<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
NATIONAL INFORMATION CONSORTIUM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
COLORADO 7375 52-2077581
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code No.) Identification
Incorporation or Organization) No.)
</TABLE>
12 CORPORATE WOODS,
10975 BENSON STREET, SUITE 390
OVERLAND PARK, KANSAS 66210
877-234-EGOV
(Address and telephone number of principal executive offices and
principal place of business)
JEFFERY S. FRASER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
NATIONAL INFORMATION CONSORTIUM, INC.
12 CORPORATE WOODS,
10975 BENSON STREET, SUITE 390
OVERLAND PARK, KANSAS 66210
877-234-EGOV
(Name, address, and telephone number of agent for service)
--------------------------
COPIES TO:
JOHN W. CAMPBELL, III, ESQ. NORA L. GIBSON, ESQ.
KRISTIAN E. WIGGERT, ESQ. PETER S. BUCKLAND, ESQ.
VALERIE A. VILLANUEVA, ESQ. ANGELA C. HILT, ESQ.
JACLYN LIU, ESQ. Brobeck, Phleger & Harrison LLP
Morrison & Foerster LLP Spear Street Tower, One Market
425 Market Street San Francisco, California 94105
San Francisco, California 94105-2482
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, no par value per share............................ $149,500,000 $41,561
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 6, 1999
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE SUCH AN OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
SHARES
[NIC LOGO]
COMMON STOCK
This is an initial public offering of common stock by National Information
Consortium, Inc. Of the shares of common stock being sold in this
offering, shares are being sold by us and shares are being
sold by the selling shareholders. We will not receive any of the proceeds from
the sale of shares by the selling shareholders. The estimated initial public
offering price is between $ and $ per share.
--------------
Prior to this offering, there has been no public market for our common
stock. The shares of common stock have been proposed to be listed for quotation
on the Nasdaq National Market under the symbol EGOV.
--------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------------- ----------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to National Information Consortium, Inc., before
expenses.................................................. $ $
Proceeds to the selling shareholders, before expenses....... $ $
</TABLE>
The selling shareholders have granted the underwriters an option for a
period of 30 days to purchase up to additional shares of common
stock.
--------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
-------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
HAMBRECHT & QUIST
THOMAS WEISEL PARTNERS LLC
FAC/EQUITIES
VOLPE BROWN WHELAN & COMPANY
, 1999
<PAGE>
INSIDE FRONT COVER
National Information Consortium
[Picture of people standing in line with arrow pointing at picture and
text accompanying arrow stating "You are here."]
Old World
[Inverted triangle divided horizontally into three sections, with text over
triangle reading "Top-Down Government Processes," text in top section reading
"Cumbersome, hard to access and time consuming," with arrows pointing to next
section; text in middle section reading "State, Local and County Agencies with
inconvenient processes," with arrows pointing to next section; and text in
bottom section reading "Unhappy Citizens and Businesses."]
[NIC Logo]
<PAGE>
GATEFOLD 1
National Information Consortium
<TABLE>
<S> <C>
[Picture of person using computer at home [Box with text reading "Enabling Online
with arrow pointing at picture and text Interaction with Government."]
accompanying arrow reading "You should be
here."]
</TABLE>
New World
<TABLE>
<S> <C>
[Triangle divided horizontally into three [Picture of person using computer at office
sections, with text under triangle reading with arrow pointing at picture and text
"Bottom-Up Convenience"; text in bottom accompanying arrow reading "or here."]
section reading "Convenient, 24x7 access from
anywhere," with arrows pointing to next
section; text in middle section reading "Less
burdened, more responsive State, Local and
County Agencies," with arrows pointing to top
section; and text in top section reading
"Empowered citizens and businesses."]
</TABLE>
[NIC Logo]
<PAGE>
GATEFOLD 2
National Information Consortium
[Text design reading "nicusa.com" in background and "Premium Services" in
foreground.]
[Screen shot of one of National Information Consortium's government portals
on the Internet showing a selection of services, with explanatory information
for each service.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary........................................... 4
Risk Factors................................................. 8
Forward-Looking Statements................................... 20
How We Intend to Use the Proceeds from the Offering.......... 21
Dividend Policy.............................................. 21
Capitalization............................................... 22
Dilution..................................................... 23
Selected Consolidated Actual and Pro Forma Financial Data.... 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 25
Business..................................................... 34
Management................................................... 45
Certain Transactions......................................... 56
Principal and Selling Shareholders........................... 57
Description of Capital Stock................................. 60
Shares Eligible for Future Sale.............................. 62
Underwriting................................................. 63
Legal Matters................................................ 65
Experts...................................................... 65
Where You Can Find Additional Information About Us........... 65
Index to Consolidated Financial Statements................... F-1
</TABLE>
--------------
All brand names and trademarks appearing in this prospectus are the
property of their respective holders.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND OUR FINANCIAL STATEMENTS
BEFORE MAKING AN INVESTMENT DECISION.
NATIONAL INFORMATION CONSORTIUM, INC.
National Information Consortium, Inc. (NIC) is the leading provider of
Internet-based electronic government solutions that help governments reduce
costs and provide a higher level of service to businesses and citizens. We form
partnerships with governments and on their behalf design, build and operate
Internet-based portals. These portals consist of Web sites and applications that
we build, which allow businesses and citizens to complete transactions and
obtain government information online. Our unique business model allows us to
minimize our government partners' financial and technology risks and share in
the revenue generated by providing electronic government solutions to businesses
and citizens. Our partners benefit because they gain a centralized,
customer-focused presence on the Internet. Businesses and citizens gain a
faster, more convenient and more cost-effective means to obtain valuable
government information and to complete transactions with governments, including
permit applications, license renewals and report filings.
Government's regulation of commercial and consumer activities requires
billions of transactions and exchanges of large volumes of information between
government agencies, and businesses and citizens. These transactions and
exchanges include driver's license renewals, motor vehicle registrations, tax
returns, permit applications and requests for government-gathered information.
Traditionally, government agencies have transacted, and in many cases continue
to transact, with businesses and citizens using processes that are inconvenient
and labor-intensive, require extensive paperwork and use large amounts of scarce
resources. Electronic alternatives have often been unavailable, technically
challenging and expensive to implement, or fragmented among different government
agencies. The growing acceptance of the Internet and electronic commerce
presents a significant opportunity for the development of electronic government,
in which government agencies can quickly and cost-effectively conduct
transactions and distribute information over the Internet.
Despite the potential benefits of electronic government solutions,
government entities encounter a unique set of challenges in implementing and
maintaining Internet-based solutions. In addition to the conventional barriers
the private sector confronts, including high costs, technological risk, the need
for customized and rapid deployment, and the scarcity of qualified personnel,
governments also face the intricacies of the political process, a diverse
constituent base, limited marketing capabilities and heightened security
requirements due to public trust concerns.
We have pioneered the development of an Internet-based electronic
government solution that addresses these unique government challenges and meets
the needs of businesses and citizens. The key elements of our solution are:
- a customer-focused, one-stop government portal that provides a single
point of presence on the Web for all government agencies and permits
businesses and citizens to conduct transactions and process
information requests 24 hours a day, seven days a week;
- a cost-efficient financial model that minimizes the use of government
resources and up-front investment and is quickly and easily deployed;
and
- a partnership with governments that aligns our interests with those of
government and encourages the participation of interested government
agencies, business and consumer groups and other important government
entities. We work with each of our government
4
<PAGE>
partners to maximize their use of Internet technology, while
addressing issues critical to them including the privacy and security
of citizens.
We plan to strengthen our position as the leading provider of electronic
government solutions. Key elements of our strategy are to:
- continue to penetrate new markets, including other states, multi-state
cooperative organizations, local governments and federal agencies, and
to expand our services into international markets;
- broaden product and service offerings with new applications that will
enable government agencies and businesses and citizens to interact
more effectively online;
- increase transaction volumes from existing and new customers by
generating awareness and educating potential business and consumer
users about the availability and benefits of electronic government
solutions;
- enhance the capability and efficiency of our business units by
aggregating best practices across our organization and strengthening
corporate operational and administrative functions; and
- attract, retain and train specialized and qualified personnel through
performance incentives, targeted hiring and development programs.
We currently provide Internet-based electronic government solutions for
the state governments of Arkansas, Georgia, Indiana, Iowa, Kansas, Maine,
Nebraska, and Virginia and the city-county government of the City of
Indianapolis and Marion County, Indiana. We have been selected to provide
services to and are negotiating a contract with a ninth state government. We
typically enter into three to five year contracts with our government partners
and manage operations through decentralized business units. Each local business
unit helps its partner implement, develop, manage and enhance a single,
comprehensive portal for conducting transactions and delivering information to
businesses and citizens online.
We were incorporated in Delaware in December 1997 and reincorporated in
Colorado in April 1999. Our headquarters are located at 12 Corporate Woods,
10975 Benson Street, Suite 390, Overland Park, Kansas 66210 and our telephone
number is 877-234-EGOV. Our Web site is www.nicusa.com. Any reference contained
in this prospectus to our Web site, or to any other Web site, shall not be
deemed to incorporate information from those sites into this prospectus.
--------------
THIS PROSPECTUS INCLUDES STATISTICAL DATA ABOUT THE INTERNET INDUSTRY
THAT COMES FROM INFORMATION PUBLISHED BY SOURCES INCLUDING INTERNATIONAL DATA
CORPORATION AND FORRESTER RESEARCH. ALTHOUGH WE BELIEVE THAT DATA FROM THESE
COMPANIES IS GENERALLY RELIABLE, STATISTICAL DATA IS INHERENTLY IMPRECISE. WE
CAUTION YOU NOT TO PLACE UNDUE RELIANCE ON SUCH DATA.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by NIC..................... shares
Common stock offered by the selling shares
shareholders..................................
Common stock to be outstanding after this shares
offering......................................
Use of proceeds................................. - increased marketing efforts;
- creation of new products and services;
- further development of infrastructure;
- working capital;
- general corporate purposes; and
- potential aquisitions.
Proposed Nasdaq National Market Symbol.......... EGOV
</TABLE>
--------------
The number of shares of common stock to be outstanding after this
offering is based on the number of shares outstanding as of March 31, 1999 and
does not include the following:
- 544,789 shares of common stock subject to options issued at a weighted
average exercise price of $6.70 per share granted under our 1998 stock
option plan; or
- 1,940,286 shares of common stock reserved for future issuance under
our 1998 stock option plan and our 1999 employee stock purchase plan.
Please see "Capitalization" for a more complete discussion regarding the
outstanding shares of our common stock and options to purchase our common stock
and other related matters.
--------------
UNLESS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT:
- THE UNDERWRITERS WILL NOT EXERCISE THEIR OPTION TO PURCHASE ADDITIONAL
SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS, IF ANY;
- WE WILL COMPLETE A FOR SPLIT OF OUR COMMON STOCK BEFORE THIS
OFFERING IS COMPLETED; AND
- PRO FORMA INFORMATION GIVES EFFECT TO THE EXCHANGE OFFER WE COMPLETED
IN MARCH 1998 AS IF THE EXCHANGE OFFER OCCURRED AT THE BEGINNING OF
THE PERIOD PRESENTED.
PLEASE SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--EXCHANGE OFFER" FOR MORE DETAILED INFORMATION ABOUT
THE EXCHANGE OFFER.
6
<PAGE>
SUMMARY CONSOLIDATED ACTUAL AND PRO FORMA FINANCIAL INFORMATION
The following summary consolidated actual and pro forma financial
information should be read in conjunction with our consolidated financial
statements and their related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in this prospectus. The
consolidated statement of operations data for the years ended December 31, 1997
and 1998 labeled "Actual" are derived from, and are qualified by reference to,
the audited financial statements included in this prospectus. The consolidated
statement of operations data for the years ended December 31, 1997 and 1998 and
the three months ended March 31, 1998 labeled "Pro Forma" are unaudited and
derived from and qualified by reference to the pro forma consolidated statements
of operations included in this prospectus. The consolidated statement of
operations data for the three month periods ended March 31, 1998 and 1999 and
the consolidated balance sheet data at March 31, 1999 labeled "Actual" are
derived from, and qualified by reference to, our unaudited interim financial
statements included in this prospectus. The as adjusted consolidated balance
sheet data summarized below gives effect to the receipt of the estimated net
proceeds from the sale of shares of common stock offered by us in this
offering at an assumed initial public offering price of $ per share, after
deducting underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------ ------------------------
1997 1998 1998
------------------------ ---------------------- ------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA ACTUAL PRO FORMA
----------- ----------- --------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 996 $ 24,382 $ 28,624 $ 36,532 $ 361 $ 8,270
Cost of revenues................................ 5 18,410 21,211 27,394 1 6,184
Gross profit.................................... 991 5,972 7,413 9,138 360 2,086
Operating income (loss).........................
Net income (loss)............................... $ (277) $ (6,932) $ (7,679) $ (9,213) $ (124) $ (1,658)
Net loss per share--basic and diluted........... $ (0.06) $ (0.80) $ (0.96) $ (1.02) $ (0.03) $ (0.18)
Weighted average shares outstanding............. 4,492 8,639 8,021 9,034 4,884 9,031
<CAPTION>
1999
---------
ACTUAL
---------
<S> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 11,455
Cost of revenues................................ 8,604
Gross profit.................................... 2,851
Operating income (loss).........................
Net income (loss)............................... $ (1,902)
Net loss per share--basic and diluted........... $ (0.21)
Weighted average shares outstanding............. 9,097
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------
ACTUAL AS ADJUSTED
--------- ---------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash.................................................................................... $ 1,115 $
Total assets............................................................................ 16,633
Bank lines of credit.................................................................... 839
Long-term debt (includes current portion of notes payable/capital lease obligations).... 1,179
Total shareholders' equity.............................................................. 9,693
</TABLE>
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. ADDITIONAL RISKS
AND UNCERTAINTIES THAT ARE NOT YET IDENTIFIED OR THAT WE CURRENTLY THINK ARE
IMMATERIAL MAY ALSO MATERIALLY HARM OUR BUSINESS AND FINANCIAL CONDITION IN THE
FUTURE. ANY OF THE FOLLOWING RISKS COULD MATERIALLY HARM OUR BUSINESS, OPERATING
RESULTS AND FINANCIAL CONDITION AND COULD RESULT IN A COMPLETE LOSS OF YOUR
INVESTMENT.
RISKS RELATED TO NIC'S OPERATIONS
BECAUSE WE HAVE SERVICE CONTRACTS WITH A LIMITED NUMBER OF STATES AND CITY
GOVERNMENTS, THE TERMINATION OF ANY OF THESE CONTRACTS MAY HARM OUR BUSINESS AND
FINANCIAL CONDITION
Currently, we have contracts with eight states and one local government,
and have been selected to provide services to and are negotiating a contract
with a ninth state government. These contracts typically have initial terms of
three to five years with option renewal periods of one to five years. However,
any renewal is optional and a government may terminate its contract prior to the
expiration date upon specific cause events that are not cured within a period of
20 to 180 days or, in some cases, upon passing legislation. Additionally, the
contracts under which we provide management and development services can be
terminated without cause on a specified period of notice. The decision by one or
more governments not to renew an existing contract or the unexpected termination
of one or more of these contracts may result in significant revenue shortfalls.
If these revenue shortfalls occur, our business and financial condition would be
harmed. We cannot be certain if, when or to what extent governments might fail
to renew or terminate any or all of their contracts with us.
OUR REVENUE GROWTH IS LIMITED BY THE NUMBER OF STATES THAT WILL ADOPT OUR
BUSINESS MODEL AND THE FINITE NUMBER OF STATES WITH WHICH WE MAY CONTRACT FOR
OUR ELECTRONIC GOVERNMENT SOLUTIONS
We contract with state governments to provide electronic government
solutions on the state government's behalf to complete transactions and
distribute public information electronically. We cannot assure you that any
additional states will decide to pursue a public/private partnership to provide
these solutions. In addition, as there is a finite number of states remaining
with which we can contract for our services, future increases in our revenues
will depend on our ability to expand our business model to include multi-state
cooperative organizations, local government, federal agencies and international
entities. We cannot assure you that we will succeed in our expansion into new
markets or that our services will be adaptable to those new markets.
OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS WOULD BE HARMED IF WE
FAIL TO OBTAIN FUTURE CONTRACTS THROUGH THE REQUEST FOR PROPOSAL PROCESS
Once a government decides to adopt a public/private model for electronic
government, it starts a selection process that operates under special rules that
apply to government purchasing. These rules typically require open bidding by
possible service providers like us against a list of requirements established by
governments under existing or specially-created procedures. To respond
successfully to these requests for proposals, commonly known as RFPs, we must
estimate accurately our cost structure for servicing a proposed contract, the
time required to establish operations for the proposed client and the likely
terms of any other proposals submitted. We also must assemble and submit a large
volume of information within the strict time schedule mandated by an RFP.
Whether or not we are able to respond successfully to RFPs in the future will
significantly impact our business. We cannot guarantee that we will win any bids
in the future through the RFP process, or that any winning bids will ultimately
result in contracts. Our business, financial condition and operating results
would be harmed if we fail to obtain future contracts through the RFP process.
8
<PAGE>
THE FEES WE COLLECT FOR OUR PRODUCTS AND SERVICES ARE SUBJECT TO REGULATION THAT
COULD LIMIT OUR REVENUE GROWTH AND PROFITABILITY, WHICH WOULD HARM OUR BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
We collect user fees on behalf of government agencies and, under the
terms of our government contracts, we retain a portion of the fees. Generally,
our contracts provide that the amount of any fees we retain is set by the
government to provide us with a reasonable return or profit or, in one case, a
specified return on equity. We have limited control over the level of fees we
are permitted to retain. Our business, results of operations and financial
condition may be harmed if the level of fees we are permitted to retain is too
low or if our costs rise without a commensurate increase in fees.
THE POSSIBILITY OF GOVERNMENTS DEMANDING FIXED-PRICE CONTRACTS MAY SIGNIFICANTLY
REDUCE OUR REVENUES AND PROFITS
Substantially all of our present contracts are on a transaction or
subscription fee basis, through which our fees vary depending on the number of
Internet users who access our products and services. However, we cannot assure
you that governments will not demand fixed-price contracts in the future.
Currently, we earn fees under our contracts with the states of Georgia and Iowa
predominantly on a fixed-price basis. We may, from time to time, enter into
other fixed-price contracts. Our failure to estimate accurately the resources
and time required for an engagement, to manage the government's expectations
effectively regarding the scope of services to be delivered for an estimated
price or to complete fixed-price engagements within budget, on time and to the
government's satisfaction could expose us to risks associated with cost overruns
and, in certain instances, penalties and may harm our business, operating
results and financial condition.
IF WE ARE UNABLE TO SUSTAIN THE USAGE LEVELS OF CURRENT PRODUCTS AND SERVICES
THAT PROVIDE A SIGNIFICANT PERCENTAGE OF OUR REVENUES, OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION WILL BE HARMED
We obtain a high proportion of our revenues from a limited number of
products and services. Subscription-based and transaction-based fees charged for
access to motor vehicle records, financing statements, corporation and court
information accounted for over 90% of our revenues for the year ended December
31, 1998 on a pro forma basis and are expected to continue to account for a
significant portion of our revenue in the near future. Regulatory changes or the
development of alternative information sources could materially reduce our
revenues from these products and services. A reduction in revenues from
currently popular products and services would harm our business, results of
operations and financial condition.
BECAUSE A MAJOR PORTION OF OUR CURRENT REVENUES ARE GENERATED FROM A SMALL
NUMBER OF USERS, THE LOSS OF ANY OF THESE USERS MAY HARM OUR BUSINESS AND
FINANCIAL CONDITION
The primary source of our revenue is derived from the use of our
electronic government portals to access motor vehicle records for sale to the
auto insurance industry. During the year ended December 31, 1998, approximately
71% of our revenues were derived from two data resellers. For the year ended
December 31, 1998, Choicepoint accounted for approximately 60% of our revenues.
Although our portals are the primary means of accessing this data, it is
possible that these users will develop alternative data sources or new business
processes that would materially diminish their use of our portals. The loss of
all or a substantial portion of business from any of these entities would harm
our business and financial condition.
OUR BUSINESS WITH VARIOUS GOVERNMENT ENTITIES OFTEN REQUIRES SPECIFIC GOVERNMENT
LEGISLATION TO BE PASSED FOR US TO INITIATE AND MAINTAIN OUR GOVERNMENT
CONTRACTS
Because our business includes the execution of contracts with
governments under which we receive a portion of user fees charged to businesses
and citizens, it is often necessary for governments to
9
<PAGE>
draft and adopt specific legislation before the government can circulate an RFP
to which we can respond. Furthermore, the maintenance of our government
contracts requires the continued acceptance of enabling legislation and any
implementing regulations. In the past, various entities that use the portals we
operate to obtain government products and services have challenged the authority
of governments to electronically provide these products and services exclusively
through portals like those we operate. Although none of these challenges has
succeeded to date, a successful challenge could result in a proliferation of
alternative ways to obtain these products and services, which would harm our
business, results of operations and financial condition. The repeal or
modification of any enabling legislation would also harm our business, results
of operations and financial condition.
BECAUSE WE RELY ON A CONTRACTUAL BIDDING PROCESS WHOSE PARAMETERS ARE
ESTABLISHED BY GOVERNMENTS, THE LENGTH OF OUR SALES CYCLES IS UNCERTAIN AND CAN
LEAD TO REVENUE SHORTFALLS
Our dependence on a bidding process to initiate new projects, the
parameters of which are established by governments, results in uncertainty in
our sales cycles because the duration and the procedures for each bidding
process vary significantly according to each government entity's policies and
procedures. The time between the date of initial contact with a government for a
bid and the award of the bid may range from as little as 180 days to up to 36
months. The bidding process is subject to factors over which we have little or
no control, including:
- political acceptance of the concept of government agencies contracting
with third parties to distribute public information, which has been
offered traditionally only by the government agencies;
- the internal review process by the government agencies for bid
acceptance;
- the need to reach a political accommodation among various interest
groups;
- changes to the bidding procedure by the government agencies;
- changes to state legislation authorizing government's contracting with
third parties to distribute public information;
- changes in government administrations;
- the budgetary restrictions of government entities;
- the competition generated by the bidding process; and
- the possibility of cancellation or delay by the government entities.
Any delay in the bidding process, changes to the bidding practices and
policies, the failure to receive the bid or the failure to execute a contract
may disrupt our financial results for a particular period and harm our business
and financial condition.
ENTRANCE OF POTENTIAL COMPETITORS INTO THE MARKETPLACE COULD HARM OUR ABILITY TO
MAINTAIN OR IMPROVE OUR POSITION IN THE MARKET
Many companies exist that provide one or more parts of the solution we
offer. In most cases, the principal substitute for our solution is a
government-designed and managed solution that integrates other vendors'
technologies, products and services. Companies that have expertise in marketing
and providing technical solutions to government entities may begin to compete
with us by further developing their services and increasing their focus on this
piece of their business and market shares. Examples of companies that may
compete with us are the following:
- large systems integrators, including American Management Systems, Inc.
and Sapient Corporation;
10
<PAGE>
- traditional consulting firms, including International Business
Machines Corporation and Science Applications International
Corporation; and
- Web service companies, including USWeb/CKS, AppNet Systems, Inc. and
Verio Inc.
Many of our potential competitors are national or international in scope
and may have greater resources than we do. These resources could enable our
potential competitors to initiate severe price cuts or take other measures in an
effort to gain market share. Additionally, in certain geographic areas, we may
face competition from smaller consulting firms with established reputations and
political relationships with potential government partners. If we do not compete
effectively or if we experience any pricing pressures, reduced margins or loss
of market share resulting from increased competition, our business and financial
condition may be harmed.
THE SEASONALITY OF USE FOR CERTAIN ELECTRONIC GOVERNMENT PRODUCTS AND SERVICES
MAY HARM OUR FOURTH QUARTER RESULTS OF EACH CALENDAR YEAR
The use of certain of our electronic government products and services is
seasonal, with lower revenues in the fourth quarter of each calendar year, due
to the fewer number of business days in this quarter and a lower volume of
government-to-business and government-to-citizen transactions during the holiday
period. As a result, seasonality is likely to cause our quarterly results to
fluctuate, which could harm our business and financial condition and could harm
the trading price of our common stock.
THE UNPREDICTABILITY OF OUR QUARTER-TO-QUARTER RESULTS MAY HARM THE TRADING
PRICE OF OUR COMMON STOCK
Our future revenues and operating results may vary significantly from
quarter to quarter due to a number of factors, many of which are outside of our
control, and any of which may harm our business. These factors include:
- our ability to obtain and retain government contracts;
- the commencement, completion or termination of contracts during any
particular quarter;
- the introduction of new electronic government products and services by
us or our competitors;
- the timing and uncertainty of our sales cycles;
- the seasonality of our business model;
- the level of Internet usage;
- our ability to attract, integrate and retain qualified personnel;
- our ability to successfully integrate operations and technologies from
acquisitions or other business combinations;
- technical difficulties or system downtime affecting the Internet
generally or the operation of our electronic government products and
services; and
- the amount and timing of operating costs and capital expenditures
relating to the expansion of our business operations and
infrastructure.
Due to the factors noted above and the other risks discussed in this
section, our revenues in a particular quarter may be lower than we anticipate
and if we are unable to reduce spending in that quarter, our operating results
for that quarter may be harmed. You should not rely on quarter-to-quarter
comparisons of our results of operations as an indication of future performance.
It is possible that in some future periods our results of operations may be
below the expectations of public market analysts and investors. If this occurs,
the price of our common stock may decline. See "Management's Discussion and
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Analysis of Financial Condition and Results of Operations" for detailed
information on our quarterly operating results.
WE DEPEND ENTIRELY ON GOVERNMENTS FOR CONTENT, THE LOSS OF WHICH MAY HARM OUR
BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION
We do not own or create the content distributed through our government
portals. We depend on the governments with which we contract to supply
information and data feeds to us on a timely basis to allow businesses and
citizens to complete transactions and obtain government information. We cannot
assure you that these data sources will continue to be available in the future.
Government entities could terminate their contracts to provide data. Changes in
regulations could mean that governments no longer collect certain types of data,
or that the data is protected by more stringent privacy rules preventing uses
now made of it. Moreover, our data sources are not always subject to exclusive
agreements, so that data included in our products and services also may be
included in those of our potential competitors. The loss or the unavailability
of our data sources in the future would harm our business, operating results and
financial condition.
WE MAY ENCOUNTER DIFFICULTIES MANAGING OUR GROWTH AND EXPANSION THAT MAY HARM
THE RESULTS OF OUR OPERATIONS
Our growth rate may increase rapidly in response to the acceptance of
our products and services under new or existing government contracts. If we
cannot manage our growth effectively, we may not be able to coordinate the
activities of our technical, accounting, and marketing staffs, and our business
could be harmed. We intend to plan for the acceptance of new bids by a number of
governmental entities so that we may be ready to begin operations as soon as
possible after receipt of a bid. As part of this plan of growth, we must
implement new operational procedures and controls to expand, train and manage
our employees and to coordinate the operations of our various subsidiaries. If
we acquire new businesses, we also may need to integrate new operations,
technologies and personnel. If we cannot manage the growth of our government
portals, staff, offices and operations, our business may be harmed.
IF WE ARE NOT ABLE TO HIRE, INTEGRATE OR RETAIN QUALIFIED PERSONNEL, OUR
BUSINESS MAY BE HARMED
The recent growth in our business has resulted in an increase in the
responsibilities for both existing and new management personnel. Many of our
personnel are presently serving in both an executive capacity and as general
managers of our government portals. The loss of any of our executives,
particularly Jeffery S. Fraser, our Chief Executive Officer, and James B. Dodd,
our President and Chief Operating Officer, would likely harm our business.
In addition, we expect that we will need to hire additional personnel in
all areas in 1999, including a chief financial officer and general managers for
new operations in jurisdictions in which we obtain contracts. Competition for
personnel in the Internet industry is intense. We may not be able to retain our
current key employees or attract, integrate or retain other qualified employees
in the future. If we do not succeed in attracting new personnel or integrating,
retaining and motivating our current personnel, our business could be harmed. In
addition, new employees generally require substantial training in the
presentation, policies and positioning of our government portals. This training
will require substantial resources and management attention.
IN ORDER TO BE SUCCESSFUL, WE MUST DEVELOP AND MARKET COMPREHENSIVE, EFFICIENT,
COST-EFFECTIVE AND SECURE ELECTRONIC ACCESS TO PUBLIC INFORMATION AND NEW
PRODUCTS AND SERVICES
Our success depends in part upon our ability to attract a greater number
of Internet users to access public information electronically by delivering a
comprehensive composite of public information and an efficient, cost-effective
and secure method of electronic access and transactions. Moreover, in order to
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increase revenues in the future, we must continue to develop products and
services that businesses and citizens will find valuable, and there is no
guarantee that we will be able to do so. If we are unable to develop products
and services that allow us to attract, retain and expand our current user base,
our revenues and future operating results may be harmed. We cannot assure you
that the products and services we offer will appeal to a sufficient number of
Internet users to generate continued revenue growth. Our ability to attract
Internet users to our government portals depends on several factors, including:
- the comprehensiveness of public records available through our
government portals;
- the perceived efficiency and cost-effectiveness of accessing public
records electronically;
- the effectiveness of security measures; and
- the increased usage and continued reliability of the Internet.
DEFICIENCIES IN OUR PERFORMANCE UNDER A GOVERNMENT CONTRACT COULD RESULT IN
CONTRACT TERMINATION, REPUTATIONAL DAMAGE OR FINANCIAL PENALTIES, WHICH COULD
HARM OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Each government entity with which we contract has the authority to
require an independent audit of our performance. The scope of audits could
include inspections of income statements, balance sheets, fee structures,
collections practices, service levels and our compliance with applicable laws,
regulations and standards. To date, while no audit has found any material
performance deficiencies, it is possible that deficiencies could be found in the
future. These deficiency findings could result in an adjustment to our revenues.
Moreover, the consequent negative publicity could harm our reputation among
other governments with which we would like to contract. All of these factors
could harm our business, results of operations and financial condition.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY AS A CONSOLIDATED COMPANY, IT MAY BE
DIFFICULT TO EVALUATE OUR BUSINESS AND PROSPECTS
In March 1998, we completed an exchange offer through which we
consolidated our individual business units that deliver electronic government
solutions into our present company. Accordingly, although many of our business
units have extensive operating history and experience, we only have a limited
operating history as a consolidated company on which to base an evaluation of
our business and prospects. You must consider our business in the light of the
risks, expenses and problems frequently encountered by companies like us,
particularly recently consolidated companies in new and rapidly evolving markets
like the Internet. These risks include whether we will be able to take advantage
of economies of scale for the following:
- cost-effective use of our company-wide managerial and administrative
resources;
- efficient allocation of operating and financial resources among the
individual business units;
- efficient integration of new marketing and sales strategies and
technological improvements among the individual business units; and
- the addition of new business units without overburdening our current
management and operational resources.
We may not be able to successfully address these risks and as a result
our business, operating results and financial condition may be harmed. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for detailed information on our limited operating history as a
consolidated company.
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OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR
BUSINESS AND FINANCIAL CONDITION
We rely on a combination of nondisclosure and other contractual
arrangements with governments, our employees and third parties, and privacy and
trade secret laws to protect and limit the distribution of the proprietary
applications, documentation and processes we have developed in connection with
the electronic government products and services we offer. If we fail to
adequately protect our intellectual property rights and proprietary information
or if we become involved in litigation relating to our intellectual property
rights and proprietary technology, our business could be harmed. Any actions we
take may not be adequate to protect our proprietary rights and other companies
may develop technologies that are similar or superior to our proprietary
technology.
Although we believe that our products and services do not infringe on
the intellectual property rights of others and that we have all rights needed to
use the intellectual property employed in our business, it is possible that we
could in the future become subject to claims alleging infringement of third
party intellectual property rights. Any claims could subject us to costly
litigation, and may require us to pay damages and develop non-infringing
intellectual property or acquire licenses to the intellectual property that is
the subject of the alleged infringement.
Additionally, upon the completion of the initial term of our government
contracts, governments and their successors and affiliates obtain a perpetual
right of use license to the software programs and other applications we have
developed for them in the operation of their portals. It is possible that
governments may use their limited license rights after termination of our
contracts to launch competing services, or inadvertently allow our intellectual
property or other information to fall into the hands of third parties, including
our competitors.
WE MAY NEED MORE WORKING CAPITAL TO EXPAND OUR BUSINESS
We believe that our current cash resources, combined with the net
proceeds from this offering, will be sufficient to meet our presently
anticipated working capital and capital expenditure requirements for at least
the next 18 months following the date of this prospectus. We may need to raise
additional capital, however, to do the following:
- support our expansion into other states, cities, municipalities,
federal agencies and internationally;
- respond to competitive pressures; and
- acquire complementary businesses or technologies.
Our future liquidity and capital requirements will depend upon numerous
factors, including the success of our existing and new product and service
offerings and potentially competing technological and market developments. We
may be required to raise additional funds through public or private financing,
strategic relationships or other arrangements. We cannot assure you that such
additional funding, if needed, will be available on terms acceptable to us, or
at all. If adequate funds are not available on acceptable terms, our ability to
develop or enhance our products and services, take advantage of future
opportunities or respond to competitive pressures would be significantly
limited. This limitation could harm our business, operating results and
financial condition. See "How We Intend to Use the Proceeds from the Offering"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for a discussion of our working
capital and capital expenditures.
IF WE ARE UNABLE TO INTEGRATE NEW TECHNOLOGIES AND INDUSTRY STANDARDS
EFFECTIVELY, OUR RESULTS OF OPERATIONS COULD BE HARMED
Our future success will depend on our ability to enhance and improve the
responsiveness, functionality and features of our products and services in
accordance with industry standards and to
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address the increasingly sophisticated technological needs of our customers on a
cost-effective and timely basis. Our ability to remain competitive will depend,
in part, on our ability to:
- enhance and improve the responsiveness, functionality and other
features of the government portals we offer;
- continue to develop our technical expertise;
- develop and introduce new services, applications and technology to
meet changing customer needs and preferences; and
- influence and respond to emerging industry standards and other
technological changes in a timely and cost-effective manner.
We cannot assure you that we will be successful in responding to the
above technological and industry challenges in a timely and cost-effective
manner. If we are unable to integrate new technologies and industry standards
effectively, our results of operations could be harmed.
RISKS RELATED TO NIC'S INTERNET BUSINESS AND PROSPECTS
FAILURE OF OUR BUSINESS MODEL TO ATTRACT OR RETAIN CUSTOMERS WOULD HARM OUR
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Our established business model consists of a public/private partnership
adopted by governments, under which we pursue contracts to provide electronic
government solutions on their behalf to distribute public information
electronically and to expand our services into cities, municipalities, federal
agencies and international entities. The sustainability of our business model
depends on government entities adopting such public/private partnerships. We
cannot assure you that government entities will not internally create, develop
and operate their own portals without any private assistance. The profitability
of our business model may not be sustained, and as a result, our results of
operations and financial condition may be harmed.
