.;
o Base salary of $175,000 in 2000, which may be increased periodically;
o Term of three years, which is extended automatically for additional one
year periods upon written notice of either party;
o Opportunity for incentive compensation based on criteria to be
established by the compensation committee of the board of directors;
o Participates in retirement, welfare, and other benefit programs;
o Entitled to life and health insurance;
o Receives reimbursement for travel and business expenses;
o During his employment with us and for two years following termination
of his employment, Mr. Parlontieri may not (i) solicit any of our
customers for the purpose of providing any competitive product or
service, (ii) solicit or induce any of our employees for employment, or
(iii) disclose any of our confidential information of ebank.com, Inc.;
and
o Prohibits Mr. Parlontieri from disclosing any of our trade secrets
during or after his employment.
We also have entered into an employment agreement with Mr. Douglass, which was
approved by the Office of Thrift Supervision, and which includes the following
principal terms:
Louis J. Douglass, III
o Serves as president and chief executive officer of ebank;
o Base salary of $125,000 in 2000, which may be increased periodically,
plus yearly medical insurance premium;
43
<PAGE>
o Term of three years, commencing November 18, 1997;
o Opportunity for incentive compensation based on criteria to be
established by our board of directors;
o Participates in retirement, welfare, and other benefit programs;
o Entitled to life and health insurance;
o Receives reimbursement for travel and business expenses; and
o During his employment with us and for 12 months following termination
of his employment, Mr. Douglass may not (i) be employed in the banking
business as a director, officer at the vice president level or higher,
or organizer or promoter of, or provide executive management services
to, any financial institution within a ten mile radius of our offices,
(ii) solicit major customers of the bank for the purpose of providing
financial services, or (iii) solicit employees of the bank for
employment.
Option Grants In Last Fiscal Year
At the 1999 annual shareholders meeting, our shareholders approved the
1998 Stock Incentive Plan, under which the we may grant options to our officers,
directors, and employees. The following table sets forth information concerning
each grant of stock options to Mr. Parlontieri, Mr. Douglass, and Mr. Bourne
during the year ended December 31, 1999.
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Granted (#) Fiscal Year ($/SH) Date
-------------- ------------- ----------- -----------
Richard A. Parlontieri... 12,000 9.2% $ 10.00 2009
Richard A. Parlontieri... 35,000 26.9% $ 12.00 2009
Louis J. Douglass, III... 12,000 9.2% $ 10.00 2009
Louis J. Douglass, III... 10,000 7.7% $ 12.00 2009
Lawrence W. Bourne....... 3,000 2.3% $ 10.00 2009
Lawrence W. Bourne....... 7,000 5.4% $ 12.00 2009
- ------------------------
Mr. Parlontieri's and Mr. Douglass' 12,000 share option grants and Mr. Bourne's
3,000 share option grant vest equally over a three year period beginning
September 1, 1998. Mr. Parlontieri's 35,000 share option grant and Mr. Bourne's
7,000 share option grant vest completely on September 1, 2001. Mr. Douglass'
10,000 share option grant vests 40% on September 1, 1999 and 30% on September 1,
2000 and 2001 respectively.
44
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercise and Year-end Option Values
Number of Unexercised Securities Value of Unexercised In-the-Money
Underlying Options at Fiscal year End (#) Options at Fiscal Year End ($)(1)
------------------------------------------- -------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard A. Parlontieri 4,000 43,000 $ 0 $ 0
Louis J. Douglass, III 8,000 14,000 $ 0 $ 0
Lawrence W. Bourne 1,000 9,000 $ 0 $ 0
</TABLE>
- -----------------------------
(1) The last trade of which the Company is aware prior to March 31, 2000
was at $6.00. Consequently, none of these options are considered to be
in-the-money.
Director Compensation
Our policy is to award options to purchase common stock to our
directors for their service on the board of directors. In January 1999, we
granted each of our directors options to acquire 12,000 shares of common stock
at an exercise price of $10.00, which exceeded the fair market value of the
common stock on the effective date of grant, January 25, 1999. Each of these
options includes the following features:
o An exercise period of ten years;
o A three-year vesting term, beginning September 1, 1998, the date the
plan was adopted;
o Restrictions on transferability; and
o A provision allowing the Office of Thrift Supervision to require the
optionee to exercise or forfeit the option if ebank's capital falls
below the regulatory minimum requirements.
We expect to follow the policy of awarding options to our directors in
the future. We do not currently pay cash fees or reimburse our directors for
out-of-pocket expenses they incur in connection with their attendance at
meetings.
Meetings and Committees of the Board of Directors
Members of the Board of Directors. Our board of directors is divided
into three classes with staggered terms, so that the terms of only approximately
one-third of the board members expire at each annual meeting. The current terms
of the Class I directors will expire in 2002. The terms of the Class II
directors expire in 2000. The terms of the Class III directors will expire in
2001.
During the year ended December 31, 1999, the Board of Directors of the
company held 12 meetings and the Board of Directors of ebank held 12 meetings.
All of the directors of the company and ebank attended at least 75% of the
aggregate of such board meetings and the meetings of each committee on which
they served.
Committees of the Board of Directors. Our board has appointed a number
of committees, including an audit committee and a compensation committee. The
audit committee is composed of Messrs. Gross, Howell, Parlontieri, and Perisino.
The audit committee has the responsibility of reviewing our financial
statements, evaluating internal accounting controls, reviewing reports of
regulatory authorities, and determining that all audits and examinations
required by law are performed. The committee recommends to the board the
appointment of the independent auditors for the next fiscal year, reviews and
approves the auditor's audit plans, and reviews with the independent auditors
the results of the audit and management's responses. The audit committee is
responsible for overseeing the entire audit function and appraising the
effectiveness of internal and external audit efforts. The audit committee
reports its findings to our board of directors. Our compensation committee is
responsible for establishing our compensation plans. The committee's duties
include the development with management of all
45
<PAGE>
benefit plans for our employees, the formulation of bonus plans, incentive
compensation packages, and medical and other benefit plans. The compensation
committee is composed of Messrs. Bremer, Carter, Parlontieri, and Perisino. We
do not have a nominating committee or a committee serving a similar function.
Compensation Committee Interlocks and Insider Participation. None of
our executive officers has served:
o as a member of the compensation committee of another entity which has
had an executive officer who has served on our compensation committee;
o as a director of another entity which has had an executive officer who
has served on our compensation committee; or
o as a member of the compensation committee of another entity which has
had an executive officer who has served as one of our directors.
Talisman Nominees. As part of our agreement with Talisman, we will
increase the size of our board of directors by two, and Talisman will nominate
two individuals to fill these vacancies. We intend to appoint one of these
nominees to our compensation committee.
46
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
- -------------------------------------------------------------------------
Security Ownership of Certain
Beneficial Owners and Management
The following table provides information about the beneficial ownership of
our outstanding common stock as of March 15, 1999, by:
o each person or entity known by us to be the beneficial owner of more than 5%
of the outstanding shares of common stock; o each director and each of our
executive officers owning at least 1% of our common stock; and o our directors
and executive officers as a group.
The right to acquire column in the table reflects all shares of common
stock that each individual has the right to acquire through the exercise of
options within 60 days of March 15, 1999. Under SEC rules, options in the Right
to Acquire column are deemed to be outstanding and to be beneficially owned by
the person or group holding those options or warrants when computing the
percentage ownership of that person or group, but are not treated as outstanding
for the purpose of computing the percentage ownership of any other person or
group.
<TABLE>
<CAPTION>
Shares subject to
options Shares beneficially
Number of exercisable owned as a percentage
shares owned within 60 Days of shares outstanding
---------------- --------------- -----------------------
Name of Beneficial Owner
- ------------------------
<S> <C> <C> <C>
Gary M. Bremer ........................ 20,000 4,000 1.47%
Richard C. Carter ..................... 12,778 4,000 1.03%
Louis J. Douglass, III................. 13,778 4,000 1.09%
Terry L. Ferrero ...................... 17,778 4,000 1.34%
Stephen R. Gross ...................... 22,778 4,000 1.64%
G. Webb Howell ........................ 12,778 4,000 1.03%
Richard A. Parlontieri................. 12,778 4,000 1.03%
Frank E. Perisino ..................... 12,778 4,000 1.03%
All directors and executive officers
as a group (12 persons)*............... 129,046 35,000 10.06%
- ------------------
</TABLE>
* Includes ownership by officers with less than 1% of the outstanding common
stock who are not individually listed.
On March 16, 2000, we issued 161,438 shares of our common stock to
Talisman Technologies, Inc., which represented 9.9% of our common stock on that
date. We have agreed to issue additional shares to Talisman from time to time to
maintain their ownership percentage at 9.9% taking into account certain future
stock issuances.
Item 12. Certain Relationships and Related Transactions.
- ---------------------------------------------------------
We enter into banking and other transactions in the ordinary course of
business with our directors and officers and their family members and affiliates
on substantially the same terms (including price, or interest rates and
collateral) as those prevailing at the time for comparable transactions with
unrelated parties. We believe that these transactions do not involve more than
the normal risk of collectibility nor present other unfavorable features to us.
Loans to individual directors and officers must also comply with our lending
policies and statutory lending limits, and directors with a personal interest in
any loan application are excluded from the consideration of their loan
application. We follow a policy that all transactions we have with our
directors, officers, and other affiliates
47
<PAGE>
must be on terms no less favorable to us than we could obtain from an
unaffiliated third party and must be approved by a majority of our disinterested
directors.
One of our directors, Stephen R. Gross, is a principal of Fountainhead
Solutions, which provided services in connection with the formation of our
business plan. We expect to pay approximately $110,000 for these services.
Item 13. Exhibits, List and Reports on Form 8-K.
- ------------------------------------------------
(a) The following documents are filed as part of this report:
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.)
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.)
48
<PAGE>
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.
10.9. Sublease dated March 15, 1999 between the Bank and The Bankers Bank
10.10. Engagement letter dated December 13, 1999 between the company and Sutro
& Co., Inc.
10.11. Integrated Business Center Agreement dated December 15, 1999 between
the company and Office.com
10.12. Letter of Agreement dated May 14, 1999 between the Company and
Fountainhead Strategic Solutions, LLC
10.13. Form of employment agreement for Richard A. Parlontieri with the
Company
21.1. Subsidiaries of the Company
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)
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)
- ------------------------
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the Company during the
quarter ended December 31, 1999.
49
<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: April 11, 2000 By: /s/Richard A. Parlontieri
------------------- --------------------------
Richard A. Parlontieri
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard A. Parlontieri, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-KSB,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that attorney-in-fact and agent, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/ Gary M. Bremer
- -------------------------
Gary M. Bremer Director April 11, 2000
/s/ Richard C. Carter
- -------------------------
Richard C. Carter Director April 11, 2000
/s/ Louis J. Douglass, III
- -------------------------
Louis J. Douglass, III Director April 11, 2000
/s/ Terry L. Ferrero
- -------------------------
Terry L. Ferrero Director April 11, 2000
/s/ Stephen R. Gross
- -------------------------
Stephen R. Gross Director April 11, 2000
/s/ G. Webb Howell
- -------------------------
G. Webb Howell Director April 11, 2000
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Richard A. Parlontieri
- --------------------------
Richard A. Parlontieri President; April 11, 2000
Chief Executive Officer
of the Company; Director
/s/ Frank E. Perisino
- --------------------------
Frank E. Perisino Director April 11, 2000
/s/ Mark D. Little Chief Financial April 11, 2000
- -------------------------- Officer and Principal
Mark D. Little Accounting Officer
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
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.)
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.
10.9. Sublease dated March 15, 1999 between the Bank and The Bankers Bank
10.10. Engagement letter dated December 13, 1999 between the company and Sutro
& Co., Inc.
10.11. Integrated Business Center Agreement dated December 15, 1999 between
the company and Office.com
10.12. Letter of Agreement dated May 14, 1999 between the Company and
Fountainhead Strategic Solutions, LLC
<PAGE>
10.13. Form of employment agreement for Richard A. Parlontieri with the
Company
21.1. Subsidiaries of the Company
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)
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>
ebank.com, Inc.
and Subsidiaries
Atlanta, Georgia
Consolidated and Parent-Only
Financial Statements
Years Ended December 31, 1999 and 1998, and
Period From Inception to December 31, 1997
<PAGE>
ebank.com, Inc. and Subsidiaries
Contents
Report of Independent Certified Public Accountants...................F-2
Consolidated and Parent-Only Financial Statements
Balance sheets................................................F-3
Statements of loss............................................F-4
Statements of changes in shareholders' equity.................F-6
Statements of cash flows......................................F-7
Notes to financial statements.................................F-8
F-1
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
ebank.com, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of ebank.com, Inc.
(formerly Southeast Commerce Holding Company) and subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of loss, changes in
shareholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The financial statements of ebank.com, Inc.
(formerly known as Southeast Commerce Holding Company, a Development Stage
Corporation) for the period from inception (August 22, 1997) to December 31,
1997, were audited by Bricker & Melton, P.A., whose practice has been combined
with our Firm and whose report dated February 28, 1998, expressed an unqualified
opinion on those statements; such report contained an explanatory paragraph
relating to the Company's ability to continue as a going concern.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1999 and 1998 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of ebank.com, Inc. and subsidiaries as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
As discussed in Note 16 to the consolidated financial statements, subsequent to
December 31, 1999, the Company entered into certain agreements related to its
plan to develop an Internet banking platform.
/s/ BDO Seidman, LLP
Atlanta, Georgia
April 6, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
ebank.com, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 1999 1998
----------------------------------------------------------------------------- -------------------- -----------------------
<S> <C> <C>
Assets
Cash and due from banks (Note 2) $ 152,899 $ 603,677
Federal funds sold 620,000 9,320,000
Investment securities available for sale (Note 3) 994,700 3,986,491
Other investments (Note 3) 213,000 175,500
Loans, net of allowance for loan losses of $730,000 in 1999 and $165,000 in
1998 (Notes 4 and 9) 47,867,286 10,240,557
Premises and equipment, net (Note 5) 1,498,568 865,587
Accrued interest receivable 185,572 49,740
Other assets 531,345 258,284
----------------------------------------------------------------------------- -------------------- -----------------------
Total Assets $52,063,370 $25,499,836
----------------------------------------------------------------------------- -------------------- -----------------------
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest-bearing demand $ 3,918,038 $ 1,025,162
Interest-bearing demand and money market 14,154,490 5,210,318
Savings 21,391 19,295
Time deposits of $100,000 or more (Note 8) 9,226,715 2,934,726
Other time deposits (Note 8) 14,290,488 3,611,622
----------------------------------------------------------------------------- -------------------- -----------------------
Total deposits 41,611,122 12,801,123
Accrued interest payable 86,422 26,552
Other liabilities 424,183 51,413
----------------------------------------------------------------------------- -------------------- -----------------------
Total liabilities 42,121,727 12,879,088
----------------------------------------------------------------------------- -------------------- -----------------------
Commitments and contingent liabilities (Notes 5, 6, 11 and 12)
Shareholders' equity (Note 10)
Common stock, par value $.01; 10,000,000 shares authorized, 1,469,250
shares issued and outstanding, respectively 14,693 14,693
Capital surplus 13,722,072 13,722,072
Accumulated deficit (3,793,472) (1,115,778)
Accumulated other comprehensive income - market valuation reserve on
investment securities available for sale (Note 3) (1,650) (239)
----------------------------------------------------------------------------- -------------------- -----------------------
Total shareholders' equity 9,941,643 12,620,748
----------------------------------------------------------------------------- -------------------- -----------------------
Total Liabilities and Shareholders' Equity $52,063,370 $25,499,836
----------------------------------------------------------------------------- -------------------- -----------------------
</TABLE>
See accompanying notes to consolidated and parent-only financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ebank.com, Inc. and Subsidiaries
Consolidated Statements of Loss
For the period
For the year ended For the year ended from inception to
December 31, 1999 December 31, 1998 December 31, 1997
- ------------------------------------------------------ ----------------------- --------------------- ---------------------
(Parent Only)
<S> <C> <C> <C>
Interest income
Loans, including fees $2,823,590 $ 207,468 $ -
Investment securities:
U.S. Government agencies and corporations 244,572 45,862 -
Other investments 4,135 650 -
Federal funds sold 317,969 323,689 -
- ------------------------------------------------------ ----------------------- --------------------- ---------------------
Total interest income 3,390,266 577,669 -
- ------------------------------------------------------ ----------------------- --------------------- ---------------------
Interest expense
Interest-bearing demand and money market 758,543 36,736 -
Savings 572 20 -
Time deposits of $100,000 or more 296,663 24,733 -
Other time deposits 404,625 36,522 -
Other borrowings (Note 6) 20,654 12,113 2,909
- ------------------------------------------------------ ----------------------- --------------------- ---------------------
Total interest expense 1,481,057 110,124 2,909
- ------------------------------------------------------ ----------------------- --------------------- ---------------------
Net interest income (loss) 1,909,209 467,545 (2,909)
Provision for loan losses (Note 4) 565,000 165,000 -
- ------------------------------------------------------ ----------------------- --------------------- ---------------------
Net interest income (loss) after provision for loan
losses 1,344,209 302,545 (2,909)
- ------------------------------------------------------ ----------------------- --------------------- ---------------------
Other income
Mortgage origination fees 209,450 - -
Service charges and other fees 70,544 662 -
- ------------------------------------------------------ ----------------------- --------------------- ---------------------
Total other income 279,994 662 -
- ------------------------------------------------------ ----------------------- --------------------- ---------------------
Other expense
Salaries and other compensation 1,494,772 556,038 51,780
Employee benefits 434,840 89,500 -
Net occupancy and equipment expense 591,783 156,415 8,351
Professional and other outside services (Note 13) 1,086,090 223,898 -
Other expense (Note 13) 694,412 233,448 11,720
- ------------------------------------------------------ ----------------------- --------------------- ---------------------
Total other expense 4,301,897 1,259,299 71,851
- ------------------------------------------------------ ----------------------- --------------------- ---------------------
Loss before income tax benefit and cumulative effect
of change in accounting principle (2,677,694) (956,092) (74,760)
Income tax benefit (Note 7) - - -
- ------------------------------------------------------ ----------------------- --------------------- ---------------------
Loss before cumulative effect of change in
accounting principle (2,677,694) (956,092) (74,760)
Cumulative effect on prior years of change in
accounting principle for deferred organization
costs, net of tax (Note 15) - (84,926) -
- ------------------------------------------------------ ----------------------- --------------------- ---------------------
Net loss $(2,677,694) $(1,041,018) $(74,760)
- ------------------------------------------------------ ----------------------- --------------------- ---------------------
</TABLE>
See accompanying notes to consolidated and parent-only financial statements.
(Continued)
F-4
<PAGE>
<TABLE>
<CAPTION>
ebank.com, Inc. and Subsidiaries
Consolidated Statements of Loss (Continued)
For the period
For the year ended For the year ended from inception to
December 31, 1999 December 31, 1998 December 31, 1997
- ------------------------------------------------------ ----------------------- --------------------- ---------------------
(Parent Only)
<S> <C> <C> <C>
Basic loss per common share: (Note 1)
Loss before cumulative effect of change in
accounting principle $ (1.82) $ (1.36) $ -
Cumulative effect on prior years of change in
accounting principle for deferred organization
costs, net of tax (Note 15) - (.12) -
- ------------------------------------------------------ ----------------------- --------------------- ---------------------
Basic loss per common share $ (1.82) $ (1.48) $ -
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated and parent-only financial statements.
F-5
<PAGE>
ebank.com, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive
Comprehensive Accumulated (Loss)-Market Common
Total (Loss) Deficit Valuation Reserve Stock Surplus
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at inception $ - $ - $ - $ - $ -
(Parent Only)
Capital contribution 100 - - - 100
Comprehensive (loss):
Net loss (74,760) $ (74,760) (74,760) - - -
------------------
Comprehensive (loss) $ (74,760)
==================
---------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1997
(Parent Only) (74,660) (74,760) - - 100
Proceeds from sale of
capital stock, net of
expenses 13,736,665 - - 14,693 13,721,972
Comprehensive (loss):
Net loss (1,041,018) $(1,041,018) (1,041,018) - - -
Other comprehensive
(loss), net of tax:
Market valuation
adjustment on
securities
available for sale (239) (239) - (239) - -
------------------
Comprehensive (loss) $(1,041,257)
==================
---------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1998 12,620,748 (1,115,778) (239) 14,693 13,722,072
Comprehensive (loss):
Net loss (2,677,694) $(2,677,694) (2,677,694) - - -
Other comprehensive
(loss), net of tax:
Market valuation
adjustment on
securities
available for sale (1,411) (1,411) - (1,411) - -
------------------
Comprehensive (loss) $(2,679,105)
==================
---------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1999 $9,941,643 $(3,793,472) $(1,650) $14,693 $13,722,072
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated and parent-only financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
ebank.com, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the period
For the year ended For the year ended from inception to
December 31, 1999 December 31, 1998 December 31, 1997
- ------------------------------------------------------- ---------------------- --------------------- ---------------------
(Parent Only)
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (2,677,694) $ (1,041,018) $ (74,760)
Adjustments to reconcile net loss to net cash used
by operating activities:
Net accretion of investment securities (243,631) (45,862) -
Depreciation and amortization of premises and
equipment 221,374 59,431 -
Provision for loan losses 565,000 165,000 -
Increase in deferred loan fees 46,741 19,688 -
Cumulative effect of change in accounting for
organization costs - 84,926 -
Increase in other assets (273,059) (238,701) (25,575)
Increase in accrued interest receivable (135,832) (49,740) -
Increase in accrued interest payable 59,871 26,552 -
Increase (decrease) in other liabilities 132,769 (13,748) 65,161
- ------------------------------------------------------- ---------------------- --------------------- ---------------------
Net cash used by operating activities (2,304,461) (1,033,472) (35,174)
- ------------------------------------------------------- ---------------------- --------------------- ---------------------
Cash flows from investing activities
Purchases of investment securities available for
sale (23,265,991) (13,941,027) -
Purchases of other investments and assets (37,500) (175,500) -
Maturities of investment securities available for
sale 26,500,000 10,000,000 -
Loans originated, net of principal repayments (38,238,470) (10,425,245) -
Purchases of premises and equipment (854,355) (868,867) (50,000)
Deferred organization costs - - (84,926)
- ------------------------------------------------------- ---------------------- --------------------- ---------------------
Net cash used by investing activities (35,896,316) (15,410,639) (134,926)
- ------------------------------------------------------- ---------------------- --------------------- ---------------------
Cash flows from financing activities
Proceeds from sale of capital stock, net of expenses - 13,736,665 -
Net increase in demand, money market and savings
deposits 11,839,144 6,254,775 -
Time deposits accepted, net of repayments 16,970,855 6,546,348 -
Proceeds from other borrowings 3,278,688 272,000 170,000
Repayment of other borrowings (3,038,688) (442,000) -
Proceeds from initial capital contribution - - 100
Proceeds from loans by Organizers - - 8,000
Repayment of loans by Organizers - - (8,000)
- ------------------------------------------------------- ---------------------- --------------------- ---------------------
Net cash provided by financing activities 29,049,999 26,367,788 170,100
- ------------------------------------------------------- ---------------------- --------------------- ---------------------
Net (decrease) increase in cash and cash equivalents (9,150,778) 9,923,677 -
Cash and cash equivalents at beginning of year 9,923,677 - -
- ------------------------------------------------------- ---------------------- --------------------- ---------------------
Cash and cash equivalents at end of year $ 772,899 $ 9,923,677 $ -
- ------------------------------------------------------- ---------------------- --------------------- ---------------------
Supplemental disclosures of cash paid
Interest $ 1,421,187 $ 83,573 $ -
- ------------------------------------------------------- ---------------------- --------------------- ---------------------
</TABLE>
See accompanying notes to consolidated and parent-only financial statements.
F-7
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
1. Summary of Significant Accounting Policies
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
subsidiaries are subject to intense competition for all banking services,
including Internet banking, from other financial institutions and nonbank
financial service companies. The Company is also subject to the regulations of
certain government agencies and, therefore, undergo periodic examinations by
those regulatory authorities.
The accounting and reporting policies of ebank.com, Inc. and subsidiaries
conform to generally accepted accounting principles and to general practices
within the banking industry. The following is a summary of the more significant
of these policies.
Basis of Presentation
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 1999 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. The financial statements for the period from
inception (August 22, 1997) to December 31, 1997, are for ebank.com, Inc.
(formerly known as Southeast Commerce Holding Company, a Development Stage
Corporation), the Parent Company only.
Use of Estimates
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
Investment Securities
Investment securities available for sale are reported at market value, with
unrealized gains and losses reported as a separate component of shareholders'
equity. Other investments are reported at cost and, accordingly, earnings are
reported when interest is accrued or when dividends are received.
Premium and discount on all investment securities are amortized (deducted) and
accreted (added), respectively, to interest income on the straight-line and
interest methods over the period to the maturity of the related securities.
Gains or losses on disposition are computed by the specific identification
method for all securities.
F-8
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
Loans
Loans are reported at the gross amount outstanding, less a valuation allowance
for loan losses and net deferred loan fees. Interest income on loans is
recognized over the terms of the loans based on the principal amount
outstanding. If the collectibility of interest appears doubtful, the accrual
thereof is discontinued. Interest income on nonaccrual loans is recognized on a
cash basis, if there is no doubt of future collection of principal. Accrued
interest which appears doubtful of collection is reversed to the interest income
account if accrued in the current year or charged to the allowance for loan
losses if accrued in prior years.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses
charged to expense. The allowance represents an amount which, in management's
judgment, will be adequate to absorb probable losses on existing loans that may
become uncollectible. Management's judgment in determining the adequacy of the
allowance is based on evaluations of the collectibility of loans and takes into
consideration such factors as the balance of impaired loans, changes in the
nature and volume of the loan portfolio, current economic conditions that may
affect the borrower's ability to pay, overall portfolio quality and a review of
specific problem loans. Periodic revisions are made to the allowance when
circumstances which necessitate such revisions become known. Recognized losses
are charged to the allowance for loan losses, while subsequent recoveries are
added to the allowance.
In addition, regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for loan losses, and may
require the Company to record additions to the allowance based on their
judgement about information available to them at the time of their examinations.
A loan is impaired when it is probable the Company will be unable to collect all
principal and interest payments due in accordance with the terms of the loan
agreement. Individually identified impaired loans are measured based on the
present value of payments expected to be received, using the contractual loan
rate as the discount rate. Alternatively, measurement may be based on observable
market prices, or for loans that are solely dependent on the collateral for
repayment, measurement may be based on the fair value of the collateral. If the
recorded investment in the impaired loan exceeds the measure of fair value, a
valuation allowance is established as a component of the allowance for loan
losses. Changes to the valuation allowance are recorded as a component of the
provision for loan losses.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due.
Interest income is subsequently recognized only to the extent cash payments are
recieved.
Mortgage Origination Fees
The Company recognizes as income fees paid by residential mortgage borrowers
whenever loans are closed and sold to nonaffiliated lenders.
F-9
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
Premises, Equipment and Purchased Software
Bank premises, furniture and equipment, and leasehold improvements are reported
at cost less accumulated depreciation and amortization. For financial reporting
purposes, depreciation and amortization are computed using primarily
straight-line methods over the estimated useful lives of the assets.
Expenditures for maintenance and repairs are charged to operations as incurred,
while major renewals and betterments are capitalized. When property is disposed
of, the related cost and accumulated depreciation are removed from the accounts
and any gain or loss is reflected in income. For federal tax reporting purposes,
depreciation and amortization are computed using primarily accelerated methods.
Purchased software costs are reported at amortized cost, which is less than net
realizable value. These intangible assets are amortized against income based on
the straight-line method over their estimated life, generally 12 to 36 months.
Income Taxes
The tax effects of transactions are recorded at current tax rates in the periods
the transactions are reported for financial statement purposes. Deferred income
taxes are established for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. A valuation allowance is recorded for those deferred tax asset items
for which it is more likely than not that realization will not occur in the near
term.
The Company and the Bank file a consolidated income tax return. Each entity
provides for income taxes based on its contribution to income taxes (benefits)
of the consolidated group.
Net Loss Per Common Share
Basic loss per common share is computed by dividing net loss available to common
shareholders by the weighted average number of shares outstanding during each
year, which totaled 1,469,250 and 704,435 shares for the years ended December
31, 1999 and 1998, respectively. There were no shares outstanding during the
period from inception to December 31, 1997. As the Company was in a net loss
position at December 31, 1999 and 1998, the inclusion of any common shares that
may be issued under stock option grants (Note 10) would have an antidilutive
effect on the Company's loss per common share.
Stock-Based Compensation
The Company accounts for stock options under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25). Under APB 25,
because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
Fair Values of Financial Instruments
The Company uses the following methods and assumptions in estimating fair values
of financial instruments (see Note 15):
Cash and cash equivalents - The carrying amount of cash and cash equivalents
approximates fair value.
F-10
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
Investment securities - The fair value of investment securities available for
sale is estimated based on bid quotations received from independent pricing
services.
Other investments - For other investments, the carrying amount approximates fair
value.
Loans - For variable rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. For all other
loans, fair values are calculated by discounting the contractual cash flows
using estimated market discount rates which reflect the credit and interest rate
risk inherent in the loan, or by using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
Deposits - The fair value of deposits with no stated maturity, such as demand,
NOW and money market, and savings accounts, is equal to the amount payable on
demand at year-end. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows using the rates currently offered for
deposits of similar remaining maturities.
Accrued interest - The carrying amount of accrued interest receivable and
payable approximates fair value.
Off-balance-sheet instruments - The fair value for off-balance-sheet lending
commitments is equal to the amount of commitments outstanding at December 31,
1999. This is based on the fact that the Company generally does not offer
lending commitments or standby letters of credit to its customers for long
periods, and therefore, the underlying rates of the commitments approximate
market rates.
Reclassifications
Certain reclassifications have been made in the 1998 financial statements to
conform with the 1999 presentation.
Pending Accounting Pronouncements
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 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.
2. Cash and Due From Banks
The Federal Reserve Board requires that banks maintain reserve balances with the
Federal Reserve Bank or in cash on hand, based on the institution's deposit
balances. At December 31, 1999 and 1998, the Bank's reserve requirement had not
been required to be computed or reported to the Federal Reserve Bank.
F-11
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
3. Investment Securities and Other Investments
The amortized cost and estimated market value of investment securities available
for sale are as follows:
Amortized Unrealized Unrealized Market
December 31, 1999 Cost Gains Losses Value
-------------------------------------------------------------------------------
U.S. Government agencies and
corporations $997,450 $ - $2,750 $994,700
-------------------------------------------------------------------------------
Amortized Unrealized Unrealized Market
December 31, 1998 Cost Gains Losses Value
-------------------------------------------------------------------------------
U.S. Government agencies and
corporations $3,986,889 $ - $398 $3,986,491
-------------------------------------------------------------------------------
The amortized cost and estimated market value of investment securities available
for sale, by contractual maturity, are shown as follows. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations without call or prepayment penalties.
Investment Securities
Available for Sale
-----------------------
Amortized Market
December 31, 1999 Cost Value
-------------------------------------------------------------------------------
Due in one year or less $997,450 $994,700
-------------------------------------------------------------------------------
There were no sales or calls of investment securities in 1999 or 1998.
Investment securities with amortized costs of $498,725 and $3,986,889 and market
values of $497,350 and $3,986,491 at December 31, 1999 and 1998, respectively,
were pledged to secure repurchase agreements, public funds and certain other
deposits.
At December 31, 1999 and 1998, the Company had no off-balance-sheet derivative
financial instruments, such as swaps, options, futures, or forward contracts.
Other investments, totaling $213,000 and $175,500 at December 31, 1999 and 1998,
respectively, consist of investments in common stock in the Federal Home Loan
Bank of Atlanta and common stock in The Godfrey Bank.
F-12
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
4. Loans
Major classifications of loans are as follows:
December 31, 1999 1998
-----------------------------------------------------------------------------
Commercial $12,644,137 $ 3,714,416
Real estate--individual 3,019,159 2,159,834
Real estate--commercial 29,612,902 3,794,652
Installment loans to individuals 3,387,518 756,344
-----------------------------------------------------------------------------
Total loans 48,663,716 10,425,246
Less: Allowance for loan losses (730,000) (165,000)
Net deferred loan fees (66,430) (19,689)
-----------------------------------------------------------------------------
Loans, net $47,867,286 $10,240,557
-----------------------------------------------------------------------------
Most of the Bank's business activity is with customers located in the Atlanta,
Georgia, metropolitan area, with market concentration in the Cobb County area.
As of December 31, 1999 and 1998, the Bank had approximately $32,632,000 and
$5,955,000, respectively, of its loan portfolio secured by real estate.
At December 31, 1999 and 1998, the Bank had no loans which are considered
impaired.
The following is a summary of transactions in the allowance for loan losses:
Year ended December 31, 1999 1998
-------------------------------------------------------------------------------
Balance, beginning of year $165,000 $ -
Provision charged to expense 565,000 165,000
Loans charged off - -
Recoveries of loans previously charged off - -
-------------------------------------------------------------------------------
Balance, end of year $730,000 $165,000
-------------------------------------------------------------------------------
5. Premises and Equipment
Premises and equipment are comprised of the following:
December 31, 1999 1998
-------------------------------------------------------------------------------
Leasehold improvements $ 94,764 $ 29,850
Furniture, fixtures and equipment 842,255 497,971
Computer software and Internet technology 842,354 397,197
-------------------------------------------------------------------------------
1,779,373 925,018
Less accumulated depreciation and amortization 280,805 59,431
-------------------------------------------------------------------------------
Premises and equipment, net $1,498,568 $865,587
-------------------------------------------------------------------------------
F-13
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
Depreciation and amortization expense totaled $221,374 and $59,431 for 1999 and
1998, respectively. No depreciation was recorded in 1997.
The Company leases its banking facility and offices pursuant to operating
leases. Rental expense incurred under these leases was $158,893, $62,186 and
$9,015 in 1999, 1998 and 1997, respectively.
Future minimum lease payments under the operating leases are as follows:
Years ending December 31,
-------------------------------------------------------------------------------
2000 $ 344,376
2001 350,612
2002 357,359
2003 284,916
2004 211,939
2005 and thereafter 543,600
-------------------------------------------------------------------------------
$ 2,092,802
-------------------------------------------------------------------------------
6. Short-Term and Other Borrowings
The Bank utilizes short-term borrowings as needed for liquidity purposes in the
form of federal funds purchased and security repurchase agreements. The Bank has
unsecured lines of credit for federal funds purchased from other banks totaling
$2,000,000 at December 31, 1999 and 1998. Amounts outstanding under these
federal fund lines were $240,000 and $0.00 at December 31, 1999 and 1998,
respectively and are included in other liabilities.
The maximum and daily average amounts of federal funds purchased were
approximately $4,279,000 and $72,000, respectively, in 1999, and no
corresponding activity in 1998. The average interest rate paid on federal funds
purchased in 1999 was 6.02 percent.
The maximum and daily average amounts of security repurchase agreements entered
into were approximately $1,000,000 and $71,233, respectively, in 1999, and no
corresponding activity in 1998. The average interest rate paid on security
repurchase agreements in 1999 was 4.24 percent.