BECAUSE OUR SUCCESS DEPENDS ON THE CONTINUED INCREASE IN INTERNET USAGE, ANY
FAILURE OF INTERNET USAGE TO GROW WOULD HARM OUR RESULTS OF OPERATIONS
The growth of our business depends on the increase in Internet usage
generally and in particular as a means to access public information
electronically. However, a number of factors may inhibit the growth of Internet
usage, including:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service; and
- limited availability of cost-effective, high-speed access.
If these or any other factors cause Internet usage to slow or decline,
our results of operations could be harmed.
IF THE INTERNET INFRASTRUCTURE FAILS TO DEVELOP OR BE ADEQUATELY MAINTAINED, OUR
BUSINESS WOULD BE HARMED BECAUSE USERS MAY NOT BE ABLE TO ACCESS OUR GOVERNMENT
PORTALS
Our success depends in part on the development and maintenance of the
Internet infrastructure. If this infrastructure fails to develop or be
adequately maintained, our business would be harmed because users may not be
able to access our government portals. Among other things, this development and
maintenance will require a reliable network backbone with the necessary speed,
data capacity, security and timely development of complementary products for
providing reliable Internet access and services.
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The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. If the Web
continues to experience increased numbers of users, frequency of use or
increased bandwidth requirements, the Internet infrastructure may not be able to
support these increased demands or perform reliably. The Internet has
experienced a variety of outages and other delays as a result of damage to
portions of its infrastructure, and could face such outages and delays in the
future. These outages and delays could reduce the level of Internet usage and
traffic on our government portals. In addition, the Internet could lose its
viability due to delays in the development or adoption of new standards and
protocols to handle increased levels of activity or due to increased
governmental regulation. If the Internet infrastructure is not adequately
developed or maintained, use of our government portals may be reduced.
WE MAY BE HELD LIABLE FOR CONTENT THAT WE OBTAIN FROM GOVERNMENT AGENCIES, WHICH
COULD HARM OUR FINANCIAL RESULTS
Because we aggregate and distribute sometimes private and sensitive
public information over the Internet, we may face potential liability for
defamation, negligence, invasion of privacy and other claims based on the nature
and content of the material that is published on our government portals. Most of
the agreements through which we obtain consent to disseminate this information
do not contain indemnity provisions in our favor. These types of claims have
been brought, sometimes successfully, against online services and Web sites in
the past. Although we carry general liability insurance, it may not be adequate
to indemnify us for all liability that may be imposed. Any liability that is not
covered by our insurance or is in excess of our insurance coverage could
severely harm our business operations and financial conditions.
CONCERNS OVER TRANSACTIONAL SECURITY MAY HINDER THE GROWTH OF OUR BUSINESS
A significant barrier to electronic commerce is the secure transmission
of confidential information over public networks. Any breach in our security
could expose us to a risk of loss or litigation and possible liability. We rely
on encryption and authentication technology licensed from third parties to
provide secure transmission of confidential information. As a result of advances
in computer capabilities, new discoveries in the field of cryptography or other
developments, a compromise or breach of the algorithms we use to protect
customer transaction data may occur. Because we provide information released
from various government entities, we may represent an attractive target for
security breaches.
A compromise of our security or a perceived compromise of our security
could severely harm our business. A party who is able to circumvent our security
measures could misappropriate proprietary information, including customer credit
card information, or cause interruptions or incur direct damage to our
government portals. Also, should hackers obtain sensitive data and information,
or create bugs or viruses in an attempt to sabotage the functionality of our
products and services, we may receive negative publicity, incur liability to our
customers or lose the confidence of the governments with which we contract, any
of which may cause the termination or modification of our government contracts.
We may be required to expend significant capital and other resources to
protect against the threat of security breaches or to alleviate problems caused
by these breaches. However, protection may not be available at a reasonable
price or at all.
GOVERNMENTAL REGULATION OF THE INTERNET MAY RESTRICT THE OPERATION AND GROWTH OF
OUR BUSINESS
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. Laws and regulations may be adopted
in the future, however, that address these issues including user privacy,
pricing, and the characteristics and quality of products and services. An
increase in regulation or the application of existing laws to the Internet could
significantly increase our cost of operations and harm our business. For
example, the Federal Communications Commission may, in the future, reconsider
its ruling that Internet access service is not "telecommunications" and may
decide that Internet service providers must pay a percentage of their gross
revenues as a "universal service
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contribution." If the Federal Communications Commission were to require
universal service contributions from providers of Internet access or Internet
backbone services, our costs of doing business may increase, and we may not be
able to recover these costs from our customers. As a result, our business and
financial condition could be harmed.
OUR BUSINESS MAY BE NEGATIVELY AFFECTED BY YEAR 2000 ISSUES
We may discover Year 2000 readiness problems in the software systems
that we use for portal management, network monitoring, quality assurance,
applications and information and transaction processing. In addition, our
computer infrastructure, including network equipment and servers, may need to be
revised or replaced, all of which could be time-consuming and expensive. If we
cannot fix or replace our systems or network equipment and servers before
January 1, 2000 our operating costs could be increased and we could experience
business interruptions which could harm our business. Additionally, if we cannot
adequately address Year 2000 readiness issues in our software systems we could
be subject to claims of mismanagement, misrepresentation or breach of contract
and related litigation, which could be costly and time-consuming to defend.
In addition, the software and systems of our government partners,
critical vendors, financial institutions, utility companies, Internet access
companies, third-party service providers and others outside of our control may
not be Year 2000 ready. Because our products and services depend significantly
on information provided by various government entities, our ability to perform
our services properly depends on these government entities being Year 2000
ready. Disruption to the information systems of these government entities would
interfere with our proper distribution of public information on our government
portals and, as a result, may harm our business operations and financial
condition.
Furthermore, if certain third-party entities are not Year 2000 ready, a
systemic failure beyond our control could result, including a prolonged
Internet, telecommunications or general electrical failure. This type of failure
would make it difficult or impossible to use the Internet or access our
government portals. If a prolonged failure of this type occurs, our business
would be severely harmed. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Readiness" for more detailed
information.
OUR SYSTEMS MAY FAIL OR LIMIT USER TRAFFIC WHICH MAY HARM OUR BUSINESS
Our communications hardware and computer hardware operations for
delivering our electronic government solutions are located individually in each
state or city where we provide those solutions. Although we have modem banks and
direct dial-up connections to serve as back-up systems, the occurence of fire,
floods, earthquakes, power loss, telecommunications failures, break-ins and
similar events could damage our systems and cause interruptions to our services.
Computer viruses, electronic break-ins or other similar disruptive problems
could cause users to stop visiting our government portals and could cause our
clients to terminate agreements with us. If any of these circumstances occurred,
our business could be harmed. Our insurance policies may not adequately
compensate us for any losses that may occur due to any failures of or
interruptions in our systems.
Our government portals must accommodate a high volume of traffic and
deliver frequently updated information. These government portals may experience
interruptions due to any failure or delay by government agencies in the
transmission or receipt of this information. Our Web sites have also experienced
in the past and may in the future experience slower response times or decreased
traffic for a variety of reasons. In addition, our users depend on Internet
service providers, online service providers and other Web site operators for
access to our government portals. Many of these providers and operators have
experienced significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to our systems.
Any of these system failures could harm our business, results of operations and
financial condition.
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IF WE DOMINATE THE MARKET FOR PROVIDING ELECTRONIC GOVERNMENT SOLUTIONS, WE MAY
BE SUBJECT TO A BROAD RANGE OF ANTITRUST LAWS THAT MAY LIMIT OUR GROWTH AND, AS
A RESULT, MAY HARM OUR BUSINESS AND FINANCIAL CONDITION
Antitrust laws could prohibit anti-competitive conduct, including price
fixing, concerted refusals to deal and divisions of markets. Among other things,
these laws may limit our ability to expand our business model to other states,
municipalities, federal agencies and internationally. Any limitation on our
ability to expand our business may harm our business and financial condition.
RISKS RELATED TO THIS OFFERING
OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR SHAREHOLDERS WILL RETAIN SIGNIFICANT
CONTROL OVER NIC AFTER THIS OFFERING, WHICH WILL ALLOW THEM TO INFLUENCE THE
OUTCOME OF MATTERS SUBMITTED TO SHAREHOLDERS FOR APPROVAL
After this offering, executive officers, directors and holders of 5% or
more of our outstanding common stock will, in the aggregate, own approximately
% of our outstanding common stock. In addition, as of March 31, 1999,
6,869,170 shares of our outstanding common stock have been placed in a voting
trust, which will represent % of our outstanding common stock after this
offering. The trustees of this voting trust are Messrs. Fraser and Hartley, both
of whom serve as directors of our company. As a result, Messrs. Fraser and
Hartley have, among other rights, the ability to control the election of
directors and approve corporate actions that must be submitted for a vote of
shareholders. See "Description of Capital Stock--Voting Trust" for more
information on the terms of the voting trust.
The interests of these affiliates may conflict with the interests of
other shareholders, and the actions they take or approve may be contrary to
those desired by the other shareholders. This concentration of ownership may
also have the effect of delaying, preventing or deterring an acquisition of our
company by a third party.
OUR MANAGEMENT WILL RETAIN BROAD DISCRETION IN THE USE OF PROCEEDS FROM THIS
OFFERING AND MAY USE THE PROCEEDS IN WAYS IN WHICH YOU DO NOT AGREE
We intend to use the net proceeds from the sale of the common stock for
increased marketing efforts, creation of new products and services, further
development of infrastructure, working capital, general corporate purposes and
potential acquisitions. However, our management will retain significant
flexibility in applying the net proceeds of this offering and may use the
proceeds in ways in which you do not agree. Until the proceeds are needed, we
plan to invest them in investment-grade, interest-bearing securities. The
failure of our management to apply such funds effectively could harm our
business. See "How We Intend to Use the Proceeds from the Offering" for a more
detailed description.
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY HARM THE MARKET PRICE FOR OUR COMMON STOCK
Sales of a substantial number of shares of common stock in the public
market following this offering could harm the market price for our common stock.
See "Shares Eligible for Future Sale" for a description of the eligibility of
shares of our common stock for future sale.
PRIOR TO THIS OFFERING THERE HAS BEEN NO PUBLIC MARKET FOR OUR COMMON STOCK
While we have applied to list our common stock on the Nasdaq National
Market, a trading market for our common stock may not develop or, if a market
does develop, the common stock may still be difficult to trade. The initial
public offering price of the common stock has been determined through
negotiation between us and Hambrecht & Quist LLC, as the lead underwriter for
this offering, and may bear no relation to the price at which our common stock
will trade in the public market. You may not be
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able to resell your shares at or above the initial public offering price. See
"Underwriting" for more information.
OUR STOCK PRICE MAY BE VOLATILE
The market price of our common stock is likely to be highly volatile and
could be subject to fluctuations in response to quarterly variations in
operating results, announcements of new contracts or applications, changes in
financial estimates by securities analysts or other events and factors. The
stock market has experienced significant price and volume fluctuations and the
market prices of securities of technology companies, particularly
Internet-related companies, have been highly volatile, often unrelated to the
operating performance of such companies. Investors may not be able to resell
their shares at or above the initial public offering price. See "Underwriting"
for more information.
In the past, securities class action litigation has often been
instituted against a company following periods of volatility in the company's
stock price. This type of litigation could result in substantial costs and could
divert our management's attention and resources.
INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE DILUTION AND A DISPARITY IN
STOCK PURCHASE PRICE
The initial public offering price is expected to be substantially higher
than the pro forma net tangible book value per share of the outstanding common
stock immediately after the offering. Accordingly, purchasers of common stock in
this offering will experience immediate and substantial dilution of
approximately $ in net tangible book value per share, or approximately
% of the assumed offering price of $ per share. In contrast, existing
shareholders paid an average price of $ per share. Investors will incur
additional dilution upon the exercise of outstanding stock options and warrants.
Furthermore, any additional equity financing may be dilutive to shareholders and
debt financing, if available, may involve restrictive covenants, which may limit
our operating flexibility with respect to certain business matters. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our shareholders will be reduced. Shareholders may
experience additional dilution in net book value per share and such equity
securities may have rights, preferences and privileges senior to those of the
holders of our common stock.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS COULD PREVENT OR DELAY A
CHANGE OF CONTROL AND, AS A RESULT, NEGATIVELY IMPACT OUR SHAREHOLDERS
Our articles of incorporation provide that our board of directors may
not for a period of three years engage in a business combination with an
interested shareholder unless the business combination is approved in certain
prescribed manners. Furthermore, our bylaws limit the ability of shareholders to
raise matters at a meeting of shareholders without giving advance notice. The
anti-takeover provisions in our articles of incorporation and bylaws may have
the effect of delaying, deterring or preventing changes in control or management
of our company, even if such change in control or management would be beneficial
to shareholders. These provisions also could limit the price that certain
investors might be willing to pay in the future for shares of our common stock.
See "Description of Capital Stock" for more detailed information.
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FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" as defined in
Section 27A of the Securities Act of 1933 and the Exchange Act of 1934. These
statements are included under the captions "Prospectus Summary," "Risk Factors,"
"How We Intend to Use the Proceeds from the Offering," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business"
and elsewhere in this prospectus. These forward-looking statements include, but
are not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in this prospectus that are not
historical facts. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are generally intended to identify forward-looking statements. In
addition, this prospectus includes statistical data about the Internet that
comes from information published by sources including International Data
Corporation and Forrester Research. Because these forward-looking statements
involve risks and uncertainties, actual results could differ materially from
those expressed or implied by these forward-looking statements for a number of
reasons, including those discussed under "Risk Factors" and elsewhere in this
prospectus. We assume no obligation to update any forward-looking statements.
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HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
We estimate that we will receive net proceeds of $ from the
sale of the shares of common stock offered by us in this offering,
assuming an initial public offering price of $ per share and after deducting
the estimated underwriting discounts and offering
expenses. We will not receive any of the proceeds from the sale of shares by the
selling shareholders.
While we cannot predict with certainty how the proceeds of this offering
will be used, we currently intend to use them as follows:
- to increase our new market development efforts;
- to increase marketing efforts aimed at raising transaction volume;
- to create new products and services; and
- to futher develop common infrastructure and operating platforms.
We expect to use the remaining net proceeds from this offering for
working capital and other general corporate purposes. In addition, although we
are not currently participating in any active negotiations and have no
commitments or agreements with respect to any acquisition, we might in the
future use a portion of the remaining proceeds to pay for acquisitions.
Pending these uses, the net proceeds of this offering will be invested
in short-term, investment-grade, interest-bearing investments or accounts.
The amounts we actually spend for these purposes may vary significantly
and will depend on a number of factors, including our future revenue and cash
generated by operations and the other factors described under "Risk Factors."
Therefore, we will have broad discretion in the way we use the net proceeds. See
"Risk Factors--Our management will retain broad discretion in the use of
proceeds from this offering and may use the proceeds in ways in which you do not
agree" for more information.
DIVIDEND POLICY
Other than dividends paid while we were a corporation formed under
Subchapter S of the Internal Revenue Code, we have never declared or paid any
cash dividends on shares of our common stock. We intend to retain any future
earnings for future growth and do not anticipate paying any cash dividends in
the foreseeable future.
21
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
- on an actual basis, giving effect to our reincorporation in Colorado
in April 1999 and an increase in our authorized shares of common stock
in May 1999; and
- as adjusted to give effect to the receipt of the estimated net
proceeds from the sale of shares of common stock offered by
us in this offering at an assumed initial public offering price of
$ per share, after deducting underwriting discounts and
commissions and estimated offering expenses.
The number of shares of common stock to be outstanding after this
offering is based on the number of shares outstanding as of March 31, 1999 and
does not include the following:
- 544,789 shares of common stock subject to options issued at a weighted
average exercise price of $6.70 per share granted under our 1998 stock
option plan; or
- 1,940,286 shares of common stock reserved for future issuance under
our 1998 stock option plan and our 1999 employee stock purchase plan.
The information below is qualified by, and should be read in conjunction
with, our financial statements and the notes to those statements appearing at
the end of this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligations-- long-term portion............................................ $ 384 $
----------- -----------
Shareholders' equity:
Common stock, no par value; 200,000,000 shares authorized; 9,148,944 shares issued and
outstanding; shares issued and outstanding, as adjusted............................. $ --
Additional paid-in capital............................................................... 21,257
Accumulated deficit...................................................................... (10,833)
----------- -----------
10,424
Less other............................................................................... (731)
----------- -----------
Total shareholders' equity............................................................... $ 9,693
----------- -----------
Total capitalization..................................................................... $ 10,077 $
----------- -----------
----------- -----------
</TABLE>
22
<PAGE>
DILUTION
As of March 31, 1999, our actual net tangible book value was
approximately $ million or $ per share. Actual net tangible book value
per share represents the amount of total actual tangible assets less total
actual liabilities, divided by the shares of common stock outstanding as of
March 31, 1999. After giving effect to the sale of the shares of
common stock we are offering, after deducting the underwriting discount and
estimated offering expenses, our adjusted net tangible book value as of March
31, 1999 would have been $ million, or $ per share. This represents an
immediate increase in as adjusted net tangible book value of $ per share to
existing shareholders and an immediate dilution of $ per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share................................. $
Pro forma net tangible book value per share as of March 31, 1999.... $
Increase per share attributable to new investors....................
-----------
Pro forma net tangible book value per share after the offering..........
-----------
Dilution per share to new investors.....................................
-----------
-----------
</TABLE>
The following table sets forth, on a pro forma basis, as of March 31,
1999 the difference between the number of shares of common stock purchased, the
total consideration paid and the average price per share paid by the existing
shareholders and the new investors purchasing shares of common stock in this
offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing
shareholders........ -- --.--% -- --.--% $ --.--
New investors......... -- --.--
--
----- ----- -----
Total............. -- --.--% --.--%
--
--
----- ----- -----
----- ----- -----
</TABLE>
The foregoing discussion and tables assume no exercise of any of the
544,789 stock options with a weighted average exercise price of $6.70
outstanding as of March 31, 1999.
Sales by the selling shareholders to this offering will reduce the
number of shares of common stock held by existing shareholders to or
approximately % (approximately %, if the underwriters' over-allotment option
is exercised in full) of the total number of shares of common stock outstanding
upon the closing of this offering and will increase the number of shares held by
new public investors to or approximately % ( shares, or
approximately %, if the underwriters' over-allotment option is exercised in
full) of the total number of shares of common stock outstanding after this
offering. See "Principal and Selling Shareholders."
23
<PAGE>
SELECTED CONSOLIDATED ACTUAL AND PRO FORMA FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and their related notes,
our pro forma consolidated statement of operations and their related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this prospectus. No financial data is reported for 1994
as we had no meaningful operations during that year. The consolidated statement
of operations data for the year ended December 31, 1995 and the consolidated
balance sheet data as of December 31, 1995 and 1996 are unaudited and derived
from financial statements not included in this prospectus. The consolidated
statement of operations data for the years ended December 31, 1997 and 1998 and
the consolidated balance sheet data as of December 31, 1996, 1997 and 1998
labeled "Actual" are derived from, and are qualified by reference to, our
audited financial statements included in this prospectus. The consolidated
statement of operations data for the years ended December 31, 1997 and 1998 and
the three month period ending March 31, 1998 labeled "Pro Forma" are unaudited
and derived from and qualified by reference to our pro forma consolidated
statements of operations and their related notes included in this prospectus.
The consolidated statement of operations data for the three month period ended
March 31, 1998 and 1999 and the consolidated balance sheet data as of March 31,
1999 labeled "Actual" are unaudited and derived from and qualified by reference
to our unaudited interim financial statements included in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1998
--------------------------
1995 1997
--------- --------------------------
1996
-----
ACTUAL ACTUAL PRO FORMA ACTUAL PRO FORMA
------------ ----------- ------------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 3 $ 236 $ 996 $ 24,382 $ 28,624 $ 36,532
Cost of revenues........................... -- 21 5 18,410 21,211 27,394
--------- ----- ----------- ------------- ----------- -------------
Gross profit............................. 3 215 991 5,972 7,413 9,138
Operating expenses:
Service development and operations....... -- 38 224 1,308 3,885 4,327
Selling, general and administrative...... 12 168 660 3,122 4,242 5,087
Stock compensation....................... -- -- 370 631 292 297
Depreciation and amortization -- 1 14 7,774 5,922 7,887
--------- ----- ----------- ------------- ----------- -------------
Total operating expenses............... 12 207 1,268 12,835 14,341 17,598
--------- ----- ----------- ------------- ----------- -------------
Operating income (loss).................... (9) 8 (277) (6,863) (6,928) (8,460)
--------- ----- ----------- ------------- ----------- -------------
Other income (expense):
Interest expense......................... -- -- -- (52) (88) (105)
Other income (expense), net.............. -- -- -- (17) 56 71
--------- ----- ----------- ------------- ----------- -------------
Total other income (expense)........... -- -- -- (69) (32) (34)
--------- ----- ----------- ------------- ----------- -------------
Income (loss) before income taxes.......... (9) 8 (277) (6,932) (6,960) (8,494)
Income tax expense......................... -- -- -- -- 719 719
--------- ----- ----------- ------------- ----------- -------------
Net income (loss).......................... $ (9) $ 8 $ (277) $ (6,932) $ (7,679) $ (9,213)
--------- ----- ----------- ------------- ----------- -------------
--------- ----- ----------- ------------- ----------- -------------
Net income (loss) per share:
Basic and diluted........................ $ (2.25) $ 2.00 $ (0.06) $ (0.80) $ (0.96) $ (1.02)
--------- ----- ----------- ------------- ----------- -------------
--------- ----- ----------- ------------- ----------- -------------
Weighted average shares outstanding........ 4 4 4,492 8,639 8,021 9,034
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------------------------
1998 1999
-------------------------- -----------
ACTUAL PRO FORMA ACTUAL
----------- ------------- -----------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 361 $ 8,270 $ 11,455
Cost of revenues........................... 1 6,184 8,604
----------- ------------- -----------
Gross profit............................. 360 2,086 2,851
Operating expenses:
Service development and operations....... 135 577 935
Selling, general and administrative...... 325 1,171 1,518
Stock compensation....................... -- 5 267
Depreciation and amortization 24 1,988 2,001
----------- ------------- -----------
Total operating expenses............... 484 3,741 4,721
----------- ------------- -----------
Operating income (loss).................... (124) (1,655) (1,870)
----------- ------------- -----------
Other income (expense):
Interest expense......................... -- (17) (37)
Other income (expense), net.............. -- 15 17
----------- ------------- -----------
Total other income (expense)........... -- (3) (20)
----------- ------------- -----------
Income (loss) before income taxes.......... (124) (1,658) (1,890)
Income tax expense......................... -- -- 12
----------- ------------- -----------
Net income (loss).......................... $ (124) $ (1,658) $ (1,902)
----------- ------------- -----------
----------- ------------- -----------
Net income (loss) per share:
Basic and diluted........................ $ (0.03) $ (0.18) $ (0.21)
----------- ------------- -----------
----------- ------------- -----------
Weighted average shares outstanding........ 4,884 9,031 9,097
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1997
-----------
1995 1996 ACTUAL
----- ----- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash................................................................................. $ $ $ 179
Total assets......................................................................... 14 110 326
Bank lines of credit................................................................. --
Long-term debt (includes current portion of notes payable/capital lease
obligations)....................................................................... -- -- 30
Total shareholders' equity........................................................... (15) 95 188
<CAPTION>
MARCH 31,
-------------
1998 1999
----------- -------------
ACTUAL ACTUAL
----------- -------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash................................................................................. $ 1,311 $ 1,115
Total assets......................................................................... 17,249 16,633
Bank lines of credit................................................................. 1,024 839
Long-term debt (includes current portion of notes payable/capital lease
obligations)....................................................................... 745 1,179
Total shareholders' equity........................................................... 10,852 9,693
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR
FINANCIAL STATEMENTS AND THE RELATED NOTES APPEARING AT THE END OF THIS
PROSPECTUS. OUR DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED UPON
CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS OUR PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. ACTUAL RESULTS AND THE TIMING OF
CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH UNDER "RISK FACTORS," "BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
NIC is the leading provider of Internet-based electronic government
solutions that help governments reduce costs and provide a higher level of
service to businesses and citizens. We form partnerships with governments and on
their behalf design, build and operate Internet-based portals that allow
businesses and citizens to complete transactions and obtain government
information online. We typically enter into three to five year contracts with
our government partners and manage operations for each partnership through
decentralized business units. Each business unit focuses solely on providing a
comprehensive electronic government solution for that partner. By establishing a
local business unit for each government partner, we have been able to develop a
management culture and incentive system that focuses on locally-based service
that distinguishes us from divisions of larger traditional technology providers.
We were founded in 1991 when our first business unit was selected to
provide electronic government solutions in Kansas under a public/private
partnership model. Since then, we have formed partnerships and created business
units to serve the eight states of Arkansas, Georgia, Indiana, Iowa, Kansas,
Maine, Nebraska and Virginia, and one city-county government, the City of
Indianapolis and Marion County, Indiana. We have been selected by a ninth state
to provide our electronic government solution and are currently negotiating the
contract for our services.
In 1997, we contracted with one of our government partners to develop,
for a fixed fee, a back-office solution which would enable improved electronic
filing, storage, management and distribution of Uniform Commercial Code (UCC)
and other corporate records. We formed a separate application development
division to develop, maintain and implement the core technology for this
solution, and subsequently entered into development contracts with four
additional states to implement similar back-office solutions.
EXCHANGE OFFER
Starting with the partnership with the State of Kansas, our founders
established a separate S corporation for business conducted within each state
where they were awarded a public/private partnership contract. On March 31,
1998, we completed an exchange offer to combine our business units, which
previously operated as five separate affiliated companies, into one consolidated
company. The exchange offer was accounted for using the purchase accounting
method. The $17.3 million excess of the fair market value over the net book
value of the acquired business units has been partially allocated to intangible
assets that relate to our existing government contracts. The contracts were
valued at the net present value of projected future cash flows over the lives of
the existing contracts. The remainder of the excess was allocated to goodwill.
See Note 3 of the notes to our consolidated financial statements that appear at
the end of this prospectus for additional discussion of the accounting for the
exchange offer.
BUSINESS MODEL
We derive revenues from four sources:
- the sale of electronic access to public records on behalf of
government;
- subscription and transaction-based fees;
- fees for managing electronic government operations; and
- fees and charges for government application development.
In seven of our nine existing business units, our revenues are generated
from transactions, which generally include the sale of electronic access to
public records on behalf of the government and the collection of subscription
25
<PAGE>
and transaction-based fees. Among the highest volume, most commercially valuable
products and services we offer are access to driver's license and motor vehicle
records, which accounted for over 90% of our pro forma revenues in 1998. We
believe that while these two applications will continue to be important sources
of transaction revenue early in our government partnerships, their contribution
as a percentage of our total revenues in existing government partnerships will
decline as other sources grow. Pro forma revenues from other government products
and services grew 107% in 1998 over 1997.
We charge for access to records on a per-record basis and, depending
upon government policies, also on a fixed or sliding scale bulk basis. Our fees
are set by negotiation with the government agencies that control the records and
are typically approved by a government sanctioned oversight body. We recognize
revenues from transactions on an accrual basis and bill end-user customers
primarily on a monthly basis. We typically receive a majority of payments via
electronic funds transfer and credit card within 20 days of billing and remit
payment to governments within 60 days of the transaction. Government agency fees
and amounts payable to the primary contracting governmental entities are also
accrued as cost of revenues and accounts payable at the time revenues are
recognized.
In our government partnerships with Georgia and Iowa, we provide
consulting, development and management services to state-operated government
portals predominantly under a fixed-price model. Revenues from these service
contracts are recognized when service is provided and billed at rates and
intervals provided for in the contract.
Our application development division develops and implements back-office
government applications for a fixed development fee, which is recognized as
revenue on a percentage of completion basis. In the fourth quarter of 1998, we
determined that the balance of revenues remaining to be recognized in 1999 under
our existing application development division contractual obligations was not
expected to cover anticipated costs of developing and implementing the related
solutions. Estimated costs in excess of fixed contract prices of $1.3 million
for completing these projects were expensed in the fourth quarter of 1998. These
fixed-price contracts currently do not, and we believe in the future will not,
represent a significant percentage of our revenues.
Revenues from individual business units are highly correlated to
population, but are also affected by pricing policies established by government
entities for public records, the number and growth of commercial enterprises and
the government entity's development of policy and information technology (IT)
infrastructure supporting electronic government.
Approximately 83% of our pro forma revenue growth from 1997 to 1998 was
attributable to revenues from our business units that conducted operations for
substantially less than a full year in 1997. We believe that the formation of
partnerships with additional government entities will continue to be the primary
contributor to our revenue growth in the foreseeable future.
Substantially all of our cost of revenues consist of payments we make to
our government partners for access to public records we distribute over the
Internet to businesses and citizens, and the remainder consist of
telecommunications costs. The pricing, costs and gross margin derived from these
records vary by the type of public record and by state.
The majority of our operating expenses are personnel-related, and
directly associated with the development and marketing of electronic government
solutions in our business units. All nine business units have largely the same
operational design and a similar cost structure. Each of our business units has
a president, a marketing group and a service development and operations group
which together focus on the rapid development and deployment of Internet
applications to meet the needs of governments, businesses and citizens in that
particular venue. The amortization of goodwill and intangible assets related to
our exchange offer is the other major component of operating expenses.
Since the inception of our first business unit in Kansas, we have used
stock purchase and stock option programs for key employees as compensation to
attract strong business and technical talent. We have recorded compensation
expense for some of our stock and options grants. The expense is equal to the
excess of the fair market price on the date of grant or sale over the option
exercise or stock sale price. As of March 31, 1999, we recorded deferred
compensation of approximately $606,000. For the stock options granted, deferred
compensation is being amortized over the vesting periods of the stock options.
We recognized a total of approximately $292,000 in stock
26
<PAGE>
compensation expense in 1998 and approximately $267,000 in stock compensation
expense in the three months ended March 31, 1999.
RESULTS OF OPERATIONS
Prior to the completion of our exchange offer in March 1998, we were a
holding company with no operations of our own. Our exchange offer consolidated
five business units as operating subsidiaries under our holding company.
Prior to April 1, 1998, our historical consolidated results of
operations reflect only the results of our business unit formed to pursue new
business opportunities and not the results of our business units operating in
Indiana, Kansas, Arkansas and Nebraska. For example, for the three months ended
March 31, 1999, revenues were $11.5 million which represents all of our business
units while the $361,000 reported for the three months ended March 31, 1998
represents primarily the start-up of our operations in Virginia. Total operating
expenses are likewise not comparable. Accordingly, we believe that that
historical comparison of our results of operations for the three months ended
March 31, 1999 against the three months ended March 31, 1998, the year ended
December 31, 1998 against the year ended December 31, 1997 and the year ended
December 31, 1997 against the year ended December 31, 1996 are not necessarily
meaningful.
We believe that comparisons of the three months ended March 31, 1999
against the pro forma for the three months ended March 31, 1998 and the pro
forma for the year ended December 31, 1998 against the pro forma for the year
ended December 31, 1997 most accurately represents our combined operations for
these periods. See the pro forma consolidated financial information that appears
at the end of this prospectus for additional details regarding the pro forma
information.
The following table presents certain consolidated statement of
operations data for the periods indicated as a percentage of total revenues on a
pro forma basis, except for the three months ended March 31, 1999.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER
31, MARCH 31,
-------------------- --------------------------
1997 1998 1998 1999
--------- --------- ------------- -----------
PRO FORMA PRO FORMA ACTUAL
-------------------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues....................................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................................... 75.5 75.0 74.8 75.1
--------- --------- ----- -----
Gross profit................................................... 24.5 25.0 25.2 24.9
Operating expenses.............................................
Service development and operations........................... 5.4 11.8 7.0 8.2
Selling, general and administrative.......................... 12.8 13.9 14.2 13.2
Stock compensation........................................... 2.6 0.8 0.1 2.3
Depreciation and amortization................................ 31.8 21.6 24.0 17.5
--------- --------- ----- -----
Total operating expenses................................... 52.6 48.1 45.2 41.2
--------- --------- ----- -----
Operating income (loss)........................................ (28.1) (23.1) (20.0) (16.3)
Interest expense............................................... (0.2) (0.3) (0.2) (0.3)
Other income (expense), net.................................... (0.1) 0.2 0.2 0.1
--------- --------- ----- -----
Income before income taxes..................................... (28.4) (23.2) (20.0) (16.5)
Income taxes................................................... 0.0 2.0 0.0 0.1
--------- --------- ----- -----
Net income (loss).............................................. (28.4)% (25.2)% (20.0 )% (16.6 )%
--------- --------- ----- -----
--------- --------- ----- -----
</TABLE>
27
<PAGE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
REVENUES. Revenues increased 38.5% to $11.5 million for the three
months ended March 31, 1999 from $8.3 million on a pro forma basis for the three
months ended March 31, 1998. This increase was primarily attributable to two new
business units that were fully operational in the first quarter of 1999, but
were not operational in 1998.
COST OF REVENUES. Cost of revenues consists of payments we make to our
government partners for access to public records we distribute over the Internet
to businesses and citizens, and the remainder consist of telecommunications
costs. Cost of revenues increased 39.1% to $8.6 million for the three months
ended March 31, 1999 from $6.2 million on a pro forma basis for the three months
ended March 31, 1998. This increase primarily was attributable to the cost
related to the two new business units that were fully operational in the first
quarter of 1999, but were not operational in 1998.
SERVICE DEVELOPMENT AND OPERATIONS. Service development and operations
costs consist of costs to develop, implement, operate and maintain government
portals, as well as costs of personnel that design, develop and implement
back-office government solutions. These costs increased 62.1% to $935,000 for
the three months ended March 31, 1999 from $577,000 on a pro forma basis for the
three months ended March 31, 1998. This increase primarily was attributable to
new business units and the increase in size of our application development
division.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative costs consist of marketing and sales costs in our business units
and costs of corporate-level personnel. These costs increased 29.6% to $1.5
million for the three months ended March 31, 1999 from $1.2 million on a pro
forma basis for the three months ended March 31, 1998. This increase primarily
was attributable to new business units and the addition of corporate-level
personnel.
STOCK COMPENSATION. Stock compensation was $267,000 for the three
months ended March 31, 1999 compared to $5,000 on a pro forma basis for the
three months ended March 31, 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization consisted
primarily of amortization of goodwill and intangible assets related to our
exchange offer. Depreciation and amortization was $2.0 million for the three
months ended March 31, 1999 and 1998.
INCOME TAXES. On March 31, 1998 we were an S corporation, as were all
of our business units, and therefore we did not record income tax expense. We
recognized an income tax provision of $12,000 for the three months ended March
31, 1999. This provision primarily was attributable to goodwill amortization and
stock compensation being non-deductible for tax purposes.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES. Pro forma revenues increased 49.8% to $36.5 million for the
year ended December 31, 1998 from $24.4 million for the year ended December 31,
1997. This increase was primarily attributable to the addition of four new
business units in 1997 that had a full year of operations in 1998.
COST OF REVENUES. Pro forma cost of revenues increased 48.8% to $27.4
million for the year ended December 31, 1998 from $18.4 million for the year
ended December 31, 1997. This increase was primarily attributable to the costs
related to the addition of four new business units in 1997 that had a full year
of operations in 1998.