On August 27, 1997, the organizers of the Bank obtained a $500,000 line of
credit from a bank at the adjustable prime rate. The line of credit was
unsecured and required interest-only payments on a quarterly basis with total
principal plus interest due at maturity on August 27, 1998. Personal guarantees
of the organizers, up to $83,333 each, were required by the lender bank. This
line of credit was used to repay (without interest) the organizers' $8,000
initial funding of the Company and to provide additional operating funds until
equity funding was obtained in 1998. Outstanding borrowings were $170,000 at
December 31, 1997. Approximately $442,000 was drawn against this line of credit
in 1998 and all borrowings outstanding were repaid on June 10, 1998. The line of
credit expired in 1998.
Commerce Mortgage maintains a $20,000,000 warehouse line of credit for
conventional mortgage loans and $7,000,000 for nonconventional mortgage loans
with a nonaffiliated bank, which had no outstanding balance at December 31,
1999.
F-14
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
<TABLE>
<CAPTION>
7. Income Taxes
The following are the components of income tax expense as provided:
For the period
For the year ended For the year ended from inception to
December 31, 1999 December 31, 1998 December 31, 1997
-----------------------------------------------------------------------------------------------------------------------
(Parent Only)
<S> <C> <C> <C>
Current income tax provision $ - $ - $ -
Deferred income tax benefit - - -
-----------------------------------------------------------------------------------------------------------------------
$ - $ - $ -
-----------------------------------------------------------------------------------------------------------------------
A reconciliation of income taxes computed at the federal statutory income tax rate to total income taxes is as follows:
For the period
For the year ended For the year ended from inception to
December 31, 1999 December 31, 1998 December 31, 1997
-----------------------------------------------------------------------------------------------------------------------
(Parent Only)
Pretax income (loss) $(2,677,694) $ (1,041,018) $(74,760)
-----------------------------------------------------------------------------------------------------------------------
Income tax (benefit) computed at federal
statutory tax rate $ (910,416) $ (353,946) $(25,418)
Increase (decrease) resulting from:
Nondeductible meals, entertainment and dues (8,829) 2,368 850
State income tax benefit, net of federal
tax benefit (106,037) (41,224) (850)
Valuation allowance 1,025,282 392,802 25,418
-----------------------------------------------------------------------------------------------------------------------
$ - $ - $ -
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-15
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
The following summarizes the tax effects of temporary differences which comprise
net deferred tax assets:
December 31, 1999 1998
-------------------------------------------------------------------------------
Deferred income tax assets:
Allowance for loan losses $ 262,129 $ 38,497
Net operating loss carryforward 1,078,763 258,285
Deferred organization costs 97,601 130,279
Other, net 18,256 5,118
-------------------------------------------------------------------------------
Total deferred income tax assets 1,456,749 432,179
-------------------------------------------------------------------------------
Deferred income tax liabilities:
Accumulated depreciation (13,247) (13,959)
-------------------------------------------------------------------------------
Total deferred income tax liabilities (13,247) (13,959)
-------------------------------------------------------------------------------
Valuation allowance (1,443,502) (418,220)
-------------------------------------------------------------------------------
Net deferred income tax (liability) asset $ - $ -
-------------------------------------------------------------------------------
As of December 31, 1999 and 1998, the Company had cumulative net operating loss
carryforwards of approximately $3,684,000 and $1,034,000, respectively, for
financial reporting purposes, and $2,823,000 and $678,400, respectively, for
income tax purposes and are subject to carryforward limitations and will expire
in 2018 and 2019.
8. Time Deposits
The aggregate amount of time deposits with a minimum denomination of $100,000
was approximately $9,227,000 and $2,935,000 at December 31, 1999 and 1998,
respectively.
At December 31, 1999, the scheduled maturities of time deposits of $100,000 or
more and other time deposits are as follows:
Years ending December 31,
-------------------------------------------------------------------------------
2000 $21,156,203
2001 2,361,000
Thereafter -
-------------------------------------------------------------------------------
$23,517,203
-------------------------------------------------------------------------------
9. Related Party Transactions
At December 31, 1999 and 1998, the Bank had direct and indirect loans which
aggregated $2,203,286 and $534,061, respectively, outstanding to or for the
benefit of certain of the Bank's officers, directors and their related
interests. During 1999 and 1998, $2,018,632 and $538,865 of such loans were made
and repayments totaled $349,407 and $4,804, respectively. These loans were made
in the ordinary course of business in conformity with normal credit terms,
including interest rates and collateral requirements prevailing at the time for
comparable transactions with borrowers unaffiliated with the Bank. These
individuals and their related interests also maintain customary demand and time
deposit accounts with the Bank.
F-16
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
10. Shareholders' Equity
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company and the Bank's financial statements. The
regulations require the Company and the Bank to meet specific capital adequacy
guidelines that involve quantitative measures of the Company and the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company and the Bank's capital
classification is also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the following tables) of Tier 1 capital (as defined in the regulations)
to average assets (as defined), and minimum ratios of Tier 1 and total capital
(as defined) to risk-weighted assets (as defined).
As of December 31, 1999, the most recent notification from the Office of Thrift
Supervision categorized the Company and Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since those notifications that management believes has changed the
Company's or Bank's category. To be considered well capitalized and adequately
capitalized (as defined) under the regulatory framework for prompt corrective
action, the Company and Bank must maintain minimum Tier 1 leverage, Tier 1
risk-based, and total risk-based ratios as set forth in the following tables.
The actual capital amounts and ratios are also presented in the following
tables.
<TABLE>
<CAPTION>
Adequately
Well Capitalized Capitalized
December 31, 1999 Requirement Requirement Actual
-----------------------------------------------------------------------------------------------------------------------
(In thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital (to Average
Assets)
Company =>$2,167 => 5.0% $1,734 4.0% $9,943 22.9%
Bank =>$2,012 => 5.0% $1,609 4.0% $6,969 17.3%
Tier 1 Capital (to Risk
Weighted Assets)
Company =>$2,962 => 6.0% $1,974 4.0% $9,943 20.1%
Bank =>$2,897 => 6.0% $1,931 4.0% $6,969 14.4%
Total Capital (to Risk Weighted
Assets)
Company =>$4,936 =>10.0% $3,949 8.0% $10,567 21.4%
Bank =>$4,829 =>10.0% $3,863 8.0% $7,573 15.7%
</TABLE>
F-17
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
<TABLE>
<CAPTION>
Adequately
Well Capitalized Capitalized
December 31, 1998 Requirement Requirement Actual
-----------------------------------------------------------------------------------------------------------------------
(In thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital (to Average
Assets)
Consolidated Company =>$1,275 => 5.0% $1,020 4.0% $12,621 49.5%
Bank =>$1,050 => 5.0% $ 840 4.0% $7,579 36.1%
Tier 1 Capital (to Risk
Weighted Assets)
Consolidated Company =>$ 820 => 6.0% $ 547 4.0% $12,621 92.3%
Bank =>$ 750 => 6.0% $ 500 4.0% $7,579 60.6%
Total Capital (to Risk Weighted
Assets)
Consolidated Company =>$1,367 =>10.0% $1,093 8.0% $12,786 93.6%
Bank =>$1,250 =>10.0% $1,000 8.0% $7,744 61.9%
</TABLE>
Management believes that, as of December 31, 1999, the Company and Bank meet all
capital requirements to which they are subject.
Dividends paid by the Bank are the primary source of funds available to the
Company. Banking regulations limit the amount of dividends which the Bank may
pay without obtaining prior regulatory approval. These restrictions are based on
the level of regulatory classified assets, the prior years' net earnings, and
the ratio of equity capital to total assets. At December 31, 1999 and 1998,
total shareholders' equity of the Bank was approximately $6,969,000 and
$7,579,000, respectively, and was not available for dividends.
Stock Options
In May 1999, the Company's shareholders approved the 1998 ebank.com, Inc. Stock
Incentive Plan ("Plan"), which authorizes the grant of stock options to eligible
employees, officers and directors. The Company initially reserved a maximum of
220,000 shares for issuance under the Plan. However, in September 1999, the Plan
was amended to provide that the amount of stock subject to the Plan
automatically adjusts so that at all times it equals 15 percent of the
outstanding shares of stock.
Under the Plan, the Company may grant either incentive stock options or
nonqualified stock options. The total number of shares issuable as incentive
stock options may not exceed 220,000 without shareholder approval.
The exercise price for the common stock granted as either an incentive stock
option or as a nonqualified stock option must be equal to at least 100 percent
of the fair market value per share of common stock on the date of grant. Options
have a three-year vesting term, beginning September 1, 1998, and expiring ten
years after the date of grant. Summarized information related to the incentive
stock options is as follows:
F-18
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
<TABLE>
<CAPTION>
Exercise Price Weighted Average
December 31, 1999 Shares Range Exercise Price
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998
Granted 202,125 $10.00 - $12.00 $11.52
Exercised - - -
Expired - - -
-----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 202,125 $10.00 - $12.00 $11.52
-----------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1999 42,541 $10.00 - $12.00
Weighted average fair value of options granted during
1999 $5.69
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Board of Directors may, at its discretion, provide that an option not be
exercisable, in whole or in part, for any period or periods of time, as
specified in the option agreements. No option may be exercised after the
expiration of ten years from the date it was granted. Summarized information
regarding outstanding stock options is as follows:
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------------------------------------------------------------------
Outstanding Options Options Exercisable
--------------------------------------------------------- ------------------------------------
Weighted Weighted Weighted
Range of Number Average Average Number Average
Exercise Outstanding at Remaining Exercise Exercisable at Exercise
Price December 31, 1999 Contractual Life Price December 31, 1999 Price
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10.00 - $12.00 202,125 10 $11.52 42,541 $11.52
-----------------------------------------------------------------------------------------------------------------------
202,125 10 $11.52 42,541 $11.52
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1999: dividend yield of 0 percent, expected
volatility of 25 percent, risk-free interest rates of 6.29 percent to 6.31
percent, and expected lives of nine to ten years.
The Company implemented Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock-Based Compensation," in 1998. As permitted by
SFAS 123, the Company accounts for stock-based compensation by applying the
provisions of Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees." If the accounting provisions of SFAS 123 had
been adopted, net loss and net loss per share would have been $(3,058,426) and
$(2.02), respectively.
F-19
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
11. Off-Balance-Sheet Financial Instruments
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the balance sheet. The contract amounts of these
instruments reflect the extent of involvement the Bank has in particular classes
of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual amounts of these instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. At December 31, 1999 and 1998, commitments
to extend credit totaled approximately $19,976,000 and $9,457,000, respectively.
The Bank's experience has been that approximately 70 percent of loan commitments
are drawn upon by customers.
The Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank, upon extension
of credit is based on management's credit evaluation of the other party.
Collateral held varies but may include accounts receivable; inventory; property,
plant and equipment; and income-producing commercial properties on those
commitments for which collateral is deemed necessary.
12. Commitments and Contingent Liabilities
Commitments
In 2000, the Company entered into an employment agreement with its chairman and
chief executive officer. The employment agreement continues for three years,
which is extended automatically for additional one-year periods upon written
notice of either party, and provides for an annual base salary, and such other
benefits which are generally made available to other senior executives of the
Company and the Bank.
In 1997, the Company entered into an employment agreement with the president and
chief executive officer of the Bank. The employment agreement expires in
November, 2000 and provides for an annual base salary, plus medical insurance
premiums, and such other benefits which are generally made available to other
senior executives of the Company and the Bank. The letter of employment also
provides for granting stock options to purchase 10,000 shares of Parent Company
common stock at a purchase price of $10.00 per share.
In December 1999, the Company entered into an agreement with Office.com to
develop an Internet based, co-branded business center with Office.com on the
Company's web site. This business center, which will be developed by Office.com,
will offer small business customers and others the opportunity to purchase an
array of business products and services. The terms of the agreement require a
total of $1,000,000 to be paid by the Company over 12 months. $500,000 has been
paid to date.
Contingent Liabilities
In May 1999, the Company received a notice from Huntington Bancshares
Incorporated ("Huntington") asserting that Huntington has superior trademark
rights in the name "ebank." On June 30, 1999, the Company filed an action in the
United States District Court for the Northern District of Georgia, asking for a
declaratory judgment
F-20
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
that it has the right to use "ebank.com" as a trademark for Internet banking
services despite Huntington's registration. Rather than answering the Company's
complaint, Huntington filed suit against the Company on August 10, 1999, in the
United States District Court for the Eastern District of Ohio, alleging
trademark infringement over the Company's use of the name "ebank.com." In the
Ohio action, Huntington is seeking an injunction against the Company's use of
the name "ebank.com" and "ebank," as well as treble damages and all profits
realized by the Company by reason of its use of the name "ebank." Huntington has
submitted a motion to dismiss the Georgia action, and the Company has 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 the Company intends to vigorously
defend its rights to the name "ebank.com," it cannot predict the outcome of this
litigation. In the worst case, however, the Company could be required to pay
damages, change its name, and choose a new domain name from which to host its
Internet operation, and the amount of damages could include the actual amount of
damages sustained by Huntington, multiplied by three, plus all profits the
Company realizes through the use of the name "ebank," and even punitive damages.
In the opinion of management, the resolution of these matters will not
materially affect the Company's financial position, results of operations or
liquidity.
There are no other material legal proceedings to which the Company or any of its
properties are subject.
13. Supplemental Financial Data
Components of professional and outside services, and other expense in excess of
1 percent of total income are as follows:
Year ended December 31, 1999 1998
-----------------------------------------------------------------------------
Professional and outside services:
Advertising $398,325 $102,487
Legal 327,770 103,025
Public relations 240,227 2,737
Other professional 219,768 15,649
Other expense:
Supplies and printed forms 62,186 43,011
Loan expenses - 10,531
Telecommunications 155,467 17,874
Business licenses - 10,000
Travel and entertainment - 28,060
Insurance 60,560 -
OTS penalty assessment(1) 100,000 -
Operating charge-offs 57,911 -
(1) The Office of Thrift Supervision assessed a $100,000 civil money penalty
against the Company because it concluded that the Company began to implement
a new Internet business strategy in June 1999 prior to obtaining its
approval. While neither admitting nor denying the Office of Thrift
Supervision's assertions, in September 1999, the Company consented to and
paid this penalty.
F-21
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
14. Fair Values of Financial Instruments
<TABLE>
<CAPTION>
The estimated fair values of the Company's financial instruments are as follows:
1999 1998
------------------------------------- -------------------------------------
Carrying Estimated Carrying Estimated
December 31, Value Fair Value Value Fair Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 772,899 $ 772,899 $ 9,923,677 $ 9,923,677
Investment securities available
for sale 994,700 994,700 3,986,491 3,986,491
Other investments 213,000 213,000 337,591 337,591
Loans 47,867,286 47,519,520 10,240,557 10,159,287
Accrued interest receivable 185,572 185,572 49,740 49,740
Financial liabilities:
Noncontractual deposits $18,093,919 $18,093,919 $ 6,254,775 $ 6,254,775
Contractual deposits 23,517,203 23,695,034 6,546,348 6,537,428
Accrued interest payable 86,422 86,422 26,552 26,552
Off-balance-sheet instruments:
Undisbursed credit lines $19,976,000 $ 9,457,000
</TABLE>
15. Change in Accounting Principle--Deferred Organization Costs
Effective January 1, 1998, the Company changed its method of accounting for
organization costs in order to expense these costs in the period incurred. Prior
to 1998, the Company capitalized organization costs and amortized them to
expense over a five-year period. This change in accounting method was made in
order for the Company to be in compliance with AICPA Statement of Position 98-5
(SOP 98-5), which states that the costs of start-up activities, which include
organization costs, be expensed as incurred. SOP 98-5 is effective for fiscal
years beginning after December 15, 1998; however the Company elected early
adoption, which is encouraged. The Company recorded a pretax charge of
approximately $85,000, or $.12 per share, in 1998 as the cumulative effect of
this accounting change. Of this amount, approximately $64,000 was related to the
Bank and $21,000 was related to the Parent Company. This change also increased
1998 costs and expenses by approximately $343,000, or $.49 per share.
16. Subsequent Events
On March 16, 2000, the Company closed a Stock Exchange and Rights Agreement
("Agreement") with Talisman, Inc. ("Talisman").
Subject to certain conditions of the Agreement, the Company issued shares of its
common stock to Talisman, which represent 9.9 percent of its common stock on a
fully diluted basis. The Agreement also provides that Talisman will be issued
additional shares to maintain a 9.9 percent equity interest, if certain future
events occur. Also subject to certain conditions of the Agreement, Talisman
agrees to issue to the Company shares of its common stock such that the Company
will own 9.9 percent of Talisman. At closing, 161,438 shares of the Company were
issued.
The Company has extended a license to Talisman to use the Company's name and
related trademark material outside the United States in exchange for a license
to use Talisman's ATM network technology. Each respective
F-22
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
agreement has initial five-year terms with options to renew for two five-year
periods. Management has not yet determined the value of the intangible assets
exchanged.
Subject to approval by the Office of Thrift Supervision, the Company and
Talisman must execute a services outsourcing agreement for the Company's core
data processing services within 180 days from the closing date of the Agreement.
If such agreement is not executed, Talisman may rescind all previously executed
arrangements. The execution of these agreements will require the Company to
significantly expand and upgrade its existing information technology hardware
and software infrastructure. The Company and Talisman contemplate the designated
data processing services will be provided at a data center Talisman will build.
Management is currently evaluating the nature, extent, and costs associated with
these changes.
In connection with the above transaction, the Company retained Sutro & Co.
Incorporated ("Sutro") (i) to act as its exclusive financial advisor, and (ii)
to act as its exclusive placement agent with respect to future financing, as
defined, that are arranged by Sutro.
Sutro's compensation for its role as financial advisor in the transaction with
Talisman was as follows:
(a) An advisory fee of $300,000 payable in cash upon consummation of the
transaction.
(b) Fully paid and nonassessable common stock of Talisman equal to 7.5 percent
of the Talisman common stock received by the Company as a result of the
transaction.
Sutro's compensation for its role arranging any financing will be as follows:
(c) A nonrefundable retainer of $25,000 payable upon execution of the
agreement. This retainer shall be credited against any fees earned in the
event a financing occurs.