SERVICE DEVELOPMENT AND OPERATIONS. Pro forma service development and
operations costs increased 237.4% to $4.3 million of the year ended December 31,
1998 from $1.3 million for the year ended December 31, 1997. This increase was
primarily attributable to the development of new business units and increased
development costs of our applications development division, including a one-time
28
<PAGE>
charge in the fourth quarter of 1998 for anticipated losses on application
development contracts of $1.3 million.
SELLING, GENERAL AND ADMINISTRATIVE. Pro forma selling, general and
administrative costs increased 62.9% to $5.1 million for the year ended December
31, 1998 from $3.1 million for the year ended December 31, 1997. This increase
primarily was attributable to marketing and sales activities within our new
business units.
STOCK COMPENSATION. Pro forma stock compensation costs were $297,000
for the year ended December 31, 1998 and was $631,000 for the year ended
December 31, 1997.
DEPRECIATION AND AMORTIZATION. Pro forma depreciation and amortization
was $7.9 million for the year ended December 31, 1998 and was $7.8 million for
the year ended December 31, 1997.
INCOME TAXES. We recognized an income tax provision of $719,000 for the
year ended December 31, 1998. This provision was attributable to a one-time $1.4
million provision for deferred taxes on our conversion to a C corporation and
goodwill amortization and stock compensation being non-deductible for tax
purposes. For the year ended December 31, 1997, we were an S corporation, as
were all of our business units, and therefore we did not record income tax
expense.
SELECTED QUARTERLY OPERATING RESULTS
The following tables present certain consolidated statements of
operations data for our nine most recent quarters ended March 31, 1999 in
dollars and as a percentage of net revenue. Data for periods prior to the three
months ended June 30, 1998 are presented on a pro forma basis. In management's
opinion, this unaudited information has been prepared on the same basis as the
audited annual financial statements and includes all adjustments, consisting
only of normal recurring adjustments, necessary for fair presentation of the
unaudited information for the quarters presented. You should read this
information in conjunction with the consolidated financial statements, including
the notes thereto, included elsewhere in this prospectus. The results of
operations for any quarter are not necessarily indicative of results that we
might achieve for any subsequent periods.
29
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues....................... $ 5,295 $ 5,410 $ 6,395 $ 7,282 $ 8,270 $ 8,494 $ 9,773 $ 9,996 $11,455
Cost of revenues............... 4,017 4,081 4,874 5,438 6,184 6,152 7,347 7,711 8,604
-------- -------- --------- -------- -------- -------- --------- -------- --------
Gross profit................... 1,278 1,329 1,521 1,844 2,086 2,342 2,426 2,285 2,851
Operating expenses:
Service development and
operations................. 276 288 329 416 577 676 806 2,268 935
Selling, general and
administrative............. 612 694 764 1,052 1,171 1,381 1,219 1,317 1,518
Stock compensation........... 10 -- 150 471 5 259 -- 33 267
Depreciation and
amortization............... 1,936 1,946 1,937 1,955 1,989 1,968 1,962 1,968 2,001
-------- -------- --------- -------- -------- -------- --------- -------- --------
Total operating expenses..... 2,834 2,928 3,180 3,894 3,742 4,284 3,987 5,586 4,721
-------- -------- --------- -------- -------- -------- --------- -------- --------
Operating income (loss)........ $(1,556) $(1,599) $(1,659) $(2,050) $(1,656) $(1,942) $(1,561) $(3,301) $(1,870)
-------- -------- --------- -------- -------- -------- --------- -------- --------
-------- -------- --------- -------- -------- -------- --------- -------- --------
AS A PERCENTAGE OF TOTAL REVENUES
--------------------------------------------------------------------------------------------------
Revenues....................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............... 75.9 75.4 76.2 74.7 74.8 72.4 75.2 77.1 75.1
-------- -------- --------- -------- -------- -------- --------- -------- --------
Gross profit................... 24.1 24.6 23.8 25.3 25.2 27.6 24.8 22.9 24.9
Operating expenses:
Service development and
operations................. 5.2 5.3 5.2 5.7 7.0 8.0 8.2 22.7 8.2
Selling, general and
administrative............. 11.6 12.8 11.9 14.5 14.1 16.2 12.5 13.2 13.2
Stock compensation........... 0.2 0.0 2.3 6.5 0.1 3.0 0.0 0.3 2.3
Depreciation and
amortization............... 36.5 36.0 30.3 26.8 24.0 23.2 20.1 19.7 17.5
-------- -------- --------- -------- -------- -------- --------- -------- --------
Total operating expenses..... 53.5 54.1 49.7 53.5 45.2 50.4 40.8 55.9 41.2
-------- -------- --------- -------- -------- -------- --------- -------- --------
Operating income (loss)........ (29.4)% (29.5)% (25.9)% (28.2)% 20.0% (22.8)% (16.0)% (33.0)% (16.3)%
-------- -------- --------- -------- -------- -------- --------- -------- --------
-------- -------- --------- -------- -------- -------- --------- -------- --------
</TABLE>
We expect operating results to fluctuate significantly in the future as
a result of a variety of factors, many of which are outside of our control. See
"Risk Factors--The unpredictability of our quarter to quarter results may
adversely affect the trading price of our common stock" and "--The seasonality
of use for certain electronic government products and services may adversely
affect our fourth quarter results of each calendar year" for more information on
quarterly fluctuations and seasonality and how it affects our business.
We believe that period to period comparisons of our operating results
will not necessarily be meaningful and you should not rely on them as an
indication of future performance. It is possible that in some future periods our
operating results may be below the expectations of public market analysts and
investors. In such event, the trading price of our common stock may decline.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the exchange offer, each of our business units funded its
initial development and organizational costs from stock sales to employees and
certain private investors. Since March 31, 1998, initial development and
organizational costs related to new business units have been funded by net cash
generated from operations in existing business units. In most cases, our
business units have generated positive cash flow from operations within the
first ninety days following initial service implementation, and have thereafter
begun to fund all activities from operating cash flow. As of March 31, 1999, we
had approximately $1.1 million in cash and cash equivalents.
30
<PAGE>
Net cash used in operating activities was $366,000 for the three months
ended March 31, 1999. The difference between the net loss of $1.9 million and
net cash used was attributable to over $2.3 million in non-cash charges,
primarily amortization of goodwill and stock compensation. This difference was
offset by an increase in accounts receivable of $787,000, which was due to
increased volume in our largest business unit. The difference between the net
loss of $7.7 million and net cash provided of $354,000 from operating activities
during the year ended December 31, 1998 was attributable to the non-cash charges
in amortization of goodwill and non-cash expense recognized for application
development contracts.
Investing activities resulted in net cash used of $10,000 in the three
months ended March 31, 1999, and net cash provided of $607,000 in the year ended
December 31, 1998. The cash provided from investing activities in the year ended
December 31, 1998 was attributable to cash of $765,000 held by the business
units we consolidated in connection with our exchange offer, offset by cash
invested in property and equipment of $255,000.
Cash flows provided from financing activities were $181,000 for the
three months ended March 31, 1999, and $170,000 for the year ended December 31,
1998. Cash flows provided from financing activities for the three months ended
March 31, 1999 were primarily attributable to issuances of our common stock to
executives and a board member during the period. Cash flows provided from
financing activities for the year ended December 31, 1998 were primarily
attributable to cash flows from borrowings of $1.2 million, offset by cash used
for payments on notes, leases, debentures and distributions to shareholders
totalling $588,000.
Cash provided and/or used for operating, investing and financing
activities during the periods ended March 31, 1998, December 31, 1997, and
December 31, 1996 reflected the cash flow from our business unit formed to
pursue new business opportunities, and is not comparable to cash flow patterns
reflected in our consolidated operations.
Each of our business units maintains operating lines of credit and
equipment lines of credit on identical or substantially similar terms and
conditions from the same bank. The total amount outstanding on our bank lines of
credit for our business units totaled $839,000 as of March 31, 1999.
We believe that the net proceeds from this offering, together with the
existing cash balances and financing arrangements, will provide us with
sufficient funds to finance our operations through at least the next 18 months.
If the cash we generate from our operations is insufficient to satisfy our
liquidity requirements after this 18 month period, we may need to sell
additional equity or debt securities or obtain additional credit facilities. The
sale of additional equity or convertible debt securities may result in
additional dilution to our shareholders. We may not be able to raise any
additional capital or on acceptable terms or at all.
YEAR 2000 READINESS
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. As a result,
software that records only the last two digits of the calendar year may not be
able to distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
We have conducted an internal review of software systems that we use for
portal management, network monitoring, quality assurance, applications and
information and transaction processing. Because we developed most of these
software systems internally after the Year 2000 problem was already known, we
were largely able to anticipate four digit requirements. In connection with
ongoing reviews of our government portals, we also are reviewing our computer
infrastructure, including network equipment and servers. We do not anticipate
material problems with network equipment, as the majority of our current
configuration have been installed or upgraded with Year 2000 ready systems.
Similarly, we purchased most of our servers within the past four years. With
this relatively current equipment, we do not anticipate
31
<PAGE>
material Year 2000 readiness problems, and we will replace any servers that
cannot be updated either in the normal replacement cycle or on an accelerated
basis.
We also have internally standardized the majority of our systems on a
Solaris operating system, which we are advised by our vendor is Year 2000 ready
after implementation of the latest service upgrades. We use multiple software
systems for internal business purposes, including accounting, electronic mail,
service development, human resources, customer service and support and sales
tracking systems. The majority of these applications have either been purchased,
upgraded or internally developed within the last three years.
We have made inquiries of vendors of systems we believe to be mission
critical to our business regarding their Year 2000 readiness. Although we have
received various assurances, we have not received affirmative documentation of
Year 2000 readiness from any of these vendors and we have not performed any
operational tests on our internal systems. We generally do not have contractual
rights with third party providers should their equipment or software fail due to
Year 2000 issues. If this third-party equipment or software does not operate
properly with regard to Year 2000, we may incur unexpected expenses to remedy
any problems. These expenses could potentially include purchasing replacement
hardware and software. We have not determined the state of readiness of certain
third-party suppliers of information and services such as our government
partners, phone companies, long distance carriers, financial institutions and
electric companies, the failure of any one of which could severely disrupt our
ability to conduct our business.
Concurrently with our two-phase analysis of our internal systems, we
have begun to survey third-party entities with which we transact business,
including government partners, critical vendors and financial institutions, for
Year 2000 readiness. We expect to complete this survey in the second quarter of
1999. We cannot estimate the effect, if any, that non-ready systems of these
entities could have on our business, results of operations or financial
condition, and there can be no assurance that the impact, if any, would not be
material.
We anticipate that our review of Year 2000 issues and any remediation
efforts will continue throughout calendar 1999. The costs incurred to date to
remediate our Year 2000 issues have not been material. If any Year 2000 issues
are uncovered with respect to these systems or our other internal systems, we
believe that we will be able to resolve these problems without material
difficulty, as replacement systems are available on commercially reasonable
terms. Presently, we have included the total remaining cost of addressing Year
2000 issues within our existing information technology budget. We do not
anticipate any Year 2000 complications based on a number of assumptions,
including the assumption that we have already identified our most significant
Year 2000 issues. However, these assumptions may not be accurate, which could
cause our actual results to differ materially from those anticipated. In view of
our Year 2000 review and remediation efforts to date, the recent development of
a number of our products and services, the recent installation of our networking
equipment and servers, and the limited activities that remain to be completed,
we do not consider contingency planning to be necessary at this time.
Our applications operate in complex network environments and directly
and indirectly interact with a number of external hardware and software systems.
We are unable to predict to what extent our business may be affected if our
systems or the systems that operate in conjunction with our systems experience a
material Year 2000 failure. The most likely worst case scenarios are that the
Internet infrastructure fails or the internal systems of our government partners
fail, either of which would render us unable to provide products and services,
which would harm our business. Additionally, known or unknown errors or defects
that affect the operation of our software and systems could result in delay or
loss of revenue, interruption of services, cancellation of contracts and
memberships, diversion of development resources, damage to our reputation,
increased service and warranty costs, and litigation costs, any of which could
harm our business, financial condition and results of operations.
32
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement No. 131,
"Disclosure about Segments of an Enterprise and Related Information," which
establishes standards for the way public business enterprises report information
in annual statements and interim financial reports regarding operating segments,
products and services, geographic areas and major customers. This statement is
effective for financial statements for periods beginning after December 15,
1997. The adoption of this statement did not have a significant impact on the
way we report information in our annual statements and interim financial
reports.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", which establishes
guidelines for the accounting for the costs of all computer software developed
or obtained for internal use. We are required to adopt SOP 98-1 effective
January 1, 1999. The adoption of SOP 98-1 is not expected to have a material
impact on our consolidated financial statements.
INTEREST RATE RISK
Our exposure to market risk for changes in interest rates relates
primarily to the increase or decrease in the amount of interest income we can
earn on our cash balances and on the increase or decrease in the amount of
interest expense we must pay with respect to our various outstanding debt
instruments. The risk associated with fluctuating interest expense is limited,
however, to the exposure related to those debt instruments and credit facilities
which are tied to market rates. We do not use derivative financial instruments.
We ensure the safety and preservation of our invested principal funds by
limiting default risks, market risk and investment risk.
33
<PAGE>
BUSINESS
OVERVIEW
NIC is the leading provider of Internet-based electronic government
solutions that help governments reduce costs and provide a higher level of
service to businesses and citizens. We form partnerships with governments and on
their behalf design, build and operate Internet-based portals. These portals
consist of Web sites and applications that we build, which allow businesses and
citizens to complete transactions and obtain government information online. Our
unique business model allows us to minimize our partners' financial and
technology risks and share in the revenue generated by providing electronic
government solutions to businesses and citizens. Our partners benefit because
they gain a centralized, customer-focused presence on the Internet. Businesses
and citizens gain a faster, more convenient and more cost-effective means to
obtain valuable government information and to complete transactions with
government, including permit applications, license renewals and report filings.
Currently, we provide Internet-based electronic government solutions for
eight states and one local government. A ninth state has recently selected us as
a solution provider, and we are in the process of negotiating a contract to
implement our solution. We typically enter into three to five year contracts
with our government partners and manage operations for each partnership through
decentralized business units. We intend to increase our revenues by replicating
our model in other states, municipalities, federal agencies and international
entities, and by delivering new services and expanding markets within our
existing partnerships.
INDUSTRY BACKGROUND
THE MARKET FOR GOVERNMENT-TO-BUSINESS AND GOVERNMENT-TO-CITIZEN TRANSACTIONS
Government's regulation of commercial and consumer activities requires
billions of transactions and exchanges of large volumes of information between
government agencies and businesses and citizens. These transactions and
exchanges include driver's license renewals, motor vehicle registrations, tax
returns, permit applications and requests for government-gathered information.
Government agencies typically defray the cost of processing these transactions
and of storing, retrieving and distributing information through a combination of
general tax revenue, service fees and charges for direct access to public
records. In 1996, state and local governments collected $27 billion in
miscellaneous services fees from businesses and citizens. Additionally, the
federal government collected $56 billion in miscellaneous service fees in 1997.
THE LIMITS OF TRADITIONAL GOVERNMENT TRANSACTION METHODS
Traditionally, government agencies have transacted, and in many cases
continue to transact, with businesses and citizens using processes that are
inconvenient and labor-intensive, require extensive paperwork and use large
amounts of scarce staff resources. Transactions and information requests are
often made in person or by mail and are processed manually, increasing the
potential for errors and the need for numerous revisions and follow-up. Even
newer methods, including telephone response systems, tape exchanges and dial-up
computer networks, rely on multiple systems and potentially incompatible data
formats, and require significant expertise and expenditures to introduce and
maintain. As a result, businesses and citizens often have no choice but to face
costly delays to complete essential tasks. These delays include waiting in line
at a government agency, waiting for answers by telephone or waiting for
responses by mail. Businesses and citizens encounter further inconvenience and
delay because they usually can work with government agencies only during normal
business hours. Even when electronic alternatives are available, they often
require a cumbersome process of multiple contacts with different government
agencies. Increases in the level of economic activity and in the population have
exacerbated these problems and increased the demand for new solutions.
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<PAGE>
GROWTH OF THE INTERNET AND ELECTRONIC COMMERCE
The Internet has emerged as a global medium, enabling millions of people
worldwide to share information, communicate and conduct business electronically.
International Data Corporation, a market research firm, estimates that the
number of Web users will grow from approximately 97 million worldwide in 1998 to
approximately 320 million worldwide by the end of 2002. This growth is expected
to be driven by the large and growing number of PCs installed in homes and
offices, the decreasing cost of PCs, easier, faster and cheaper access to the
Internet, improvements in network infrastructure, the proliferation of Internet
content and the increasing familiarity with and acceptance of the Internet by
governments, businesses and consumers. In addition, the volume of electronic
commerce has grown in parallel with the Internet itself. According to
International Data Corporation, transactions on the Internet are expected to
increase from approximately $32 billion in 1998 to approximately $426 billion in
2002. Business-to-business usage is also growing rapidly. Forrester Research, a
market research firm, estimates that business-to-business electronic commerce
will grow from $17 billion in 1998 to $327 billion in 2002.
EMERGENCE OF THE INTERNET AS A MEDIUM FOR ELECTRONIC GOVERNMENT
The growing acceptance of the Internet and electronic commerce presents
a significant opportunity for the development of electronic government, in which
government agencies conduct transactions and distribute information over the
Internet. By using the Internet, government agencies can increase the number and
efficiency of interactions with constituents without increasing expenditures or
demands on current personnel. In addition, regardless of physical distance,
businesses and citizens can obtain government information quickly and easily
over the Internet. For example, motor vehicle administrations can provide
instantaneous responses to auto insurers' requests for driving record data by
allowing controlled access to government databases through the Internet. This
Internet-based interaction reduces costs for both government and users and
decreases response times compared to providing the same data by mail or special
purpose dial-up computer connections.
CHALLENGES TO THE IMPLEMENTATION OF ELECTRONIC GOVERNMENT SOLUTIONS
Despite the potential benefits of electronic government, barriers to
creating successful Internet-based solutions often preclude governments from
implementing them. Some of these barriers are similar to those the private
sector encounters, including:
- the high cost of implementing and maintaining Internet technology in a
budget-constrained environment;
- the financial, operational and technology risks of moving from older,
established technologies to rapidly evolving Internet technologies;
- the need to quickly assess the requirements of potential customers and
cost-effectively design and implement solutions that are tailored to
meet these requirements; and
- the intense competition for qualified technical personnel.
Governments also face some unique challenges that exacerbate the
difficulty of advancing to Internet-based solutions, including:
- lengthy and political appropriations processes that make it difficult
for governments to acquire resources and to develop Internet solutions
quickly;
- a diverse and substantially autonomous group of government agencies
that have adopted varying and fragmented approaches to providing
information and transactions over the Internet;
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<PAGE>
- a lack of a marketing function that assures that solutions are
designed to meet the needs of businesses and citizens and that they
are aware of their availability; and
- security and privacy concerns that are amplified by the confidential
nature of the information and transactions available from and
conducted with governments and the view that government information is
part of the public trust.
Traditional private sector Internet solutions generally do not address
the unique needs of electronic government. Most Internet solution providers do
not fully understand and are not well-equipped to deal with the unique political
and regulatory structures of governments. These providers, including large
systems integrators, typically take a time-and-materials, project-based pricing
approach that may not adequately balance the responsiveness to change of a
successful Internet business with the longer time-horizons and extended
commitment periods of government projects.
OUR SOLUTION
We provide a unique, Internet-based electronic government solution that
meets the needs of businesses, citizens and governments. The key elements of our
solution are:
CUSTOMER-FOCUSED, ONE-STOP GOVERNMENT PORTAL
Using our well-established marketing and technical expertise and our
government experience, we design, implement and manage portals for each of our
government partners that meet their needs as well as those of businesses and
citizens. Our portals are designed to create a single point of presence on the
Internet for our government partners that allows businesses and citizens to
reach the Web site of every government agency in a specific jurisdiction from
one online location. We employ a common look and feel in the Web sites of all
government agencies associated with our electronic government portals and make
them useful, appealing and easy to use. In addition to developing and managing
the government portal, we develop applications that, in one location on the
Internet, allow businesses and citizens to complete processes that have
traditionally required separate interaction with several different government
agencies, including establishing and obtaining required permits for a new
business enterprise. These applications also permit businesses and citizens to
conduct transactions with government agencies and to obtain information from
them 24 hours per day, seven days per week. We also help our government partners
to generate awareness and educate businesses and citizens about the availability
and potential benefits of electronic government solutions.
COMPELLING FINANCIAL MODEL
We allow governments to implement a comprehensive electronic government
solution at minimal cost and risk. We take on the responsibility and cost of
designing, building and operating government portals and applications, with
minimal use of government resources. We employ our technological resources and
accumulated expertise to help governments avoid the risks of selecting and
investing in new technologies. We implement our electronic government solutions
rapidly, efficiently and accurately, using our well-tested and reliable
infrastructure and processes. Once we establish a government portal and
associated applications, we manage transaction flows and fund ongoing costs from
a share of fees received from information accessed and transactions conducted
through the portal.
PARTNERSHIP WITH GOVERNMENTS
We form partnerships with governments by developing an in-depth
understanding of their interests and then aligning our interests with theirs. By
tying our revenues to the development of successful services and applications,
we assure government agencies and constituents that we are focused on their
needs. Moreover, we have pioneered, and encourage our partners to adopt, a model
for electronic government policymaking that involves the formation of oversight
boards that bring together interested
36
<PAGE>
government agencies, business and consumer groups and other important government
constituencies in a single forum. We work within this forum to maintain constant
contact with government agencies and constituents and strive to ensure their
participation in the development of the electronic government solution. We
attempt to understand and facilitate the resolution of potential political
disputes among these participants to maximize the benefits of our solutions. We
also design our solutions to observe relevant privacy and security regulations,
so that they meet the same high standards of integrity, confidentiality and
public service as government agencies would observe in their own actions.
OUR STRATEGY
Our objective is to strengthen our position as the leading provider of
Internet-based electronic government solutions. Key strategies to achieve this
objective include:
CONTINUE TO PENETRATE NEW MARKETS
We intend to increase the number of our government partners by
leveraging our relationships with current government partners, our reputation
for providing proven electronic government solutions and our technology and
government process knowledge base. We have designed our solutions and
infrastructure so that we can deploy solutions quickly, easily and
cost-effectively in new locations. We intend to market our one-stop approach to
other states, multi-state cooperative organizations, local governments and
federal agencies. In the future, we may expand our services into international
markets. Our expansion efforts will include developing relationships and
sponsors throughout an individual government entity, making presentations at
conferences of government executives with responsibility for information
technology policy, and developing contacts with organizations that act as forums
for discussions between these executives.
BROADEN PRODUCT AND SERVICE OFFERINGS
We intend to develop new product and service offerings to enable
government agencies and businesses and citizens to interact more effectively
online. We will increase our development efforts by leveraging our experience
and deepening the knowledge base that we have developed from our operations. We
will continue to work with government agencies, professional associations and
other organizations to better understand the current and future needs of our
customers.
INCREASE TRANSACTION VOLUMES FROM EXISTING AND NEW CUSTOMERS
We intend to increase traffic to our government portals through both
targeted and broad marketing initiatives. We will continue to work with our
government partners to create awareness of the online alternatives to
traditional government interaction, through initiatives including informational
brochures, government voicemail recordings and inclusion of Web site information
on government invoices. In addition, we will continue to update our portals to
highlight new government service information provided on the portals. We plan to
work with professional associations to directly and indirectly communicate to
their members the convenience, ease of use and other benefits of the electronic
government solutions our portals offer.
ENHANCE CAPABILITY AND EFFICIENCY OF CORE BUSINESS OPERATIONS
We will continue to enhance our business model by increasing the overall
capability and efficiency of each government business unit. On a corporate
level, we will work with each business unit to share and coordinate the
implementation of best practices across our organization and to create new
products and services in response to the needs of businesses and citizens. We
intend to strengthen our operational and administrative functions to provide
standardized services in areas that benefit from economies of scale, including
new market development and human resources management. In addition, we
37
<PAGE>
will continue to use performance incentives, including stock-based compensation
and local manager bonuses, to encourage each business unit to raise customer
satisfaction, continuously develop new products and services and lower overall
business unit costs.
ATTRACT, RETAIN AND TRAIN SPECIALIZED AND QUALIFIED PERSONNEL
We believe that attracting, training and retaining specialized talent is
critical to executing our growth strategy. We will continue to improve employee
retention through challenging and entrepreneurial work assignments and incentive
programs, including equity interests in our company. We strive to foster a
creative, open atmosphere in which we encourage each employee to make valuable
contributions. We intend to hire employees with experience in government
processes who also have specific technical, marketing or contract negotiation
skills. In addition, we intend to improve the quality and retention of our
workforce through increased centralized training programs.
GOVERNMENT PARTNERSHIPS
We provide electronic government solutions to eight states and one
city-county government through the following partnerships:
<TABLE>
<CAPTION>
YEAR
SERVICES POPULATION
PARTNERSHIP NAME COMMENCED SERVED WEB ADDRESS
- ------------------------------------------------ ----------- ----------- -----------------
<S> <C> <C> <C>
InforME (Maine)................................. 1999 1,244,000 www.state.me.us
Information Network of Arkansas................. 1997 2,538,000 www.state.ar.us
CivicNet (Indianapolis and Marion County,
Indiana)...................................... 1997 813,000 www.civicnet.net
IOWAccess Network............................... 1997 2,862,000 www.iowaccess.org
Virginia Information Providers Network.......... 1997 6,791,000 www.vipnet.org
GeorgiaNet Authority............................ 1996 7,642,000 www.state.ga.us
Access Indiana Information Network.............. 1995 5,899,000 www.state.in.us
Nebrask@ Online................................. 1995 1,663,000 www.state.ne.us
Information Network of Kansas................... 1992 2,629,000 www.state.ks.us
</TABLE>
- ------------------------
Source: 1998 estimated population information from the U.S. Census Bureau Web
site at www.census.gov.
Each of these partnerships operates under a separate contract, which
generally has an initial term of three to five years. Under a typical contract,
a government agrees that:
- we have the right to develop a comprehensive Internet portal owned by
the government to deliver an electronic government solution;
- the portal we establish is the primary electronic and Internet
interface between the government and its citizens;
- the government supports the use of the portal for all commercially
valuable applications in order to support the operation and expansion
of the portal;
- the government sponsors access to agencies for the purpose of entering
into agreements with these agencies to develop applications for their
data and transactions and to link their Web pages to the portal; and
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<PAGE>
- the government establishes a policy making and fee approval board,
which typically includes agency members, business customers and
others, to establish prices for products and services and to set other
policies.
In return, we agree to:
- develop, manage, market, maintain and expand the government's portal
and information and electronic commerce applications;
- assume the investment risk of building and operating the government's
portal and applications without the direct use of tax dollars;
- bear the risk of collecting transaction fees; and
- have an independent audit conducted upon the government's request.
We own all the software we develop under these contracts. After
completion of the initial contract term, our government partners receive a
perpetual, royalty free license to use the software only in their own portals.
We enter into separate agreements with various agencies and divisions of
our government partners to provide specific services and to conduct specific
transactions. These agreements preliminarily establish the pricing of the
electronic transactions and data access services we provide and the allocation
of revenues between us and the agency. These terms are then submitted to the
policy making and fee approval board for approval.
In our government partnerships with Georgia and Iowa, we provide
consulting, development and management services for these government portals
predominantly under a fixed-price model.
OUR PRODUCTS AND SERVICES
Each of our business units works with its government partner to
implement, develop, manage, and constantly enhance a single, comprehensive
Internet-based portal to deliver electronic government solutions to the
government's constituents. Citizens and businesses use these portals to gain
access to Web-based interactive applications in order to conduct transactions
with the government and gain access to public service information.
We provide user-friendly and convenient access to useful government
information and services on each portal and develop numerous fee-based
transaction services and applications. These fee-based services and applications
allow businesses and citizens to access constantly changing government
information and to file necessary government documents, including driver's
license renewals, motor vehicle registrations, tax returns, and permit
applications. The types of products and services and the fees charged vary in
each jurisdiction according to the unique preferences of that jurisdiction. In
an effort to reduce the frustration businesses and citizens often encounter when
dealing with multiple government agencies, we handle cross-agency communications
whenever feasible and shield businesses and citizens from the complexity of
agency legacy systems, creating an intuitive and efficient way to deal with
government.
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A representative selection of the products and services we currently
offer in different jurisdictions include:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRODUCT OR SERVICE DESCRIPTION PRIMARY USERS
<S> <C> <C>
Driver's License Offers controlled instant look-up of driving Insurance companies
Records Search records by license number, name and birth date,
or social security number. Includes commercial
licenses.
Vehicle Title, Provides controlled interactive title, Insurance companies,
Lien & registration and lien database access. lenders
Registration
BillWatch-TM- Allows the user to monitor state legislative Attorneys, lobbyists
(Lobbyist in a activity. Users can tag bills by key word or
Box-Registered Trademark-) bill number, and BillWatch-TM- will send an
e-mail when a change occurs in the status of
the bill.
Health Allows users to search databases on several Hospitals, clinics,
Professional health professions. health insurers,
License Services citizens
Secretary of State Allows users to access filings of corporations, Attorneys, lenders
Searches partnerships and other entities, including
charter documents.
UCC Searches Permits searches of the UCC database. Attorneys, lenders
Professional Permits professionals to renew their licenses Attorneys, doctors,
License Renewal on line using a credit card. other licensed
professionals
</TABLE>
We also have a number of products and services in development,
including:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRODUCT OR SERVICE DESCRIPTION PRIMARY USERS
<S> <C> <C>
Motor Fuel EDI Allows motor fuel carriers to file their tax Motor fuel carriers
Project reports electronically.
Sales/Use Tax Allows Sales and Use Tax filers to file the Retailers
Filing required forms online. The electronic forms
handle the computation in the form and write
the data out so that it can be entered into the
Department of Revenue's databases without the
need for the information to be re-keyed in the
Department's office.
Online Birth Processes an online request for an official Citizens
Certificate birth certificate, charging the user's credit
card.
</TABLE>
Our application development division develops and delivers applications
that improve the back-office administration of government records, and that
better enable electronic filing and distribution. These applications often are
highly customized for specific government or agency needs, and have been
developed under separate contracts outside of our core partnership arrangements
with governments.
In addition to these products and services, we also provide customer
service and support. Our customer service representatives serve as a liaison
between our government partners and businesses and
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citizens. Representatives are available 24 hours a day, seven days a week to
address any problems that might arise on the portals we operate.
SALES AND MARKETING
We have two primary sales and marketing goals:
- to develop new sources of revenue through new government partnerships;
and
- to retain and grow our revenue streams from existing government
partnerships.
We have well-established sales and marketing processes for achieving
these goals, which are managed by our national market development division and a
marketing department within each business unit.
DEVELOPING NEW SOURCES OF REVENUE
We focus our new government sales and marketing efforts on increasing
the number of state, local, federal and international governments and government
agencies that are receptive to a public/private partnership for delivering
information and completing transactions over the Internet. We meet regularly
with interested government officials to educate them on the public/private
partnership model and its potential advantages for their jurisdictions. Members
of our management team are also regular speakers at conferences devoted to the
application of Internet technologies to facilitate the relationship between
governments and their citizens. In states where we believe interest is
significant, we seek to develop supportive, educational relationships with
professional and business organizations that may benefit from the government
service improvements our Internet delivery strategy can produce.
Once a government decides to implement a public/private partnership
model for managing Internet access to resources and transactions, it typically
starts a selection process that operates under special rules that apply to
government purchasing. These rules typically require open bidding by possible
service providers against a list of requirements established by the government
under existing procedures or procedures especially created for the Internet
partner selection process. We respond to requests for bids with a proposal that
outlines in detail our philosophy and plans for implementing our business model.
Once our proposal is selected, we enter into negotiations for a contract. We
have responded to a number of requests for comprehensive electronic government
solution proposals from governments and have been awarded and entered into
contracts in each case.
GROWING EXISTING MARKETS
In our existing government partnerships, our marketing efforts focus on:
- expanding the number of government agencies that provide services or
information on the government portal;
- identifying new information and transactions that can be usefully and
cost-effectively delivered over the Internet; and
- increasing the number of potential users who do business with the
government over the Internet.
Although each government's unique political and economic environment
drives different marketing and development priorities, we have found many of our
core applications to be relevant across multiple jurisdictions. Each of our
partnership operations has a director of marketing and additional marketing
staff that regularly meet with government, business and consumer representatives
to discuss potential new services. We also promote the use of existing services
to existing and new customers through speaking engagements and targeted
advertising to organizations for professionals, including lawyers, bankers and
insurance agents, that have a need for regular interaction with government.
We have recently implemented a centralized marketing function, which
will identify products and services that have been developed and implemented
successfully for one government and replicate them in other jurisdictions.
41
<PAGE>
TECHNOLOGY AND OPERATIONS
Over the past eight years, we have made substantial investments in the
development of Internet-based applications and operations specifically designed
to allow businesses and citizens to transact with and receive information from
governments. The scope of our technological expertise includes network
engineering as it applies to the interconnection of government systems to the
Internet, Internet security, Web-to-legacy system integration, Web-to-mainframe
integration, database design, Web site administration and Web page development.
Within this scope, we have developed and implemented a comprehensive Internet
portal framework for governments, and a broad array of standalone service
solutions using a combination of our own proprietary technologies and
commercially available, licensed technologies. Our technological expertise,
coupled with our in-depth understanding of governmental processes and systems,
has made us adept at rapidly creating tailored solutions that keep our partners
on the forefront of electronic government.
Each of our government partners has unique priorities and needs in the
development of its electronic government solution. Over 60% of our employees
work in the Internet services and applications development, and operations area,
and nearly all are focused on a single government partner's application needs.
Our employees develop an understanding of a specific government's application
priorities, technical profiles and information technology personnel and
management. At the same time, all of our development directors are trained by
experienced technical staff from our other partnership operations on our
standard technical framework, and there is frequent and growing communication
and cooperation, which ensures that our government partners can make use of the
most advanced solutions we have developed throughout our organization.
Most of our portals and applications are physically hosted in each
jurisdiction in which we operate on servers that we own or lease. We also
provide links to sites that are maintained by government agencies or
organizations that we do not manage. Our business units provide uninterrupted 24
hour per day, 7 day a week online service, and all of our operations maintain
fault-tolerant, redundant systems, with thorough backup and security and
disaster recovery procedures.
Our systems and applications are scalable and can easily be replicated
from one state to another. We focus on sustaining low-overhead operations, with
all major investments driven by the objective of deploying the highest
value-added technology and applications to each partnership operation.
Finally, we have designed our government portals and applications to be
compatible with virtually any existing system and to be rapidly deployed. We
have implemented a government portal in as little as seven days from the award
of a contract, and have begun generating revenues from data access transactions
in as little as 30 days. To enable this level of speed and efficiency, we
license commercially available technology whenever possible and focus on the
integration and customization of these off-the-shelf solutions when necessary.
We expect that commercially licensed technology will continue to be available at
reasonable costs.
COMPETITION
We believe that the principal factors upon which we compete are:
- understanding of government needs;
- the quality and fit of electronic government solutions;
- the speed and responsiveness to the needs of businesses and citizens;
and
- cost-effectiveness.
We believe we compete favorably with respect to the above-listed
factors. In most cases, the principal substitute for our solution is a
government-designed and managed solution that integrates other
42
<PAGE>
vendors' technologies, products and services. Companies that have expertise in
marketing and providing technical solutions to government entities may begin to
compete with us by further developing their services and increasing their focus
on this piece of their business and market shares. Examples of companies that
may compete with us are the following:
- large systems integrators, including American Management Systems, Inc.
and Sapient Corporation;
- traditional consulting firms, including International Business
Machines Corporation and Science Applications International
Corporation; and
- Web service companies, including USWeb/CKS, AppNet Systems, Inc., and
Verio Inc.
Many of our potential competitors are national or international in scope
and may have greater resources than we do. These resources could enable our
potential competitors to initiate severe price cuts or take other measures in an
effort to gain market share. Additionally, in certain geographic areas, we may
face competition from smaller consulting firms with established reputations and
political relationships with potential government partners. If we do not compete
effectively or if we experience any pricing pressures, reduced margins or loss
of market share resulting from increased competition, our business and financial
condition may be materially adversely affected.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We rely on a combination of nondisclosure and other contractual
arrangements with governments, our employees and third parties, and privacy and
trade secret laws to protect and limit the distribution of the proprietary
software, documentation and processes we have developed in connection with the
electronic government products and services we offer. If we fail to adequately
protect our intellectual property rights and proprietary information or if we
become involved in litigation relating to our intellectual property rights and
proprietary technology, our business could be harmed. Any actions we take may
not be adequate to protect our proprietary rights and other companies may
develop technologies that are similar or superior to our proprietary technology.
Although we believe that our products and services do not infringe on
the intellectual property rights of others and that we have all rights needed to
use the intellectual property employed in our business, it is possible that we
could in the future become subject to claims alleging infringement of third
party intellectual property rights. Any claims could subject us to costly
litigation, and may require us to pay damages and develop non-infringing
intellectual property or acquire licenses to the intellectual property that is
the subject of the alleged infringement.
Additionally, upon the completion of the initial term of our government
contracts, governments and their successors and affiliates obtain a perpetual
right of use license to the software programs and other applications we have
developed for them in the operation of the networks. It is possible that
governments may use their limited license rights after termination of our
contracts to launch competing services, or inadvertently allow our intellectual
property or other information to fall into the hands of third parties, including
our competitors.
EMPLOYEES
As of March 31, 1999, we had 102 full-time employees, of which 6 were
working in our corporate operations and 96 were located in our business units.
Of our employees, 18 were in sales and marketing, 63 were in service development
and operations and 21 were in finance, business development and administration.
Our future success will depend, in part, on our ability to continue to attract,
retain and motivate highly qualified technical and management personnel, for
whom competition is intense. From time to time, we also employ independent
contractors to support our research and development, marketing, sales and
support and administrative organizations. Our employees are not covered by any
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<PAGE>
collective bargaining agreement, and we have never experienced a work stoppage.
We believe that our relations with our employees are good.
FACILITIES
Our principal administrative facility occupies a total of approximately
1,800 square feet at 12 Corporate Woods, 10975 Benson Street, Suite 390,
Overland Park, Kansas 66210. All of our subsidiaries also lease their
facilities. We believe our current facilities are adequate to meet our needs for
the foreseeable future. We do not anticipate acquiring property or buildings in
the foreseeable future.
LEGAL PROCEEDINGS
We may from time to time become a party to various legal proceedings
arising in the ordinary course of our business. However, we are not currently
subject to any material legal proceedings.
44
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our
executive officers and directors as of May 1, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- ------------------------------------------------------
<S> <C> <C>
Jeffery S. Fraser.............. 39 Chairman, Chief Executive Officer and Director
James B. Dodd.................. 41 President, Chief Operating Officer and Director
William F. Bradley, Jr......... 44 Executive Vice President--Strategy, Policy & Legal,
General Counsel and Secretary
Samuel R. Somerhalder.......... 57 Executive Vice President--Operations and
Administration
Harry H. Herington............. 39 Executive Vice President--Marketing and Technology
Services
John L. Bunce, Jr.............. 40 Director
Daniel J. Evans................ 73 Director
Ross C. Hartley................ 51 Director
Patrick J. Healy............... 32 Director
</TABLE>
- ------------------------
JEFFERY S. FRASER has served as our Chairman and Chief Executive Officer
since January 1999 and as one of our directors since our formation. Mr. Fraser
served as President and Chief Executive Officer of NIC from April 1998 to
December 1998 and President and Chief Executive Officer of our subsidiary, NIC/
USA, Inc., from January 1993 to April 1998. Additionally, from January 1992 to
September 1998, he served as President and Chief Executive Officer of our
subsidiary, Kansas Information Consortium, Inc. Mr. Fraser holds a B.S. in human
resource management and an M.S. in information systems from Friends University
in Wichita, Kansas.
JAMES B. DODD has served as our President, Chief Operating Officer and a
director since January 1999. Prior to joining us, Mr. Dodd spent 14 years with
the Sprint Corporation, a telecommunications company, where he served in various
senior management positions including, most recently, as Vice President and
General Manager of Sprint's Consumer Internet Access Group. Other positions he
held at Sprint included Vice President of Consumer International Marketing from
1992 to 1994, and Vice President of Consumer Product Management and Development
from 1995 to 1996. Mr. Dodd earned a CPA in 1982 and holds a B.A. in economics
from Stanford University and an M.B.A. from the Harvard Business School.
WILLIAM F. BRADLEY, JR. has served as our Secretary since May 1998,
General Counsel since July 1998 and Executive Vice President--Strategy, Policy &
Legal since January 1999. From May 1998 to February 1999, Mr. Bradley served as
one of our directors. He also serves as President, Chief Executive Officer and a
director of our subsidiary, Indian@ Interactive, Inc. Mr. Bradley is also the
General Manager for City-County Interactive, LLC, a subsidiary of Indian@
Interactive, Inc., which manages CivicNet for the city of Indianapolis and
Marion County, Indiana. From July 1989 to December 1994, Mr. Bradley was an
associate and later a law partner at Hinkle, Eberhart & Elkouri, LLC, a law firm
in Kansas. Mr. Bradley holds a B.A. in English from the University of Kansas,
Lawrence, and a J.D. degree from the University of Kansas School of Law.
SAMUEL R. SOMERHALDER has served as our Executive Vice President of
Operations and Administration since January 1999. From May 1998 to November
1998, Mr. Somerhalder served as one of our directors. He also serves as
President, Chief Executive Officer and a director of our subsidiary, Nebrask@
Interactive, Inc., which manages Nebraska Online for which he has served as the
General Manager since January 1995. From November 1994 to April 1996, he also
served as Secretary of Nebrask@ Interactive, Inc. Prior to joining us, Mr.
Somerhalder was the Senior Vice President of
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<PAGE>
Marketing for First Commerce Technologies, Inc., an information technology
company, from October 1991 to January 1995. Mr. Somerhalder holds a B.S. in
business administration from Kansas State University.
HARRY H. HERINGTON has served as our Executive Vice President of
Marketing and Technology Services since January 1999. He served as one of our
directors from May 1998 to February 1999. He also serves as President of
NIC/USA, Inc., which has a government partnership with Georgia to manage
GeorgiaNet for which Mr. Herington is the General Manager. From September 1995
to September 1996, Mr. Herington served as the General Manager of Kansas
Information Consortium, Inc. Prior to accepting his present position with us,
Mr. Herington was the Associate General Counsel for the League of Kansas
Municipalities from August 1992 to September 1995. Mr. Herington holds a B.A. in
photo journalism from Wichita State University in Kansas and a J.D. degree from
the University of Kansas School of Law.
JOHN L. BUNCE, JR. has served as one of our directors since June 1998.
Mr. Bunce is a Managing Director and a member of the executive committee of
Hellman & Friedman LLC, a direct investment firm, which he joined as an
associate in 1988. Hellman & Friedman LLC is an affiliate of Hellman & Friedman
Capital Partners III, L.P., H&F Orchard Partners III, L.P. and H&F International
Partners III, L.P. Mr. Bunce also serves as a director of Western Wireless
Corporation, a cellular telecommunications company, Voicestream Wireless
Corporation, a telecommunications provider of personal communications services
(PCS), Bronner Slosberg Humphrey, Co., a direct marketing and interactive
agency, Falcon International Communications L.P., a cable company, and
MobileMedia Corporation, a paging and messaging services company. Mr. Bunce
holds a B.A. in international relations from Stanford University and an M.B.A.
from the Harvard Business School.
DANIEL J. EVANS has served as one of our directors since November 1998.
He is the chairman of and serves as a consultant for Daniel J. Evans Associates
Consulting, a consulting company in Washington, since May 1989. Mr. Evans
currently serves as a director of Puget Sound Energy, an investor-owned electric
utility company, Flow International, a robotics company, Western Wireless
Corporation, a wireless communications company, and Tera Computer, a computer
manufacturing company. He also served as a U.S. Senator from September 1983 to
January 1989 and the Governor of the State of Washington from January 1965 to
January 1977. Mr. Evans holds a B.S. and an M.S. in civil engineering from the
University of Washington.
ROSS C. HARTLEY has served as one of our directors since our formation.
From its incorporation to March 1999, Mr. Hartley served as Vice President of
Marketing of Kansas Information Consortium, Inc. Mr. Hartley also has served as
President of The Hartley Insurance Group, an insurance company in Kansas, since
1974. He also serves as a director of Empire District Electric Company, an
investor-owned electric utility company. Mr. Hartley holds a B.S. in mathematics
from Baker University in Baldwin City, Kansas and a J.D. degree from the
University of Kansas School of Law.
PATRICK J. HEALY has served as one of our directors since June 1998. Mr.
Healy is a Managing Director of Hellman & Friedman LLC, a direct investment
firm, having joined Hellman & Friedman LLC as an associate in 1994. Hellman &
Friedman LLC is an affiliate of Hellman & Friedman Capital Partners III, L.P.,
H&F Orchard Partners III, L.P. and H&F International Partners III, L.P.
Currently, he also serves as a director of Bronner Slosberg Humphrey, Co., a
direct marketing and interactive agency. Mr. Healy holds an A.B. in economics
from Harvard College and an M.B.A. from the Harvard Business School.
All directors hold office until the next annual meeting of the
shareholders and until their successors have been duly elected and qualified.
Executive officers are elected by and serve at the direction of the board of
directors.
46
<PAGE>
KEY EMPLOYEES
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- ------------------------------------------------------
<S> <C> <C>
Richard L. Brown............... 36 President, Chief Operating Officer and a director of
Utah Interactive, Inc.
Robert P. Chandler............. 39 President, Chief Executive Officer and a director of
Arkansas Information Consortium, Inc. and General
Manager of the Information Network of Arkansas
Tamara Dukes................... 36 President, Chief Executive Officer and a director of
New England Interactive, Inc. and General Manager of
InforME Network
Steven Gill.................... 38 Director of Finance of NIC
W. Kent Hiller................. 32 President, Chief Executive Officer and a director of
Iowa Interactive, Inc. and General Manager of
IOWAccess Network
Daniel Houlihan................ 52 President, Chief Executive Officer and a director of
Virginia Interactive, LLC and General Manager of
Virginia Information Providers Network
Debra Luling................... 32 President, Chief Executive Officer and a director of
Kansas Information Consortium, Inc. and General
Manager of the Information Network of Kansas
Joseph Nemelka................. 30 President of Market Development Division of NIC and
Chief Executive Officer and a director of Utah
Interactive, Inc.
Keith Schraad.................. 38 President of Georgia Division of NIC/USA and General
Manager of GeorgiaNet Authority
</TABLE>
- ------------------------
RICHARD L. BROWN has served since March 1999 as President, Chief
Operating Officer and a director of our subsidiary, Utah Interactive, Inc. Mr.
Brown served as the Director of Marketing and Operations of our subsidiary,
Indiana Interactive, Inc., from June 1998 to March 1999 and a marketing
executive from April 1998 to June 1998. Prior to joining us, Mr. Brown founded
and was Chief Executive Officer of Community Ventures in Living, Ltd., a
community-based non-profit organization in Indiana which assisted individuals
with disabilities. Mr. Brown holds a B.S. in economics from Purdue University.
ROBERT P. CHANDLER has served since March 1999 as President and Chief
Executive Officer of our subsidiary, Arkansas Information Consortium, Inc.,
which manages the Information Network of Arkansas for which he serves as the
General Manager. He also has served as Secretary and a director of Arkansas
Information Consortium, Inc., since January 1997. Prior to joining us, Mr.
Chandler served as a Territory Director of ALLTEL Information Services Inc., an
information services provider in the telecommunications and financial services
industries, from January 1994 to September 1996 and as the Director of Sales and
Marketing at the same company from May 1997 to February 1999. From October 1996
to April 1997, he served as the Director of Sales and Marketing for eCommLink,
Inc., a software solutions provider in the financial services industry, a
company for which he was also a founding member. Mr. Chandler holds a B.S. in
marketing from Kansas State University and an M.B.A. from the University of
Kansas School of Business.
TAMARA DUKES has served since March 1999 as President, Chief Executive
Officer and a director of our subsidiary, New England Interactive, Inc. which
manages InforME, our partnership with the State of Maine, for which she serves
as the General Manager. Ms. Dukes served as Director of Marketing for Access
Indiana Information Network from January 1998 through May 1998 and IOWAccess
Network from June 1998 through February 1999. Prior to joining us, Ms. Dukes
founded Tamara Downham Dukes Marketing Consultants, a marketing consulting
company, in 1996, where she served as a principal from 1996 to January 1998.
Additionally, Ms. Dukes created, produced and sold radio advertising campaigns
for
47
<PAGE>
WGLM Radio in Lafayette, Indiana from January 1995 to January 1998. Ms. Dukes
holds a B.A. in communication from Wheaton College.
STEVEN GILL has served as our Director of Finance since February 1999.
Prior to joining us, Mr. Gill spent 11 years with Payless ShoeSource, Inc., a
retail shoe company, where he served in various positions including, most
recently, Assistant Controller, and other positions including Director of
Financial Planning and Analysis, Functional Controller, Manager of Real Estate
and Construction Planning and Analysis, and Manager of Corporate Financial
Planning and Analysis. Mr. Gill holds a B.S. in statistics from Brigham Young
University and an M.B.A. from the Brigham Young University School of Business.
W. KENT HILLER has served since November 1997 as President, Chief
Executive Officer and a director of our subsidiary, Iowa Interactive, Inc.,
which manages the IOWAccess Network for which he serves as the General Manager.
From April 1996 to November 1997, he served as Director of Development for
Indiana Interactive, Inc. Prior to joining us, Mr. Hiller was a network
engineering manager for the state of Indiana from March 1995 to April 1996. From
January 1989 to March 1995, he held various positions in both engineering and
software development for the Space & Defense Group of The Boeing Company, an
aerospace company. Mr. Hiller holds a B.S. in mechanical engineering from Purdue
University and an M.B.A. from the Seattle University School of Business.
DANIEL HOULIHAN has served since September 1997 as President, Chief
Executive Officer and a director of our subsidiary, Virginia Interactive, LLC,
which manages Virginia Information Providers Network for which he serves as the
General Manager. From October 1996 to August 1997, Mr. Houlihan served as Vice
President of Operations for Kansas Information Consortium, Inc. Prior to joining
us, he served as Chief Information Officer from December 1995 to October 1996
and the Director of Information Services Division from June 1993 to December
1995 for the State of Indiana. Mr. Houlihan holds a B.A. in political science
from Creighton University and an M.B.A. from the Florida Institute of
Technology.
DEBRA LULING has served since May 1998 as President, Chief Executive
Officer and a director of Kansas Information Consortium, Inc., which manages
Information Network of Kansas for which she serves as the General Manager. She
also served as the Director of Marketing from November 1996 to May 1998 and a
marketing representative from January 1996 November 1996 for Kansas Information
Consortium, Inc. Prior to joining us, Ms. Luling served from June 1993 to
December 1995 as the Director of Marketing for NewTek, Inc., a computer hardware
and software manufacturer in the desktop video industry, where she oversaw the
marketing and public relations efforts. Ms. Luling holds a B.A. in journalism
from the University of Kansas.
JOSEPH NEMELKA has served since March 1999 as President of our Market
Development Division. Mr. Nemelka also serves as Chief Executive Officer and a
director of our subsidiary, Utah Interactive, Inc. From July 1997 to March 1999,
he served as President and Chief Executive Officer of Arkansas Information
Consortium, Inc. Prior to joining us, Mr. Nemelka served as a marketing
associate for Kansas Information Consortium, Inc. from October 1995 to August
1996 and for Indiana Interactive, Inc. from August 1996 to October 1996. From
October 1996 to July 1997, he served as a project manager for the Georgia
division of our subsidiary NIC/USA. Mr. Nemelka holds a B.A. in political
science from Brigham Young University and a J.D. degree from the University of
Kansas School of Law.
KEITH SCHRAAD has served since March 1999 as President of the Georgia
division of NIC/USA, which manages GeorgiaNet Authority for which he serves as
the General Manager. From October 1998 until March 1999, he served as a project
manager for NIC/USA. Additionally, from October 1997 to October 1998 he served
as a marketing associate for Kansas Information Consortium, Inc. Prior to
joining us, Mr. Schraad served as a Kansas State Senator and was an aide to U.S.
Senator Robert Dole. Mr. Schraad holds a B.A. in general studies from the
University of Kansas and a J.D. degree from the Washburn University School of
Law.
48
<PAGE>
COMPOSITION OF THE BOARD OF DIRECTORS
Under our articles of incorporation and bylaws, the board of directors
has the power to set the number of directors at not less than three nor more
than 10. The number of members of the board of directors is currently set at
six. We intend to add one additional independent director prior to the closing
of this offering.
BOARD COMMITTEES
The board of directors has established a compensation committee and an
audit committee. The compensation committee, consisting of Messrs. Hartley and
Bunce, reviews and approves the salaries, bonuses and other compensation payable
to our executive officers and administers and makes recommendations concerning
our employee benefit plans.
The audit committee, consisting of Messrs. Hartley and Evans, and an
additional independent director to be elected prior to the closing of this
offering, recommends the selection of independent public accounts to the board
of directors, reviews the scope and results of the audit and other services
provided by our independent accounts, and reviews our accounting practices and
systems of internal accounting controls.
DIRECTOR COMPENSATION
Directors who are also our employees receive no additional compensation
for their services as directors. Directors who are not our employees do not
receive a fee for attendance in person at meetings of the board of directors or
committees of the board of directors, but are reimbursed for travel expenses and
other out-of-pocket costs incurred in connection with their attendance of
meetings.
In the past, Messrs. Fraser, Bradley, Somerhalder, Herington and Hartley
received consulting fees for their services, including serving as directors for
our subsidiaries.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our compensation committee serves as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving as a member of our board of directors or compensation
committee.
There are no family relationships among any of our directors or
executive officers other than between Mr. Fraser and Mr. Somerhalder, who is Mr.
Fraser's brother-in-law.
EXECUTIVE COMPENSATION
The following table contains information in summary form concerning the
compensation paid to our chief executive officer and each of our most highly
compensated executive officers whose total salary, bonus and other compensation
exceeded $100,000 during the year ended December 31, 1998. In accordance with
the rules of the SEC, the compensation described in this table does not include
perquisites and other personal benefits received by the executive officers named
in the table below which do not exceed the lesser of $50,000 or 10% of the total
salary and bonus reported for these officers.
49
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER 1998
1998 ANNUAL COMPENSATION
COMPENSATION --------------------------
---------------------- TOTAL HEALTH CONSULTING
SALARY BONUS INSURANCE FEES 401(K) MATCH
--------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Jeffery S. Fraser ...................... $ 202,591 -- $ 13,799 $ 51,500 $ 2,733
Chairman and Chief Executive
Officer
William F. Bradley, Jr. ................ 110,509 -- 11,912 18,000 2,733
Secretary, General Counsel and
Executive Vice President--Strategy,
Policy & Legal
Samuel R. Somerhalder .................. 101,004 -- 13,758 12,000 2,733
Executive Vice President--
Operations and Administration
Harry H. Herington ..................... 83,999 -- 14,263 32,000 2,733
Executive Vice President--
Marketing and Technology Services
</TABLE>
- ------------------------
Consulting fees consist of fees we paid to the executive officers in the
table above for director fees and various other services to our subsidiaries.
OPTION GRANTS AND EXERCISES DURING FISCAL 1998
No stock options were granted to or exercised by each of the executive
officers listed in the summary compensation table above during fiscal 1998.
AGGREGATED OPTION EXERCISES IN 1998 AND FISCAL YEAR END OPTION VALUES
None of the executives officers listed in the summary compensation table
above exercised or held options in 1998.
EMPLOYMENT AGREEMENTS
JEFFERY S. FRASER
On July 24, 1998, Jeffery S. Fraser entered into an employment agreement
with us to serve as our President. Mr. Fraser currently serves as our Chairman
and Chief Executive Officer. The employment agreement provides Mr. Fraser with
an annual base salary of $249,000. Should we terminate Mr. Fraser's employment
without cause, as defined in the agreement, before July 1, 2000, we must pay Mr.
Fraser one year's base salary in equal monthly payments on the first day of the
month for each of the twelve months following his termination. Should we
terminate Mr. Fraser's employment without cause after such time, but prior to
July 1, 2001, we must pay Mr. Fraser the equivalent of his base salary for the
number of months remaining until July 1, 2001. Should we terminate Mr. Fraser's
employment without cause on or after July 1, 2001, Mr. Fraser will not be
entitled to severance pay, except as provided in our severance benefit plan, if
any, in effect on the termination date.
Should we terminate Mr. Fraser's employment for cause, we must pay Mr.
Fraser all compensation due on the date of termination.
Under the terms of his agreement, Mr. Fraser may terminate his
employment with us in writing at any time for any reason. In connection with his
employment agreement, Mr. Fraser entered into a
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proprietary information and inventions agreement and a non-competition
agreement. Should Mr. Fraser's employment with us terminate for any reason, the
agreements provide collectively that Mr. Fraser: (a) will not use any of our
proprietary information without our prior written consent; (b) will not use any
confidential information to compete against us or any of our employees; and (c)
will not, for three years following termination, solicit any of our employees or
customers.
JAMES B. DODD
On January 1, 1999, James B. Dodd entered into an employment agreement
with us to serve as our President and Chief Operating Officer. This agreement
provides Mr. Dodd with an annual base salary of $200,000. Should we terminate
Mr. Dodd's employment without cause, as defined in the agreement, before January
1, 2002, we must pay Mr. Dodd his then-current salary in equal monthly payments
on the first day of the month for each of the eighteen months following his
termination. Should we terminate Mr. Dodd's employment without cause on or after
January 1, 2002, Mr. Dodd will not be entitled to severance pay, except as
provided in our severance benefit plan, if any, in effect on the termination
date.
Should we terminate Mr. Dodd's employment for cause, we must pay Mr.
Dodd all compensation due on the date of termination.
Under the terms of his agreement, Mr. Dodd may terminate his employment
with us in writing at any time for any reason. In connection with his employment
agreement, Mr. Dodd entered into a proprietary information and inventions
agreement and a non-competition agreement. Should Mr. Dodd's employment with us
terminate for any reason, the agreements provide collectively that Mr. Dodd: (a)
will not use any of our proprietary information without our prior written
consent; (b) will not use any confidential information to compete against us or
any of our employees; and (c) will not, for three years following termination,
solicit any of our employees or customers.
WILLIAM F. BRADLEY, JR.
On July 24, 1998, William F. Bradley Jr., entered into an employment
agreement with us to serve as our Subsidiary President. In addition Mr. Bradley
serves as our Secretary, General Counsel, and Executive Vice President of
Strategy, Policy & Legal. The employment agreement provides Mr. Bradley with an
annual base salary of $140,000. Should we terminate Mr. Bradley's employment
without cause, as defined in the agreement, before July 1, 2000, we must pay Mr.
Bradley one year's base salary in equal monthly payments on the first day of the
month for each of the twelve months following his termination. Should we
terminate Mr. Bradley's employment without cause after such time, but prior to
July 1, 2001, we must pay Mr. Bradley the equivalent of his base salary for the
number of months remaining until July 1, 2001. Should we terminate Mr. Bradley's
employment without cause on or after July 1, 2001, Mr. Bradley will not be
entitled to severance pay, except as provided in our severance benefit plan, if
any, in effect on the termination date.
Should we terminate Mr. Bradley's employment for cause, we must pay Mr.
Bradley all compensation due on the date of termination.
Under the terms of his agreement, Mr. Bradley may terminate his
employment with us in writing at any time for any reason. In connection with his
employment agreement, Mr. Bradley entered into a proprietary information and
inventions agreement and a non-competition agreement. Should Mr. Bradley's
employment with us terminate for any reason, the agreements provide collectively
that Mr. Bradley: (a) will not use any of our proprietary information without
our prior written consent; (b) will not use any confidential information to
compete against us or any of our employees; and (c) will not, for three years
following termination, solicit any of our employees or customers.
51
<PAGE>
SAMUEL R. SOMERHALDER
On July 24, 1998, Samuel R. Somerhalder entered into an employment
agreement with us to serve as our Subsidiary President. In addition, Mr.
Somerhalder serves as our Executive Vice President of Operations and
Administration. The employment agreement provides Mr. Somerhalder with an annual
base salary of $115,000. Should we terminate Mr. Somerhalder's employment
without cause, as defined in the agreement, before July 1, 2000, we must pay Mr.
Somerhalder one year's base salary in equal monthly payments on the first day of
the month for each of the twelve months following his termination. Should we
terminate Mr. Somerhalder's employment without cause after such time, but prior
to July 1, 2001, we must pay Mr. Somerhalder the equivalent of his base salary
for the number of months remaining until July 1, 2001. Should we terminate Mr.
Somerhalder's employment without cause on or after July 1, 2001, Mr. Somerhalder
will not be entitled to severance pay, except as provided in our severance
benefit plan, if any, in effect on the termination date.
Should we terminate Mr. Somerhalder's employment for cause, we must pay
Mr. Somerhalder all compensation due on the date of termination.
Under the terms of his agreement, Mr. Somerhalder may terminate his
employment with us in writing at any time for any reason. In connection with his
employment agreement, Mr. Somerhalder entered into a proprietary information and
inventions agreement and a non-competition agreement. Should Mr. Somerhalder's
employment with us terminate for any reason, the agreements provide collectively
that Mr. Somerhalder: (a) will not use any of our proprietary information
without our prior written consent; (b) will not use any confidential information
to compete against us or any of our employees; and (c) will not, for three years
following termination, solicit any of our employees or customers.
HARRY H. HERINGTON
On July 24, 1998, Harry H. Herington entered into an employment
agreement with us to serve as our Subsidiary President. In addition, Mr.
Herington serves as our Executive Vice President of Marketing and Technology
Services. The employment agreement provides Mr. Herington with an annual base
salary of $125,000. Should we terminate Mr. Herington's employment without
cause, as defined in the agreement, before July 1, 2000, we must pay Mr.
Herington one year's base salary in equal monthly payments on the first day of
the month for each of the twelve months following his termination. Should we
terminate Mr. Herington's employment without cause after such time, but prior to
July 1, 2001, we must pay Mr. Herington the equivalent of his base salary for
the number of months remaining until July 1, 2001. Should we terminate Mr.
Herington's employment without cause on or after July 1, 2001, Mr. Herington
will not be entitled to severance pay, except as provided in our severance
benefit plan, if any, in effect on the termination date.
Should we terminate Mr. Herington's employment for cause, we must pay
Mr. Herington all compensation due on the date of termination.
Under the terms of his agreement, Mr. Herington may terminate his
employment with us in writing at any time for any reason. In connection with his
employment agreement, Mr. Herington entered into a proprietary information and
inventions agreement and a non-competition agreement. Should Mr. Herington's
employment with us terminate for any reason, the agreements provide collectively
that Mr. Herington: (a) will not use any of our proprietary information without
our prior written consent; (b) will not use any confidential information to
compete against us or any of our employees; and (c) will not, for three years
following termination, solicit any of our employees or customers.
BENEFIT PLANS
AMENDED AND RESTATED 1998 STOCK OPTION PLAN
The 1998 plan was adopted and approved by our board of directors and by
our shareholders in May 1998, at which time a total of 1,000,000 shares of
common stock was reserved for issuance under this
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<PAGE>
plan. In November 1998, the 1998 plan was amended to reserve a total of
1,700,000 shares of common stock for issuance under this plan. In May 1999, the
1998 plan was amended to reserve a total of 2,000,000 shares of common stock for
issuance under this plan. At March 31, 1999, options to purchase 14,925 shares
of common stock granted under the 1998 plan had been exercised, options to
purchase 544,789 shares of common stock were outstanding and options to purchase
1,440,286 shares of common stock remained available for grant. The outstanding
options were exercisable at a weighted average exercise price of $6.70 per
share. Outstanding options to purchase an aggregate of 260,460 shares were held
by employees who are not officers or directors of our company.
Our board of directors has delegated administration of the 1998 plan to
its compensation committee. The compensation committee is made up of not less
than two nor more than five non-employee directors within the meaning under Rule
16b-3 of the Exchange Act. Awards under the 1998 plan may consist of incentive
stock options, which are stock options that qualify under Section 422 of the
Internal Revenue Code, or non-qualified stock options, which are stock options
that do not qualify under that provision.
The compensation committee may grant incentive stock options to
employees and officers of our company or any of our subsidiaries, and
non-qualified stock options to employees, officers or directors of our company
or any of our subsidiaries. The compensation committee may set the terms of such
grants, subject to the restrictions in the 1998 plan. Incentive stock option
grants are subject to the following limitations:
- the term of any incentive stock option may not be longer than ten
years;
- the term of any incentive stock option granted to an individual
possessing more than 10% of the combined voting power of our company
or a subsidiary may not be longer than five years;
- the aggregate fair market value of all shares underlying incentive
stock options granted to an individual that first become exercisable
in any calendar year may not exceed $100,000;
- the exercise price of incentive stock options may not be less than the
greater of the par value of the underlying shares or the fair market
value of the underlying shares on the grant date; and
- the exercise price of any incentive stock option granted to an
individual possessing more than 10% of the combined voting power of
our company or a subsidiary may not be less than 110% of the fair
market value of the underlying shares on the grant date.
During an optionee's lifetime, only an optionee can exercise an
incentive stock option or non-qualified stock option. He or she cannot transfer
such options other than by will or the laws of descent and distribution. If an
optionee's status as an employee or director of our company or any of our
subsidiaries terminates for any reason other than termination because of death,
disability, for cause or on account of voluntary termination, then the optionee
may exercise, in the 30 day period following the termination, that portion of
the options that is exercisable at the time of the termination unless such
options terminate or expire sooner by their terms. If an optionee's employment
by our company or any of our subsidiaries is terminated for cause, as defined in
the 1998 plan, or if an optionee voluntarily terminates his or her employment
with our company or with any of our subsidiaries, then any option held by the
optionee shall be terminated immediately and forfeited without any payment from
our company or our subsidiaries. In the event the optionee becomes disabled or
dies while the optionee is an employee or director of our company, then the
options vested as of the date of disability or death may be exercised prior to
the earlier of their expiration date or 12 months from the date of the
optionee's disability or death.
In the event of (a) a merger, consolidation or reorganization in which
we are not the surviving company or (b) the acquisition by another company of
all or substantially all of our assets, then every option outstanding under the
1998 plan may be assumed or replaced with new options of comparable value by the
surviving, continuing, successor or acquiring company. In the event that the
outstanding options are neither assumed nor replaced, the compensation committee
may provide that an optionee can
53
<PAGE>
exercise his or her options within the period of 30 days prior to the merger,
consolidation, reorganization or acquisition. Additionally, in connection with
certain change of control situations, the compensation committee may accelerate
the time at which options granted under the 1998 plan may be exercised by an
optionee.
The 1998 plan will terminate automatically in 2008 unless sooner
terminated by the board of directors. The board of directors has the authority
to amend, suspend or terminate the 1998 plan, subject to shareholder approval of
certain amendments. However, no action may be taken which will affect any shares
of common stock previously issued and sold or any option previously granted
under the 1998 plan without the optionee's consent.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our stock purchase plan was approved by the board of directors and our
shareholders in May 1999. Our stock purchase plan is intended to qualify as an
employee stock purchase plan under Section 423 of the Internal Revenue Code in
order to provide our employees with an opportunity to purchase our stock through
payroll deductions. An aggregate of 500,000 shares of common stock has been
reserved for issuance and are available for purchase under the stock purchase
plan, subject to adjustment in the event of a stock split, stock dividend or
other similar change in our common stock or our capital structure. All employees
of our company and of our affiliates who have been employed for a continuous
period, as determined by the board or committee administering the stock purchase
plan but which will not exceed two years, preceding the offering are eligible to
participate in our stock purchase plan, provided that no employee of our company
or of our affiliates whose customary employment is for less than five months in
any calendar year and less than 20 hours per week are eligible to participate in
our stock purchase plan. Non-employee directors, consultants, and employees
subject to the rules or laws of a foreign jurisdiction that prohibit or make
impractical their participation in a stock purchase plan are not eligible to
participate in our stock purchase plan. Participation in our stock purchase plan
is also subject to the following limitations: (a) no employee will be eligible
for the grant of a stock purchase right if immediately after the right is
granted the employee would own more than five percent of the total combined
voting power of all of our or our affiliates' classes of stock, and (b) an
eligible employee may be granted a purchase right only to the extent that the
right does not permit the employee to purchase stock with a fair market value of
greater than $25,000 for each calendar year.
Our stock purchase plan will be administered by the board of directors
or a committee appointed by the board consisting of three or more board members.
The committee will have complete authority to determine the employees who will
receive stock purchase rights and will designate offering periods not to exceed
27 months. The committee will establish one or more purchase dates during an
offering period during which stock purchase rights may be exercised and common
stock may be purchased.
In the event we dissolve, liquidate, merge or consolidate through a
merger in which we are not the surviving corporation, effectuate a reverse
merger in which we are the surviving corporation but our shares of common stock
outstanding prior to the merger are converted into other property, whether in
the form of securities, cash or otherwise, or are acquired by any person, entity
or group, as defined by the Exchange Act or any successive provisions, holding
at least 50% of our combined voting power, then, the board or committee
administering the stock purchase plan may (a) allow the surviving or acquiring
corporation to assume the outstanding rights or substitute similar rights for
those participating under the stock purchase plan, (b) have the existing rights
under the stock purchase plan remain in full force and effect or (c) allow those
participating under the stock purchase plan to use their accumulated payroll
deductions to purchase our common stock immediately prior to the transactions
described above, provided that their rights under the ongoing offering period
will be terminated.
On the first day of each offer period, a participating employee is
granted a purchase right. A purchase right is a form of option to be
automatically exercised on the forthcoming exercise dates within the offer
period during which authorized deductions are to be made from the pay of
participants and credited to their accounts under the stock purchase plan. When
the purchase right is exercised, the
54
<PAGE>
participant's withheld salary is used to purchase our shares of common stock.