(d) A placement fee (the "Placement Fee") payable in cash equal to the sum of
(i) 7 percent of the principal amount of any preferred stock or common
stock raised, (ii) 5 percent of the principal amount of subordinated notes
and/or convertible notes issued and (iii) 1.5 percent of the principal
amount of any secured revolving credit facility or other senior secured
debt.
(e) Warrants to purchase 3 percent of the common shares or common share
equivalents sold in a financing (the "Warrants"). The Warrants shall be
granted upon the closing of the financing and shall be exercisable for a
seven-year period commencing one year from their date of issuance at an
aggregate exercise price equal to 125 percent of the price of the equity
raised in the financing.
In addition to the foregoing fees, and regardless of whether the Financing
contemplated is consummated, the Company agrees to reimburse Sutro for all
reasonable out-of-pocket expenses, not to exceed $100,000.
F-23
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
<TABLE>
<CAPTION>
17. Condensed Financial Information of ebank.com, Inc.
Condensed Balance Sheets
(Parent Only)
December 31, 1999 1998
-----------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash on hand or at other financial institutions $ 44,451 $ 84,901
Federal funds sold 620,000 4,090,000
Interest-bearing deposit with bank subsidiary 1,015,000 540,111
Investment in bank subsidiary 6,969,337 7,578,502
Investment in nonbank subsidiary (300,512) 162,091
Investment in Godfrey Bank 150,000 150,000
Loans, net of allowance for loan losses of $20,000 in 1999 223,012 -
Premises and equipment, net 596,440 -
Accrued interest receivable 5,514 -
Other assets 772,714 15,143
-----------------------------------------------------------------------------------------------------------------------
Total Assets $10,095,956 $12,620,748
-----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Liabilities
Other liabilities $ 154,313 $ -
-----------------------------------------------------------------------------------------------------------------------
Total liabilities 154,313 -
-----------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Common stock 14,693 14,693
Capital surplus 13,722,072 13,722,072
Accumulated deficit (3,793,472) (1,115,778)
Accumulated other comprehensive income - market valuation reserve
on investment securities available for sale (1,650) (239)
-----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 9,941,643 12,620,748
-----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $10,095,956 $12,620,748
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-24
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
<TABLE>
<CAPTION>
Condensed Statements of Loss
(Parent Only)
For the period
For the year ended For the year ended from inception to
December 31, 1999 December 31, 1998 December 31, 1997
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating income
Interest income $ 192,193 $ 213,733 $ -
-----------------------------------------------------------------------------------------------------------------------
Total operating income 192,193 213,733 -
-----------------------------------------------------------------------------------------------------------------------
Operating expense
Salaries and benefits 494,892 107,887 51,780
Occupancy expense 102,511 9,919 8,351
Interest expense on other borrowings - 12,113 2,909
Professional fees and outside services 1,038,131 68,945 -
Other expense 163,994 113,443 11,720
-----------------------------------------------------------------------------------------------------------------------
Total operating expense 1,799,528 312,307 74,760
-----------------------------------------------------------------------------------------------------------------------
Loss before cumulative effect of change in
accounting principle, income tax benefit,
and equity in undistributed loss of
subsidiaries (1,607,335) (98,574) (74,760)
Cumulative effect of change in accounting
principle - (21,185) -
-----------------------------------------------------------------------------------------------------------------------
Loss before income tax benefit and equity in
undistributed loss of subsidiaries (1,607,335) (119,759) (74,760)
Income tax benefit - - -
-----------------------------------------------------------------------------------------------------------------------
Loss before equity in undistributed loss of
subsidiaries (1,607,335) (119,759) (74,760)
Equity in undistributed loss of subsidiaries (1,070,359) (921,259) -
-----------------------------------------------------------------------------------------------------------------------
Net loss $(2,677,694) $(1,041,018) $(74,760)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-25
<PAGE>
ebank.com, Inc. and Subsidiaries
Notes to Consolidated and Parent-Only Financial Statements
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
(Parent Only)
For the period
For the year ended For the year ended from inception to
December 31, 1999 December 31, 1998 December 31, 1997
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (2,677,694) $ (1,041,018) $ (74,760)
Equity in undistributed loss of subsidiaries 1,070,359 921,259 -
Cumulative effect of change in accounting for
organization costs - 21,185 -
Write-off of deferred organization costs - 63,741 -
Increase in interest receivable (5,514) - -
(Increase) decrease in other assets (757,573) 98,341 (25,575)
Increase (decrease) in other liabilities 154,313 (65,161) 65,161
-----------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by operating activities (2,216,109) (1,653) (35,174)
-----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Contribution of capital to bank subsidiary - (8,500,000) -
Investment in Commerce Mortgage - (250,000) -
Purchase of interest-bearing deposits with
bank subsidiary (474,889) (540,111) -
Purchase of other investments - (150,000) -
Loans originated (223,012) - -
Deferred organization costs - - (84,926)
Purchase of fixed assets (596,440) - (50,000)
Sale of premises and equipment - 50,000 -
-----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,294,341) (9,390,111) (134,926)
-----------------------------------------------------------------------------------------------------------------------
Net cash from financing activities
Proceeds from sales of capital stock, net of
expenses - 13,736,665 -
Initial capital contribution - - 100
Proceeds from loans by organizers - - 8,000
Repayment of loans by organizers - - (8,000)
Proceeds from other borrowings - 272,000 170,000
Repayment of other borrowings - (442,000) -
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities - 13,566,665 170,100
-----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash
equivalents (3,510,450) 4,174,901 -
Cash and cash equivalents at beginning of year 4,174,901 - -
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 664,451 $ 4,174,901 $ -
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-26
Exhibit 4.4 to the Form 10-K for year ended 1999
FIRST AMENDMENT TO THE
EBANK.COM, INC.
1998 STOCK INCENTIVE PLAN
WHEREAS, the Board of Directors of ebank.com, Inc., a Georgia
corporation (the "Company") approved the 1998 Stock Incentive Plan (the "Plan")
on September 1, 1998, the Office of Thrift Supervision approved the Plan on
January 25, 1999, and the shareholders of the Company approved the Plan on May
3, 1999; and
WHEREAS, effective September 20, 1999, the Board of Directors approved
the following amendment to the Plan;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Amendment.
a. The first paragraph of Section 5.1 of the Plan is amended
to read as follows:
5.1 Limitations. The maximum number of shares that may be
issued hereunder shall initially be 220,000. The amount of Stock
subject to the Plan shall be increased as of September 20, 1999 and
thereafter shall automatically be increased each time the Company
issues additional shares of Stock so that the total number of shares
issuable hereunder shall at all times equal 15% of the then outstanding
shares of Stock, unless in any case the Board of Directors adopts a
resolution providing that the number of shares issuable under this Plan
shall not be so increased. If for any reason the total number of shares
issuable under this Plan exceeds 15% of the then outstanding shares of
Stock at any time prior to August 17, 2001 (the third anniversary of
the commencement of operations of Commerce Bank), then the number of
shares issuable under this Plan shall automatically be reduced to equal
15% of the then outstanding shares of Stock (but only to the extent the
shares are not issuable pursuant to outstanding Options), unless the
Company obtains approval from the Office of Thrift Supervision that
such a reduction is not required. Notwithstanding the above, the total
number of shares of Stock issuable pursuant to Incentive Stock Options
may not be increased to more than 220,000 (other than pursuant to
antidilution adjustments) without shareholder approval. In addition,
the number of shares that may be issued hereunder shall be subject to
any antidilution adjustment pursuant to the provisions of Section 5.2
hereof. Any or all shares of Stock subject to the Plan may be issued in
any combination of Incentive Stock Options or non-Incentive Stock
Options. Shares subject to an Option may be either authorized and
unissued shares or shares issued and later acquired by the Company. The
shares covered by any unexercised portion of an Option that has
terminated for any reason (except as set forth in the following
paragraph) may again be optioned under the Plan, and such shares
<PAGE>
shall not be considered as having been optioned or issued in computing
the number of shares of Stock remaining available for option hereunder.
b. The first paragraph of Section 8.1 is amended to read as
follows:
8.1 Termination and Amendment. The Board may at any time amend
or terminate the Plan; provided, however, that the Board (unless its
actions are approved or ratified by the shareholders of the Company
within twelve months of the date that the Board amends the Plan) may
not amend the Plan to:
2. Approval. Except as hereinabove amended and modified, the Plan is
approved, ratified, and affirmed without further modification or amendment.
IN WITNESS WHEREOF, the Company has caused this Amendment to be
executed as of September 20, 1999, in accordance with the authority provided by
the Board of Directors.
ebank.com, Inc.
By:/s/ Richard A. Parlontieri
Title: President
Exhibit 10.8
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT ("First Amendment") is made as
of this 30th day of April, 1998 by and between REGENT PACES FERRY OFFICE I, INC.
("Landlord") and SOUTHEAST COMMERCE HOLDING COMPANY ("Tenant")
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into that certain Lease Agreement
dated October 14, 1997 (the "Lease") concerning certain Premises described
therein; and
WHEREAS, Landlord and Tenant desire to amend the Lease as more
particularly hereinafter set forth.
NOW THEREFORE, in consideration of the above recitals, the mutual
promises set forth herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Commencement Date. Landlord and Tenant hereby agree that the
Commencement Date under the Lease shall be July 1, 1998 and any provisions to
the Lease providing for a Commencement Date other than July 1, 1998 are hereby
modified to comply with same.
2. Base Rent. Section 15 of the Summary of Basic Lease Terms of the
Lease is hereby deleted in its entirety and the following is substituted in lieu
thereof:
"15. Base Rent:
[Section 4.1]
Portion of Lease Annual Base Annual Base Monthly
Term Rent/RSF Rent Base Rent
---- --------- ----------- -----------
7/1/98-6/30/03 $23.00 $125,028.00 $10,419.00
7/1/03-6/30/08 $25.00 $135,900.00 $11,325.00"
3. Ratification. Except as hereinabove modified, the Lease remains in
full force and effect and is hereby ratified and confirmed in all respects.
4. Capitalized Terms. The capitalized terms used herein shall have the
meaning attributed to them in the Lease unless otherwise defined herein.
<PAGE>
IN WITNESS WHEREOF, the duly authorized representatives of Landlord and
Tenant have executed this First Amendment as of the date first above written.
REGENT PACES FERRY OFFICE I, INC., a
Georgia corporation
By: /s/ David B. Allman
-------------------------------------
Name: David B. Allman
Title: President
Attest: /s/ Terry L. Woolard
---------------------------------
Name: Terry L. Woolard
Title: Secretary
(Corporate Seal)
SOUTHEAST COMMERCE HOLDING
COMPANY, a Georgia corporation
By: /s/ Rich Parlontieri
------------------------------------
Name: Rich Parlontieri
Title: Chairman/CEO
Attest: /s/ Louis J. Douglass, III
---------------------------------
Name: Louis J. Douglass, III
Title: President
(Corporate Seal)
EXHIBIT 10.9
STATE OF GEORGIA SUBLEASE
COUNTY OF COBB
THIS SUBLEASE is made and entered into this 15th day of March, 1999 by
and between The Banker Bank, hereinafter referred to as "Sublessor" and Commerce
Bank, hereinafter referred to as "Sublessee";
THAT WHEREAS, Sublessor is presently leasing certain premises from
Builders Insurance, a Mutual Captive Company ("Overlessor") under a lease dated
October 31, 1996, as amended (the "Overlease"), such premises being known as
Suite 150 (the "Premises"), containing approximately 4,450 usable square feet of
floor area in the building located at 2410 Paces Ferry Road, Atlanta, Georgia
(the "Building"); and
WHEREAS, Sublessor has agreed to sublease to Sublessee and Sublessee
has agreed to sublease from Sublessor 1,300 usable square feet of floor area
(the "Sublet Premises") in accordance with the terms and conditions hereinafter
set forth;
NOW THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Sublease. Sublessor leases to Sublessee and Sublessee subleases from
Sublesor the Sublet Premises for a term that begins on March 15, 1999 (the
"Commencement Date") and extends through March 14, 2000 (the "Termination Date")
2. Rental. Sublessee shall pay rental to Sublessor for the Sublet Premises
beginning March 15, 1999 in the amount of Two Thousand Three Hundred Sixty-one
and 67/100 Dollars ($2,361.67) per month. The rental shall be due and payable on
the fifteenth (15th) day of each month beginning March 15, 1999.
3. Sublessee Improvements. Sublease agrees to pay $3,803.00 to sublessor
for improvements made to the Sublet premises.
4. Indemnity. Sublessee does hereby indemnify and hold harmless Sublessor
and Overlessor from and against any and all claims for bodily injury, including
death, and property damage or any other cost or expense occurring in or about
the Sublet Premises or resulting from the occupancy of the Sublet Premises by
Sublessee.
5. Terms of Lease. This Sublease, except as specifically provided herein,
shall be subject to the terms and condition of the Overlease as if said
Sublessor were the Landlord therein and Sublessee were the Tenant therein. A
copy of the Overlease is attached hereto as Exhibit B and incorporated herein by
reference. Sublessee shall have no renewal option,
<PAGE>
expansion option, buyout and termination option or rights of first or second
refusal. Sublessee shall be responsible for and shall pay to Sublessor the
rental provided herein. Sublessee shall also pay it proportionate share of all
charges provided for in the Overlease including without limitation additional
rent based on increases in the Operating Cost of the Building, based on the
proportion that the usable square footage of the Sublet Premises bears to the
usable square footage of the Premises.
6. Sublessor Warranty. Sublessor warrants that the Overlease is in full
force and effect and that to the best knowledge of Sublessor there exists no
defaults on the part of the Overlessor or Sublessor. Sublessor warrants that
during the term of this Sublease that Sublessor will comply with the Overlease
and make all payments to Overlessor required thereunder and will commit no
defaults thereunder, and Sublessor shall indemnify Sublessee and hold Sublessee
harmless from any liability, loss, cost or expenses incurred by Sublessee
resulting from Sublessor's breach of the foregoing warranty.
7. Sublessee Warranty. Sublessee warrants to Sublessor that it will make
all payments required under the Sublease and abide by and perform all
obligations thereunder and commit not default under the Sublease or the
Overlease and that Sublease shall indemnify Sublessor and hold it harmless from
any liability, loss, cost or expense resulting from Sublessee's breach of this
warranty.
SUBLESSEE ATTEST
COMMERCE BANK
BY:/s/ Rich Parlontieri /s/ Dotty Croker
------------------------- -------------------------
TITLE: Chairman
---------------------
SUBLESSOR ATTEST
THE BANKERS BANK
BY: ---------------------------- -------------------------
TITLE: -------------------------
<PAGE>
STATE OF GEORGIA CONSENT OF LANDLORD
COUNTY OF COBB
Builders Insurance, a Mutual Captive Company, Overlessor ("Landlord")
under the Overlease of the premises described in the Sublease Agreement attached
hereto, does hereby consent to the said Sublease upon the express condition that
Sublessor shall remain fully liable and responsible for all terms and conditions
of the Overlease and nothing in the Sublease shall operate to allow any default
under the Overlease.
This is the ______ day of April, 1999.
WITNESS: Builders Insurance, a Mutual Captive Company
BY:
- ----------------------------- ----------------------------------------
General Partner
Exhibit 10.10 to the Form 10-KSB for year ended 1999
{Letterhead of Sutro & Co.}
CONFIDENTIAL
December 13, 1999
Mr. Rich Parlontieri
Chairman and Chief Executive Officer
ebank.com, Inc.
2410 Paces Ferry Road
Suite 190
Atlanta, GA 30339
Dear Rich:
This letter agreement sets forth the terms and conditions under which ebank.com,
Inc. (the "Company") has retained Sutro & Co. Incorporated ("Sutro") (i) to act
as its exclusive financial advisor in regards to a possible business combination
with Talisman Entertainment Inc., its affiliates or successors ("TEI"), and (ii)
to act as its exclusive placement agent with respect to the private placement(s)
(the "Financing") of equity or equity-related securities or debt securities,
including, but not limited to securities which are convertible into common stock
or have warrants attached to purchase common stock (the "Securities") on a best
efforts basis on terms satisfactory to the Company and in compliance with
Section 4(2) of the Securities Act of 1933 as amended (the "Act"), and other
federal and state securities laws. This letter agreement is in addition to the
letter agreement between the Company and Sutro dated June 30, 1999.
1. Financial Advisory Services - Sutro will assist the Company in
effecting a form of a business combination whether it be (i) a
strategic alliance, (ii) an exchange of technologies, intellectual
properties, or business practices, and/or (iii) an exchange of
ownership interests between TEI and the Company (the "Business
Combination"). The Company acknowledges that Sutro introduced the
Company to TEI. Additionally, Sutro will, as part of the financial
advisory services, introduce the Company to additional potential
partners up until the contemplated public offering outlined in the
letter agreement between the Company and Sutro dated June 30, 1999. In
the advisory function relating to TEI, Sutro proposes to undertake
certain activities, including, if appropriate, the following:
(a) Advising the Company as to the form, terms and structure of
the Business Combination;
(b) Assisting in the preparation of any documentation evidencing
the Business Combination; and
(c) Analyzing the potential impacts and implications of the
Business Combination on the Company.
2. Placement Agent Services - Sutro will assist the Company in effecting
the Financing. In this regard, we proposed to undertake certain
activities including, if appropriate, the following:
(a) Advising the Company as to the form and structure of the
Financing;
(b) Assisting in the preparation of a private placement memorandum
(the "Memorandum") describing the Company, the transaction and
the Securities offered in connection therewith. Responsibility
for the contents of such Memorandum shall be solely that of
the Company, and the
<PAGE>
Memorandum shall not be made available to or used in
discussions with prospective investors (the "Party" or
"Parties") by Sutro until both the Memorandum and its use for
that purpose have been approved by the Company;
(c) Identifying, introducing to, and consulting as to strategy for
initiating discussions with, potential investors;
(d) Negotiating the sale of the Securities to investors; and
(e) Assisting in the preparation of definitive documentation for
the Financing.
3. Compensation - Sutro's compensation for its role as financial advisor
shall be determined as follows:
(a) An advisory fee of $300,000 payable in cash upon consummation
of the Business combination and as a condition to the closing
of the Business Combination.
(b) Fully paid and non-assessable common stock of TEI equal to
7.5% of the TEI common stock received by the Company as a
result of the Business Combination.
Sutro's compensation for its role as placement agent shall be determined as
follows:
(c) A non-refundable retainer of $25,000 payable upon execution of
this Agreement. This retainer shall be credited against any
fees pursuant to paragraph 3(d) in the event a Financing
occurs.
(d) A placement fee (the "Placement Fee") equal to the sum of (i)
seven percent (7%) of the principal amount of any preferred
stock or common stock, (ii) five percent (5%) of the principal
amount of subordinated notes and/or convertible notes and
(iii) one and a half percent (1 1/2%) of the principal amount
of any secured revolving credit facility or other senior
secured debt. The Placement Fee will be payable regardless of
the size of the Financing and whether or not the Financing
occurs in one transaction or a series of transactions. The
Placement Fee shall be payable in cash upon consummation of,
and out of the proceeds of, the proposed Financing and as a
condition to the closing of such Financing.
(e) Warrants to purchase a fraction of the Company's equity equal
to three percent (3%) of the common shares or common share
equivalents sold in the Financing (the "Warrants"). The
Warrants shall be granted upon the closing of the Financing
and shall be exercisable for a five-year period commencing one
year from their date of issuance at an aggregate exercise
price equal to 125% of the price of the equity raised in the
Financing with "cashless" exercise provisions. The percentage
of equity to be purchased shall be subject to customary
anti-dilution provisions. The holders of the Warrants shall be
entitled to one demand registration right and unlimited
"piggy-back" registration rights. The Company shall bear all
costs and expenses in connection with such registrations.
4. Sutro's Expenses - In addition to the foregoing fees, and regardless of
whether the Financing contemplated by this letter agreement is
consummated, the Company agrees to promptly reimburse Sutro for all
reasonable out-of-pocket expenses, including, but not limited to, such
costs as printing, telephone, fax, courier service, copying,
accommodations, roadshow, travel, and direct computer expenses,
secretarial overtime and fees and disbursements of Sutro's legal
counsel, if any. Total reimbursements for expenses related to the
Financing shall not exceed $100,000. Expenses will be billed monthly
and payable within 15 days of receipt of such billing. The Company also
agrees to, prior to the mailing of any Memorandums to any Parties and
prior to the commencement of the Financing roadshow, to (i) reimburse
to Sutro any billed but unpaid expenses, and (ii) make an additional
expense reimbursement payment of $25,000 so as to prefund the Roadshow
expenses to be incurred by Sutro. Additionally, the Company agrees that
Sutro is not responsible for the fees and disbursements of special
counsel for the investors, whether or not these transactions are
completed. The
2
<PAGE>
Company agrees to promptly reimburse Sutro for all reasonable
out-of-pocket expenses, provided however that all outstanding
out-of-pocket expenses shall be payable in cash upon consummation of
the proposed Financing.
5. Term and Termination Rights - It is understood that the Company hereby
engages Sutro on an exclusive basis for investment banking services for
a term (the "Term") commencing on the date hereof and ending on March
31, 2000. The Term shall be automatically renewed for successive 90-day
periods unless either party gives written notice to the other within 30
days of the expiration of the Term of its desire that this engagement
expire.
Notwithstanding the foregoing, Sutro may at its sole option, terminate
its obligation hereunder without liability if, in the reasonable
opinion of Sutro, a change has occurred in the Company's financial
condition, results of operations, properties, business prospects, or
the composition of the Company's management or Board of Directors,
which, in Sutro's sole determination has adversely effected the
marketability of the Company. The remaining provisions of this letter
relating to the payment of fees earned and expenses incurred prior to
the end of the Term and the Indemnification Agreement shall survive any
termination or expiration of the engagement or the completion of
Sutro's services.
If during the Term, or within the twelve months following the
expiration thereof, (a) a financing transaction or transactions occur
for the benefit of the Company which involves a Party (i) identified to
the Company by Sutro or (ii) with whom the Company or Sutro had a
discussion regarding the Financing during the engagement and whether or
not such discussions were initiated by Sutro, or (b) the Company enters
into a definitive agreement with any such Party specified in (i) or
(ii) above which subsequently results in a financing transaction or
transactions, then the Company will be obligated to pay Sutro the fees
and expenses of Sections 3 and 4.
6. Information - In connection with Sutro's engagement the Company and its
advisors will furnish Sutro with all data, material, and information
concerning the Company (the "Information") which Sutro reasonably
requests, all of which will be accurate and complete in all material
respects, except with respect to the Company's financial statements
which shall present fairly the financial position of the Company, to
the best of the Company's knowledge, at the time furnished. The Company
recognizes and confirms that in advising it and in undertaking the
assignment, Sutro will be using and relying on the Information and
financial and other information furnished to Sutro by potential
interested Parties, without independent verification. Moreover, Sutro
will not perform any appraisal of the assets or businesses of the
Company or any Party. Sutro is hereby authorized to use and deliver the
Information, and any other data obtained by Sutro from reliable
published sources, to prospective interested Parties. In connection
with the engagement of Sutro hereunder, the Company has entered into a
separate letter agreement, dated as of the date hereof, providing for
the indemnification of Sutro and certain related parties by the Company
(the "Indemnification Agreement").
7. Confidentiality - Sutro will keep confidential and not disclose to any
third party any confidential information of the Company made available
to Sutro pursuant to Section 7 hereof by the Company, and will use the
confidential information only in connection with the engagement
hereunder; provided, however, such confidential information shall not
include any information already available to or in the possession of
Sutro prior to the date of its disclosure to Sutro by the Company, any
information in the Memorandum or in other investor materials or
generally available to the public, or any information which becomes
available to Sutro on a non-confidential basis from a third party who
is not bound by a confidentiality obligation to the Company; and
provided further, that such confidential information may be disclosed
(i) to partners, employees, agents, advisors and representatives in
connection with its engagement hereunder, who shall be informed of the
confidential nature of the information and that such information is
subject to a confidentiality agreement (ii) to any person with the
written consent of the Company, including to any prospective investors;
or (iii) if, upon the advice of counsel, Sutro is compelled to disclose
such information.
3
<PAGE>
8. Governing Law - This letter agreement and the Indemnification Agreement
constitute the entire agreement between us and supersede and take
precedence over all prior agreements or understandings whether oral or
written, between Sutro and the Company with respect to the Financing
and may only be modified by written agreement which is signed by both
parties. This letter agreement and the related indemnification
agreement referred to above shall be deemed made in California. Such
agreements shall be governed by the laws of the state of California,
without regard to such state's rules concerning conflicts of laws.
Should suit be brought to enforce this letter agreement or the
Indemnification Agreement, the prevailing party shall be entitled to
recover from the other reimbursement for reasonable attorneys' fees.
Any dispute arising from the interpretation, validity or performance of
this letter agreement or any of its terms and provisions shall be
submitted to binding arbitration with the National Association of
Securities Dealers in Los Angeles, California.
Please confirm that the foregoing correctly sets forth our agreement by signing
and returning to us the enclosed duplicate copy of this letter agreement. We
look forward to working with you and to the successful conclusion of this
assignment.
Very truly yours,
Sutro & Co. Incorporated
By: /s/ Scott E. Wendelin
-------------------------------------
Scott E. Wendelin
Director of Investment Banking
Accepted and Agreed to as of the date written above:
ebank.com, Inc.
By: /s/ Rich Parlontieri
------------------------------------------
Rich Parlontieri
Chairman and Chief Executive Officer
4
OFFICE.COM CONFIDENTIAL
Exhibit 10.11 to the Form 10-KSB for year ended 1999
INTEGRATED BUSINESS CENTER AGREEMENT
THIS INTEGRATED BUSINESS CENTER AGREEMENT (the "Agreement") is made as of this
15th day of December, 1999 (the "Effective Date") between Office.com. Inc. a
Delaware corporation, located at 300 Park Avenue South, 15th Floor, New York,
New York 10010, Attn: Vice President, Business Affairs, Fax: (212) 995-7781,
email: [email protected] ("Office.com"), and ebank.com, Inc., a Georgia
corporation, located at 2410 Paces Ferry Road, Suite 190, Atlanta, Georgia
30339, Attn: Rich Parlontieri, Tel: (770) 863-9229, Fax: (770) 863-9228, email:
[email protected] ("ebank").
RECITALS
A. Office.com is the operator of an Internet World Wide Web site currently
available through the URL http://www.office.com (together with any
successor sites, the "Office.com Site").
B. ebank is the operator of an Internet World Wide Web site currently
available through the URL http://www.ebank.com ("ebank Site").
C. ebank desires to retain Office.com to create an online Business Center
that will combine certain Office.com Brand Features, certain ebank
Brand Features, and certain Office.com content, and that will be
accessible from within the ebank Site
D. In connection therewith, ebank desires to license from Office.com
certain text, graphics, data, and/or HTML material that appears on the
Office.com Site.
In consideration of the mutual promises contained herein, the parties agree as
follows:
1. Definitions: Unless otherwise stated, capitalized terms used in this
Agreement shall have the meanings attributed to them in Exhibit A hereto, which
is hereby incorporated by reference.
2. Grant of Licenses.
2.1 Office.com's Grant of Licenses. Subject to the terms and conditions
of this Agreement, Office.com hereby grants to
ebank the following rights and privileges:
2.1.1 A non-exclusive, non-transferable (except as provided in
Section 13.3), worldwide, limited license to establish and maintain
Links to the Business Center during the Term.
2.1.2 A non-exclusive, non-transferable (except as provided in
Section 13.3), worldwide, fully-paid license to store, use, reproduce,
transmit, and display the Office.com Brand Features during the Term
solely: (i) in the approved Links and on pages within the ebank Site as
provided herein; and (ii) in connection with publicizing, advertising,
and promoting the Business Center and the ebank Site. ebank shall use
the Office.com Brand Features only in accordance with the restrictions
on use set forth in Section 10 and any written guidelines on use of
Office.com's trademarks provided to ebank. Office.com may modify, add
to, or delete from the individual components making up the Office.com
Brand Features at any time, and shall provide ebank with reasonable
notice of such changes. Any and all goodwill arising from ebank's use
of the Office.com Brand Features shall inure solely to Office.com's
benefit, and neither during the Term nor after any termination of this
Agreement shall ebank assert any claim to the Office.com Brand Features
or associated goodwill.
2.1.3 Any licenses granted in subsection 2.1.2 shall terminate
upon any termination of this Agreement. At no time during or after the
Term will ebank challenge or assist others to challenge any
Intellectual Property Rights of Office.com, or the registration
thereof, or attempt to register any trademarks, service marks, or trade
names confusingly similar to the Office.com Brand Features.
<PAGE>
2.2 ebank's Grant of Licenses. Subject to the terms and conditions of
this Agreement, ebank hereby grants to Office.com the following rights and
privileges:
2.2.1 A non-exclusive, non-transferable (except as provided in
Section 13.3), worldwide, fully-paid license to store, use, reproduce,
transmit, and display the ebank Brand Features during the Term as may
be reasonably necessary for Office.com to create, host, and service the
Business Center and otherwise to perform its obligations and exercise
its rights under this Agreement.
2.2.2 A non-exclusive, non-transferable (except as provided in
Section 13.3), worldwide, fully-paid license to store, use, reproduce,
transmit, and display the ebank Brand Features during the Term in
connection with publicizing, advertising and promoting the Business
Center, Office.com and/or its affiliates. Office.com shall use the
ebank Brand Features only in accordance with the restrictions on use
set forth in Section 10 and any written guidelines on use of ebank's
trademarks provided to Office.com. ebank may modify, add to, or delete
from the individual components making up the ebank Brand Features at
any time, and shall provide Office.com with reasonable notice of such
changes. Any and all goodwill arising from Office.com's use of the
ebank Brand Features shall inure solely to ebank's benefit, and neither
during the Term nor after any termination of this Agreement shall
Office.com assert any claim to the ebank Brand Features or associated
goodwill.
2.2.3 Any licenses granted in this subsection 2.2.2 shall
terminate upon any termination of this Agreement. At no time during or
after the Term will Office.com challenge or assist others to challenge
any Intellectual Property Rights of ebank, or the registration thereof,
or attempt to register any trademarks, service marks, or trade names
confusingly similar to the ebank Brand Features.
2.3 Office.com shall retain any and all rights Office.com may have in
the Office.com Content and Office.com Brand Features, including without
limitation all Intellectual Property Rights therein, and ebank shall retain any
and all rights ebank may have in the ebank Site, ebank Brand Features, including
without limitation all Intellectual Property Rights therein. All rights not
expressly granted by a party in this Agreement are reserved to that party.
3. The Parties' Responsibilities:
3.1 ebank's Responsibilities. ebank shall be responsible for:
3.1.1 Cooperating with Office.com in the design, creation and
production of the Business Center, including, without limitation,
providing Office.com with its responses to design and production
features of the Business Center in a timely manner, and delivery of the
ebank Brand features, Links, and logos in a timely manner and in file
formats reasonably requested by Office.com
3.1.2 in accordance with section 3.3 herein, the placement and
maintenance in the ebank Site of Links to the Business Center and to
Office.com during the Term of this Agreement
3.1.3 taking any steps determined by Office.com to be
reasonably necessary to insure that the aforementioned Links, logos and
Brand Features are accurately displayed and fully functional within
standards that are customary in the industry for first class websites.
3.2 Office.com's Responsibilities. Office.com shall be responsible for:
3.2.1 producing, creating, designing the Business Center in
consultation with ebank.
3.2.2 serving and hosting the Business Center on an Office.
com server during the Term of this Agreement;
3.2.4 placing ebank advertising on the Office.com Site as
provided in Section 12; and
<PAGE>
3.2.5 updating and maintaining the Business Center, including
keeping the Business Center up to date and in synch with the
corresponding sections of the Office.com Site.
3.3 Placement of Office.com Link on the ebank Site: Without limiting
the generality of the foregoing, and in addition to any other placement of
Office.com Brand Features and/or links to Office.com and/or the Business Center
within the ebank Site, during the Term of this Agreement, ebank shall place
links to the Office.com Site and to the Business Center such that each such link
is displayed above the fold on the ebank homepage when such homepage is
displayed in the 640 x 480 format.
3.4 Technical Integration. Office.com will make the Business Center
available on an Office.com server, to be linked to from the ebank Site, on or
about the Availability Date (as defined herein).
3.5 Customer Service. Office.com will use its best efforts to address
and respond to all ebank technical, administrative and service-oriented issues
relating to the utilization, transmission and maintenance of the Business Center
in accordance with the response and resolution guidelines set forth in Exhibit
E. Notwithstanding the foregoing, Office.com shall only be obligated to provide
support for the Business Center directly to ebank, and shall have no obligation
to provide any support to users of the ebank Site or the Business Center.
3.6 Fees. ebank shall pay Office.com the fees set forth in Exhibit C,
which is hereby incorporated by reference. ebank shall pay such fees to
Office.com or its sales representative, Winstar Interactive, Inc., as directed
by Office.com.
3.7 Modification or Removal of Content or Brand Features. Except as
Office.com may expressly approve in advance in writing, ebank will not alter or
remove any Office.com Content, any Links contained in any Office.com Content, or
any Office.com Brand Features in any manner, and specifically, without
limitation, shall not alter, remove, or obscure any notice of copyright or other
Intellectual Property Rights that may appear in connection with any Office.com
Content or Office.com Brand Features. Office.com shall have the right, in its
sole discretion and at any time, to remove any Office.com Content from the
Business Center if Office.com's right to redistribute such Office.com Content is
restricted in any way, or for any other reason. Office.com shall use
commercially reasonable efforts to give ebank prompt notice of any such removal.
3.8 Links. In addition to maintaining a Link to the Office.com Site and
to the Business Center as provided for in paragraph 3.3, ebank shall display and
maintain the Links specified in Exhibit B.
3.9 Business Center Availability. During the Term, Office.com shall
insure that the Business Center is operational and available for access through
the Internet for a 30-day average minimum of ninety-eight percent (98%) of the
time between the hours of 8:00 AM and 1:00 AM Eastern Time, seven days per week.
In the event that the site is available less than the required time, Office.com
shall refund ebank a pro rata portion of the fee for the Business Center, based
on down time in excess of such minimum each month. In the event that the
Business Center is available for less than 85% of the time in any 30-day period
(exclusive of scheduled site maintenance, which Office.com will use commercially
reasonable efforts to perform during non-business hours), ebank may cancel this
agreement and obtain a pro rata refund of all fees paid based on the remaining
amount of time in the Term.
3.10 Traffic Reports. Office.com will provide ebank with weekly and
monthly user traffic reports, in a form to be determined by the parties. Such
reports may be delivered in writing, by email, or made available online within 1
day after the end of the applicable period.
3.11 Reverse Traffic Fees. If and when Office.com and ebank find that
significant numbers of users are being driven to the Office.com Site from the
ebank Site or the Business Center, Office.com and ebank shall negotiate in good
faith to agree on reasonable compensation to ebank for such user traffic. If
appropriate or warranted, such arrangement will be added at any extension or
renewal of this agreement.
<PAGE>
4. The Business Center
4.1 The Business Center will have the "look and feel" of the ebank
Site, and will display the Office.com logo and/or other Office.com Brand
Features, as specified by Office.com and approved by ebank, which approval will
not be withheld or delayed unreasonably. Office.com may include a version of the
Office.com Site's "Navigate" functionality that will allow users to access
content on the Business Center and on the Office.com Site. Subject to the terms
of this Agreement, the Business Center will contain the Office.com Content
listed on Exhibit D (as such Content grouping may be changed from time to time
by Office.com with ebank's written approval, subject to Section 3.7), and search
functionality in substantially the form as they are made available on the
Office.com Site, both as selected by Office.com in consultation with ebank.