The price per share at which our shares of common stock are to be purchased
under the stock purchase plan during any offering period is the lesser of (a)
85% of the fair market value of our common stock on the date of the commencement
of the offer period or (b) 85% of the fair market value of our common stock on
the purchase date. The participant's purchase right is exercised in this manner
on each exercise date arising in the offer period unless, on any purchase date,
the fair market value of our common stock is lower than the fair market value of
our common stock on the first day of the offering period. If so, the
participant's participation in the original offering period is terminated, and
the participant is automatically enrolled in the next offering period which will
commence on the next day.
Payroll deductions may range up to 15% of a participant's regular base
pay, exclusive of bonuses, overtime, shift-premiums, commissions, reimbursements
or other expense allowances. Participants may not make direct cash payments to
their accounts. The board or committee administering the stock purchase plan may
establish the maximum number of our shares of common stock that any employee may
purchase under the stock purchase plan during an offering period. The Internal
Revenue Code imposes additional limitations on the amount of common stock that
may be purchased during any calendar year.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our articles of incorporation and bylaws provide that we will indemnify
any person entitled to indemnity under the Colorado Business Corporation Act, as
it now exists or as amended, against all liability and expenses to the fullest
extent permitted by Colorado law. However, we will not indemnify any person in
connection with any proceeding initiated by this person, unless the proceeding
is authorized by a majority of our board of directors. In addition to
indemnification provided for in our charter documents, upon the closing of this
offering, we will have entered into agreements to indemnify our directors and
officers. These agreements, among other things, provide for the indemnification
of our directors and officers for certain expenses, including attorneys' fees,
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of NIC, arising
out of such person's services as a director or officer of NIC, any subsidiary of
NIC or any other company or enterprise to which such person provides services at
the request of NIC, to the fullest extent permitted by the Colorado Business
Corporation Act. Furthermore, we plan to purchase and maintain insurance on
behalf of our directors and officers to insure them against liabilities that
they may incur in their capacities as or arising out of their status as
directors and officers. We believe that these provisions and agreements will
assist us in attracting and retaining qualified persons to serve as directors
and officers.
Section 7-109-102 of the Colorado Business Corporation Act provides that
a corporation may indemnify a director from liability incurred in connection
with a proceeding in which the director is made a party because of his or her
status as a director, except upon adjudication in connection with the particular
proceeding that (a) the director was liable to the corporation or (b) the
director was liable because he or she derived an improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for our directors and officers under the provisions
contained in our charter documents, the Colorado Business Corporation Act or
otherwise, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities, other than the payment by us of expenses incurred or
paid by one of our directors or officers, the successful defense of any action,
suit, or proceeding is asserted by such director or officer, we will submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue, unless in the opinion of our
counsel the matter has been settled by controlling precedent.
There is no pending litigation or proceeding involving one of our
directors or officers as to which indemnification is being sought, nor are we
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
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<PAGE>
CERTAIN TRANSACTIONS
Mr. Hartley is the President of The Hartley Insurance Agency, an
insurance company, which acts as our insurance agent and broker. In 1998, a
payment of $8,345 was made directly to The Hartley Insurance Agency. However,
the aggregate insurance payment made by NIC that was brokered by The Hartley
Insurance Agency totaled $478,392, including the $8,345 payment made directly to
The Hartley Insurance Agency.
We have periodically leased aircraft from Sky King Leasing, a Kansas
corporation, of which Mr. Fraser, Mr. Hartley and Christopher L. Shults, a five
percent shareholder of NIC, each approximately have a 25% interest. In 1998, we
made payments totaling $24,223 to Sky King Leasing.
On January 8, 1998, we entered into an agreement with each of Messrs.
Fraser and Hartley to provide their respective estates with a right to require
us to repurchase some or all shares of our common stock owned by them upon their
death. These agreements were terminated on July 1, 1998.
In March 1998, we completed an exchange offer in which shareholders in
our local operating networks exchanged their stock for shares of our common
stock. Messrs. Fraser, Hartley, Bradley, Somerhalder and Herington received an
aggregate of 4,654,891 shares of our common stock in the exchange offer.
On June 30, 1998, Messrs. Fraser and Hartley entered into a voting trust
agreement under which they act as joint trustees for a voting trust which holds,
as of March 31, 1999, 6,869,170 shares of our common stock. See "Description of
Capital Stock--Voting Trust."
On June 30, 1998, the voting trust described above sold to Hellman &
Friedman Capital Partners III, L.P., H&F International Partners III, L.P. and
H&F Orchard Partners III, L.P., collectively, 2,264,849 shares of our common
stock at a price of $6.62 per share for an aggregate of approximately
$15,000,000.
On February 9, 1999, we sold to Mr. James B. Dodd 37,313 shares of our
common stock at $6.70 per share for an aggregate of approximately $250,000.
We intend to enter into indemnification agreements with each of our
directors and officers. These indemnification agreements will require us to
indemnify these individuals to the fullest extent permitted by Colorado law.
We have also entered into various employment agreements with our
officers. See "Management-- Employment Agreements" for a more detailed
description.
We believe that all of the transactions set forth above were made on
terms no less favorable to us than could have been obtained from unaffiliated
third parties. We intend that all future transactions, including loans, between
us and our officers, directors, principal shareholders and their affiliates will
be approved by a majority of the board of directors, including a majority of the
independent and disinterested outside directors on the board of directors, and
will be on terms no less favorable to us than could be obtained from
unaffiliated third parties.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth the beneficial ownership of our common
stock as of March 31, 1999 and as adjusted to reflect the sale of the shares of
common stock in this offering by:
- each person or entity known by us to own beneficially more than five
percent of our common stock;
- our chief executive officer, each of the executive officers named in
the summary compensation table and each of our directors;
- all of our executive officers and directors as a group; and
- all other selling shareholders.
The beneficial ownership is calculated based on 9,148,944 shares of our
common stock outstanding as of March 31, 1999 and shares outstanding
immediately following the completion of this offering. Beneficial ownership is
determined in accordance with the rules of the SEC and generally includes voting
or investment power with respect to securities. Unless otherwise indicated, each
person or entity named in the table has sole voting power and investment power,
or shares voting and investment power with his or her spouse, with respect to
all shares of capital stock listed as owned by such person. Shares issuable upon
the exercise of options that are currently exercisable or become exercisable
within sixty days of March 31, 1999 are considered outstanding for the purpose
of calculating the percentage of outstanding shares of our common stock held by
the individual, but not for the purpose of calculating the percentage of
outstanding shares of our common stock held by any other individual.
The address of each of the executive officers and directors is c/o
National Information Consortium, Inc., 12 Corporate Woods, 10975 Benson Street,
Suite 390, Overland Park, Kansas 66210.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED AFTER
PRIOR TO OFFERING OFFERING
----------------------------- NUMBER OF SHARES ------------
NAME AND ADDRESS NUMBER PERCENTAGE BEING OFFERED NUMBER
- ------------------------------------------------------- ------------- -------------- ----------------- ------------
<S> <C> <C> <C> <C>
5% SHAREHOLDERS
Jeffery S. Fraser and Ross C. Hartley, co-trustees of
NIC Voting Trust, dated June 30, 1998 c/o Jeffery S.
Fraser
1811 Wakarusa Drive, Suite 100
Lawrence, KS 66047................................... 6,869,170 75.0%
Hellman & Friedman Capital Partners III, L.P. c/o
Hellman & Friedman LLC
One Maritime Plaza
San Francisco, CA 94111.............................. 2,067,807 22.6
H&F Orchard Partners III, L.P.
c/o Hellman & Friedman LLC
One Maritime Plaza
San Francisco, CA 94111.............................. 151,745 1.7
H&F International Partners III, L.P
c/o Hellman & Friedman LLC
One Maritime Plaza
San Francisco, CA 94111.............................. 45,297 *
Christopher L. and Linda D. Shults
633 North Wheatland Place
Wichita, KS 67235.................................... 480,222 5.2
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Jeffery S. Fraser...................................... 6,869,170 75.0
James B. Dodd.......................................... 65,313 *
William F. Bradley, Jr................................. 459,295 5.0
Samuel R. Somerhalder.................................. 505,047 5.5
Harry H. Herington..................................... 258,868 *
John L. Bunce, Jr...................................... 2,264,849 24.8
Daniel J. Evans........................................ 14,925 *
Ross C. Hartley........................................ 6,869,170 75.0
Patrick J. Healy....................................... 2,264,849 24.8
All executive officers and directors as a group (9
persons)............................................. 9,148,944 100.00
<CAPTION>
NAME AND ADDRESS PERCENTAGE
- ------------------------------------------------------- --------------
<S> <C>
5% SHAREHOLDERS
Jeffery S. Fraser and Ross C. Hartley, co-trustees of
NIC Voting Trust, dated June 30, 1998 c/o Jeffery S.
Fraser
1811 Wakarusa Drive, Suite 100
Lawrence, KS 66047...................................
Hellman & Friedman Capital Partners III, L.P. c/o
Hellman & Friedman LLC
One Maritime Plaza
San Francisco, CA 94111..............................
H&F Orchard Partners III, L.P.
c/o Hellman & Friedman LLC
One Maritime Plaza
San Francisco, CA 94111..............................
H&F International Partners III, L.P
c/o Hellman & Friedman LLC
One Maritime Plaza
San Francisco, CA 94111..............................
Christopher L. and Linda D. Shults
633 North Wheatland Place
Wichita, KS 67235....................................
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Jeffery S. Fraser......................................
James B. Dodd..........................................
William F. Bradley, Jr.................................
Samuel R. Somerhalder..................................
Harry H. Herington.....................................
John L. Bunce, Jr......................................
Daniel J. Evans........................................
Ross C. Hartley........................................
Patrick J. Healy.......................................
All executive officers and directors as a group (9
persons).............................................
</TABLE>
- ------------------------------
* Less than 1%.
57
<PAGE>
For a description of the voting trust and the rights and powers of the
trustees, see "Description of Capital Stock--Voting Trust."
H&F Investors III, a California general partnership, is the sole general
partner of Hellman & Friedman Capital Partners III, L.P., a California limited
partnership, H&F Orchard Partners III, L.P., a California limited partnership,
and H&F International Partners III, L.P., a California limited partnership.
Messrs. Bunce and Healy are Managing Directors of Hellman & Friedman LLC, an
affiliate of H&F Investors III. The managing general partner of H&F Investors
III is Hellman & Friedman Associates III, L.P., a California limited
partnership, and the general partners of Hellman & Friedman Associates III are
H&F Management III, L.L.C., a California limited liability company, and H&F
Investors III, Inc., a California corporation. The sole shareholder of H&F
Investors III, Inc. is the Hellman Family Revocable Trust. The investment
decisions of H&F Investors III, Inc. and H&F Management III, L.L.C. are made by
an executive committee, of which Mr. Bunce is a member. The executive committee
indirectly exercises voting and investment power with respect to the shares of
our common stock held by Hellman & Friedman Capital Partners III, H&F Orchard
Partners III and H&F International Partners III, and could be deemed to
beneficially own such shares. The executive committee disclaims such beneficial
ownership except to the extent of its indirect pecuniary interest in such
shares.
Mr. Bunce and Mr. Healy each disclaim beneficial ownership of all shares
of our common stock held by Hellman & Friedman Capital Partners III, H&F Orchard
Partners III and H&F International Partners III, except to the extent of their
individual indirect pecuniary interest in those shares.
Shares held by Mr. and Mrs. Shults include 480,222 shares held in the
voting trust for which Messrs. Fraser and Hartley act as co-trustees.
Shares held by Mr. Fraser include 5,264,579 shares held in the voting
trust for which Mr. Fraser acts as a co-trustee and 1,604,591 shares held in a
family trust established for the benefit of Mr. Fraser.
Shares held by Mr. Dodd include 37,313 shares held in the voting trust
for which Messrs. Fraser and Hartley act as co-trustees and 28,000 shares
subject to options exercisable within 60 days of March 31, 1999.
Shares held by Mr. Bradley include 459,295 shares held in the voting
trust for which Messrs. Fraser and Hartley act as co-trustees.
Shares held by Mr. Somerhalder include 505,047 shares held in the voting
trust for which Messrs. Fraser and Hartley act as co-trustees. These shares
include 44,500 shares held by Mr. Somerholder's wife, Jean Somerhalder, as
custodian to Chloe V. Fraser, 44,500 shares held by Ms. Somerhalder as custodian
to Jacob B. Fraser, 44,500 shares held by Ms. Somerhalder as custodian to Joshua
D. Fraser, 44,500 shares held by Ms. Somerhalder as custodian to Matthew S.
Fraser and 44,500 shares held by Ms. Somerhalder as custodian to William N.
Fraser.
Shares held by Mr. Herington include 258,868 shares held in the voting
trust for which Messrs. Fraser and Hartley act as co-trustees.
Shares held by Mr. Evans include 8,925 shares held in the Evans family
revocable trust.
Shares held by Mr. Hartley include 5,042,080 shares held in the voting
trust for which Mr. Hartley acts as a co-trustee, 80,000 shares held in an
irrevocable trust established for the benefit of Hillary L. Hartley, 80,000
shares held in an irrevocable trust established for the benefit of Antonia C.
Hartley and 80,000 shares held in an irrevocable trust established for the
benefit of William R. Hartley.
Shares held by all executive officers and directors as a group include
4,692,204 shares held in the voting trust for which Messrs. Fraser and Hartley
act as co-trustees and 28,000 shares subject to options exercisable within 60
days of March 31, 1999.
58
<PAGE>
Excluding the shares of common stock beneficially owned by Messrs.
Fraser and Hartley solely as a result of their status as trustees of the voting
trust, Messrs. Fraser and Hartley's beneficial ownership disclosure would appear
as follows:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
SHARES BENEFICIALLY
PRIOR TO OFFERING NUMBER OF OWNED AFTER OFFERING
------------------------- SHARES BEING -----------------------
NAME AND ADDRESS NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ----------------------------- ---------- ------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Jeffery S. Fraser............ 1,604,591 23.36%
Ross C. Hartley.............. 1,827,090 26.60
</TABLE>
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue up to 200,000,000 shares of common stock,
with no par value per share.
The following summary of certain provisions of our common stock does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of our articles of incorporation, which are included as an exhibit to
the registration statement of which this prospectus is a part, and by the
provisions of applicable law.
COMMON STOCK
As of March 31, 1999, there were 9,148,944 shares of common stock
outstanding that were held of record or beneficially through a voting trust by
approximately 53 persons. There will be shares of common stock
outstanding, assuming no exercise of the underwriters' over-allotment option and
no exercise of outstanding options, after giving effect to the sale of the
common stock we are offering.
The holders of our common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the shareholders. We do not
have cumulative voting rights in the election of directors, and accordingly,
holders of a majority of the shares voting are able to elect all of the
directors. Subject to preferences that may be granted to any then outstanding
preferred stock, holders of common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available for such purpose as well as any distributions to the shareholders. In
the event of our liquidation, dissolution or winding up, holders of common stock
are entitled to share ratably in all of our assets remaining after payment of
liabilities and the liquidation preference of any then outstanding preferred
stock. Holders of common stock have no preemptive or other subscription of
conversion rights. There are no redemption or sinking fund provisions applicable
to the common stock.
VOTING TRUST
As of March 31, 1999, a portion of our outstanding common stock,
totaling 6,869,170 shares and representing approximately 75% of the outstanding
common stock prior to the offering and approximately % after the offering, is
held in a voting trust, for which Messrs. Fraser and Hartley serve as trustees.
A total of 5,205,317 shares in the voting trust are held for the benefit of
affiliates of our company. The address of each of the trustees is c/o Jeffery S.
Fraser, 1811 Wakarusa Drive, Suite 100, Lawrence, Kansas 66047. The trustees
have dispositive and exclusive voting power over all shares held by the voting
trust, including without limitation, the right to vote for the election of
directors, authorize an amendment to the articles of incorporation or bylaws,
and authorize a merger or consolidation of the company. Additionally, the
trustees are empowered to perform any and all acts necessary and appropriate for
the organization and operation of the voting trust.
The voting trust certificates are transferable upon surrender of the
same according to the rules established by the trustees. The voting trust
expires on (a) June 30, 2018, (b) upon mutual assent of the trustees with
written notification to holders of the voting trust certificates, or (c) upon
deadlock between the trustees and failure to remedy the deadlock after 90 days.
ANTITAKEOVER EFFECTS OF PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS
Provisions of our articles of incorporation and bylaws restrict certain
transactions and business combinations between our company and an interested
shareholder owning 15% or more of our outstanding voting stock, for a period of
three years from the date the shareholder becomes an interested shareholder.
Subject to certain exceptions, unless the transaction is approved by our board
of directors and the holders of at least two-thirds of our outstanding voting
stock, excluding shares held by the interested shareholder, these provisions
prohibit significant business transactions. These prohibited business
transactions include a merger with, disposition of assets to, or receipt of
disproportionate financial benefits by the interested shareholder, or any other
transaction that would increase the interested shareholder's proportionate
60
<PAGE>
ownership of our voting stock. The prohibition does not apply if, upon
consummation of the transaction in which any person becomes an interested
shareholder, the interested shareholder owns at least 85% of our outstanding
voting stock. This calculation does not include shares held by persons who are
both directors and officers or shares authorized under certain employee stock
plans.
Our bylaws provide that all shareholder action may be effected at a duly
called meeting of shareholders or by a consent in writing. The bylaws also
provide that the president or secretary at the request in writing of a majority
of the board of directors or at the request in writing of shareholders owning a
majority of the issued and outstanding capital stock of the company entitled to
vote may call a special meeting of shareholders. Furthermore, our bylaws limit
the ability of shareholders to raise matters at a meeting of shareholders
without giving advance notice.
These provisions in our articles of incorporation and bylaws will make
it more difficult for our existing shareholders to replace the board of
directors as well as for another party to obtain control by replacing the board
of directors. Since the board of directors has the power to retain and discharge
our officers, these provisions could also make it more difficult for existing
shareholders or another party to effect a change in management.
These and other provisions also may have the effect of deterring,
preventing or delaying changes in control or management. These provisions are
intended to enhance the likelihood of continued stability in the composition of
the board of directors and in the policies furnished by the board of directors
and to discourage certain types of transactions that may involve an actual or
threatened change of control. These provisions are designed to reduce our
vulnerability to an unsolicited acquisition proposal. The provisions also are
intended to discourage certain tactics that may be used in proxy fights.
However, such provisions could have the effect of discouraging others from
making tender offers for our shares and, as a consequence, they also may inhibit
fluctuations in the market price of our shares that could result from actual or
rumored takeover attempts. These provisions also may have the effect of
preventing changes in our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is EquiServe. Its
address is 289 S. San Antonio Road, Suite 100, Los Altos, California 94022, and
its telephone number is (650) 917-3800.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding
shares of common stock based upon shares outstanding at March 31, 1999, assuming
no exercise of the underwriters' over-allotment option. Excluding the
shares of common stock offered hereby and assuming no exercise of the
underwriters' over-allotment option, as of the effective date of the
registration statement, there will be shares of common stock
outstanding, all of which are "restricted" shares under the Securities Act. All
restricted shares are subject to lock-up agreements with the underwriters
pursuant to which the holders of the restricted shares have agreed not to sell,
pledge or otherwise dispose of such shares for a period of 180 days after the
date of this prospectus. Hambrecht & Quist LLC may release the shares subject to
the lock-up agreements in whole or in part at any time with or without notice.
However, Hambrecht & Quist LLC has no current plans to do so.
The following table indicates approximately when the shares
of our common stock that are not being sold in the offering but which will be
outstanding at the time the offering is complete will be eligible for sale into
the public market:
<TABLE>
<CAPTION>
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN PUBLIC MARKET
- ------------------------------------------------------------------------------
<S> <C>
At effective date................................................ 0
180 days after effective date....................................
After 180 days post-effective date...............................
</TABLE>
Most of the restricted shares that will become available for sale in the
public market beginning 180 days after the effective date will be subject to
certain volume and other resale restrictions pursuant to Rule 144 because the
holders are our affiliates. The general provisions of Rule 144 are described
below.
In general, under Rule 144, any of our affiliates, or person, or persons
whose shares are aggregated, who has beneficially owned restricted shares for at
least one year, will be entitled to sell in any three-month period a number of
shares that does not exceed the GREATER of
- 1% of the then outstanding shares of the common stock, approximately
shares immediately after this offering, OR
- the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC.
Sales pursuant to Rule 144 are subject to certain requirements relating
to manner of sale, notice and availability of current public information about
us. A person, or persons whose shares are aggregated, who is not deemed to have
been one of our affiliates at any time during the 90 days immediately preceding
the sale and who has beneficially owned his or her shares for at least two years
is entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations described above.
As of March 31, 1999, 2,000,000 shares were reserved for issuance under
our amended and restated 1998 stock option plan, of which options to purchase
544,789 shares were then outstanding and 28,000 were then exercisable. We intend
to file, within 180 days after the date of this prospectus, a registration
statement under the Securities Act to register the 2,000,000 shares under our
1998 stock option plan and the 500,000 shares of common stock reserved for
issuance under our employee stock purchase plan. Upon registration, all of these
shares will be freely tradable when issued, subject to Rule 144 volume
limitations applicable to affiliates and lock-up agreements.
LOCK-UP AGREEMENTS
All officers and directors and certain holders of common stock and
options to purchase common stock have agreed pursuant to certain "lock-up"
agreements that they will not offer, sell, contract to sell, pledge, grant any
option to sell, or otherwise dispose of, directly or indirectly, any shares of
common stock or securities convertible or exchangeable for common stock, or
warrants or other rights to purchase common stock for a period of 180 days after
the date of this prospectus without the prior written consent of Hambrecht &
Quist LLC.
62
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement and
the underwriters named below, through their representatives, Hambrecht & Quist
LLC, Thomas Weisel Partners LLC, FAC/ Equities, a division of First Albany
Corporation, and Volpe Brown Whelan & Company, LLC have severally agreed to
purchase from us the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- --------------------------------------------------------------------------------- -----------
<S> <C>
Hambrecht & Quist LLC............................................................
Thomas Weisel Partners LLC.......................................................
First Albany Corporation.........................................................
Volpe Brown Whelan & Company, LLC................................................
-----------
Total..........................................................................
-----------
-----------
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in our business and the receipt of certain
certificates, opinions and letters from us, our counsel and the independent
accountants. The nature of the underwriters' obligation is such that they are
committed to purchase all shares of common stock offered if any shares are
purchased.
The following tables show the per share and total underwriting discounts
and commissions we will pay to the underwriters. These amounts are shown
assuming both no exercise and full exercise of the underwriters' over-allotment
option to purchase additional shares.
UNDERWRITING DISCOUNTS AND COMMISSIONS PAYABLE BY US
AND THE SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
WITH WITHOUT
OVER-ALLOTMENT EXERCISE OVER-ALLOTMENT EXERCISE
----------------------------- -----------------------------
<S> <C> <C>
Per Share................................... $ $
Total....................................... $ $
</TABLE>
We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $ .
The underwriters propose to offer the shares of common stock directly to
the public at the initial public offering price set forth on the cover page of
this prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The underwriters may allow and the dealers may
reallow a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the underwriters. The representatives have
informed us that the underwriters do not intend to confirm discretionary sales
of more than 5% of the shares of common stock offered in this offering.
The selling shareholders have granted to the underwriters an option,
exercisable no later than 30 days after the date of this prospectus, to purchase
up to additional shares of common stock at the initial public offering
price, less the underwriting discount set forth on the cover page of this
prospectus. To the extent that the underwriters exercise this option, each of
the underwriters will have a
63
<PAGE>
firm commitment to purchase approximately the same percentage thereof which the
number of shares of common stock to be purchased by it shown in the above table
bears to the total number of shares of common stock offered hereby. The selling
shareholders will be obligated, pursuant to the option, to sell shares to the
underwriters to the extent the option is exercised. The underwriters may
exercise this option only to cover over-allotments made in connection with the
sale of shares of common stock offered hereby.
The offering of shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The selling shareholders and us have each agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the underwriters may be required
to make in respect thereof.
Our shareholders, including executive officers, directors and the
selling shareholders, have agreed not to, without the prior written consent of
Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of common
stock or options to acquire shares of common stock or securities exchangeable
for or convertible into shares of common stock owned by them during the 180-day
period following the date of this prospectus. We have agreed that we will not,
without the prior written consent of Hambrecht & Quist LLC, offer, sell or
otherwise dispose of any shares of common stock or options to acquire shares of
common stock or securities exchangeable for or convertible into shares of common
stock during the 180-day period following the date of this prospectus, except
that we may issue shares upon the exercise of options granted prior to the date
hereof, and may grant additional options under our stock option plans, provided
that, without the prior written consent of Hambrecht & Quist LLC, the additional
options shall not be exercisable during that period.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be determined
by negotiation among us and the representatives of the underwriters. Among the
factors to be considered in determining the initial public offering price are
prevailing market and economic conditions, our revenues and earnings, market
valuations of other companies engaged in activities similar to ours, estimates
of our business potential and our prospects, the present state of our business
operations, our management and other factors deemed relevant.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of common stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq National Market, in the over-the-counter market, or otherwise. This
stabilizing, if commenced, may be discontinued at any time.
Thomas Weisel Partners LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in December 1998.
Since December 1998, Thomas Weisel Partners has been named as a lead or
co-manager on 24 filed public offerings of equity securities, of which nine have
been completed, and has acted as a syndicate member in an additional ten public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or controlling
persons, except with respect to its contractual relationships with us pursuant
to the underwriting agreement entered into in connection with this offering.
64
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
us by Morrison & Foerster LLP, San Francisco, California. Certain legal matters
in connection with the offering will be passed upon for the underwriters by
Brobeck, Phleger & Harrison LLP, San Francisco, California.
EXPERTS
The audited financial statements included in this prospectus have been
so included in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION ABOUT US
We have filed with Securities and Exchange Commission in Washington,
D.C. a Registration Statement on Form S-1 under the Securities Act with respect
to the common stock offered in this prospectus. This prospectus, filed as part
of the registration statement, does not contain all of the information set forth
in the registration statement and its exhibits and schedules, certain portions
of which have been omitted as permitted by the rules and regulations of the SEC.
For further information about us and the common stock, we refer you to the
registration statement and to its exhibits and schedules. Statements in this
prospectus about the contents of any contract, agreement or other document are
not necessarily complete and, in each instance, we refer you to the copy of such
contract, agreement or document filed as an exhibit to the registration
statement, and each such statement being qualified in all respects by reference
to the document to which it refers. Anyone may inspect the registration
statement and its exhibits and schedules without charge at the public reference
facilities the SEC maintains at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the SEC located at 7 World Trade Center, Suite
1300, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois, 60661. You may obtain copies of all or any part of these materials
from the SEC upon the payment of certain fees prescribed by the SEC. You may
also inspect these reports and other information without charge at a Web site
maintained by the SEC. The address of this site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the
informational requirements of the Exchange Act and, in accordance therewith,
file reports, proxy statements and other information with the SEC. You will be
able to inspect and copy these reports, proxy statements and other information
at the public reference facilities maintained by the SEC and at the SEC's
regional offices at the addresses noted above. You also will be able to obtain
copies of this material from the Public Reference Section of the SEC as
described above, or inspect them without charge at the SEC's Web site. Our
common stock will be quoted on the Nasdaq National Market. You will be able to
inspect reports, proxy and information statements and other information
concerning us at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006.
65
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
NATIONAL INFORMATION CONSORTIUM, INC.
Report of PricewaterhouseCoopers LLP, Independent Accountants....................... F-3
Consolidated Balance Sheets......................................................... F-4
Consolidated Statements of Operations............................................... F-5
Consolidated Statements of Changes in Shareholders' Equity.......................... F-6
Consolidated Statements of Cash Flows............................................... F-7
Notes to Consolidated Financial Statements.......................................... F-8
INDIAN@ INTERACTIVE, INC. AND SUBSIDIARY
Report of PricewaterhouseCoopers LLP, Independent Accountants....................... F-25
Consolidated Balance Sheets......................................................... F-26
Consolidated Statements of Income................................................... F-27
Consolidated Statements of Changes in Shareholders' Equity.......................... F-28
Consolidated Statements of Cash Flows............................................... F-29
Notes to Consolidated Financial Statements.......................................... F-30
KANSAS INFORMATION CONSORTIUM, INC.
Report of PricewaterhouseCoopers LLP, Independent Accountants....................... F-36
Balance Sheets...................................................................... F-37
Statements of Income................................................................ F-38
Statements of Changes in Shareholders' Equity....................................... F-39
Statements of Cash Flows............................................................ F-40
Notes to Financial Statements....................................................... F-41
ARKANSAS INFORMATION CONSORTIUM, INC.
Report of PricewaterhouseCoopers LLP, Independent Accountants....................... F-45
Balance Sheets...................................................................... F-46
Statements of Operations............................................................ F-47
Statements of Changes in Shareholders' Equity....................................... F-48
Statements of Cash Flows............................................................ F-49
Notes to Financial Statements....................................................... F-50
NEBRASK@ INTERACTIVE, INC.