Results of searches and some automated headlines may require users to link to
the Office.com Site. The Business Center will not include any services and/or
functionality permitting users to undertake purchases or other transactions
("E-commerce Services") if such E-commerce Services are, or during the Term
become, available on the Office.com Site. E-commerce Services will be accessible
to ebank users, if at all, solely through Links in the Business Center to the
Office.com Site.
4.2 ebank hereby retains Office.com to consult in the creation, design
and implementation of the Business Center ("Production Services"). The period
for which Office.com is retained to provide the Production Services is from the
Effective Date until December 31, 1999. ebank shall pay Office.com a Production
Fee in the amount and by the date stated in Exhibit C.
4.3 The Business Center will be hosted on a server designated by, and
under the business control of, Office.com or its designees.
4.4 Each Content Page will compliment the "look and feel" of the ebank
Site, but will be designated "ebank Business Center, Powered by Office.com" and
will contain both Office.com Brand Features and ebank Brand Features
substantially as provided in Exhibit B (hereby incorporated by reference) or as
otherwise agreed by the parties.
4.5 Each Business Center Content Page will contain Links to the ebank
Site and to the Office.com Site substantially as provided in Exhibit B, or as
otherwise agreed by the parties.
4.6
4.6.1 During the Term, Office.com will not provide a Business
Center, or any combination of content and functionality that is
substantially similar to the Business Center (collectively, a "Business
Center Equivalent"), without ebank's written consent (which will not be
delayed or withheld unreasonably) to or for (I) any other commercial
bank or bank holding company for use on, or in connection with, their
online commercial or consumer banking website, or (II) any entity for
use on any website (or one of multiple, integrated websites) a
principal purpose of which website is to provide online commercial or
consumer banking services. "Principal purpose" shall be determined
according to reasonable criteria, including (without limitation) the
proportion of such website dedicated to online banking and the extent
to which the rest of such website promotes, and or is integrated with,
the website's online banking function.
4.6.2 The restriction set forth in (II) shall not apply to,
(i) websites, portals, internet service providers, and other websites
or services which aggregate the services of others, provided that
online commercial or consumer banking is not a principal purpose of the
aggregated products or services, (ii) websites which provide online
credit card services, online investment banking or brokerage services,
or venture capital services, provided that they do not also engage in
online commercial or consumer banking as a principal purpose, and (iii)
AOL, Prodigy, Yahoo, Lycos, Excite, Go, Ask Jeeves, Alta Vista, or
similar sites, search engines, or services.
4.6.3 In the event that, during the Term, Office.com provides
a Business Center Equivalent to an entity for use on, or in connection
with, a website which is not subject to the restriction stated above
but which does provide commercial or consumer online banking services,
Office.com shall require in its
<PAGE>
agreement with such entity that the Business Center Equivalent not be
directly linked to, or be directly accessible from, the portion of the
site which provides commercial or consumer banking services, and
vice-versa.
4.7 Office.com will use commercially reasonable efforts to filter from
the Business Center content from or pertaining to other providers of commercial
or consumer banking services.
4.8 Subject to ebank's timely cooperation with respect to its technical
and design integration obligations and other obligations hereunder, Office.com
will make the Business Center available on the internet on or about February 28,
2000 (the "Availability Date").
5. Representations & Warranties
5.1 Office.com represents and warrants that (i) it has full right,
power, and authority to enter into and perform this Agreement, and that the
individual executing this Agreement on behalf of Office.com has actual authority
to do so; (ii) to Office.com's knowledge as of the Effective Date, no claim has
been made that Office.com does not or may not have the rights herein granted to
ebank; and (iii) the Office.com Brand Features do not, and during the Term will
not, violate, conflict with or infringe upon any Intellectual Property Rights or
other rights whatsoever of any person or entity.
5.2 ebank represents and warrants that (i) it has the full right, power
and authority to enter into and perform this agreement, and that the individual
executing this agreement on behalf of ebank has actual authority to do so; (ii)
no claim has been made that ebank does not or may not have the rights to any
ebank Brand Features that will be displayed on in connection with the Business
Center and (iii) the ebank Brand Features do not, and during the Term will not,
violate, conflict with or infringe upon any Intellectual Property Rights or
other rights whatsoever of any person or entity.
6. Indemnification
6.1 Office.com, at its own expense, will indemnify, defend and hold
harmless ebank against any claim, suit, action, or other proceeding brought
against ebank based on or arising from Office.com's material breach of this
Agreement or any warranty or representation given hereunder; provided, however,
that in any such case: (i) ebank shall provide Office.com with prompt notice of
any such claim; (ii) ebank shall permit Office.com to assume and control the
defense of such action, with counsel chosen by Office.com, provided, that ebank
shall be free to be represented by counsel of its own choosing, at ebank's sole
expense; and (iii) Office.com shall not enter into any settlement or compromise
of any such claim without ebank's prior written consent, which consent shall not
be unreasonably withheld or delayed. Office.com will pay any and all costs,
damages, and expenses, including, but not limited to, reasonable attorneys' fees
and costs awarded against ebank in connection with or arising from any claim,
suit, action or proceeding covered by the foregoing indemnity.
6.2 ebank, at its own expense, will indemnify, defend and hold harmless
Office.com and its employees and agents, against any claim, suit, action, or
other proceeding brought against Office.com based on or arising from ebank's
material breach of this Agreement or any warranty or representation given
hereunder; provided, however, that in any such case: (i) Office.com shall
provide ebank with prompt notice of any such claim; (ii) Office.com shall permit
ebank to assume and control the defense of such action, with counsel chosen by
ebank, provided, that Office.com shall be free to be represented by counsel of
its own choosing, at Office.com's sole expense; and (iii) ebank shall not enter
into any settlement or compromise of any such claim without Office.com's prior
written consent, which consent shall not be unreasonably withheld or delayed.
ebank will pay any and all costs, damages, and expenses, including, but not
limited to, reasonable attorneys' fees and costs awarded against Office.com in
connection with or arising from any claim, suit, action or proceeding covered by
the foregoing indemnity.
<PAGE>
7. Limitation of Liability
IN NO EVENT WILL OFFICE.COM BE LIABLE TO EBANK FOR ANY SPECIAL, INCIDENTAL,
PUNITIVE, OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT
(INCLUDING NEGLIGENCE), OR OTHERWISE, REGARDLESS OF WHETHER SUCH DAMAGE WAS
FORESEEABLE AND WHETHER OR NOT OFFICE.COM HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGE. THE LIABILITY OF OFFICE.COM FOR DAMAGES OR ALLEGED DAMAGES
HEREUNDER, WHETHER IN CONTRACT, TORT, OR ANY OTHER LEGAL THEORY, IS LIMITED TO,
AND WILL NOT EXCEED, THE AMOUNTS THAT EBANK HAS PAID TO OFFICE.COM HEREUNDER
DURING THE TWELVE (12) MONTHS IMMEDIATELY PRECEDING THE EVENT GIVING RISE TO
SUCH DAMAGES.
8. Term & Termination
8.1 Term. This Agreement will become effective as of the Effective Date
and shall remain effective for a period of twelve (12) months immediately
following the Availability Date, unless sooner terminated as provided in this
Agreement (the "Term").
8.2 Termination for Cause. Notwithstanding the foregoing, this
Agreement may be terminated by either party immediately upon notice if the other
party: (i) becomes insolvent; (ii) becomes the subject of a voluntary petition
in bankruptcy or any voluntary proceeding relating to insolvency, receivership,
liquidation, or composition for the benefit of creditors; (iii) makes an
assignment for the benefit of its creditors; (iv) becomes the subject of an
involuntary petition in bankruptcy or any involuntary proceeding relating to
insolvency, receivership, liquidation, or composition for the benefit of
creditors, if such petition or proceeding is not dismissed within sixty (60)
days of filing; or (v) breaches any of its obligations under this Agreement in
any material respect, which breach is not remedied within thirty (30) days
following written notice to such party. For purposes of this Section 8.2,
ebank's failure to make a payment due pursuant to Section 4.2 and/or Exhibit C
shall be deemed to be a material breach of this Agreement, and Office.com's sole
and exclusive remedy in such event shall be to terminate this agreement and
discontinue the provision of services to ebank hereunder.
8.3 Effect of Termination. Any termination pursuant to this Section 8
shall be without any liability or obligation of the terminating party, other
than with respect to any breach of this Agreement prior to termination. The
provisions of Sections 1, 2.1.3, 2.2.3, 5, 6, 7, 8, 9 and 11, and Exhibit A
shall survive any termination or expiration of this Agreement, as well as any
other provision which by its nature ought to survive.
8.4 Right of First Negotiation Commencing sixty (60) days prior to the
expiration of the Term, Office.com shall negotiate exclusively with Ebank in
good faith for a period of at least thirty (30) days with respect to mutually
agreeable terms and conditions to extend the Term of this Agreement. If
Office.com and ebank are unable to agree upon mutually agreeable terms after the
expiration of such thirty (30) day period, then, subject to Section 8.3 herein,
each party shall be without any further obligation to the other after the
expiration of the Term.
9. Ownership
9.1 By Office.com. ebank acknowledges and agrees that: (i) as between
Office.com and ebank, Office.com owns all right, title and interest in the
Office.com Site, Office.com Content, and any Office.com Brand Features; (ii)
nothing in this Agreement shall confer or be construed to confer on ebank or an
Affiliate of ebank any right of ownership or other proprietary right in the
Office.com Site, Office.com Content, or any Office.com Brand Features or other
Office.com Intellectual Property Rights; and (iii) neither ebank nor its
Affiliates shall now or in the future contest the validity of the Office.com
Brand Features or other Office.com Intellectual Property Rights. Office.com
grants no licenses except as is expressly set forth in this Agreement.
9.2 By ebank. Office.com acknowledges and agrees that: (i) as between
Office.com and ebank, ebank owns all right, title and interest in the ebank Site
and the ebank Brand Features or other ebank Intellectual Property Rights; (ii)
nothing in this Agreement shall confer in Office.com any right of ownership in
the ebank Brand Features; and (iii) Office.com shall not now or in the future
contest the validity of the ebank Brand
<PAGE>
Features. ebank grants no licenses no licenses except as is expressly set forth
in this Agreement.
10 Public Announcements; Marketing and Promotion
10.1 The parties will cooperate to create any and all appropriate
public announcements relating to the relationship set forth in this Agreement.
Neither party shall make any public announcement regarding the existence or
content of this Agreement without the other party's prior written consent.
which, in the case of Office.com, must be given by Office.com's Vice President
of Marketing and, in the case of ebank, from ebank's CEO. The foregoing shall
not limit the parties' respective rights to use and display the other parties'
Brand Features as set forth in Section 2.
10.2 With respect to use, display, or reproduction of the Brand
Features of the other party, each party will follow any written usage guidelines
provided by the other party. Each party may use the trademarks, service marks,
trade names and other Brand Features of the other party only in connection with
the owner's products and services, or to promote the Business Center or the
general relationship of the parties. Neither party shall use the Brand Features
of the other to endorse, market, sell, or promote any of its own products or
services or those of any third party without the express written consent of the
owner of such Brand Features. Each party shall provide the other prior notice
and an opportunity to review and approve all use of the Brand Features of the
other party. Each party shall conduct all such review in a prompt manner, and
neither party shall withhold or delay approval unreasonably. Each party shall
remove or discontinue any specific use of the Brand Features of the other upon
the other party's reasonable objection to such use.
10.3 Prior to January 31, 2000, or any earlier date that ebank becomes
committed to perform this Agreement in its entirety (the "Commitment Date"),
ebank shall not disclose the existence of this Agreement, the terms and
conditions hereof, or the existence and/or nature of its relationship with
Office.com to any third party without Office.com's prior approval which shall
not be unreasonably withheld. Notwithstanding the foregoing, ebank may describe
its relationship with Office.com in any private placement memorandum or other
document used in connection with ebank's capital raising efforts, provided that
Office.com is afforded an opportunity to review and comment on such description,
and provided that all recipients of such information are under a written
obligation to keep such information confidential.
11. Confidentiality
11.1 Confidential Information. "Confidential Information" of a party
means (i) business or technical information of that party, including but not
limited to information relating to that party's software, product plans,
customers, designs, costs, product prices and names, finances, marketing plans,
business opportunities, personnel, research, development, trade secrets, or
know-how and the identity of each party's third-party content suppliers; and
(ii) any information designated by that party as "confidential" or "proprietary"
or which, under the circumstances taken as a whole, would reasonably be deemed
to be confidential; and (iii) the terms and conditions of this Agreement.
11.2 Confidentiality Obligations. Each party: (i) will not use, or
disclose to any third party, any Confidential Information disclosed to it by the
other party except as expressly permitted in this Agreement; and (ii) will take
all reasonable measures to maintain the confidentiality of all Confidential
Information of the other party in its possession or control, which will in no
event be less than the measures it uses to maintain the confidentiality of its
own information of similar importance.
11.3 Exclusions. "Confidential Information" will not include
information that: (i) is or becomes public without breach of this Agreement;
(ii) the receiving party lawfully receives from a third party without
restriction on disclosure and without breach of a nondisclosure obligation; or
(iii) the receiving party knew prior to receiving such information from the
disclosing party or develops independently. Either party may disclose
Confidential Information of the other party: (i) pursuant to the order or
requirement of a court, administrative agency, or other governmental
body, provided that the disclosing party gives reasonable notice to the other
party to contest such order or requirement; and (ii) on a confidential basis to
its legal or financial advisors.
<PAGE>
12. ebank Advertising
12.1 During the Term of this Agreement, Office.com shall place
the following ebank advertising on the Office.com Site:
12.1.1 A 120 x 90 fixed banner above the fold on the first
page of either of the following areas (i) Business Management -
Financing; or (ii) Business Management - Financial Services;
12.1.2 A 120 x 90 fixed banner above the fold on the first
page of the "Industry Focus - Financial Services" area;
12.1.3 During the first thirty (30) day period after the
Availability Date, ebank banner advertising, in various sizes, will be
placed in primary advertising locations on the Office.com Site,
including 480 x 64 banners on the homepage of the Office.com Site.
12.2 Office.com will use its best efforts to place ebank
advertising in unsold space on the Office.com Site, if and when such inventory
is available
12.3 With respect to any ebank advertising provided for above that
ebank wishes to have displayed on the Office.com Site, ebank shall provide
Office.com with the applicable material necessary to place such advertising
("Advertising Creative") no later than fifteen (15) days prior to the date such
advertising is to first be displayed. Office.com may accept or reject any
Advertising Creative delivered by ebank in its sole discretion, but must notify
ebank in writing, within five (5) business days of receipt of any such
Advertising Creative, of its rejection of the same. Office.com's failure to give
such notice within the period stated shall be deemed an acceptance of such
Advertising Creative.
12.4 Modification of Current Advertising. For the purposes of
conforming Advertising Creative to the standards, editorial policies and design
of the Office.com Site as the same may be updated on a continuing basis,
Office.com may request changes in Advertising Creative. Upon notice that
Office.com desires such changes, Office.com will continue to display the
existing advertising, and ebank shall have three (3) business days to deliver
conforming Advertising Creative.
12.5 With respect to pages on the Office.com Site on which ebank
advertising is placed pursuant to sections 12.1 and 12.2 above, Office.com will
not place advertising from any entity excluded under Section 4.6.
12.6 When and if Office.com distributes an online Office.com
newsletter: no less than once per month during the Term of this Agreement,
Office.com will make available to ebank a standard advertising space within the
newsletter. ebank may use such space to present an ebank promotional message of
ebank's choosing, subject to Office.com's standards and deadlines for such
newsletter. Additionally, ebank may include within such promotional message a
Link to the homepage or other area of the ebank Site, to the Business Center, or
to third-party material relating to ebank to which ebank has permission to link,
as determined by ebank. Office.com will not include such promotional message in
any issue of the newsletter that contains an article concerning, and/or an
advertisement for, another online commercial or consumer bank.
12.7 ebank shall supply Office.com with a paragraph about ebank and, at
ebank's option, an ebank logo, for Office.com to include in an ebank-specific
portion of an Office.com Site page (currently entitled "Partners") containing
information about content providers and/or other entities selected by Office.com
associated with the Office.com Site. Such paragraph and logo (if applicable)
shall be subject to Office.com's standard technical specifications for such
page.
<PAGE>
13. Miscellaneous
13.1 Notices. All notices, consents, and other communications called for
or permitted by this Agreement shall be in writing, and may be given by
confirmed facsimile transmission, by hand, by nationally- recognized overnight
delivery service, or by U.S. certified mail (return receipt requested, postage
and charges prepaid). Any notice, consent, or communication may also be sent by
electronic mail if it is contemporaneously sent by means of one of the other
methods stated in this Section 13.1 other than facsimile. Notice shall be deemed
made when actually received by the party to which notice is provided. All
notices, consents and communications will be sent to the respective addresses
set forth in the heading to this Agreement, or to such other address as either
party may specify to the other in accordance with this Section 13.1.
13.2 Key Contact: Each party shall designate, and provide to the other
contact information for, a primary business contact and a primary technical
contact for matters relating to this Agreement. Neither party shall be required
to contact any other personnel of the other party regarding any matter. Either
party may designate a new primary contact person by written notice to the other
party.
13.3 Miscellaneous Provisions. Neither party may assign this Agreement,
in whole or in part, without the other party's prior written consent, except
that either party may assign this Agreement without consent in the case of a
merger, reorganization, acquisition, consolidation, or sale of all, or
substantially all, of its assets. Office.com may also assign this Agreement
without consent to any party assuming ownership and/or management of the
Office.com Site or its successors. Any attempt to assign this Agreement other
than as permitted herein will be null and void. Without limiting the foregoing,
this Agreement will inure to the benefit of and bind the parties' respective
successors and permitted assigns. This Agreement will be governed by, and
construed in accordance with, the laws of the State of New York, without
reference to principles of conflicts of laws, and without regard to its location
of execution or performance. If any provision of this Agreement is found invalid
or unenforceable, that provision will be enforced to the maximum extent
permissible and the other provisions of this Agreement will remain in force.
Neither this Agreement, nor any terms and conditions contained herein may be
construed as creating or constituting a partnership, joint venture, employment,
or agency relationship between the parties. Any use of the term "partner" or its
equivalent is for marketing purposes and will have no bearing on the parties'
legal relationship. No failure of either party to exercise or enforce any of its
rights under this Agreement will act as a waiver of such rights. This Agreement
and its exhibits are the complete and exclusive agreement between the parties
with respect to the subject matter hereof, superseding and replacing any and all
prior and contemporaneous agreements, communications, and understandings, both
written and oral, regarding such subject matter. This Agreement may only be
modified, or any rights under it waived, by a written document executed by both
parties. This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute a single instrument. Execution and
delivery of this Agreement may be evidenced by facsimile transmission.
14. Payment. ebank will pay the Production Fee (as set forth in Exhibit C)
simultaneous with execution of this Agreement. Notwithstanding the payment
schedule set forth in Exhibit C, ebank's obligation to pay the Maintenance Fee,
Office.com Proprietary Materials Fee, and Third Party Content Fee shall be
conditioned on ebank's receipt of irrevocable, non-contingent commitment(s) to
finance an aggregate of $10 million from public or private capital raising
efforts (the "ebank Financing"). Notwithstanding the foregoing, in the event
that ebank fails to (i) complete the ebank Financing prior to January 31, 2000,
or (ii) otherwise commit to pay the Maintenance Fee, Office.com Proprietary
Materials Fee, and Third Party Content Fee within the strict terms of this
Agreement, Office.com shall be relieved of all its obligations hereunder, and
shall have no obligation to refund to ebank any portion of the Production Fee.
Office.com may elect at any time prior to the Commitment Date to terminate this
Agreement by providing notice to ebank and refunding the $250,000 Production Fee
in its entirety, in which case both parties shall be relieved of all obligations
hereunder other than under Section 11 (Confidentiality).
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the date first written above.
Office.com. Inc. Commerce Bank d/b/a ebank.com
By: /s/ Stuart B. Rickman By: /s/ Richard A. Parlontieri
--------------------------- ---------------------------
Printed Name: Stuart B. Rickman Printed Name: Richard A. Parlontieri
Title: Chief Executive Officer Title: Chairman and Chief Executive Officer
<PAGE>
EXHIBIT A
---------
DEFINITIONS
"Business Center" shall mean the co-branded World Wide Web site to be designed
and created by Office.com containing Office.com Content, as more particularly
described in this Agreement.
"Commitment Date" shall have the meaning set forth in Section 10.3.
"Content Pages" shall mean those pages on the Business Center that contain
Office.com Content along with both Office.com Brand Features and ebank Brand
Features.
"ebank Brand Features" shall mean all trademarks, service marks, logos and
other distinctive brand features of ebank including, without limitation, the
trademarks, service marks and logos described in Exhibit B.
"ebank Financing" shall have the meaning set forth in Section 14.
"ebank Site" shall mean the World Wide Web site currently available at the
Internet URL http://www.ebank.com, and all ebank-owned World Wide Web pages
linked therefrom.
"Enhancements" shall mean any updates, improvements or modifications made to, or
derivative works created from, the Office.com Content by Office.com during the
Term.
"Intellectual Property Rights" shall mean all rights in and to trade secrets,
patents, copyrights, trademarks, trade names, service marks, know-how, as well
as moral rights and similar rights of any type under the laws of any
governmental authority, domestic or foreign.
"Internet" shall mean the collection of computer networks commonly known as the
Internet, and shall include, without limitation, the World Wide Web.
"Link" shall mean an Internet hyperlink from one location within a World Wide
Web site to another location, whether in the same or a different World Wide Web
site.
"Office.com Brand Features" shall mean all trademarks, service marks, logos and
other distinctive brand features of Office.com that Office.com grants ebank
consent to use hereunder, which shall include (subject to Section 2.1.2 hereof),
without limitation, the trademarks, service marks and logos described in Exhibit
B hereto.
"Office.com Content" shall mean, collectively, all materials, data, and similar
information collected, owned by, or licensed to Office.com for use on the
Office.com Site (whether such content is original to Office.com or provided by a
third party), which is a collection of HTML files and certain related graphics
and scripts and the selection, organization and search functionality of the
same, including, without limitation, all Enhancements.
"Office.com Site" shall mean the World Wide Web site currently available at the
Internet URL http://www.office.com, and all Office.com-owned pages linked
therefrom.
"Term" shall have the meaning set forth in Section 8.1.
<PAGE>
EXHIBIT B
---------
BRAND FEATURES / SITE INTEGRATION MATERIALS
1. Office.com Brand Features
Whenever the above logo is displayed in the Business Center, it shall serve as a
Link to http://www.office.com./global/index.
Office.com A Service From Winstar
Whenever the above text is displayed in the Business Center, it shall serve as a
Link to: http://www.office .com/ global/index
Other Office.com Brand Features
Office.com trademarks and service marks as provided to Office.com prior to
execution of this Agreement Office.com logo as displayed above, and as provided
by Office.com to ebank prior to execution of and during the Term of this
Agreement The Business Center
2. ebank Brand Features
Logo:
[GRAPHIC REPRESENTATION OF EBANK LOGO]
Whenever the above logo is displayed in the Business Center, it shall serve as
a Link to http://www.ebank.com/
Other ebank Brand Features:
ebank trademarks and service marks as provided to Office.com prior to execution
of this Agreement ebank logo as displayed above, and as provided by ebank to
Office.com prior to execution of and during the Term of this Agreement
3. Integration of the Parties' Brand Features on the Business Center
The Office.com and ebank Brand Features will be placed in relation to one
another at the top of each Content Page that is displayed on the Business Center
as follows:
[GRAPHIC REPRESENTATION OF Office.com @ ebank]
<PAGE>
EXHIBIT C
---------
FEES
<TABLE>
<CAPTION>
FEE AMOUNT DUE DATE PURPOSE
<S> <C> <C> <C>
Production Fee $250,000 Upon execution Production, design
of this and creation of the
Agreement Business Center
Maintenance Fee $250,000 Availability Provision and
Date maintenance of
server, content
feeds and customer
service functions
during the term.
Office.com Proprietary Materials Fee $250,000 April 30, 1999 License fee for
Office.com content,
search functionality
and other
proprietary features
during the term.
Third Party Content Fee $250,000 July 31, 1999 License fee for
content Provided to
Office.com By third
parties and made
Available to
Business Center
users during the
term
</TABLE>
If at any time ebank fails to make a payment to Office.com under this
Agreement when such payment is due to be made, Office.com's obligations to
perform under this Agreement shall be immediately suspended. Additionally, ebank
shall pay Office.com a late fee of 1.5% per month of any amount that is not paid
within thirty (30) days of coming due.
<PAGE>
EXHIBIT D
---------
CONTENT SCHEDULE
Office.com / ebank Content Types
Industry Report: A monthly in-depth analysis of a trend or an issue confronting
an industry, covering 16 industries, from Advertising to Utilities. Industry
Reports provide detailed reporting and research on a topic and describe how
businesspeople can leverage that information to further their business. Each
report is approximately 3,000 words.
News and Views: An insider's guide to the news and events that shape the
competitive landscape. Designed to be a quick look at trends and topics, these
reports track our industry sectors and provide a digest of the important news of
the week. News & Views include several components: Movers, Expert Opinion, Check
It Out, Datelines and Quotes. The combined report is approximately 1,000 words.
Updated weekly.
Smart Business: These articles look at businesses or individuals who have
developed interesting solutions to business problems or who have developed
successful business strategies. Office.com produces 40 smart business articles
per month over a cross-section of topic areas including Business Development,
Business Research, Customer Service, Financial Management, Financing, Global
Trade, Human Resources, Leadership and Management, Legal Affairs and Marketing
and Selling. Smart Business articles are approximately 1,500 words each. Updated
weekly.
Who's Hot: Short profiles of individuals or companies that stand out or have
prominence for unique and innovative ideas, successful
management, etc.
Business Tools: A suite of fifty interactive articles that provide step-by-step
training covering the key aspects of operating a thriving business, from writing
a business plan to hiring new employees and analyzing your market. Written in
association with entrepreneurs who are experts in their respective fields, these
articles offer practical guidance to running a successful business. Topic areas
include: Finance, Sales & Marketing, Business Planning & Legal, Human Resources
and Technology.
<PAGE>
Office.com Business Tools
Finance
Prepare a Balance Sheet
Analyze Profitability
Create an Income Statement
Prepare a Cash Budget
Create a Cash Flow Statement
Financial Ratio Analysis
Valuing a Business
Growing With Partners and Investors
Present Your Company to Investors
Preparing Your Company to Go Public
Sales & Marketing
Using Business Alliances as a Growth Strategy
Conduct a Market Analysis
Create Sales Letters
Analyze Your Competition
Identify Your Target Market
Create a Direct Mail Package
Create a Promotional Package
Creating a Competitive Edge
Expand With New Market Development
New Products and Services
Conduct a Sales Forecast
Personalization Strategies to Attract and Retain Customers
Creating a Branding Strategy
Tailoring Your Company's Vision According to Trends and Changing Customer
Preferences
Human Resources
Becoming a Manager of High-Performance Work Teams
Hire for Success
Hire a Sales Staff
Time Management Strategies
Measure Employee Effectiveness
Building an Effective Team
When to Delegate
Fostering Entrepreneurial Ideas
Nurturing Entrepreneurial Employees
Business Planning & Legal
A Guide to Licensing and Franchising
Determine Your Company's Legal Structure
Small Business Legal Issues
Buying a Business
Protect Your Business with Patents, Copyrights and Trademarks
Develop a Business Plan
Creating an Effective Customer Service Plan
How to Expand Your Business Globally
Technology
Building a Website
<PAGE>
Effective Use of Technology
Building an E-Commerce Site
Turning Your Web Site Into an Effective Communications Tool
Establishing a Virtual Office
Establishing an Extranet
Office.com Business Management Areas
Business Development
Finance
Global Business
Human Resources
Leadership and Management
Legal
Marketing and Sales
Information technology
<PAGE>
EXHIBIT E
---------
Office.com Response and Resolution Guidelines
Problem Severity Levels
Office.com will classify problems identified by ebank as follows:
Critical. Highest priority classification. Assigned to problems that prevent
users from accessing the Business Center.
High. Second highest priority classification. Assigned to problems that prevent
users from accessing parts of the Business Center, or which prevent the use of
material functionality of the Business Center, or which cause significant
slowdowns or delays in users' ability to access the Business Center.
Low. Third highest priority classification. Assigned to problems that
inconvenience users, including Links that do not work, missing functionality,
and less significant slowdowns in access times.
Response and Resolution Guidelines
The manner in which Office.com support personnel responds to a problem will
depend to a great extent upon the problem's severity classification. Following
are the target response times for each level of problem severity:
Critical. For calls logged during normal support hours, a return call should be
made to the bank within 15 minutes. For calls logged after Office.com support
staff's regular business hours, a return call should be made within one hour.
Problems should be addressed within 1 hour after a return phone call.
High. For calls logged during normal support hours, a return call should be made
to the bank within 1 hour. For calls logged after-hours, a return call should be
made within 2 hours. Problems should be addressed within 3 hours from the
returned phone call.
Low. For calls logged during normal support hours, a return call should be made
during the same business day. Problems should be addressed by the end of the
next business day.
EXHIBIT 10.12
FOUNTAINHEAD
STRATEGIC SOLUTIONS, LLC
2626 Cumberland Parkway, Suite 400
Atlanta, Georgia 30339, USA
Telephone 404-786-1300
Facsimile 404-786-9900
May 14, 1999
Mr. Mark D. Little
Chief Financial Officer
ebank.com, Inc.
2410 Paces Ferry Road, #190
Atlanta, Georgia 30339
Dear Mr. Little:
Steve, Ed and I have enjoyed the opportunity to discuss Fountainhead
Strategic Solutions, LLC's ("FSS") proposed engagement with ebank.com, Inc.
("ebank"). This letter will confirm the terms of our engagement to provide
consulting services to ebank. The engagement is outlined as follows:
Duties
- ------
In order to better define the engagement, develop a detailed work plan
and set milestones for work product delivery, we suggest we meet for one to two
hours as soon as possible. After this meeting we will provide you with a budget
for each phase of the engagement, the expected deliverable, and the expected
delivery date.
We understand that ebank intends to execute a secondary offering of
common stock in September or October of 1999. In preparation for this offering,
we propose to provide assistance in preparing projected financial statements,
drafting the business plan and the Management Discussion and Analysis (MD&A)
section of the S-1, and developing a Powerpoint presentation for use on the road
show. In our discussions Thursday afternoon, we also explored your short-term
desire to enhance the current Powerpoint presentation being used to introduce
ebank to potential securities underwriters.
<PAGE>
Mr. Mark D. Little
Chief Financial Officer
ebank.com, Inc.
Proposed Engagement Team
- ------------------------
Hourly Billing Rates
--------------------
Stephen R. Gross $ 225.00
Jerry C. Huskins 185.00
Kevin Couillard 185.00
Ed Eiland 135.00
Analyst 90.00
Our fee for this engagement will be based on actual time incurred at
our standard hourly rates plus travel and other out-of-pocket costs such as
mileage, courier, postage, etc. Our standard hourly rates vary according to the
degree of responsibility involved and the experience level of the personnel
assigned. We ask that a retainer of $10,000 be paid at the beginning of the
engagement. We will submit an invoice every two weeks for services performed. We
ask that these subsequent invoices be paid with one week of presentation.
FSS's maximum liability to ebank for any reason relating to the
services under this letter shall be limited to the fees paid to FSS for the
services or work products giving rise to liability. In addition, ebank will
indemnify and hold harmless FSS and its personnel from any claims, liabilities,
costs, and expenses relating to our services under this letter, except to the
extent finally determined to have resulted from the gross negligence or willful
misconduct of FSS.
If the terms described in this letter are acceptable, please sign and
return one copy of this letter along with a retainer check to the address shown.
We look forward to spending more time with you and your management team on this
important engagement. Please call me after you have had a chance to review this
letter at 404-786-1300.
Yours very truly,
/s/ Jerry C. Huskins
Jerry C. Huskins
Managing Director
Agreed to and accepted for ebank.com, Inc. by:
Mark D. Little
/s/ Mark D. Little June 1, 1999
- ------------------------------------ ------------
Signature Date
Exhibit 10.13
ebank.com, Inc.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made by and between
ebank.com, Inc., a unitary thrift holding company (the "Employer"), and Richard
A. Parlontieri, an individual resident of Georgia (the "Employee"), as of this
6th day of March, 2000 ("Effective Date").
The Employer presently employs the Employee as its Chief Executive
Officer. The Employer recognizes that the Employee's contribution to the growth
and success of the Employer is substantial. The Employer desires to provide for
the continued employment of the Employee and to make certain changes in the
Employee's employment arrangements which the Employer has determined will
reinforce and encourage the continued dedication of the Employee to the Employer
and will promote the best interests of the Employer and its shareholders. The
Employee is willing to continue to serve the Employer on the terms and
conditions herein provided.
In consideration of the foregoing, the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree that on the Effective Date:
1. Employment. The Employer shall continue to employ the Employee, and
the Employee shall continue to serve the Employer, as Chief Executive Officer
upon the terms and conditions set forth herein. The Employee shall have such
authority and responsibilities as are consistent with his position and which may
be set forth in this Agreement or assigned by the Chief Executive Officer
("CEO") or the Board of Directors from time to time. The Employee shall devote
his full business time, attention, skill and efforts to the performance of his
duties hereunder, except during periods of illness or periods of vacation and
leaves of absence consistent with the Employer's policy. The Employee may devote
reasonable periods of time to perform charitable and other community activities
and to manage his personal investments; provided, however, that such activities
will not materially interfere with the performance of his duties hereunder and
will not be in conflict or competitive with, or adverse to, the interests of the
Employer. Under no circumstances will the Employee work for any competitor or
have any financial interest in any competitor of the Employer; provided,
however, that the Employee may invest in up to 1% of the publicly-traded stock
or securities of any company whose stock or securities are traded on a national
exchange.
2. Term. Unless earlier terminated as provided herein, the Employee's
employment under this Agreement shall be for a continuing term (the "Term") of
three years, which shall be extended automatically (without further action of
the Employer or the Employee) 30 days prior to the end of each term for an
additional three years so that the remaining term shall again become three years
unless, prior to any such automatic extension, either party shall deliver
written notice upon the other of its intention that this Agreement shall not be
so extended, in which case the Agreement shall continue through its remaining
term but shall
<PAGE>
not be extended absent written agreement by both the Employer and the Employee.
3. Compensation and Benefits.
a. The Employer shall pay the Employee a salary at a rate of not less
than $175,000 per annum in accordance with the salary payment practices of the
Employer. The Board of Directors shall review the Employee's salary at least
annually and may increase the Employee's base salary if it determines in its
sole discretion that an increase is appropriate.
b. The Employee shall participate in any retirement, welfare, deferred
compensation, life and health insurance, and other benefit plans or programs of
the Employer now or hereafter applicable to the Employee or applicable generally
to employees of the Employer, as determined by the Board of Directors.
c. The Employer shall continue to reimburse the Employee for reasonable
travel and other expenses related to the Employee's duties which are incurred
and accounted for in accordance with the Employer's standard business practices.
d. The Employee shall be eligible to receive cash bonuses based on the
Employee's achievement of specified goals and criteria. These goals and criteria
may include both annual and long-term goals, may provide for vesting over a
specified time period, and shall be established annually by the Compensation
Committee of the Board of Directors and attached to and made a part of this
Agreement (the "Bonus Plan"). Unless provided otherwise in any particular Bonus
Plan, each annual award will vest on January 1 of the year following the year
for which the award is earned, provided that the Employee is actively employed
on such date, and each long-term incentive compensation award will vest in equal
portions on January 1 of the three years following the year in which the award
is earned, provided that the Employee is actively employed on each such date.