Report of PricewaterhouseCoopers LLP, Independent Accountants....................... F-54
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Balance Sheets...................................................................... F-55
Statements of Income................................................................ F-56
Statements of Changes in Shareholders' Equity....................................... F-57
Statements of Cash Flows............................................................ F-58
Notes to Financial Statements....................................................... F-59
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Overview............................................................................ F-63
Pro Forma Consolidated Statements of Operations..................................... F-64
Notes to Pro Forma Consolidated Financial Information............................... F-67
</TABLE>
F-2
<PAGE>
REPORT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
National Information Consortium, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
National Information Consortium, Inc. and its subsidiaries (the "Company") at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on the financial statements based on our
audits. We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Kansas City, Missouri
May 6, 1999
F-3
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
-------- -----------
MARCH 31,
1999
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................................................... $178,695 $ 1,310,751 $ 1,115,136
Trade accounts receivable................................................................. 6,932 2,908,043 3,694,625
Prepaid expenses.......................................................................... 21,849 47,133 103,420
Other current assets...................................................................... 6,247 67,311 255,410
-------- ----------- ------------
Total current assets.................................................................... 213,723 4,333,238 5,168,591
Property and equipment, net................................................................. 112,203 1,229,415 1,684,850
Other assets................................................................................ 120 17,183 4,790
Intangible assets, net...................................................................... -- 11,669,059 9,775,258
-------- ----------- ------------
Total assets............................................................................ $326,046 $17,248,895 $16,633,489
-------- ----------- ------------
-------- ----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................... $ 56,681 $ 2,376,505 $ 2,755,641
Accrued expenses.......................................................................... 34,551 227,106 261,122
Income taxes payable...................................................................... -- 68,700 22,700
Deferred income taxes..................................................................... -- 224,076 348,233
Bank lines of credit...................................................................... -- 1,023,592 839,452
Capital lease obligations--current portion................................................ -- 235,323 201,233
Notes payable--current portion............................................................ 5,019 50,000 594,000
Application development contracts......................................................... -- 1,256,000 1,174,471
Other current liabilities................................................................. 17,119 49,465 47,865
-------- ----------- ------------
Total current liabilities............................................................... 113,370 5,510,767 6,244,717
Capital lease obligations--long term portion................................................ -- 409,989 384,019
Note payable--long term portion............................................................. 24,923 50,000 --
Deferred income taxes....................................................................... -- 425,878 312,098
-------- ----------- ------------
Total liabilities....................................................................... 138,293 6,396,634 6,940,834
-------- ----------- ------------
-------- ----------- ------------
Commitments and contingencies (Notes 10 and 11)
Shareholders' equity:
Common stock, no par, 200,000,000 shares authorized, 4,800,000, 9,059,394 and 9,148,944
shares issued and outstanding........................................................... -- -- --
Additional paid-in capital................................................................ 627,435 20,141,933 21,256,885
Accumulated deficit....................................................................... (414,682) (8,931,694) (10,833,487)
-------- ----------- ------------
212,753 11,210,239 10,423,398
Less notes and stock subscriptions receivable............................................. (25,000) -- (125,000)
Less deferred compensation expense........................................................ -- (357,978) (605,743)
-------- ----------- ------------
Total shareholders' equity.............................................................. 187,753 10,852,261 9,692,655
-------- ----------- ------------
Total liabilities and shareholders' equity.............................................. $326,046 $17,248,895 $16,633,489
-------- ----------- ------------
-------- ----------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- --------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................ $ 235,971 $ 996,550 $28,623,656 $ 361,358 $11,455,065
Cost of revenues................ 21,248 5,168 21,210,632 690 8,603,698
--------- --------- ---------- --------- ----------
Gross profit.................. 214,723 991,382 7,413,024 360,668 2,851,367
--------- --------- ---------- --------- ----------
Operating expenses:
Service development and
operations.................. 38,248 224,128 3,884,810 134,932 934,871
Selling, general and
administrative.............. 168,399 660,254 4,241,780 325,290 1,517,568
Stock compensation............ -- 370,235 291,706 -- 267,187
Depreciation and
amortization................ 297 13,679 5,922,396 24,031 2,001,559
--------- --------- ---------- --------- ----------
Total operating expenses...... 206,944 1,268,296 14,340,692 484,253 4,721,185
--------- --------- ---------- --------- ----------
Operating income (loss)......... 7,779 (276,914) (6,927,668) (123,585) (1,869,818)
--------- --------- ---------- --------- ----------
Other income (expense):
Interest expense.............. -- -- (88,161) (628) (36,995)
Other income, net............. -- 111 55,839 -- 16,565
--------- --------- ---------- --------- ----------
Total other income
(expense)................... -- 111 (32,322) (628) (20,430)
--------- --------- ---------- --------- ----------
Income (loss) before income
taxes......................... 7,779 (276,803) (6,959,990) (124,213) (1,890,248)
Income tax expense.............. -- -- 718,655 -- 11,545
--------- --------- ---------- --------- ----------
Net income (loss)............... $ 7,779 $(276,803) $(7,678,645) $(124,213) $(1,901,793)
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Net income (loss) per share:
Basic and diluted............. $ 0.01 $ (0.06) $ (0.96) $ (0.03) $ (0.21)
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Weighted average shares
outstanding (Note 8)........ 1,293,159 4,491,943 8,020,547 4,884,187 9,097,461
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Pro forma tax provision
(unaudited)--Note 9:
Net income (loss)............. $ 7,779 $(276,803) $(7,678,645) $(124,213)
Pro forma provision for income
taxes....................... 3,034 36,438 (1,516,894) (48,443)
--------- --------- ---------- ---------
Pro forma net income (loss)... $ 4,745 $(313,241) $(6,161,751) $ (75,770)
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Pro forma basic and diluted
income (loss) per share..... $ 0.00 $ (0.07) $ (0.77) $ (0.02)
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL AND STOCK DEFERRED
-------------------- PAID-IN ACCUMULATED SUBSCRIPTIONS COMPENSATION
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE EXPENSE TOTAL
--------- --------- ------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996..... 4,273 $ -- $ 100 $ (15,331) $ -- $ -- $ (15,231)
Net income................... 7,779 7,779
Issuance of common stock..... 4,379,952 -- 102,500 -- -- -- 102,500
--------- --------- ------------ ------------ ------------ ------------- -----------
BALANCE, DECEMBER 31, 1996... 4,384,225 -- 102,600 (7,552) -- -- 95,048
Net loss..................... -- -- -- (276,803) -- -- (276,803)
Distributions to
shareholders............... -- -- -- (130,327) -- -- (130,327)
Issuance of common stock..... 415,775 -- 524,835 -- (25,000) -- 499,835
--------- --------- ------------ ------------ ------------ ------------- -----------
BALANCE, DECEMBER 31, 1997... 4,800,000 -- 627,435 (414,682) (25,000) -- 187,753
Common stock issued in
exchange................... 4,146,800 -- 18,539,814 -- -- -- 18,539,814
Net loss..................... -- -- -- (7,678,645) -- -- (7,678,645)
Issuance of common stock..... 112,594 -- 583,333 -- -- -- 583,333
Stock options granted with
exercise price less than
fair market value at date
of grant................... -- -- 391,351 -- -- (391,351) --
Deferred compensation expense
recognized................. -- -- -- -- -- 33,373 33,373
Distributions to
shareholders............... -- -- -- (838,367) -- -- (838,367)
Stock subscription
received................... -- -- -- -- 25,000 -- 25,000
--------- --------- ------------ ------------ ------------ ------------- -----------
BALANCE, DECEMBER 31, 1998... 9,059,394 -- 20,141,933 (8,931,694) -- (357,978) 10,852,261
Net loss (unaudited)......... -- -- -- (1,901,793) -- -- (1,901,793)
Stock options granted with
exercise price less than
fair market value at date
of grant (unaudited)....... -- -- 362,598 -- -- (275,986) 86,612
Stock options exercised
(unaudited)................ 29,850 -- 200,000 -- -- -- 200,000
Deferred compensation expense
recognized (unaudited)..... -- -- -- -- -- 28,221 28,221
Issuance of common stock
(unaudited)................ 59,700 -- 552,354 -- (125,000) -- 427,354
--------- --------- ------------ ------------ ------------ ------------- -----------
BALANCE, MARCH 31, 1999
(unaudited)................ 9,148,944 $ -- $ 21,256,885 $(10,833,487) $ (125,000) $ (605,743) $ 9,692,655
--------- --------- ------------ ------------ ------------ ------------- -----------
--------- --------- ------------ ------------ ------------ ------------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- -----------------------
1996 1997 1998 1998 1999
--------- --------- ----------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $ 7,779 $(276,803) $(7,678,645) $(124,213) $ (1,901,793)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization.................. 297 13,679 5,922,396 24,031 2,001,559
Compensation expense recognized upon issuance
of common stock.............................. -- 370,235 258,333 -- 152,354
Compensation expense recognized upon granting
of stock options............................. -- -- -- -- 86,612
Recognition of deferred compensation expense... -- -- 33,373 -- 28,221
(Gain) loss on disposals of property and
equipment.................................... -- 1,200 (12,639) -- --
Application development contracts.............. -- -- 1,256,000 -- (81,529)
Deferred income taxes.......................... -- -- 649,955 -- 10,377
Changes in operating assets and liabilities:
(Increase) in trade accounts receivable........ (11,708) (1,471) (21,980) (110,991) (786,582)
(Increase) decrease in prepaid expenses........ -- (21,849) 3,335 -- (56,287)
(Increase) in other current assets............. -- -- (54,956) (10,805) (188,099)
(Increase) decrease in other assets............ -- -- (8,103) (3,505) 3,574
Increase (decrease) in accounts payable........ -- 56,681 (184,889) 15,265 379,136
Increase in accrued expenses................... -- 19,199 80,472 4,092 34,016
Increase (decrease) in income taxes payable.... -- -- 68,700 -- (46,000)
Increase (decrease) in other current
liabilities.................................. 15,351 17,119 43,034 (17,119) (1,600)
--------- --------- ----------- --------- ------------
Net cash provided by (used in) operating
activities................................... 11,719 177,990 354,386 (223,245) (366,041)
--------- --------- ----------- --------- ------------
Cash flows from investing activities:
Purchase of property and equipment............... (19,676) (112,521) (255,203) (46,881) (10,374)
Proceeds from disposals of property and
equipment...................................... -- 5,026 42,736 -- --
Proceeds from notes receivable from
shareholders................................... -- -- 55,000 -- --
Cash of acquired companies....................... -- -- 764,908 -- --
--------- --------- ----------- --------- ------------
Net cash provided by (used in) investing
activities..................................... (19,676) (107,495) 607,441 (46,881) (10,374)
--------- --------- ----------- --------- ------------
Cash flows from financing activities:
Proceeds from bank lines of credit............... -- -- 1,190,285 150,000 70,000
Payments on bank lines of credit................. -- -- (270,084) -- (254,140)
Proceeds from notes payable...................... -- 29,942 -- -- --
Payments on notes payable........................ (29,251) -- (29,942) (1,617) (50,000)
Payments on capital lease obligations............ -- -- (101,533) -- (60,060)
Payments on debentures payable................... -- -- (130,130) -- --
Distributions to shareholders.................... -- (130,327) (588,367) -- --
Proceeds from issuance of common stock........... 102,500 129,600 75,000 -- 475,000
Proceeds from subscriptions receivable........... -- -- 25,000 -- --
--------- --------- ----------- --------- ------------
Net cash provided by financing activities........ 73,249 29,215 170,229 148,383 180,800
--------- --------- ----------- --------- ------------
Net increase (decrease) in cash.................... 65,292 99,710 1,132,056 (121,743) (195,615)
Cash, beginning of year............................ 13,693 78,985 178,695 178,695 1,310,751
--------- --------- ----------- --------- ------------
Cash, end of period................................ $ 78,985 $ 178,695 $ 1,310,751 $ 56,952 $ 1,115,136
--------- --------- ----------- --------- ------------
--------- --------- ----------- --------- ------------
Other cash flow information:
Interest paid.................................... $ -- $ -- $ 54,707 $ -- $ 36,995
--------- --------- ----------- --------- ------------
--------- --------- ----------- --------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-7
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND BASIS OF PRESENTATION
National Information Consortium, Inc. (the "Company" or "NIC") is a
provider of Internet-based electronic government solutions that help governments
reduce costs and provide a higher level of service to businesses and citizens.
The Company was formed as a Delaware corporation on December 18, 1997, for the
sole purpose of effecting a common stock exchange offer (the "Exchange Offer")
to combine under common ownership five separate affiliated entities under which
the Company conducted its business operations. The five companies were National
Information Consortium USA, Inc. ("NIC/USA"), Kansas Information Consortium,
Inc. ("KIC"), Indian@ Interactive, Inc. ("III"), Nebrask@ Interactive, Inc.
("NII") and Arkansas Information Consortium, Inc. ("AIC"). The Exchange Offer
was consummated on March 31, 1998, and has been accounted for as a business
combination. NIC/USA is the entity whose shareholders received the largest
portion of the Company's common stock shares and is treated as the accounting
acquirer with the purchase method of accounting being applied to the four other
companies (see Note 3). The accompanying consolidated financial statements
reflect the acquisitions on March 31, 1998, with the results of operations and
cash flows subsequent to that date reflecting the results of all the companies,
and prior to that date only the operations of NIC/USA.
As of December 31, 1998, the Company provides electronic government
solutions for seven states and one local government. The Company's primary
business activity is to design, build and operate Internet-based portals for its
government partners under multi-year contracts (referred to as government
partnerships--see Note 4). In addition, the Company enters into contracts to
provide consulting, development and management services to government portals in
exchange for a negotiated fee. The Company also has a development division that
develops applications to automate certain government back-office processes to
facilitate electronic access.
The Company negotiates contracts with government agencies desiring to
include their information on the government portal. The Company markets the
services and solicits users to enter into subscriber contracts permitting the
user to access the portal and the government information contained therein in
exchange for a transactional or subscription user fee. The Company is
responsible for funding up front investment and ongoing operational costs.
Through separate wholly-owned subsidiaries, NIC/USA operates in Virginia and
Iowa, and has a service contract with the state of Georgia. Following the
Exchange Offer, the Company has wholly-owned subsidiaries operating in the
states of Arkansas, Indiana, Kansas and Nebraska in addition to the operations
of NIC/USA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements consolidate NIC/USA
with its wholly-owned subsidiaries for periods prior to the Exchange Offer and
the Company together with all of its direct and indirect wholly-owned
subsidiaries, including NIC/USA, for periods subsequent to the Exchange Offer.
All significant intercompany balances and transactions have been eliminated. The
Company and NIC/USA have no partially owned subsidiaries.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over
estimated useful lives of 8 years for furniture and fixtures, 3-8 years for
equipment, 3-5 years for purchased software and 5 years for leasehold
improvements. When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed
F-8
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
from the accounts and any resulting gain or loss is included in operations for
the period. The cost of maintenance and repairs is charged to expense as
incurred; significant renewals and betterments are capitalized.
At each balance sheet date, the Company reviews property and equipment
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
INTANGIBLE ASSETS
At each balance sheet date, the Company assesses the value of recorded
goodwill and other intangible assets for possible impairment based primarily on
the ability to recover the balances from expected future operating cash flows on
an undiscounted basis through the remaining amortization period. The Company has
not recorded any provisions for possible impairment of goodwill or intangible
assets.
REVENUE RECOGNITION
The Company recognizes revenues from providing electronic government
services (primarily transaction and information access fees) when the service is
provided. The Company must remit a certain percentage of these fees to
government agencies regardless of whether the Company ultimately collects the
fees. Government agency fees and amounts payable to the primary contracting
governmental entities (see Note 4) are accrued as cost of revenues and accounts
payable at the time the revenue is recognized.
Revenue from service contracts is recognized as the services are
provided at rates provided for in the contract.
The Company recognizes revenues from application development contracts
on the percentage of completion method, principally based on the estimated
percentage of completion of each contract. Included in the measurement of
percentage of completion are the internal costs of developing the core
technology which is a deliverable under the Company's current contracts. Any
anticipated losses on contracts are charged to operations as soon as they are
determinable. In the fourth quarter of 1998, the Company determined that its
most recent cost estimates exceeded the remaining revenues to be recognized. The
Company accrued $1.3 million of estimated costs in excess of revenues for
satisfying remaining obligations under the contracts. Because of the inherent
uncertainties in estimating the costs of completion, it is at least reasonably
possible that the estimates will change within the near term.
INCOME TAXES
The Company changed its income tax status from an S corporation to a C
corporation on July 1, 1998. The Company, along with its subsidiaries, files a
consolidated federal income tax return.
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted laws and statutory
tax rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
F-9
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SERVICE DEVELOPMENT COSTS
The Company expenses as incurred the employee costs to develop,
implement, operate and maintain the government portals. These costs are included
in service development and operations expense in the consolidated statements of
operations.
APPLICATION DEVELOPMENT COSTS
As discussed above, the Company, through a development division, is
developing an application
under customer contracts that automates certain government back-office processes
to facilitate electronic access. Costs of developing this application are
considered costs of performance under the contracts and have been expensed as
incurred. These costs are included in service development and operations expense
in the consolidated statements of operations.
STOCK-BASED COMPENSATION
The Company has elected to account for its stock-based compensation plan
using the intrinsic value method prescribed in Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," establishes accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based compensation plans. The
Company has elected the method of accounting prescribed by APB No. 25 as
described above, and has adopted the disclosure requirements of SFAS No. 123.
Accordingly, the Company records as compensation expense the amount by
which the fair value of common stock sold to employees and consultants exceeds
the amount paid. Any excess of fair value of the price of common stock over the
exercise price for options granted to employees is recorded as deferred
compensation expense within shareholders' equity and amortized as expense
ratably over the vesting period.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of cash and accounts
receivable. The Company limits its exposure to credit loss by depositing its
cash with high credit quality financial institutions. The Company considers
accounts receivable to be fully collectible; accordingly, no allowance for
doubtful accounts is required. The Company has not experienced any significant
credit losses.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-10
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for reporting financial information regarding operating
segments, products and services, geographic areas and major customers. The
statement is effective for financial statements for periods beginning after
December 15, 1997. As the Company operates in one business segment, the adoption
of this statement did not have a significant impact on the Company's financial
statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which establishes
guidelines for the accounting for the costs of all computer software developed
or obtained for internal use. SOP 98-1 is effective January 1, 1999. The
adoption of SOP 98-1 is not expected to have a material impact on the Company's
consolidated financial statements.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying consolidated balance sheet as of March 31, 1999, the
consolidated statements of operations and cash flows for the three months ended
March 31, 1999 and 1998 and the consolidated statement of changes in
shareholders' equity for the three months ended March 31, 1999, have been
prepared by the Company, without audit, pursuant to the rules of the Securities
and Exchange Commission, and reflect all adjustments to present fairly the
financial position of the Company and its subsidiaries as of March 31, 1999, the
results of their operations and their cash flows for the three months ended
March 31, 1999 and 1998 and the changes in their shareholders' equity for the
three months ended March 31, 1999.
3. ACCOUNTING FOR THE EXCHANGE OFFER
On March 31, 1998, the Company exchanged its common shares for the
common shares of five affiliated business units--NIC/USA, KIC, III, NII and AIC.
Starting in 1991 with the state of Kansas, the Company's founders established an
S corporation for business conducted within each state in which it was awarded a
contract. By 1996, the Company had expanded into four states and decided to
pursue future business opportunities through NIC/USA, leaving the four other
business units to pursue opportunities solely within those states.
Ownership of the five affiliated business units was similar, but not
identical, leading to the conclusion to account for the Exchange Offer as a
business combination. Prior to consummating the Exchange Offer, the Company was
a holding company with no operations of its own. Exchange ratios were determined
proportionately based on estimated 1998 pretax earnings for each company. No
appraisal of fair market value of the separate companies was obtained.
Management determined the fair value of the consolidated company on
March 31, 1998 was $40 million. The fair value was allocated to each of the
business units based upon proportional values agreed to by the shareholders in
consummating the Exchange Offer.
Shareholders of NIC/USA, III, KIC, AIC and NII received 4,800,000,
2,175,025, 900,000, 652,475 and 418,800 shares of the Company's common shares
which were valued for purchase accounting at $21,460,187, $9,724,259,
$4,023,785, $2,919,368 and $1,872,401, respectively. As the shareholders of
F-11
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCOUNTING FOR THE EXCHANGE OFFER (CONTINUED)
NIC/USA received 54% of the Company's common shares, NIC/USA was treated as the
acquirer in applying purchase accounting.
The cost of the acquired business units of $18,539,813 was allocated to
the tangible and identifiable intangible assets acquired and liabilities assumed
on the basis of their fair values on the Exchange Offer date. The fair value of
net tangible assets, consisting primarily of cash, accounts receivable, property
and equipment, accounts payable and debt, approximated historical carrying
amounts. The sole identifiable intangible asset relates to the government
contracts and was valued at the net present value of projected future cash flows
over the lives of the existing contracts discounted by 15%. Developed
applications were not assigned a value because each state has a perpetual right
of use license to applications developed if the Company's relationship is
terminated. The remainder of the cost was allocated to goodwill. The purchase
price and allocation by acquired business unit and in total is summarized as
follows:
<TABLE>
<CAPTION>
III KIC AIC NII TOTAL
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Fair market value at March 31,
1998............................ $9,724,259 $4,023,785 $2,919,368 $1,872,401 $18,539,813
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Allocated to:
Tangible net assets............. 464,766 311,159 304,529 108,897 1,189,351
Contract intangibles............ 1,911,321 433,611 447,994 672,387 3,465,313
Goodwill........................ 7,348,172 3,279,015 2,166,845 1,091,117 13,885,149
--------- --------- --------- --------- ----------
$9,724,259 $4,023,785 $2,919,368 $1,872,401 $18,539,813
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Government contract expiration
date............................ 8/31/00 12/31/99 6/30/00 1/31/02
</TABLE>
As a result of rapid technological changes occurring in the Internet
industry and the intense competition for qualified Internet professionals,
recorded contract intangibles and goodwill are amortized on a straight-line
basis over the life of the existing contracts. There can be no assurance the
contracts will be renewed when they expire at terms that will be beneficial to
the Company. At the time of the Exchange Offer, the Company and each of the
business units were S corporations. The Exchange Offer was tax free to the
shareholders. The historical tax basis in the assets and liabilities carries
over to the Company and the amortization of the goodwill and contract
intangibles is not deductible for income tax purposes.
The following unaudited pro forma consolidated amounts give effect to
the acquisitions of the business units as if they had occurred on January 1,
1997, using the amortization of goodwill and contract intangible the Company has
and will record for periods subsequent to the Exchange Offer:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------- THREE MONTHS ENDED
1997 1998 MARCH 31, 1998
---------- ---------- -------------------
<S> <C> <C> <C>
Revenues...................... $24,382,184 $36,532,345 $ 8,270,047
Operating income (loss)....... (6,863,442) (8,459,468) (1,655,386)
Net income (loss)............. (6,931,996) (9,212,596) (1,658,166)
Basic and diluted loss per
share....................... $ (0.80) $ (1.02) $ (0.18)
Weighted average shares
outstanding................. 8,638,743 9,034,463 9,030,787
</TABLE>
F-12
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. GOVERNMENT PARTNERSHIPS
Each of the Company's government partnerships operates under a separate
contract, which generally has an initial term of three to five years. The
Company enters into separate agreements with various agencies and divisions of
the government partners to provide specific services and to conduct specific
transactions. These agreements preliminarily establish the pricing of the
electronic transactions and data access services the Company provides and the
division of revenues between the Company and the government agency. Prices and
revenue sharing agreements must be approved by the government. The Company owns
all the applications developed under these contracts. After completion of a
defined contract term, the Company's government partners receive a perpetual,
royalty-free license to the applications for use only. If the Company's contract
is not renewed after a defined term the government partners would be entitled to
take over the portal in place with no future obligation of the Company. In some
cases, the Company provides management services to government-owned portals in
exchange for an agreed-upon fee.
The following is a summary of the Company's larger business units that
have entered into agreements with government partners and the significant terms
of those operating agreements.
VIRGINIA INTERACTIVE, LLC (VI)
On July 30, 1997, VI, a wholly-owned subsidiary of NIC/USA, entered into
a contract to provide an electronic government solution with the Virginia
Information Providers Network Authority (the "Virginia Authority"). VI is
responsible for managing and marketing the government portal as well as funding
up front investment and ongoing operational costs. The contract is for a period
of five years, commencing September 1, 1997, with the Virginia Authority having
a five-year renewal option. If the Virginia Authority extends the contract
through 2007, it is entitled to a perpetual license for applications developed
at no additional compensation to VI.
User fees received by the VI business unit are disbursed (1) first for
the payment of operating expenses (primarily telecommunication costs), (2) then
to the Virginia Authority in accordance with interagency agreements negotiated
by VI on behalf of the Virginia Authority and for the reasonable and necessary
expenses of the Virginia Authority, and (3) then all remaining funds to VI.
INDIANA INTERACTIVE, INC. (III)
The III business unit develops, operates, maintains and expands an
electronic government solution for electronic access to public information for
the Access Indiana Information Network ("AIIN"). AIIN is a State of Indiana
government instrumentality created by the Indiana legislature for the purpose of
providing electronic access to state, county and local information required by
Indiana businesses and citizens. III is responsible for managing and marketing
the government portal as well as funding up-front investment and ongoing
operational costs. The contract with AIIN and the interagency agreements with
various government agencies include limitations and provisions for the rates III
can charge and the amount of remuneration to AIIN and each government agency.
The initial contract expires September 2000 but may be renewed, or amended and
renewed, for up to an additional five years. AIIN is entitled to a perpetual for
use only license to the applications developed for no additional compensation to
III.
III's wholly-owned subsidiary, City-County Interactive, L.L.C. (the
"Subsidiary"), was formed in 1997 to provide electronic government solutions for
CivicNet, formerly CivicLink, the electronic gateway service for the city of
Indianapolis and Marion County, Indiana. In addition, the Subsidiary is to
further operate, manage and expand CivicNet.
F-13
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. GOVERNMENT PARTNERSHIPS (CONTINUED)
In connection with the revenues generated under the contract with AIIN,
AIIN receives 2% of gross revenues per annum, before all other payments. The
data-providing entities are then paid in accordance with interagency agreements.
The remaining balance is retained by III.
ARKANSAS INFORMATION CONSORTIUM, INC. (AIC)
AIC serves as a provider of electronic government solutions, by a
contract signed in July 1997 between AIC and the Information Network of Arkansas
("INA"), a public instrumentality created by legislation in the State of
Arkansas (the "State"). AIC is responsible for managing and marketing the
government portal as well as funding up-front investment and ongoing operational
costs. The contract is for one three-year term through June 30, 2000, with four
one-year renewals at the option of INA. If the State decides to extend the
contract through June 30, 2003, or at anytime thereafter, the INA shall be
entitled to a perpetual for use only license to the applications developed for
no additional compensation to AIC. Prior to June 30, 2003, the INA reserves the
right to negotiate terms to license the applications.
Network transaction fees received pursuant to the agreement with INA are
disbursed first for payment of certain operating expenses for the government
portal (primarily telecommunication costs). Five percent of the amount by which
gross revenues for the portal exceed the amount payable to government agencies
is then distributed to the INA. The balance is disbursed to AIC.
KANSAS INFORMATION CONSORTIUM, INC. (KIC)
KIC was incorporated August 15, 1991 to serve as a provider of
electronic government solutions to develop, operate, maintain and expand a
government portal for electronic access to public information for the
Information Network of Kansas ("INK"). INK is a State of Kansas government
instrumentality created by the Kansas legislature for the purpose of providing
electronic access to state, county and local information required by Kansas
businesses and citizens. KIC is responsible for managing and marketing the
government portal as well as funding up-front investment and ongoing operational
costs. The contract with INK includes limitations and provisions for the rates
KIC can charge and the amount of remuneration to INK and each government agency.
The initial contract was to expire on December 31, 1996, but was renewed until
December 31, 1999 unless earlier terminated by INK for cause. INK shall have the
option, upon termination or expiration of the contract, to require KIC to
provide electronic government solutions in accordance with the terms of the
contract for a period of up to twelve months from the time of the expiration or
notification of termination. INK is entitled to a perpetual for use only license
to the applications developed for no additional compensation to KIC.
In connection with the revenues generated under the contract with INK,
INK receives 2.0% of gross revenue, per annum, payable monthly, before all other
payments. KIC may then receive a 25.0% rate of return per annum on its risk
capital from net income before taxes. The remaining net income before taxes is
shared 66.7% with KIC and 33.3% with INK. Risk capital is defined in the
contract as the sum of paid-in capital, corporate loans with a payback period
exceeding one year, and noncancellable obligations under corporate leases.
NEBRASK@ INTERACTIVE, INC. (NII)
NII was incorporated November 22, 1994 for the purpose of operating as a
provider of electronic government solutions for the public information portal of
the State of Nebraska ("Nebrask@ Online"). NII developed and operates the public
information portal to provide businesses and citizens with electronic
F-14
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. GOVERNMENT PARTNERSHIPS (CONTINUED)
access to state, county and local information via the Internet. NII is
responsible for managing and marketing the portal as well as funding up-front
investment and ongoing operational costs.
On December 3, 1997, NII entered into a contract with the Nebraska State
Records Board ("NSRB") to provide electronic government solutions to enhance,
operate, maintain and expand the existing portal that was developed by NII under
its 1995 contract with the Nebraska Library Commission ("NLC") and various
government agencies. The contract includes limitations and provisions for the
rates NII can charge and the amount of remuneration to each government agency.
The contract will expire on January 31, 2002 unless earlier terminated by the
NSRB for cause. The NSRB shall have the option, upon termination or expiration
of the contract, to require NII to provide electronic government solutions in
accordance with the terms of the contract for a period of up to twelve months
from the time of the expiration or notice of termination, whichever is earlier.
On January 1, 2002, the NSRB will be entitled to a perpetual for use only
license to the applications developed for no additional compensation to NII.
In connection with the revenues generated under the contract with the
NSRB, the NSRB receives 4.5% of the first $89,000 in gross profit and 2% of
gross profit thereafter. Gross profit is defined in the contract as the
difference between NII's gross revenues and amounts paid to government agencies
and for certain telecommunication expenses.
NATIONAL INFORMATION CONSORTIUM U.S.A., INC. (NIC/USA)
A service contract was entered into between NIC/USA and the GeorgiaNet
Authority ("GANET"), an agency of the State of Georgia, on September 15, 1996.
Pursuant to the contract, NIC/USA must dedicate a minimum number of full time
employees to assist GANET in creating and providing an information access
program. Pursuant to the contract, GANET is entitled to a perpetual use license
to the applications developed at no additional compensation to NIC/USA. However,
if GANET terminates the contract prior to September 2001, GANET must pay NIC/USA
a fee ranging from $500,000 to $1,000,000 (based on the date of termination) in
order to receive a license for the applications. The contract must be renewed by
GANET on a yearly basis. In the event fees received by GANET from its customers
are insufficient to cover its obligations to NIC/USA, the contract shall
terminate without further obligation of GANET.
In connection with the revenues generated under the contract with GANET,
GANET pays NIC/ USA $800,000 per year, in equal amounts of $200,000 on a
quarterly basis. In addition, GANET pays NIC/ USA 5% of gross GANET revenues
from non-bulk fees per quarter.
F-15
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Furniture and fixtures............................... $ -- $ 210,209
Equipment............................................ 125,048 1,530,636
Purchased software................................... -- 101,484
Leasehold improvements............................... -- 39,285
--------- ---------
125,048 1,881,614
Less accumulated depreciation........................ 12,845 652,199
--------- ---------
$ 112,203 $1,229,415
--------- ---------
--------- ---------
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1997 and
1998, was $177, $13,559 and $236,699, respectively.
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31, 1999
1997 1998 (UNAUDITED)
---------- ---------- -------------------
<S> <C> <C> <C>
Goodwill....................... $ -- $13,885,149 $13,885,149
Contract intangibles........... -- 3,465,313 3,465,313
---------- ---------- -------------------
-- 17,350,462 17,350,462
Less accumulated
amortization................. -- 5,681,403 7,575,204
---------- ---------- -------------------
$ -- $11,669,059 $ 9,775,258
---------- ---------- -------------------
---------- ---------- -------------------
</TABLE>
7. BANK LINES OF CREDIT AND OTHER DEBT OBLIGATIONS
NIC/USA has a $1,000,000 operating line of credit from a bank that bears
interest at the bank's index rate (7.75% at December 31, 1998). The expiration
date on the line is April 30, 1999. At December 31, 1997 and 1998, $0 and
$370,000 was outstanding on the line. The line is collateralized by NIC/USA's
assets and guaranteed by various affiliated companies. The line was renewed on
April 30, 1999 with a maturity date of April 30, 2000.
NIC/USA entered into a $225,000 equipment line of credit with a bank in
January 1998. The line bears interest at the bank's reference rate plus 1.75%
(9.50% at December 31, 1998). There is no given expiration date on the line. At
December 31, 1998, no amounts were outstanding on the line. The line is
collateralized by the related equipment and guaranteed by the parent company.
In December 1997, NIC/USA borrowed $29,942 from a bank in the form of a
note payable collateralized by an automobile. The note was repaid in full in
1998.
In October 1998, NIC/USA issued to GANET, an irrevocable letter of
credit in the amount of $200,000 that expires October 31, 1999.
On January 19, 1999, NIC/USA purchased an airplane and financed the
purchase by borrowing $544,000 from a bank in the form of a note payable. The
note bears interest at 7.75% and matures
F-16
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. BANK LINES OF CREDIT AND OTHER DEBT OBLIGATIONS (CONTINUED)
January 19, 2000. The loan is to be repaid in eleven monthly installments of
$6,529 commencing February 19, 1999 with a final lump-sum payment of $513,707 on
January 19, 2000. The note is collateralized by the airplane.
VI entered into a $250,000 operating line of credit with a bank in May
1998. The line bears interest at the bank's index rate (7.75% at December 31,
1998). The expiration date on the line is April 30, 2000. At December 31, 1998,
$218,750 was outstanding on the line. The line is collateralized by VI's assets
and guaranteed by various affiliated companies.
VI entered into a $225,000 equipment line of credit with a bank in April
1998. The line bears interest at the bank's reference rate plus 1.75% (9.50% at
December 31, 1998). There is no given expiration date on the line. At December
31, 1998, there were no amounts outstanding on the line. The line is
collateralized by the related equipment and guaranteed by the parent company.
Iowa Interactive, Inc. entered into a $225,000 equipment line of credit
with a bank in April 1998. The line bears interest at the bank's reference rate
plus 1.75% (9.50% at December 31, 1998). There is no given expiration date on
the line. At December 31, 1998, no amounts were outstanding on the line. The
line is collateralized by the related equipment and guaranteed by the parent
company.
III has a $400,000 operating line of credit from a bank that bears
interest at the bank's index rate (7.75% at December 31, 1998). The expiration
date on the line is April 30, 2000. At December 31, 1998, $192,136 was
outstanding on the line. The line is collateralized by the III's assets and
guaranteed by various affiliated companies.
III has a $150,000 operating line of credit with a bank that bears
interest at the bank's prime rate plus 0.50% (8.25% at December 31, 1998). The
expiration date on the line is November 1, 1999. At December 31, 1998, $18,209
was outstanding on the line. The line is collateralized by III's assets.
III has a $225,000 equipment line of credit with a bank which bears
interest at the bank's reference rate plus 1.75% (9.50% at December 31, 1998).
There is no given expiration date on the line. At December 31, 1998, there were
no amounts outstanding on the line. The line is collateralized by the related
equipment and guaranteed by the parent company.
KIC has a $250,000 operating line of credit from a bank that bears
interest at the bank's index rate (7.75% at December 31, 1998). The expiration
date on the line is April 30, 2000. At December 31, 1998, $179,497 was
outstanding on the line. The line is collateralized by KIC's assets and
guaranteed by various affiliated companies.
KIC has a $225,000 equipment line of credit with a bank which bears
interest at the bank's reference rate plus 1.75% (9.50% at December 31, 1998).
There is no given expiration date on the line. At December 31, 1998, no amounts
were outstanding on the line. The line is collateralized by the related
equipment and guaranteed by the parent company.
AIC has a $150,000 operating line of credit from a bank that bears
interest at the bank's index rate (7.75% at December 31, 1998). The expiration
date on the line is April 30, 2000. At December 31, 1998, no amounts were
outstanding on the line. The line is collateralized by AIC's assets and
guaranteed by the parent company.
AIC has a $225,000 equipment line of credit with a bank which bears
interest at the bank's reference rate plus 1.75% (9.50% at December 31, 1998).
There is no given expiration date on the line. At December 31, 1998, no amounts
were outstanding on the line. The line is collateralized by the related
equipment and guaranteed by the parent company.
F-17
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. BANK LINES OF CREDIT AND OTHER DEBT OBLIGATIONS (CONTINUED)
In March 1998, AIC agreed to pay a shareholder $19,500 for past services
and reacquired the shareholder's 5,005 shares of NII. An initial payment of
$6,500 was made with the remaining balance of $13,000 due in two annual
installments of $6,500 in 1999 and 2000.
AIC has issued to the State of Arkansas an irrevocable letter of credit
in the amount of $50,000.
NII has a $100,000 line of credit with a bank that bears interest at the
bank's index rate (7.75% at December 31, 1998). The expiration date on the line
is April 30, 2000. At December 31, 1998, $45,000 was outstanding on the line.
The line is collateralized by NII's assets and guaranteed by the parent company.
NII has a $225,000 equipment line of credit with a bank which bears
interest at the bank's reference rate plus 1.75% (9.50% at December 31, 1998).
There is no given expiration date on the line. At December 31, 1998, no amounts
were outstanding on the line. The line is collateralized by the related
equipment and guaranteed by the parent company.
In March 1998, NII agreed to pay a shareholder $130,500 for past
services and reacquired the shareholder's 5,250 shares of NII. An initial
payment of $43,500 was made with the remaining balance of $87,000 due in two
annual installments of $43,500 in 1999 and 2000.
The operating line of credit agreements contain various covenants
relating to reporting requirements and financial ratios. At December 31, 1998,
the Company was either in compliance with these covenants or had received
waivers on any violations of these covenants.
8. CAPITAL STOCK AND EARNINGS PER SHARE
COMMON STOCK
The Company's Board of Directors has authorized 13,500,000 shares of
common stock for issuance by the Company at December 31, 1998. In April 1999,
the Company was reincorporated in the state of Colorado and changed the par
value of its common stock from $.01 per share to no par. On May 6, 1999, the
Company increased its authorized shares to 200,000,000.
In the first six months of 1998, the Company made $588,367 of S
corporation cash distributions to common shareholders. NIC/USA made $130,327 of
distributions to its shareholders in 1997.
On June 30, 1998, the Company and a voting trust entered into by the
Company's shareholders entered into a stock purchase agreement for the Company's
shareholders to sell a 25% interest in the Company to an investment management
firm. The Company did not receive any of the proceeds from the sale. Under the
voting trust agreement, two principal shareholders have the right to vote all of
the Company's common shares, except those held by the investment management firm
and to sell all or any part of such shares. The investment management investors
also have certain registration rights, a right of first refusal to purchase any
common shares proposed to be sold by the voting trust, a right to participate in
any sale by the voting trust and certain other rights. The Company's bylaws give
the Company the right of first refusal to purchase any common shares desired to
be sold by a shareholder at the lesser of a third party offered price or a
formula price. One common shareholder has the right to cause the Company to
repurchase 37,313 shares of common stock purchased by the shareholder on
February 9, 1999, at the $6.70 price per share paid by the shareholder.
F-18
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STOCK AND EARNINGS PER SHARE (CONTINUED)
At December 31, 1997 and as of March 31, 1998, the date of the Exchange
Offer, NIC/USA had 1,000,000 common shares authorized and 112,330 common shares
issued and outstanding. However, as NIC/USA is considered the accounting
acquirer, its historical outstanding share information has been adjusted for the
Exchange Offer exchange ratio. Shareholders of NIC/USA received 42.73124 Company
common shares for each share held of NIC/USA on March 31, 1998. Retroactive
adjustments are also made for purposes of calculating and reporting earnings per
share.
COMMON STOCK TRANSACTIONS
From August 1997 through December 1997, NIC/USA sold 5,130 and 4,500
shares of its common stock to employees at prices of $29.24 and $1.00 per share,
respectively. The Company recorded $370,235 in compensation expense related to
these transactions.
In April 1998, the Company sold 75,000 shares of common stock to two
employees at $1.00 per share. The Company recorded $258,333 in compensation
expense related to this transaction. From September 1998 through December 1998,
the Company granted 545,895 common stock options. Deferred compensation expense
of $391,351 was recorded which is being expensed ratably over the vesting
period.
On June 30, 1998, the Company issued 37,594 shares of its common stock
and made an S corporation distribution of those shares, which were valued at
$6.65 per share, to its shareholders. These shares were given to a consultant as
compensation for services rendered to the Company's shareholders with the
investment management firm sale. In connection with the transaction, the Company
also paid $57,077 in professional fees on behalf of the shareholders which were
also distributed as an S corporation distribution.