The Employer shall make payment on any vested bonus within a reasonable period
after vesting thereof.
4. Termination.
a. The Employee's employment under this Agreement may be terminated
prior to the end of the Term only as follows:
(i) upon the death of the Employee;
(ii) upon the disability of the Employee for a period of 180 days
which, in the opinion of the Board of Directors, renders him unable
to perform the essential functions of his job and for which
reasonable accommodation is unavailable. For purposes of this
Agreement, a "disability" is defined as a physical or mental
impairment that substantially limits one or more major life
activities, and a "reasonable accommodation" is one that does not
impose an undue hardship on the Employer;
2
<PAGE>
(iii) upon the determination of Cause for termination, in which
event such employment may be terminated by written notice at the
election of the Employer. For purposes of this Agreement, "Cause"
shall consist of any of (A) the commission by the Employee of a
willful act (including, without limitation, a dishonest or
fraudulent act) or a grossly negligent act, or the willful or
grossly negligent omission to act by the Employee, which is intended
to cause, causes, or is reasonably likely to cause material harm to
the Employer (including harm to its business reputation), (B) the
indictment of the Employee for the commission or perpetration by the
Employee of any felony or any crime involving dishonesty, moral
turpitude or fraud, (C) the material breach by the Employee of this
Agreement that, if susceptible of cure, remains uncured ten days
following written notice to the Employee of such breach, (D) the
exhibition by the Employee of a standard of behavior within the
scope of his employment that is materially disruptive to the orderly
conduct of the Employer's business operations (including, without
limitation, substance abuse or sexual misconduct) to a level which,
in the Board of Directors' good faith and reasonable judgment, is
materially detrimental to the Employer's best interest, that, if
susceptible of cure, remains uncured ten days following written
notice to the Employee of such specific inappropriate behavior, or
(E) the failure of the Employee to render the services hereunder in
accordance with an appropriate performance standard determined in
the sole discretion of the Board of Directors; or
(iv) upon 30 days written notice thereof to the Employee from the
Employer (termination "Without Cause"), provided that in the event
of any such termination Without Cause, Section 4(e) shall be
applicable thereto.
b. If the Employee's employment is terminated because of the Employee's
death, the Employee's estate shall receive any sums due him as base salary
and/or reimbursement of expenses through the end of the month during which death
occurred, plus any bonus earned or accrued under the Bonus Plan through the date
of death (including any amounts awarded for previous years but which were not
yet vested) and a pro rata share of any bonus with respect to the current fiscal
year which had been earned as of the date of the Employee's death.
c. During the period of any incapacity leading up to the termination of
the Employee's employment as a result of disability, the Employer shall continue
to pay the Employee his full base salary at the rate then in effect and all
perquisites and other benefits (other than any bonus) until the Employee becomes
eligible for benefits under any long-term disability plan or insurance program
maintained by the Employer, provided that the amount of any such payments to the
Employee shall be reduced by the sum of the amounts, if any,
3
<PAGE>
payable to the Employee for the same period under any disability benefit or
pension plan of the Employer or any of its subsidiaries. Furthermore, the
Employee shall receive any bonus earned or accrued under the Bonus Plan through
the date of incapacity (including any amounts awarded for previous years but
which were not yet vested) and a pro rata share of any bonus with respect to the
current fiscal year which had been earned as of the date of the Employee's
incapacity.
d. If the Employee's employment is terminated for Cause as provided
above, or if the Employee resigns (except for a termination of employment
pursuant to Section 4(f)), the Employee shall receive any sums due him as base
salary and/or reimbursement of expenses through the date of such termination,
but Employee will thereby forfeit any rights in any unpaid bonus, including,
without limitation, any bonus amounts awarded for previous years which were not
yet vested and any share of any bonus with respect to the current fiscal year
which had been earned as of the date of such termination or resignation.
e. If the Employee's employment is terminated Without Cause, the
Employer shall pay to the Employee severance compensation in an amount equal to
100% of his then-current monthly base salary each month for one year from the
date of termination, plus any bonus earned or accrued under the Bonus Plan
through the date of termination and a pro rata share of any bonus with respect
to the current fiscal year which had been earned as of the date of the
Employee's termination. However, Section 4(f) shall apply instead of this
Section 4(e) to any termination Without Cause after a Change in Control.
f. Upon a Change in Control, the Employee may terminate his employment
hereunder for any reason upon delivery of notice to the Employer within a 90-day
period beginning upon the occurrence of a Change in Control or within a 90-day
period beginning on the one year anniversary of the occurrence of a Change in
Control. If the Employee terminates his employment pursuant to this Section 4(f)
or if the Employer terminates the Employee Without Cause after a Change in
Control, in addition to other rights and remedies available in law or equity,
the restrictive covenants contained in Section 9 shall not apply and, in
addition, the Employee shall be entitled to the following: (i) the Employer
shall pay the Employee in cash within 15 days of such termination date any sums
due him as base salary and/or reimbursement of expenses through the date of such
termination, plus any bonus earned or accrued under the Bonus Plan through the
date of termination (including any amounts awarded for previous years but which
were not yet vested) and a pro rata share of any bonus with respect to the
current fiscal year which had been earned as of the date of the Employee's
termination (and any forfeiture in other restrictive provisions applicable to
each award shall not apply); and (ii) the Employer shall pay the Employee in
cash within 15 days of such termination date one lump sum payment in an amount
equal to the Employee's then current annual base salary multiplied by the
original full Term (without taking into account the amount of the Term which may
have lapsed by such date).
g. With the exceptions of the provisions of this Section 4, and the
express terms of any benefit plan under which the Employee is a participant,
upon termination of the Employee's employment, the Employer shall have no
obligation to the Employee for, and the Employee waives and relinquishes, any
further compensation or benefits (exclusive of COBRA
4
<PAGE>
benefits). At the time of termination of employment, the Employee shall enter
into a form of release acknowledging such remaining obligations and discharging
the Employer, as well as the Employer's officers, directors and employees with
respect to their actions for or on behalf of the Employer, from any other claims
or obligations arising out of or in connection with the Employee's employment by
the Employer, including the circumstances of such termination.
h. In the event that the Employee's employment is terminated for any
reason and the Employee serves as a director of the Employer or of any
subsidiary of the Employer, the Employee shall (and does hereby) tender his
resignation from such positions effective as of the date of termination.
i. The parties intend that the severance payments and other
compensation provided for herein are reasonable compensation for the Employee's
services to the Employer and shall not constitute "excess parachute payments"
within the meaning of Section 280G(b) of the Internal Revenue Code of 1986 and
any regulations thereunder. In the event that the Employer's independent
accountants acting as auditors for the Employer on the date of a Change in
Control determine that the payments provided for herein constitute "excess
parachute payments," then the Employee's compensation payable hereunder shall be
decreased, so as to equal an amount that is $1.00 less than three times the
Employee's "base amount," as that term is defined in Section 280G(b) of the
Internal Revenue Code, if, and only if, reducing the Employee's compensation
will put the Employee in a better after-tax position than if the Employee's
compensation was not reduced.
j. Notwithstanding anything to the contrary herein, if the Employee is
suspended or temporarily prohibited from participating in the conduct of the
Employer's affairs by a notice served under section 8(e)(3) or (g)(1) of Federal
Deposit Insurance Act (12 U.S.C. 1818 (e)(3) and (g)(1)), the Employer's
obligations under this Agreement shall be suspended as of the date of service
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Employer may in its discretion (i) pay the Employee all or part
of the compensation withheld while the obligations under this Agreement were
suspended and (ii) reinstate (in whole or in part) any of such obligations which
were suspended.
k. Notwithstanding anything to the contrary herein, if the Employee is
removed or permanently prohibited from participating in the conduct of the
Employer's affairs by an order issued under section 8 (e)(4) or (g)(1) of the
Federal Deposit Insurance Act (12 U.S.C. 1818 (e)(4) or (g)(1)), all obligations
of the Employee under this Agreement shall terminate as of the effective date of
the order, but any vested rights of the parties hereto shall not be affected.
l. Notwithstanding anything to the contrary herein, if the Employer is
in default (as defined in section 3(x)(1) of the Federal Deposit Insurance Act),
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph (4)(e) shall not affect any vested rights of the parties
hereto.
5
<PAGE>
m. Notwithstanding anything to the contrary herein, all obligations
under this Agreement shall be terminated, except to the extent determined that
continuation of this Agreement is necessary for the continued operation of the
Employer, in the following cases:
(a) By the Director of the Office of Thrift
Supervision (the "OTS Director") or his or her designee, at
the time the Federal Deposit Insurance Corporation enters into
an agreement to provide assistance to or on behalf of the
Employer under the authority contained in 13(c) of the Federal
Deposit Insurance Act; or
(b) By the OTS Director or his or her designee, at
the time the OTS Director or his or her designee approves a
supervisory merger to resolve problems related to operation of
the Employer or when the Employer is determined by the OTS
Director to be in an unsafe or unsound condition.
n. Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
5. Ownership of Work Product. The Employer shall own all Work Product
arising during the course of the Employee's employment (prior, present or
future). For purposes hereof, "Work Product" shall mean all intellectual
property rights, including all Trade Secrets, U.S. and international copyrights,
patentable inventions, and other intellectual property rights, in any
programming, documentation, technology, work of authorship or other work product
that relates to the Employer, its business or its customers and that Employee
conceives, develops, or delivers to the Employer or that otherwise arises out of
the services provided by the Employee to the Employer hereunder, at any time
during his employment, during or outside normal working hours, in or away from
the facilities of the Employer, and whether or not requested by the Employer. If
the Work Product contains any materials, programming or intellectual property
rights that the Employee conceived or developed prior to, and independent of,
the Employee's work for the Employer, the Employee agrees to identify the
pre-existing items to the Employer, and the Employee grants the Employer a
worldwide, unrestricted, royalty-free right, including the right to sublicense
such items. The Employee agrees to take such actions and execute such further
acknowledgments and assignments as the Employer may reasonably request to give
effect to this provision.
6. Protection of Trade Secrets. The Employee agrees to maintain in
strict confidence and, except as necessary to perform his duties for the
Employer, the Employee agrees not to use or disclose any Trade Secrets of the
Employer during or after his employment. For the purposes hereof, "Trade Secret"
means information, including, without limitation, technical or non-technical
data, a formula, a pattern, a compilation, a program, a device, a method, a
technique, a process, a drawing, financial data, financial plans, product plans,
information on customers or a list of actual or potential customers or
suppliers, which: (i) derives economic value,
6
<PAGE>
actual or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use; and (ii) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
7. Protection of Other Confidential Information. In addition, the
Employee agrees to maintain in strict confidence and, except as necessary to
perform his duties for the Employer, not to use or disclose any Confidential
Business Information of the Employer during his employment and for a period of
24 months following termination of the Employee's employment. "Confidential
Business Information" shall mean any internal, non-public information (other
than Trade Secrets already addressed above) concerning the Employer's financial
position and results of operations (including revenues, assets, net income,
etc.); annual and long-range business plans; product or service plans; marketing
plans and methods; training, educational and administrative manuals; customer
and supplier information and purchase histories; and employee lists. The
provisions of Sections 6 and 7 above shall also apply to protect Trade Secrets
and Confidential Business Information of third parties provided to the Employer
under an obligation of secrecy.
8. Return of Materials. The Employee shall surrender to the Employer,
promptly upon its request and in any event upon termination of the Employee's
employment, all media, documents, notebooks, computer programs, handbooks, data
files, models, samples, price lists, drawings, customer lists, prospect data, or
other material of any nature whatsoever (in tangible or electronic form) in the
Employee's possession or control, including all copies thereof, relating to the
Employer, its business, or its customers. Upon the request of the Employer,
Employee shall certify in writing compliance with the foregoing requirement.
9. Restrictive Covenants.
a. No Solicitation of Customers. During the Employee's employment with
the Employer and for a period of 24 months thereafter, the Employee shall not
(except on behalf of or with the prior written consent of the Employer), either
directly or indirectly, on the Employee's own behalf or in the service or on
behalf of others, solicit or attempt to solicit Customers to induce or encourage
them to acquire or obtain from anyone other than the Employer or its
subsidiaries any product or service competitive with or substitute for any of
the Employer's Products. For purposes of this Section, "Customer" refers to any
person or group of persons with whom the Employee had direct material contact
with regard to the selling, delivery, or support of the Employer's Products,
including servicing such person's or group's account, during the period of 12
months preceding the solicitation date. The "Employer's Products" refers to the
products and services that the Employer or any of its subsidiaries or affiliates
offered or sold within six months of the solicitation date. This restriction
does not apply after a Change in Control.
b. No Recruitment of Personnel. During the Employee's employment with
the Employer and for a period of 24 months thereafter, the Employee shall not,
either directly or indirectly, on the Employee's own behalf or in the service or
on behalf of others, solicit or induce any employee of or consultant to the
Employer or any of its subsidiaries or affiliates to leave his or her position
with the Employer (or the subsidiary or affiliate), or recruit or attempt to
7
<PAGE>
recruit such persons to accept employment or any other position with another
business. This restriction does not apply after a Change in Control.
c. Independent Provisions. The provisions in each of the above Sections
9(a) and 9(b) are independent, and the unenforceability of any one provision
shall not affect the enforceability of any other provision.
10. Successors; Binding Agreement. This Agreement shall be binding upon
and shall inure to the benefit of the Employer and its successors and assigns.
Neither this Agreement nor any right or interest hereunder shall be assignable
or transferable by the Employee, his beneficiaries or legal representatives,
except by will or by the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Employee's legal personal
representative.
11. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses last given by each party to the other; provided, however, that all
notices to the Employer shall be directed to the attention of the Employer with
a copy to the Secretary of the Employer. All notices and communications shall be
deemed to have been received on the date of delivery thereof.
12. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Georgia without giving
effect to the conflict of laws principles thereof. Any action brought by any
party to this Agreement shall be brought and maintained in a court of competent
jurisdiction in State of Georgia.
13. Non-Waiver. Failure of the Employer to enforce any of the
provisions of this Agreement or any rights with respect thereto shall in no way
be considered to be a waiver of such provisions or rights, or in any way affect
the validity of this Agreement.
14. Enforcement. The Employee agrees that in the event of any breach or
threatened breach by the Employee of any covenant contained in Section 6, 7,
9(a), or 9(b) hereof, the resulting injuries to the Employer would be difficult
or impossible to estimate accurately, even though irreparable injury or damages
would certainly result. Accordingly, an award of legal damages, if without other
relief, would be inadequate to protect the Employer. The Employee, therefore,
agrees that in the event of any such breach, the Employer shall be entitled to
obtain from a court of competent jurisdiction an injunction to restrain the
breach or anticipated breach of any such covenant, and to obtain any other
available legal, equitable, statutory, or contractual relief. Should the
Employer have cause to seek such relief, no bond shall be required from the
Employer, and the Employee shall pay all attorney's fees and court costs which
the Employer may incur to the extent the Employer prevails in its enforcement
action.
15. Saving Clause. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision or clause of this Agreement, or portion
8
<PAGE>
thereof, shall be held by any court or other tribunal of competent jurisdiction
to be illegal, void, or unenforceable in such jurisdiction, the remainder of
such provision shall not be thereby affected and shall be given full effect,
without regard to the invalid portion. It is the intention of the parties that,
if any court construes any provision or clause of this Agreement, or any portion
thereof, to be illegal, void, or unenforceable because of the duration of such
provision or the area or matter covered thereby, such court shall reduce the
duration, area, or matter of such provision, and, in its reduced form, such
provision shall then be enforceable and shall be enforced.
16. Certain Definitions.
a. "Change in Control" shall mean the occurrence during the Term of any
of the following events, unless such event is a result of a Non-Control
Transaction:
(i) The individuals who, as of the date of this Agreement, are
members of the Board of Directors of the Employer (the "Incumbent
Board") cease for any reason to constitute at least a majority of
the Board of Directors of the Employer; provided, however, that if
the election, or nomination for election by the Employer's
shareholders, of any new director was approved in advance by a
vote of at least a majority of the Incumbent Board, such new
director shall, for purposes of this Agreement, be considered as a
member of the Incumbent Board.
(ii) An acquisition (other than directly from the Employer) of any
voting securities of the Employer (the "Voting Securities") by any
"Person" (as the term "person" is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934) immediately
after which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 50%
or more of the combined voting power of the Employer's then
outstanding Voting Securities.
b. "Non-Control Transaction" shall mean a transaction described below:
(i) the shareholders of the Employer, immediately before such
merger, consolidation or reorganization, own, directly or
indirectly, immediately following such merger, consolidation or
reorganization, at least 50% of the combined voting power of the
outstanding voting securities of the corporation resulting from
such merger, consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger,
consolidation or reorganization; and
(ii) immediately following such merger, consolidation or
reorganization, the number of directors on the board of directors
9
<PAGE>
of the Surviving Corporation who were members of the Incumbent
Board shall at least equal the number of directors who were
affiliated with or appointed by the other party to the merger,
consolidation or reorganization.
17. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, the Employer has caused this Agreement to be
executed and its seal to be affixed hereunto by its officers thereunto duly
authorized, and the Employee has signed and sealed this Agreement, effective as
of the date first above written.
ebank.com, Inc.
By: ______________________________
Name:
Title:
EMPLOYEE
___________________________________
Richard A. Parlontieri
Exhibit 21.1
Subsidiaries of the Company
ebank
Commerce Mortgage Company, LLC
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