1999 EMPLOYEE STOCK PURCHASE PLAN
In May 1999, the Company's Board of Directors approved an employee stock
purchase plan intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code.
EARNINGS PER SHARE
The Company computes net income (loss) per share in accordance with the
provisions of SFAS No. 128, "Earnings Per Share" and SEC Staff Accounting
Bulletin No. 98. Under SFAS No. 128 and SAB No. 98, basic net income (loss) per
share is computed by dividing the net income (loss) for the period by the
weighted average number of common shares outstanding for the period. Treated as
outstanding for all periods prior to the Exchange Offer is an issuance of 37,594
of common shares to all common shareholders on July 1, 1998 for no consideration
to the Company as described above. Diluted net income (loss) per share is the
same as basic net income (loss) per share because common stock issuable upon
exercise of employee stock options is antidilutive.
F-19
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STOCK AND EARNINGS PER SHARE (CONTINUED)
The following sets forth the calculation of earnings per share for the
actual and pro forma periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PRO FORMA
------------------------------------- THREE THREE THREE
1998 MONTHS ENDED MONTHS ENDED MONTHS ENDED
1997 PRO FORMA 1998 MARCH 31, 1998 MARCH 31, 1998 MARCH 31, 1999
ACTUAL (UNAUDITED) ACTUAL (UNAUDITED) (UNAUDITED) (UNAUDITED)
---------- ------------ ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net loss................ $ (276,803) $(9,212,596) $(7,678,645) $ (1,658,166) $ (124,213) $ (1,901,793)
Basic and diluted loss
per share............. $ (0.06) $ (1.02) $ (0.96) $ (0.18) $ (0.03) $ (0.21)
Weighted-average common
shares outstanding.... 4,491,943 9,034,463 8,020,547 9,030,787 4,884,187 9,097,461
</TABLE>
9. INCOME TAXES
On July 1, 1998, the Company changed its income tax status from an S
corporation to a C corporation. The Company recognized a net deferred tax
liability of approximately $1,374,000 representing the temporary differences
between the book and tax bases of assets and liabilities on that date. No
deferred tax liability was recorded for goodwill. The effect of recognizing the
deferred tax liability has been included in the consolidated statement of
operations for the year ended December 31, 1998.
Income tax expense for the year ended December 31, 1998 consisted of the
following:
<TABLE>
<S> <C>
Current income taxes:
Federal........................................................ $ 56,045
State.......................................................... 12,655
---------
Total........................................................ 68,700
---------
Deferred income taxes, net:
Federal........................................................ 575,060
State.......................................................... 74,895
---------
Total........................................................ 649,955
---------
Total income taxes........................................... $ 718,655
---------
---------
</TABLE>
The unaudited pro forma tax provision for the years ended December 31,
1996, 1997 and 1998 and the three-months ended March 31, 1998 presented on the
Consolidated Statements of Operations present the Company's results of
operations as if it were a C corporation for the entire period. The pro forma
provision for the year ended December 31, 1998 represents the incremental
provision for the six month period the Company was an S corporation together
with removing the $1,374,000 cumulative effect recorded in 1998 as discussed
above. The pro forma provision for income taxes was calculated based on enacted
tax laws and statutory tax rates applicable to the periods presented taking into
account permanent differences.
F-20
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and
liabilities at December 31, 1998, are as follows:
<TABLE>
<S> <C>
Deferred tax assets
Accrued accounts payable...................................... $ 721,757
Application development contracts............................. 479,922
Other......................................................... 28,130
---------
Total....................................................... 1,229,809
---------
Deferred tax liabilities:
Accrued revenue............................................... 897,097
Contract intangibles.......................................... 881,346
Depreciation.................................................. 62,324
Other......................................................... 38,996
---------
Total....................................................... $1,879,763
---------
Net deferred tax liability...................................... $ 649,954
---------
---------
</TABLE>
The following table is a reconciliation between the effective income tax
rate indicated by the consolidated statements of operations and the statutory
federal income tax rate for the year ended December 31, 1998:
<TABLE>
<S> <C>
Effective federal and state income tax rate (provision).............. (10.3)%
Goodwill amortization (six months)................................... 15.5
S to C corporation adjustment........................................ 19.7
Pretax loss as an S corporation (six months)......................... 10.4
State income taxes................................................... (1.3)
Other................................................................ 1.0
---------
Statutory federal income tax rate.................................... 35.0%
---------
---------
</TABLE>
10. CAPITAL LEASE OBLIGATIONS
The Company and its subsidiaries lease various property and equipment
under capital leases. The agreements require the company and its subsidiaries to
pay all taxes, fees, assessments or other charges.
Capitalized leased property and equipment consists of the following at
December 31, 1998:
<TABLE>
<S> <C>
Furniture and fixtures............................................ $ 117,911
Equipment......................................................... 766,153
Purchased software................................................ 81,795
---------
965,859
Less accumulated depreciation..................................... 314,026
---------
$ 651,833
---------
---------
</TABLE>
F-21
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITAL LEASE OBLIGATIONS (CONTINUED)
Future minimum noncancellable lease payments under these capital leases
at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- ------------------------------------------------------------------
<S> <C>
1999.............................................................. $ 280,884
2000.............................................................. 217,180
2001.............................................................. 213,918
2002.............................................................. 17,787
---------
729,769
Less interest..................................................... 84,457
---------
Present value of net minimum lease payments....................... 645,312
Less current portion.............................................. 235,323
---------
Long-term portion................................................. $ 409,989
---------
---------
</TABLE>
11. OPERATING LEASES
The Company and its subsidiaries lease office space and certain
equipment under operating leases. The future minimum lease payments under
noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- --------------------------------------------------------------------------------
<S> <C>
1999............................................................................ $ 408,412
2000............................................................................ 320,125
2001............................................................................ 248,143
2002............................................................................ 209,932
2003............................................................................ 24,989
------------
$ 1,211,601
------------
------------
</TABLE>
Total rent expense for the years ended December 31, 1996, 1997 and 1998
was $0, $2,099 and $354,192 respectively.
12. EMPLOYEE BENEFIT PLAN
The Company and its subsidiaries sponsor a defined contribution 401(k)
profit sharing plan. In accordance with the plan, all full-time employees are
eligible immediately upon employment. A discretionary match and a discretionary
contribution may be made to the plan as determined by the Board of Directors.
Company contributions totaled $1,731, $14,031, and $94,571 for the years ended
December 31, 1996, 1997 and 1998, respectively.
13. STOCK OPTION PLAN
The Company has adopted a formal stock option plan (the "Plan") to
provide for the granting of either incentive stock options or non-qualified
stock options to encourage certain employees of the Company and its
subsidiaries, and certain directors of the Company, to participate in the
ownership of the Company, and to provide additional incentive for such employees
and directors to promote the success of
F-22
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STOCK OPTION PLAN (CONTINUED)
its business through sharing the future growth of such business. The Company is
authorized to grant options for up to 2,000,000 common shares under the Plan, of
which 545,895 have been granted in 1998. The exercise price of all options
granted under the plan was $6.70, which was less than the fair market value of
the stock on the various grant dates. The weighted-average grant-date fair value
of options granted during the year was $7.42. Employee options are generally
exercisable one year from date of grant in cumulative annual installments of 33%
and expire four years after the grant date.
On December 31, 1998, the Company granted 300,000 options (225,375
non-qualified options and 74,625 incentive options) to an executive of the
Company under two separate stock option agreements covered by the Plan.
Non-qualified stock options totaling 13,075 vested immediately with the
remainder of the options exercisable one year from date of grant in cumulative
annual installments of 25%. The non-qualified stock options expire ten years
after the grant date. Incentive stock options totaling 14,925 vested immediately
with the remainder of the options exercisable one year from date of grant in
cumulative annual installments of 25%. The incentive stock options expire five
years from the date of grant.
Stock option activity for the year ended December 31, 1998, was as
follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED AVERAGE PRICE
--------- -------------------------
<S> <C> <C>
Outstanding at January 1.................... -- --
Granted................................... 545,895 $ 6.70
Exercised................................. -- --
Forfeited................................. 4,478 $ 6.70
---------
Outstanding at December 31.................. 541,417 $ 6.70
Exercisable at December 31.................. 42,925 $ 6.70
</TABLE>
For all options outstanding at December 31, 1998, the exercise price was
$6.70 per share and the weighted-average remaining contractual life was 6.7
years.
The Company accounts for the Plan using the intrinsic value method
prescribed in Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees." Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," requires certain
disclosures regarding expense and value of options granted using the
fair-value-based method even though the Company follows APB No. 25. Had
compensation cost for the Company's Plan been determined consistent with SFAS
No. 123, the Company's net loss and loss per share would have been as follows
for the year ended December 31, 1998:
<TABLE>
<S> <C>
Net loss
As reported.................................................... $(7,678,645)
Pro forma...................................................... $(7,689,230)
Basic and diluted loss per share:
As reported.................................................... $ (0.96)
Pro forma...................................................... $ (0.96)
</TABLE>
The Company used the minimum value option pricing model, as permitted by
the Financial Accounting Standards Board for nonpublic companies, to determine
the fair value of grants made in 1998.
F-23
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STOCK OPTION PLAN (CONTINUED)
The minimum value model does not consider expected volatility in stock price.
The following assumptions were applied in determining pro forma compensation
cost for the year ended December 31, 1998:
<TABLE>
<S> <C>
Risk-free interest rate.......................................... 5.00%
Expected dividend yield.......................................... 0.00%
Expected option life............................................. 6.6 years
Expected stock price volatility.................................. 0.001%
Fair value of options granted.................................... $7.42
</TABLE>
14. CONCENTRATION OF CREDIT
For the year ended December 31, 1998, the Company derived 71% of its
revenues from two data resellers.
15. RELATED PARTY TRANSACTIONS
The Company and its subsidiaries pay their Board members director fees
for services rendered. Total expense incurred for the year ended December 31,
1998 was $130,500. No director fees were paid in either 1997 or 1996.
The Company and its subsidiaries purchase business and health insurance
through an insurance agency that is controlled by a shareholder and director of
the Company. Insurance expense for the years ended December 31, 1996, 1997 and
1998 was approximately $3,000, $50,000 and $444,600, respectively.
16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NIC/USA financed the purchase of $335,646 of property and equipment in
1998 under capital leases.
KIC sold certain assets during 1998 which were then leased back from the
purchaser over a period of three years. The resulting lease is being accounted
for as a capital lease. The purchaser paid down KIC's bank line of credit in
1998 by $28,666 as part of this sale-leaseback transaction.
III sold certain assets during 1998 which were then leased back from the
purchaser over a period of three years. The resulting lease is being accounted
for as a capital lease. The purchaser paid down III's bank line of credit in
1998 by $169,287 as part of this sale-leaseback transaction.
AIC financed the purchase of $13,083 of property and equipment in 1998
under capital leases.
NII financed the purchase of $7,114 of property and equipment in 1998
under capital leases.
F-24
<PAGE>
REPORT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Indian@ Interactive, Inc. and subsidiary
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Indian@ Interactive, Inc. and subsidiary (the "Company") at December 31, 1997
and 1996, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Kansas City, Missouri
May 6, 1999
F-25
<PAGE>
INDIAN@ INTERACTIVE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- --------- MARCH 31,
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................... $ 280,918 $ 964 $ 380,209
Trade accounts receivable.............................. 860,777 1,505,464 1,203,141
Receivable from employees.............................. -- -- 1,000
Due from related companies............................. -- -- 662
Prepaid expenses....................................... 10,042 16,531 14,359
--------- --------- -----------
Total current assets............................. 1,151,737 1,522,959 1,599,371
--------- --------- -----------
Property and equipment, net.............................. 372,222 375,426 363,196
--------- --------- -----------
Other assets:
Note receivable from shareholder....................... 25,000 15,000 15,000
Deposits and other..................................... 10,464 13,988 250
Organization costs, net of accumulated amortization of
$5,815, $10,627, and $11,830......................... 18,244 13,432 12,229
--------- --------- -----------
Total other assets............................... 53,708 42,420 27,479
--------- --------- -----------
Total assets..................................... $1,577,667 $1,940,805 $1,990,046
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Checks issued in excess of bank balance................ $ -- $ 117,405 $ --
Accounts payable....................................... 724,411 876,710 1,089,165
Accrued expenses....................................... 44,756 25,671 55,617
Due to related companies............................... -- 528 4,527
Bank lines of credit................................... 119,196 92,923 92,923
Current portion of capital lease obligations........... 99,603 141,632 144,499
--------- --------- -----------
Total current liabilities........................ 987,966 1,254,869 1,386,731
--------- --------- -----------
Long-term liabilities:
Debentures payable to related parties.................. 90,000 90,000 90,000
Capital lease obligations, net of current portion...... 167,536 97,370 48,549
--------- --------- -----------
Total long-term liabilities...................... 257,536 187,370 138,549
--------- --------- -----------
Total liabilities................................ 1,245,502 1,442,239 1,525,280
--------- --------- -----------
Commitments and contingencies (Notes 6 and 7)............
Shareholders' equity:
Common stock, no par value; 100,000 shares authorized,
87,250, 88,122 and 88,122 shares issued and
outstanding.......................................... 18,825 18,825 18,825
Additional paid-in capital............................. 156,174 183,557 183,557
Retained earnings...................................... 157,166 296,184 262,384
--------- --------- -----------
Total shareholders' equity....................... 332,165 498,566 464,766
--------- --------- -----------
Total liabilities and shareholders' equity....... $1,577,667 $1,940,805 $1,990,046
--------- --------- -----------
--------- --------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-26
<PAGE>
INDIAN@ INTERACTIVE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
---------------------- 1998
1996 1997 (UNAUDITED)
---------- ---------- -------------
<S> <C> <C> <C>
Revenues............................................ $11,658,194 $12,524,065 $ 3,541,101
Cost of revenues.................................... 9,623,884 10,040,041 2,727,257
---------- ---------- -------------
Gross profit.................................. 2,034,310 2,484,024 813,844
---------- ---------- -------------
Operating expenses:
Service development and operations................ 359,689 480,492 225,425
Selling, general and administrative............... 814,997 1,070,667 424,581
Stock compensation................................ -- 13,431 --
Depreciation and amortization..................... 83,448 107,332 31,841
---------- ---------- -------------
Total operating expenses...................... 1,258,134 1,671,922 681,847
---------- ---------- -------------
Operating income.............................. 776,176 812,102 131,997
---------- ---------- -------------
Other income (expense):
Interest income................................... 21,514 20,192 6,804
Interest expense.................................. (34,867) (32,330) (9,634)
Miscellaneous income.............................. -- 3,412 1,820
Gain on disposals of property and equipment....... -- 401 --
---------- ---------- -------------
Total other expense, net...................... (13,353) (8,325) (1,010)
---------- ---------- -------------
Net income.................................... $ 762,823 $ 803,777 $ 130,987
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-27
<PAGE>
INDIAN@ INTERACTIVE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES DUE
COMMON STOCK ADDITIONAL ON COMMON
---------------------- PAID-IN RETAINED STOCK
SHARES AMOUNT CAPITAL EARNINGS PURCHASES TOTAL
----------- --------- ----------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996......... 87,250 $ 87,250 $ 156,174 $ (24,911) $ (68,425) $ 150,088
Net income....................... -- -- -- 762,823 -- 762,823
Change in par value of common
stock.......................... -- (68,425) -- -- 68,425 --
Distributions to shareholders.... -- -- -- (580,746) -- (580,746)
----------- --------- ----------- --------- ----------- --------------
BALANCE, DECEMBER 31, 1996....... 87,250 18,825 156,174 157,166 -- 332,165
Net income....................... -- -- -- 803,777 -- 803,777
Issuance of common stock......... 872 -- 27,383 -- -- 27,383
Distributions to shareholders.... -- -- -- (664,759) -- (664,759)
----------- --------- ----------- --------- ----------- --------------
BALANCE, DECEMBER 31, 1997....... 88,122 18,825 183,557 296,184 -- 498,566
Net income (unaudited)........... -- -- -- 130,987 -- 130,987
Distributions to shareholders
(unaudited).................... -- -- -- (164,787) (164,787)
----------- --------- ----------- --------- ----------- --------------
BALANCE, MARCH 31, 1998
(UNAUDITED).................... 88,122 $ 18,825 $ 183,557 $ 262,384 $ -- $ 464,766
----------- --------- ----------- --------- ----------- --------------
----------- --------- ----------- --------- ----------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-28
<PAGE>
INDIAN@ INTERACTIVE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1996 1997
--------- --------- THREE MONTHS
ENDED
MARCH 31, 1998
---------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 762,823 $ 803,777 $ 130,987
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 83,448 107,332 31,841
Gain on disposals of property and equipment............. -- (401) --
Compensation expense recognized upon issuance of common
stock................................................. -- 13,431 --
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts receivable...... (86,475) (644,687) 302,323
Decrease (increase) in receivable from employees...... 3,400 -- (1,000)
(Increase) in due from related companies.............. -- -- (662)
Decrease (increase) in prepaid expenses............... (6,799) (6,489) 2,172
Decrease (increase) in deposits and other............. (10,214) (3,524) 13,738
Increase (decrease) in accounts payable............... (17,435) 152,299 212,455
Increase (decrease) in accrued expenses............... 26,261 (19,085) 29,946
Increase in due to related companies.................. -- 528 3,999
--------- --------- ---------------
Net cash provided by operating activities............. 755,009 403,181 725,799
--------- --------- ---------------
Cash flows from investing activities:
Purchases of property and equipment....................... (237,287) (110,607) (18,408)
Proceeds from disposals of property and equipment......... -- 5,284 --
Proceeds from repayments of note receivable from
shareholder............................................. -- 10,000 --
--------- --------- ---------------
Net cash used in investing activities................. (237,287) (95,323) (18,408)
--------- --------- ---------------
Cash flows from financing activities:
Checks issued in excess of bank balance................... -- 117,405 (117,405)
Proceeds from bank lines of credit........................ 362,405 97,202 --
Payment on bank lines of credit........................... -- (19,834) --
Payments on capital lease obligations..................... (46,187) (131,778) (45,954)
Distributions to shareholders............................. (580,746) (664,759) (164,787)
Proceeds from issuance of common stock.................... -- 13,952 --
--------- --------- ---------------
Net cash used in financing activities................... (264,528) (587,812) (328,146)
--------- --------- ---------------
Net increase (decrease) in cash............................. 253,194 (279,954) 379,245
Cash, beginning of year..................................... 27,724 280,918 964
--------- --------- ---------------
Cash, end of period......................................... $ 280,918 $ 964 $ 380,209
--------- --------- ---------------
--------- --------- ---------------
Other cash flow information:
Interest paid............................................. $ 34,867 $ 32,330 $ 8,135
--------- --------- ---------------
--------- --------- ---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-29
<PAGE>
INDIAN@ INTERACTIVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
INDIAN@ INTERACTIVE, INC.
Indian@ Interactive, Inc. (the "Company") was incorporated March 6, 1995
to design, build and operate Internet-based portals that allow businesses and
citizens to complete transactions and obtain government information online for
the Intelenet Commission ("Intelenet"). Intelenet is a State of Indiana
government instrumentality created by the Indiana legislature for the purpose of
providing electronic access to state, county and local information required by
Indiana businesses and citizens. The Company is responsible for managing and
marketing the government portal as well as funding up front investment and
ongoing operational costs. The contract with Intelenet and the interagency
agreements with various state agencies include limitations and provisions for
the rates the Company can charge and the amount of remuneration to Intelenet and
each state agency. The initial contract expires September 2000 but may be
renewed, or amended and renewed, for up to an additional five years. Intelenet
is entitled to a perpetual for use only license to the applications development
for no additional compensation to the Company.
In October 1997, the Company entered into a computer system agreement
with the Indiana Secretary of State ("SOS"). The system is intended to automate
many of SOS's internal operations and provide the public electronic access to
certain SOS data.
On March 31, 1998, the shareholders of the Company exchanged all of the
issued and outstanding common stock shares for shares of common stock in
International Information Consortium, Inc. whose name was later changed to
National Information Consortium, Inc. ("NIC"). As a result, NIC became the sole
shareholder of the Company.
CITY-COUNTY INTERACTIVE, L.L.C.
The Company's wholly-owned subsidiary, City-County Interactive, L.L.C.
(the "Subsidiary"), was formed in 1997 to assume the role of electronic
government solutions provider for CivicNet, formerly CivicLink, the government
portal for the city of Indianapolis and Marion County, Indiana. In addition, the
Subsidiary is to further operate, manage and expand CivicNet.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the Company
and its subsidiary. All significant intercompany accounts and transactions have
been eliminated in consolidation.
ACCOUNTS RECEIVABLE
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in income for the period.
The cost of maintenance and repairs is charged to expense as incurred;
significant renewals and betterments are capitalized.
F-30
<PAGE>
INDIAN@ INTERACTIVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
At each balance sheet date, the Company reviews property and equipment
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
REVENUE RECOGNITION
The Company recognizes revenues from providing electronic government
services (primarily transaction fees) when the service is provided. The Company
must remit a certain percentage of fees to state agencies regardless of whether
the Company ultimately collects the fees. In connection with the revenues
generated under the contract with Intelenet, Intelenet receives 2% of gross
revenues per annum, before all other payments. The data providing entities are
then paid in accordance with interagency agreements. The remaining balance is
retained by the Company.
ORGANIZATION COSTS
During the period ended December 31, 1995, the Company incurred
organization costs totaling $24,059. The organization costs are being amortized
on a straight-line basis over a period of five years.
SERVICE DEVELOPMENT COSTS
The Company expenses as incurred the employee costs to develop,
implement, operate and maintain the government portal.
STOCK BASED COMPENSATION
The Company records as compensation expense the amount by which the fair
value of common stock sold to employees exceeds the amount paid.
INCOME TAXES
The Company has elected to be taxed as a small business corporation
under provisions of Subchapter S of the Internal Revenue Code. Under such
provisions, the shareholders are taxed individually on their respective shares
of the Company's taxable income. Therefore, no provision for income tax expense
has been made. The Company changed its income tax status from an S corporation
to a C corporation effective July 1, 1998.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying balance sheet as of March 31, 1998, and the related
statements of income, changes in shareholders' equity and cash flows for the
three months ended March 31, 1998, have been prepared by the Company, without
audit, pursuant to the rules of the Securities and Exchange
F-31
<PAGE>
INDIAN@ INTERACTIVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Commission, and reflect all adjustments to present fairly the financial position
of the Company as of March 31, 1998, and the results of its operations and its
cash flows for the three month period then ended.
2. CONCENTRATION OF CREDIT
For the years ended December 31, 1997 and 1996, the Company derived 77%
and 80%, respectively, of its transaction fees from two data resellers. At
December 31, 1997 and 1996, 79% and 81%, respectively, of its accounts
receivable were from the same two data resellers.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- USEFUL
1996 1997 LIVES
--------- --------- ---------
<S> <C> <C> <C>
Furniture....................... $ 75,996 $ 77,641 8 years
Equipment....................... 320,920 420,423 5 years
Software........................ 60,464 64,739 3 years
--------- ---------
457,380 562,803
Less accumulated depreciation... 85,158 187,377
--------- ---------
$ 372,222 $ 375,426
--------- ---------
--------- ---------
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 was
$102,520 and $78,637, respectively.
4. BANK LINES OF CREDIT
INDIAN@ INTERACTIVE, INC.
The Company has a $100,000 operating line of credit from a bank which
was increased to $150,000 in October 1997. The interest rate on the line equals
the bank's prime rate plus 0.50% (9.00% at December 31, 1997). The line expired
on November 1, 1998. There were no amounts outstanding on the line of credit at
December 31, 1997 and 1996. The line is collateralized by the Company's assets
as well as personal guarantees of three of the Company's shareholders.
The Company obtained an additional $200,000 operating line of credit
with a bank in December 1997 which was subsequently increased to $400,000 in
1998. The interest rate on the line equals the bank's index rate (8.50% at
December 31, 1997). The line matures April 30, 2000. There were no amounts
outstanding on the line of credit at December 31, 1997. The line of credit is
collateralized by the Company assets and guaranteed by various affiliated
companies.
The Company has a $600,000 equipment line of credit from a bank which
bears interest at the bank's prime rate plus 0.50% (9.00% at December 31, 1997).
The line expired on November 1, 1998. At December 31, 1997 and 1996, $79,508 and
$119,196, respectively, of equipment purchases were outstanding on the line.
During January 1997, $100,300 of the existing balance on the line of $119,196
was refinanced through a sale-leaseback with the bank. The line is
collateralized by the Company's assets as well as personal guarantees of three
of the Company's shareholders.
F-32
<PAGE>
INDIAN@ INTERACTIVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BANK LINES OF CREDIT (CONTINUED)
The Company obtained an additional $225,000 equipment line of credit
from a bank in April 1998. The interest rate on the line equals the bank's
reference rate plus 1.75%. There is no given expiration date on the line. The
line is collateralized by the related equipment and guaranteed by an affiliated
company.
The line of credit agreements contain various covenants relating to
reporting requirements and financial ratios. At December 31, 1997 and 1996, the
Company was either in compliance with these covenants or had received waivers on
any violations of these covenants.
CITY-COUNTY INTERACTIVE, L.L.C.
The Subsidiary has a $100,000 operating line of credit with a bank which
bears interest at the bank's prime rate plus 0.50%. (9.00% at December 31,
1997). The line expired November 1, 1998. There were no amounts outstanding on
the line of credit at December 31, 1997 and 1996. The line is collateralized by
the Subsidiary's assets as well as the guarantee of the Company and personal
guarantees of three of the Company's shareholders.
The Subsidiary has a $75,000 equipment line of credit from a bank which
bears interest at the bank's prime rate plus 0.50% (9.00% at December 31, 1997).
The line expired on November 1, 1998. At December 31, 1997 and 1996, $13,415 and
$0, respectively, of equipment purchases were outstanding on the line. The line
is collateralized by the Subsidiary's assets as well as the guarantee of the
Company and personal guarantees of three of the Company's shareholders.
5. DEBENTURES PAYABLE TO RELATED PARTIES
Debentures payable at December 31, 1997 and 1996 consist of $90,000 of
10% debentures issued to two shareholders. These debentures are due in one
installment in October 2000. The Company called the debentures in May 1998. Due
to the early call, the Company was required to pay a 5.0% premium.
6. CAPITAL LEASE OBLIGATIONS
The Company leases various equipment under agreements with original
terms of three years. The agreements require the Company to pay all taxes, fees,
assessments or other charges.
Capitalized leased property at December 31, 1997 and 1996, consists of:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Furniture and fixtures.................. $ 72,507 $ 72,507
Equipment............................... 281,460 281,460
Software................................ 59,656 59,656
--------- ---------
413,623 413,623
Less accumulated depreciation........... 78,113 163,090
--------- ---------
$ 335,510 $ 250,533
--------- ---------
--------- ---------
</TABLE>
F-33
<PAGE>
INDIAN@ INTERACTIVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. CAPITAL LEASE OBLIGATIONS (CONTINUED)
Future minimum lease payments under these capital leases at December 31,
1997 are as follows:
<TABLE>
<S> <C>
FISCAL YEAR
1998............................................ $ 155,874
1999............................................ 97,510
2000............................................ 3,262
---------
256,646
Less interest................................... (17,644)
---------
Present value of net minimum lease payments..... 239,002
Less current portion............................ (141,632)
---------
Long-term portion............................... $ 97,370
---------
---------
</TABLE>
7. OPERATING LEASES
The Company leases its office space, an apartment and certain equipment
under operating leases. Future minimum lease payments under noncancellable
leases at December 31, 1997 are as follows:
<TABLE>
<S> <C>
FISCAL YEAR
1998............................................ $ 69,972
1999............................................ 58,120
2000............................................ 50,503
---------
$ 178,595
---------
---------
</TABLE>
Total rent expense for the years ended December 31, 1997 and 1996 was
$71,554 and $64,518, respectively.
On June 1, 1998, the Company leased additional office space which
increased the future minimum lease payments to $77,502, $73,310 and $63,700 for
the years ending December 31, 1998, 1999 and 2000, respectively.
8. RELATED PARTY TRANSACTIONS
The Company pays its Board members director fees for services rendered.
Total expense incurred was $54,000 and $36,000 for the years ended December 31,
1997 and 1996, respectively.
Interest expense on debentures payable to related parties totaled $9,000
for the years ended December 31, 1997 and 1996.
The note receivable from shareholder of $15,000 was paid in full in July
1998.
The Company purchases business and health insurance through an insurance
agency that is controlled by a shareholder of the Company. Insurance expense
totaled approximately $65,000 and $43,000 for the years ended December 31, 1997
and 1996, respectively.
The Company rents an aircraft on an hourly basis from Sky King Leasing,
a company with common shareholders. The amount paid to Sky King Leasing was
approximately $10,500 and $19,500 in 1997 and 1996, respectively.
F-34
<PAGE>
INDIAN@ INTERACTIVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company is affiliated, through common ownership, with several
companies that also serve as electronic government solutions providers for
various states. The Company is a partial guarantor of certain line of credit
agreements entered into by these affiliated companies. The total amounts
available and outstanding under such agreements at December 31, 1997 was
$1,075,000 and $192,089.
9. EMPLOYEE BENEFIT PLAN
The Company, in conjunction with affiliated companies, maintains a
401(k) profit sharing plan. In accordance with the plan, all employees are
eligible immediately upon employment. A discretionary match and a discretionary
contribution may be made to the plan as determined by the Board of Directors.
Company contributions totaled $18,432 and $16,319 for the years ended December
31, 1997 and 1996, respectively.
10. COMMON STOCK
CHANGE IN PAR VALUE OF COMMON STOCK
During 1996, the Company amended the corporate bylaws to change the par
value of common stock from $1.00 par to no par with a total stated value of
$18,825. In conjunction with the amendment, notes due on common stock purchases
were forgiven.
RESTRICTIONS ON TRANSFERABILITY OF COMMON STOCK
The Articles of Incorporation of the Company stipulate that should any
shareholder desire to sell or transfer their respective shares of common stock,
such stock must first be offered to the Company. Any stock not purchased by the
Company within a specified time frame must then be offered to the remaining
shareholders. The purchase price must be equivalent to the price that would be
paid by a non-shareholder.
11. SUPPLEMENTARY CASH FLOW DISCLOSURES
The Company sold certain assets during 1996 which were leased back from
the purchaser over a period of three years. The resulting leases are being
accounted for as capital leases. The purchaser paid down $103,641 of the
Company's bank line of credit during 1997 and $313,323 during 1996.
F-35
<PAGE>
REPORT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Kansas Information Consortium, Inc.
In our opinion, the accompanying balance sheets and the related statements of
income, of changes in shareholders' equity and of cash flows present fairly, in
all material respects, the financial position of Kansas Information Consortium,
Inc. (the "Company") at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Kansas City, Missouri
May 6, 1999
F-36
<PAGE>
KANSAS INFORMATION CONSORTIUM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- --------- MARCH 31,
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 36,571 $ 136,379 $ 179,413
Trade accounts receivable................................ 483,092 542,979 626,303
Receivable from employees................................ 3,246 968 9,432
Due from related companies............................... -- 22,348 982
Prepaid expenses......................................... 23,353 16,870 10,930
--------- --------- -----------
Total current assets................................... 546,262 719,544 827,060
Property and equipment, net................................ 131,770 151,522 155,165
Deposits and other......................................... 2,145 625 25
--------- --------- -----------
Total assets........................................... $ 680,177 $ 871,691 $ 982,250
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 405,715 $ 445,054 $ 481,516
Accrued expenses......................................... 5,127 23,784 40,893
--------- --------- -----------
Total current liabilities.............................. 410,842 468,838 522,409
Bank lines of credit....................................... 100 178,674 148,682
Debentures payable to related parties...................... 75,000 -- --
--------- --------- -----------
Total liabilities...................................... 485,942 647,512 671,091
--------- --------- -----------
Commitments and contingencies (Note 6).....................
Shareholders' equity:
Common stock, $1 par value; 500,000 shares authorized,
250,000 issued and 224,750, 229,250 and 229,250
outstanding............................................ 250,000 250,000 250,000
Additional paid-in capital............................... 8,870 22,146 22,146
Retained earnings........................................ (6,385) (19,717) 67,263
--------- --------- -----------
252,485 252,429 339,409
Less common stock subscriptions receivable................. (25,500) -- --
Less treasury stock, at cost............................... (32,750) (28,250) (28,250)
--------- --------- -----------
Total shareholders' equity............................. 194,235 224,179 311,159
--------- --------- -----------
Total liabilities and shareholders' equity............. $ 680,177 $ 871,691 $ 982,250
--------- --------- -----------
--------- --------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-37
<PAGE>
KANSAS INFORMATION CONSORTIUM, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1997
--------- --------- THREE MONTHS
ENDED
MARCH 31, 1998
--------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues............................................. $5,009,204 $6,067,362 $1,625,488
Cost of revenues..................................... 3,681,547 4,576,795 1,174,015
--------- --------- --------------
Gross profit..................................... 1,327,657 1,490,567 451,473
--------- --------- --------------
Operating expenses:
Service development and operations................. 300,044 387,083 99,685
Selling, general and administrative................ 783,971 812,306 190,994
Stock compensation................................. 3,870 13,276 --
Depreciation....................................... 44,983 32,496 9,971
--------- --------- --------------
Total operating expenses......................... 1,132,868 1,245,161 300,650
--------- --------- --------------
Operating income................................. 194,789 245,406 150,823
--------- --------- --------------
Other income (expense):
Interest income.................................... 1,909 822 401
Interest expense................................... (18,072) (13,056) (4,639)
Loss on disposals of property and equipment........ (11,214) (43,144) --
--------- --------- --------------
Total other expense, net......................... (27,377) (55,378) (4,238)
--------- --------- --------------
Net income....................................... $ 167,412 $ 190,028 $ 146,585
--------- --------- --------------
--------- --------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-38
<PAGE>
KANSAS INFORMATION CONSORTIUM, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK COMMON STOCK
-------------------- PAID-IN RETAINED -------------------- SUBSCRIPTIONS
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT RECEIVABLE
--------- --------- ----------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996................ 250,000 $ 250,000 $ 1,400 $ (35,795) (28,250) $ (35,750) $ (25,500)
Net income.............................. -- -- -- 167,412 -- -- --
Distributions to shareholders........... -- -- -- (138,002) -- -- --
Sales of treasury stock................. -- -- 7,470 -- 3,000 3,000 --
--------- --------- ----------- ----------- --------- --------- -------------
BALANCE, DECEMBER 31, 1996.............. 250,000 250,000 8,870 (6,385) (25,250) (32,750) (25,500)
Net income.............................. -- -- -- 190,028 -- -- --
Distributions to shareholders........... -- -- -- (203,360) -- -- --
Sales of treasury stock................. -- -- 13,276 -- 4,500 4,500 --
Payment received for subscribed stock... -- -- -- -- -- -- 25,500
--------- --------- ----------- ----------- --------- --------- -------------
BALANCE, DECEMBER 31, 1997.............. 250,000 250,000 22,146 (19,717) (20,750) (28,250) --
Net income (unaudited).................. -- -- -- 146,585 -- -- --
Distributions to shareholders
(unaudited)........................... -- -- -- (59,605) -- -- --
--------- --------- ----------- ----------- --------- --------- -------------
BALANCE, MARCH 31, 1998 (UNAUDITED)..... 250,000 $ 250,000 $ 22,146 $ 67,263 (20,750) $ (28,250) $ --
--------- --------- ----------- ----------- --------- --------- -------------
--------- --------- ----------- ----------- --------- --------- -------------
<CAPTION>
TOTAL
---------
<S> <C>
BALANCE, JANUARY 1, 1996................ $ 154,355
Net income.............................. 167,412
Distributions to shareholders........... (138,002)
Sales of treasury stock................. 10,470
---------
BALANCE, DECEMBER 31, 1996.............. 194,235
Net income.............................. 190,028
Distributions to shareholders........... (203,360)
Sales of treasury stock................. 17,776
Payment received for subscribed stock... 25,500
---------
BALANCE, DECEMBER 31, 1997.............. 224,179
Net income (unaudited).................. 146,585
Distributions to shareholders
(unaudited)........................... (59,605)
---------
BALANCE, MARCH 31, 1998 (UNAUDITED)..... $ 311,159
---------
---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-39
<PAGE>
KANSAS INFORMATION CONSORTIUM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1996 1997
--------- --------- THREE MONTHS
ENDED
MARCH 31, 1998
---------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 167,412 $ 190,028 $ 146,585
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................ 44,983 32,496 9,971
Loss on disposals of property and equipment......... 11,214 43,144 --
Compensation expense recognized upon sales of
treasury stock.................................... 3,870 13,276 --
Changes in operating assets and liabilities:
(Increase) in trade accounts receivable............. (159,828) (59,887) (83,324)
Decrease (increase) in receivable from employees.... (3,246) 2,278 (8,464)
Decreases (increase) in due from related
companies......................................... -- (22,348) 21,366
Decrease (increase) in prepaid expenses............. (5,984) 6,483 5,940
Decrease (increase) in deposits and other........... (699) 1,520 600
Increase in accounts payable........................ 118,081 39,339 36,462
Increase (decrease) in accrued expenses............. (4,547) 18,657 17,109
--------- --------- ---------------
Net cash provided by operating activities......... 171,256 264,986 146,245
--------- --------- ---------------
Cash flows from investing activities:
Purchases of property and equipment................... (62,960) (96,151) (13,613)
Proceeds from disposals of property and equipment..... 56,775 759 --
--------- --------- ---------------
Net cash used in investing activities............. (6,185) (95,392) (13,613)
--------- --------- ---------------
Cash flows from financing activities:
Proceeds from bank lines of credit.................... 90,321 215,941 --
Payments on bank lines of credit...................... (164,981) (37,367) (29,993)
Payments on debentures payable to related parties..... (25,000) (75,000) --
Distributions to shareholders......................... (138,002) (203,360) (59,605)
Proceeds from sale of treasury stock.................. 6,600 4,500 --
Proceeds from common stock subscriptions receivable... -- 25,500 --
--------- --------- ---------------
Net cash used in financing activities............. (231,062) (69,786) (89,598)
--------- --------- ---------------
Net increase (decrease) in cash......................... (65,991) 99,808 43,034
Cash, beginning of year................................. 102,562 36,571 136,379
--------- --------- ---------------
Cash, end of period..................................... $ 36,571 $ 136,379 $ 179,413
--------- --------- ---------------
--------- --------- ---------------
Other cash flow information:
Interest paid......................................... $ 20,168 $ 14,310 $ 4,639
--------- --------- ---------------
--------- --------- ---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-40
<PAGE>
KANSAS INFORMATION CONSORTIUM, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. Kansas Information Consortium, Inc. (the "Company") was
incorporated August 15, 1991 to design, build and operate Internet-based portals
that allow businesses and citizens to complete transactions and obtain
government information online for the Information Network of Kansas ("INK"). INK
is a State of Kansas government instrumentality created by the Kansas
legislature for the purpose of providing electronic access to state, county and
local information required by Kansas businesses and citizens. The Company is
responsible for managing and marketing the government portal as well as funding
up front investment and ongoing operational costs. The contract with INK
includes limitations and provisions for the rates the Company can charge and the
amount of remuneration to INK and each state agency. The initial contract was to
expire on December 31, 1996, but was renewed until December 31, 1999 unless
earlier terminated by INK for cause. INK shall have the option, upon termination
or expiration of the contract, to require the Company to act in accordance with
the terms of the contract for a period of up to twelve months from the time of
the expiration or notification of termination. INK is entitled to a perpetual
for use only license to applications developed for no additional compensation to
the Company.
On March 31, 1998, the shareholders of the Company exchanged all of
their issued and outstanding common stock shares for shares of common stock in
International Information Consortium, Inc. whose name was later changed to
National Information Consortium, Inc. ("NIC"). As a result, NIC became the sole
shareholder of the Company.
ACCOUNTS RECEIVABLE.
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required.
PROPERTY AND EQUIPMENT.
Property and equipment are carried at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in income for the period.
The cost of maintenance and repairs is charged to expense as incurred;
significant renewals and betterments are capitalized.
At each balance sheet date, the Company reviews property and equipment
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
REVENUE RECOGNITION
The Company recognizes revenues from providing electronic government
services (primarily transaction fees) when the service is provided. The Company
must remit a certain percentage of transaction fees to state agencies regardless
of whether the Company ultimately collects the fees. In connection with the
revenues generated under the contract with INK, INK receives 2.0% of gross
revenue per annum, payable monthly, before all other payments. The Company may
then receive a 25.0% rate of return per annum on its risk capital from net
income before taxes. The remaining net income before taxes is shared 66.7% with
the Company and 33.3% with INK. Risk capital is defined in the contract as the
sum of paid-in capital, corporate loans with a payback period exceeding one
year, and noncancellable obligations under corporate leases.
F-41
<PAGE>
KANSAS INFORMATION CONSORTIUM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SERVICE DEVELOPMENT COSTS.
The Company expenses as incurred the employee costs to develop,
implement, operate and maintain the government portal.
STOCK-BASED COMPENSATION.
The Company records as compensation expense the amount by which the fair
value of common stock sold to employees exceeds the amount paid.
INCOME TAXES.
The Company has elected to be taxed as a small business corporation
under provisions of Subchapter S of the Internal Revenue Code. Under such
provisions, the shareholders are taxed individually on their respective shares
of the Company's taxable income. Therefore, no provision for income tax expense
has been made. The Company changed its income tax status from an S corporation
to a C corporation effective July 1, 1998.
USE OF ESTIMATES.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION.
The accompanying balance sheet as of March 31, 1998, and the related
statements of income, changes in shareholders' equity and cash flows for the
three months ended March 31, 1998, have been prepared by the Company, without
audit, pursuant to the rules of the Securities and Exchange Commission, and
reflect all adjustments to present fairly the financial position of the Company
as of March 31, 1998, and the results of its operations and its cash flows for
the three month period then ended.
2. CONCENTRATION OF CREDIT
For the years ended December 31, 1997 and 1996, the Company derived 84%
and 72%, respectively, of its transaction fees from six data resellers. At
December 31, 1997 and 1996, 84% and 80%, respectively, of its accounts
receivable were from the same six data resellers.
F-42
<PAGE>
KANSAS INFORMATION CONSORTIUM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- USEFUL
1996 1997 LIVES
--------- --------- -----------
<S> <C> <C> <C>
Furniture and fixtures..................... $ 77,519 $ 84,419 8 years
Equipment.................................. 170,578 116,195 5-8 years
Software................................... 25,103 -- 5 years
Leasehold improvements..................... 15,457 15,457 5 years
--------- ---------
288,657 216,071
Less accumulated depreciation.............. 156,887 64,549
--------- ---------
$ 131,770 $ 151,522
--------- ---------
--------- ---------
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 was
$32,496 and $44,983, respectively.
4. BANK LINES OF CREDIT
The Company obtained a $250,000 line of credit from a bank in May 1997.
The interest rate on the line equals the prime rate as per the Wall Street
Journal (8.50% at December 31, 1997). The line matures May 1, 1999. At December
31, 1997, $178,674 was outstanding on the line of credit. The line of credit is
collateralized by the Company's assets.
The Company obtained an additional $250,000 line of credit from a bank
in December 1997. The interest rate on the line equals the bank's index rate
(8.50% at December 31, 1997). The line matures April 30, 2000. There were no
amounts outstanding on the line of credit at December 31, 1997. The line of
credit is collateralized by the Company's assets and guaranteed by various
affiliated companies.
The Company obtained a $225,000 equipment line of credit from a bank in
April 1998. The interest rate on the line equals the bank's reference rate plus
1.75%. There is no given expiration date on the line. The line is collateralized
by the related equipment and guaranteed by an affiliated company.
The Company had a $50,000 line of credit from a bank with a maturity
date of March 30, 1998, which was repaid during 1997. At December 31, 1997 and
1996, $0 and $100, respectively, was outstanding on the line of credit.
5. DEBENTURES PAYABLE TO RELATED PARTIES
The Company had $75,000 of 10% debentures with a maturity date of
October 31, 2001 which were repaid during 1997.
F-43
<PAGE>
KANSAS INFORMATION CONSORTIUM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. OPERATING LEASES
The Company leases its office space and certain equipment under
operating leases. The future minimum lease payments under noncancellable
operating leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------------------------------------------------------------
<S> <C>
1998............................................................. $ 118,374
1999............................................................. 105,041
2000............................................................. 38,374
2001............................................................. 38,374
2002............................................................. 31,980
-----------
$ 332,143
-----------
-----------
</TABLE>
Total rent expense for the years ended December 31, 1997 and 1996 was
$137,161 and $66,143, respectively.
7. RELATED PARTY TRANSACTIONS
The Company pays its Board members director fees for services rendered.
Total expense incurred was $41,000 and $45,000 for the years ended December 31,
1997 and 1996, respectively.
The Company purchases business and health insurance through an insurance
agency that is controlled by a shareholder of the Company. Insurance expense
totaled approximately $58,000 and $86,000 in 1997 and 1996, respectively.
The Company rents an aircraft on an hourly basis from Sky King Leasing,
a company with common shareholders. The amount paid to Sky King Leasing was
approximately $18,000 and $8,500 in 1997 and 1996, respectively.
During 1997, a shareholder of the Company sold a vehicle to the Company
for $30,000.
8. EMPLOYEE BENEFIT PLAN
The Company, in conjunction with affiliated companies, maintains a
401(k) profit sharing plan. In accordance with the plan, all employees are
eligible immediately upon employment. A discretionary match and a discretionary
contribution may be made to the plan as determined by the Board of Directors.
Company contributions totaled $37,178 and $10,611 for the years ended December
31, 1997 and 1996, respectively.
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company sold certain assets during 1996 which were leased back from
the purchaser over a period of three years. The resulting lease is being
accounted for as an operating lease. The purchaser paid down on the Company's
bank line of credit in 1996 by $51,929 as part of this sale-leaseback
transaction.
F-44
<PAGE>
REPORT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Arkansas Information Consortium, Inc.
In our opinion, the accompanying balance sheet and the related statement of
operations, of changes in shareholders' equity, and of cash flows present
fairly, in all material respects, the financial position of Arkansas Information
Consortium, Inc. (the "Company") at December 31, 1997, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Kansas City, Missouri
May 6, 1999
F-45
<PAGE>
ARKANSAS INFORMATION CONSORTIUM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------- MARCH 31, 1998
--------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash....................................................... $ 72,916 $ 104,345
Trade accounts receivable.................................. 585,989 734,639
Interest receivable from shareholders...................... 1,786 2,773
Prepaid expenses........................................... 778 924
------------- --------------
Total current assets................................... 661,469 842,681
------------- --------------
Property and equipment, net.................................. 123,492 141,410
------------- --------------
Other assets:
Deposits................................................... 3,000 3,000
Organization costs, net of accumulated amortization of $315
and $504................................................. 3,466 3,277
Notes receivable from shareholders......................... 40,000 40,000
------------- --------------
Total other assets..................................... 46,466 46,277
------------- --------------
Total assets........................................... $ 831,427 $1,030,368
------------- --------------
------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 534,760 $ 656,689
Accrued expenses........................................... 5,620 15,766
Due to related party....................................... 4,510 254
Note payable to former shareholder--current portion........ -- 6,500
------------- --------------
Total current liabilities.............................. 544,890 679,209
Debentures payable........................................... 40,130 40,130
Note payable to former shareholder--long-term portion........ -- 6,500
------------- --------------
Total liabilities...................................... 585,020 725,839
------------- --------------
Commitments and contingencies (Note 6)
Shareholders' equity:
Common stock:
Series A $1 par, 500,000 voting shares authorized,
272,059 shares issued and outstanding.................. 272,059 272,059
Series B $1 par, 500,000 non-voting shares authorized,
220,881 shares issued, 220,881 and 215,876 shares
outstanding............................................ 220,881 220,881
Retained earnings........................................ (246,533) (174,026)
------------- --------------
246,407 318,914
Less treasury stock, at cost............................... -- (14,385)
------------- --------------
Total shareholders' equity............................. 246,407 304,529
------------- --------------
Total liabilities and shareholders' equity............. $ 831,427 $1,030,368
------------- --------------
------------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-46
<PAGE>
ARKANSAS INFORMATION CONSORTIUM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------- THREE MONTHS
ENDED MARCH 31,
1998
----------------
(UNAUDITED)
<S> <C> <C>
Revenues................................................... $ 2,346,889 $2,041,142
Cost of revenues........................................... 2,077,144 1,802,776
------------- ----------------
Gross profit......................................... 269,745 238,366
------------- ----------------
Operating expenses:
Service development and operations....................... 90,447 56,808
Selling, general and administrative...................... 187,567 100,425
Stock compensation....................................... 232,384 5,115
Depreciation and amortization............................ 8,232 6,236
------------- ----------------
Total operating expenses............................. 518,630 168,584
------------- ----------------
Operating income (loss).............................. (248,885) 69,782
------------- ----------------
Other income (expense):
Interest income.......................................... 4,083 3,628
Interest expense......................................... (1,731) (903)
------------- ----------------
Total other income................................... 2,352 2,725
------------- ----------------
Net income (loss).................................... $ (246,533) $ 72,507
------------- ----------------
------------- ----------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-47
<PAGE>
ARKANSAS INFORMATION CONSORTIUM, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A AND B
COMMON STOCK TREASURY STOCK
-------------------- RETAINED ----------------------
SHARES AMOUNT EARNINGS SHARES AMOUNT TOTAL
--------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997.................. -- $ -- $ -- -- $ -- $ --
Issuance of common stock.................. 492,940 492,940 -- -- -- 492,940
Net loss.................................. -- -- (246,533) -- -- (246,533)
--------- --------- --------- ----------- --------- ---------
Balance, December 31, 1997................ 492,940 492,940 (246,533) -- -- 246,407
Net income (unaudited).................... -- -- 72,507 -- -- 72,507
Purchase of treasury stock (unaudited).... -- -- -- (5,005) (14,385) (14,385)
--------- --------- --------- ----------- --------- ---------
Balance, March 31, 1998 (unaudited)....... 492,940 $ 492,940 $(174,026) (5,005) $ (14,385) $ 304,529
--------- --------- --------- ----------- --------- ---------
--------- --------- --------- ----------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-48
<PAGE>
ARKANSAS INFORMATION CONSORTIUM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------- THREE MONTHS
ENDED MARCH 31,
1998
----------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $(246,533) $ 72,507
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................ 8,232 6,236
Issuance of common stock for services.................... 232,384 --
Expense recognized upon repurchase of treasury stock..... -- 5,115
Changes in operating assets and liabilities:
(Increase) in trade accounts receivable................ (585,989) (148,650)
(Increase) in interest receivable from shareholders.... (1,786) (987)
(Increase) in prepaid expenses......................... (778) (145)
(Increase) in deposits................................. (3,000) --
Increase in accounts payable........................... 534,760 121,929
Increase in accrued expenses........................... 5,620 10,146
Increase (decrease) in due to related party............ 4,510 (4,256)
------------- --------
Net cash provided by (used in) operating
activities....................................... (52,580) 61,895
------------- --------
Cash flows from investing activities:
Purchases of property and equipment...................... (131,409) (23,966)
Organization costs....................................... (3,781) --
------------- --------
Net cash used in investing activities.............. (135,190) (23,966)
------------- --------
Cash flows from financing activities:
Proceeds from issuance of debentures..................... 40,130 --
Proceeds from issuance of common stock................... 220,556 --
Purchase of treasury stock............................... -- (6,500)
------------- --------
Net cash provided by (used in) financing
activities....................................... 260,686 (6,500)
------------- --------
Net increase in cash....................................... 72,916 31,429
Cash, beginning of year.................................... -- 72,916
------------- --------
Cash, end of period........................................ $ 72,916 $ 104,345
------------- --------
------------- --------
Other cash flow information:
Interest paid............................................ $ 128 $ 903
------------- --------
------------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-49
<PAGE>
ARKANSAS INFORMATION CONSORTIUM, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Arkansas Information Consortium, Inc. (the "Company") was incorporated
in October 1996 to design, build and operate Internet-based portals that allow
businesses and citizens to complete transactions and obtain government
information online, as defined by a contract signed in July 1997 between the
Company and the Information Network of Arkansas ("INA"), a public
instrumentality created by legislation in the State of Arkansas (the "State"),
to provide electronic access via the Internet to public information. The Company
is responsible for managing and marketing the government portal as well as
funding up front investment and ongoing operational costs. The contract is for
one three year term through June 30, 2000, with four one-year renewals at the
option of INA. If the State decides to extend the contract through June 30,
2003, or at anytime thereafter, INA shall be entitled to a perpetual for use
only license to the applications developed for no additional compensation to the
Company. Prior to June 30, 2003, INA reserves the right to negotiate terms for
licensure of applications.
On March 31, 1998, substantially all of the shareholders of the Company
exchanged their shares for common stock shares in International Information
Consortium, Inc., whose name was later changed to National Information
Consortium, Inc. ("NIC"). As a result, NIC became the sole shareholder of the
Company. Only one shareholder did not participate in the exchange. In March
1998, the Company agreed to pay this shareholder $19,500 for past services and
reacquired the shareholder's 5,005 shares in the Company. The reacquired shares
were recorded as treasury stock at fair market value, which totaled $14,385. An
initial payment of $6,500 was made with the remaining balance recorded as a note
payable due in two annual installments of $6,500 in 1999 and 2000. The
difference between $19,500 and the fair value of the reacquired stock was
recorded as expense in the amount of $5,115.
ACCOUNTS RECEIVABLE
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts has been recorded.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in operations for the
period. The cost of maintenance and repairs is charged to expense as incurred;
significant renewals and betterments are capitalized.
At each balance sheet date, the Company reviews property and equipment
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
ORGANIZATION COSTS
Organization costs represent legal costs incurred by the Company
relating to its incorporation and formation and are being amortized using the
straight-line method over five years.
F-50
<PAGE>
ARKANSAS INFORMATION CONSORTIUM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company has elected to be treated as a small business corporation
under provisions of Subchapter S of the Internal Revenue Code. Under such
provisions, the shareholders are taxed individually on their respective shares
of the Company's taxable income. Therefore, no provision for income tax has been
made. The Company changed its income tax status from an S corporation to a C
corporation effective July 1, 1998.
REVENUE RECOGNITION
The Company recognizes revenues from providing electronic government
services (primarily transaction fees) when the service is provided. The Company
must remit a certain percentage of transaction fees to state agencies regardless
of whether the Company ultimately collects the fees. In addition, transaction
fees received pursuant to the agreement with INA are disbursed first for payment
of network operating expenses, then to INA 5% of the amount by which gross
revenues exceed the amount payable to state agencies, and the balance to the
Company.
SERVICE DEVELOPMENT COSTS
The Company expenses as incurred the employee costs to develop,
implement, operate and maintain the government portal.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying balance sheet as of March 31, 1998, and the related
statements of operations, cash flows and changes in shareholders' equity for the
three months ended March 31, 1998, have been prepared by the Company, without
audit, pursuant to the rules of the Securities and Exchange Commission, and
reflect all adjustments to present fairly the financial position of the Company
as of March 31, 1998, and the results of its operations and its cash flows for
the three month period then ended.
2. CONCENTRATION OF CREDIT
For the year ended December 31, 1997, the Company derived 99% of its
transaction fees from three data resellers. The same three data resellers
represent 99% of accounts receivable at December 31, 1997.
F-51
<PAGE>
ARKANSAS INFORMATION CONSORTIUM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997:
<TABLE>
<CAPTION>
USEFUL
LIVES
-----------
<S> <C> <C>
Equipment............................................ $ 125,706 3-8 years
Leasehold improvements............................... 5,703 5 years
---------
131,409
Less accumulated depreciation........................ 7,917
---------
$ 123,492
---------
---------
</TABLE>
Depreciation expense for the year ended December 31, 1997 was $7,917.
4. DEBENTURES PAYABLE
Debentures payable at December 31, 1997 consists of $40,130 of 9%
debentures issued to seven individuals as part of the initial capitalization of
the Company. In May 1998, the Company entered into a $150,000 bank line of
credit agreement, which is guaranteed by NIC. Proceeds from the line of credit
totaling $40,000 were used to repay the debentures. The line of credit was
repaid in August 1998.
5. BANK LINES OF CREDIT AND LETTER OF CREDIT
The Company obtained a $150,000 operating line of credit from a bank in
May 1998. The interest rate on the line equals the bank's index rate (8.50% at
the inception of the line). The expiration date on the line is April 30, 2000.
The line is collateralized by the Company's assets and guaranteed by an
affiliated company.
The Company obtained a $225,000 equipment line of credit from a bank in
April 1998. There is no given expiration date on the line. The line is
collateralized by the related equipment and guaranteed by an affiliated company.
The Company has issued to the State an irrevocable letter of credit in
the amount of $50,000.
6. OPERATING LEASES
The Company leases its office space and certain equipment under
operating leases. Future minimum lease payments under noncancellable operating
leases are as follows at December 31, 1997:
<TABLE>
<CAPTION>
FISCAL YEAR
- ------------------------------------------------------------------
<S> <C>
1998.............................................................. $ 42,322
1999.............................................................. 43,024
2000.............................................................. 22,328
2001.............................................................. 936
2002.............................................................. 936
---------
$ 109,546
---------
---------
</TABLE>
The lease for office space is a six year lease that runs through 2003
with annual rent of $42,000 per year for years four through six, which is not
included above. In the event that the Company's contract with INA was not
renewed, the Company may terminate the lease at the end of the third, fourth or
fifth
F-52
<PAGE>
ARKANSAS INFORMATION CONSORTIUM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. OPERATING LEASES (CONTINUED)
years, upon written notice given 90 days before the end of that year. Under no
other circumstances can the Company terminate the lease.
Total rent expense for the year ended December 31, 1997 was $18,364.
7. RELATED PARTY TRANSACTIONS
The Company pays its Board members director fees for services rendered.
Total expense incurred was $6,000 for the three month period ended March 31,
1998. No director fees were paid in 1997.
The Company is affiliated, through common ownership, with several
companies that also serve as electronic government solutions providers for
various states. The Company is a partial guarantor of certain line of credit
agreements entered into by these affiliated companies. The total amounts
available and outstanding under such agreements at December 31, 1997 were
$1,050,000 and $178,674.
Notes receivable from shareholders at December 31, 1997 represents two
notes paying interest at 10% per annum which were originally issued in exchange
for shares of the Company's stock and payable in three years. The notes were
paid in full in July 1998.
During the start-up phase of the organization, an affiliated company
paid expenses on behalf of the Company totaling approximately $96,000, all of
which has been reimbursed by the Company. Of this amount, approximately, $3,800
was recorded as organization costs with the remaining $92,200 expensed as
incurred.
The Company rents an aircraft on an hourly basis from Sky King Leasing,
which has common shareholders with the Company. The amount paid to Sky King
Leasing for the year ended December 31, 1997 was approximately $8,300.
The Company purchases business and health insurance through an insurance
agency that is controlled by a shareholder of the Company. Insurance expense for
the year ended December 31, 1997 was approximately $13,900.
8. EMPLOYEE BENEFIT PLAN
The Company, in conjunction with affiliated companies, maintains a
401(k) profit sharing plan. In accordance with the plan, all employees are
eligible immediately upon employment. A discretionary match and a discretionary
contribution may be made to the plan as determined by the Board of Directors.
Company contributions totaled $4,301 for the year ended December 31, 1997.
9. COMMON STOCK
The initial capitalization of the Company in June 1997 consisted of
492,940 shares of $1 par common stock issued to approximately 35 individual
investors. Cash was received for 220,556 of the shares and a note receivable was
issued for 40,000 of the shares. The remaining 232,384 shares were issued in
exchange for previous services rendered and were expensed at the $1 par amount
which was the same price per share paid by the other investors.
The Articles of Incorporation of the Company stipulate that should any
shareholder desire to sell or transfer their respective shares of common stock,
such stock must first be offered to the Company. Any stock not purchased by the
Company within a specified time period must then be offered to the remaining
shareholders. The purchase price must be equivalent to the price that would be
paid by a non-shareholder.
F-53
<PAGE>
REPORT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Nebrask@ Interactive, Inc.
In our opinion, the accompanying balance sheets and the related statements of
income, of changes in shareholders' equity and of cash flows present fairly, in
all material respects, the financial position of Nebrask@ Interactive, Inc. (the
"Company") at December 31, 1997 and 1996 and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Kansas City, Missouri
May 6, 1999
F-54
<PAGE>
NEBRASK@ INTERACTIVE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
MARCH 31,
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 83,955 $ 129,676 $ 100,941
Trade accounts receivable................................. 179,730 316,162 320,499
Prepaid expenses.......................................... -- -- 2,407
--------- --------- -----------
Total current assets.................................. 263,685 445,838 423,847
Property and equipment, net................................. 129,917 110,158 104,259
Other....................................................... 2,743 2,336 2,235
--------- --------- -----------
Total assets.......................................... $ 396,345 $ 558,332 $ 530,341
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 119,836 $ 227,340 $ 263,914
Accrued expenses.......................................... 257 5,167 10,790
Bank line of credit--current portion...................... 24,789 -- --
Capital lease obligation.................................. 60,148 -- --
Note payable to former shareholder--current portion....... -- -- 43,500
--------- --------- -----------
Total current liabilities............................. 205,030 232,507 318,204
Bank line of credit--long-term portion...................... 23,563 89,412 59,740
Note payable to former shareholder--long-term portion....... -- -- 43,500
--------- --------- -----------
Total liabilities..................................... 228,593 321,919 421,444
--------- --------- -----------
Commitments and contingencies (Notes 5 and 6)
Shareholders' equity:
Common stock--$1 par value, 100,000 shares authorized,
50,167, 50,367 and 50,367 issued and 50,167, 50,367 and
45,117 outstanding...................................... 50,167 50,367 50,367
Additional paid-in capital................................ 72,535 75,585 75,585
Retained earnings......................................... 45,050 110,461 72,384
--------- --------- -----------
167,752 236,413 198,336
Less treasury stock, at cost.............................. -- -- (89,439)
--------- --------- -----------
Total shareholders' equity............................ 167,752 236,413 108,897
--------- --------- -----------
Total liabilities and shareholders' equity............ $ 396,345 $ 558,332 $ 530,341
--------- --------- -----------
--------- --------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-55
<PAGE>
NEBRASK@ INTERACTIVE, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1997
--------- --------- THREE MONTHS
ENDED
MARCH 31, 1998
---------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues............................................ $2,324,176 $2,447,318 $ 706,059
Cost of revenues.................................... 1,613,978 1,710,699 479,090
--------- --------- ---------------
Gross profit.................................... 710,198 736,619 226,969
--------- --------- ---------------
Operating expenses:
Service development and operations................ 129,575 126,510 59,912
Selling, general and administrative............... 358,902 393,355 134,994
Stock compensation................................ 1,232 1,978 --
Depreciation and amortization..................... 37,852 36,701 22,664
--------- --------- ---------------
Total operating expenses...................... 527,561 558,544 217,570
--------- --------- ---------------
Operating income.............................. 182,637 178,075 9,399
--------- --------- ---------------
Other income (expense):
Interest income................................... 7,877 5,951 1,974
Interest expense.................................. (16,949) (4,552) (1,602)
Loss on disposal of property and equipment........ (174) (8,713) --
--------- --------- ---------------
Total other income (expense).................. (9,246) (7,314) 372
--------- --------- ---------------
Net income.................................... $ 173,391 $ 170,761 $ 9,771
--------- --------- ---------------
--------- --------- ---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-56
<PAGE>
NEBRASK@ INTERACTIVE, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------------ PAID-IN RETAINED --------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
----------- ----------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996......... 50,000 $ 50,000 $ 70,225 $ 20,435 -- $ -- $ 140,660
Net income....................... -- -- -- 173,391 -- -- 173,391
Distributions to shareholders.... -- -- -- (148,776) -- -- (148,776)
Issuance of common stock......... 167 167 2,310 -- -- -- 2,477
----------- ----------- ----------- ----------- --------- --------- ---------
Balance, December 31, 1996....... 50,167 50,167 72,535 45,050 -- -- 167,752
Net income....................... -- -- -- 170,761 -- -- 170,761
Distributions to shareholders.... -- -- -- (105,350) -- -- (105,350)
Issuance of common stock......... 200 200 3,050 -- -- -- 3,250
----------- ----------- ----------- ----------- --------- --------- ---------
Balance, December 31, 1997....... 50,367 50,367 75,585 110,461 -- -- 236,413
Net income (unaudited)........... -- -- -- 9,771 -- -- 9,771
Distributions to shareholders
(unaudited).................... -- -- -- (47,848) -- -- (47,848)
Purchase of treasury stock
(unaudited).................... -- -- -- -- (5,250) (89,439) (89,439)
----------- ----------- ----------- ----------- --------- --------- ---------
Balance, March 31, 1998
(unaudited).................... 50,367 $ 50,367 $ 75,585 $ 72,384 (5,250) $ (89,439) $ 108,897
----------- ----------- ----------- ----------- --------- --------- ---------
----------- ----------- ----------- ----------- --------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-57
<PAGE>
NEBRASK@ INTERACTIVE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1996 1997
--------- ---------
THREE MONTHS
ENDED
MARCH 31, 1998
--------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 173,391 $ 170,761 $ 9,771
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 37,852 36,701 22,664
Loss on disposals of property and equipment.......... 174 8,713 --
Expense recognized upon purchase of treasury stock... -- -- 41,061
Compensation expense recognized upon issuance of
common stock....................................... 1,232 1,978 --
Changes in operating assets and liabilities:
(Increase) in trade accounts receivable............ (20,665) (136,432) (4,337)
(Increase) in prepaid expenses..................... -- -- (2,407)
Increase in accounts payable....................... 15,060 107,504 36,574
Increase in accrued expenses....................... 4 4,910 5,623
--------- --------- --------------
Net cash provided by operating activities........ 207,048 194,135 108,949
--------- --------- --------------
Cash flows from investing activities:
Purchases of property and equipment.................. (1,734) (25,248) (16,664)
Proceeds from disposals of property and equipment.... 1,200 -- --
Proceeds from repayments of note receivable from
related party...................................... 10,220 -- --
--------- --------- --------------
Net cash provided by (used in) investing
activities..................................... 9,686 (25,248) (16,664)
--------- --------- --------------
Cash flows from financing activities:
Proceeds from bank line of credit.................... -- 85,000 --
Payments on bank line of credit...................... (32,176) (43,940) (29,672)
Payments on capital lease obligation................. (83,227) (60,148) --
Distributions to shareholders........................ (148,776) (105,350) (47,848)
Proceeds from issuance of common stock............... 1,245 1,272 --
Purchase of treasury stock........................... -- -- (43,500)
--------- --------- --------------
Net cash used in financing activities............ (262,934) (123,166) (121,020)
--------- --------- --------------
Net increase (decrease) in cash........................ (46,200) 45,721 (28,735)
Cash, beginning of year................................ 130,155 83,955 129,676
--------- --------- --------------
Cash, end of period.................................... $ 83,955 $ 129,676 $ 100,941
--------- --------- --------------
--------- --------- --------------
Other cash flow information:
Interest paid........................................ $ 16,949 $ 4,552 $ 1,602
--------- --------- --------------
--------- --------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-58
<PAGE>
NEBRASK@ INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Nebrask@ Interactive, Inc., (the "Company") was incorporated on November
22, 1994 to design, build and operate Internet-based portals for the State of
Nebraska ("Nebrask@ Online") that allow businesses and citizens to complete
transactions and obtain government information online. The Company is
responsible for managing and marketing the portal as well as funding up front
investment and ongoing operational costs.
On December 3, 1997, the Company entered into a contract to provide
electronic government solutions for the Nebraska State Records Board ("NSRB") to
enhance, operate, maintain and expand the existing portal that was developed by
the Company under its 1995 contract with the Nebraska Library Commission ("NLC")
and various state agencies. The contract includes limitations and provisions for
the rates the Company can charge and the amount of remuneration to each state
agency. The contract will expire on January 31, 2002 unless earlier terminated
by the NSRB for cause. The NSRB shall have the option, upon termination or
expiration of the contract, to require the Company to act in accordance with the
terms of the contract for a period of up to twelve months from the time of
expiration or notice of termination, whichever is earlier. On January 1, 2002,
the NSRB will be entitled to a perpetual for use only license to the
applications developed for no additional compensation to the Company.
On March 31, 1998, substantially all of the shareholders of the Company
exchanged their shares for common stock shares in International Information
Consortium, Inc., whose name was later changed to National Information
Consortium, Inc. ("NIC"). As a result, NIC became the sole shareholder of the
Company. Only one shareholder did not participate in the exchange. In March
1998, the Company agreed to pay this shareholder $130,500 for past services and
reacquired the shareholder's 5,250 shares in the Company. The reacquired shares
were recorded as treasury stock at fair market value, which totaled $89,439. An
initial payment of $43,500 was made with the remaining balance recorded as a
note payable due in two annual installments of $43,500 in 1999 and 2000. The
difference between $130,500 and the fair value of the reacquired stock was
recorded as expense in the amount of $41,061.
ACCOUNTS RECEIVABLE
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over
estimated useful lives of the assets. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in income for the period.
The cost of maintenance and repairs is charged to expense as incurred;
significant renewals and betterments are capitalized.
At each balance sheet date, the Company reviews property and equipment
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
F-59
<PAGE>
NEBRASK@ INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company has elected to be treated as a small business corporation
under provisions of Subchapter S of the Internal Revenue Code. Under such
provisions, the shareholders are taxed individually on their respective shares
of the Company's taxable income. Therefore, no provision for income tax has been
made. The Company changed its income tax status from an S corporation to a C
corporation effective July 1, 1998.
REVENUE RECOGNITION
The Company recognizes revenues from providing electronic government
services (primarily transaction fees) when the service is provided. The Company
must remit a certain percentage of transaction fees to state agencies regardless
of whether the Company ultimately collects the fees. In addition, the NSRB
receives 4.5% of the first $89,000 in gross profit and 2% of gross profit
thereafter. Gross profit is defined in the contract as the difference between
the Company's gross revenues and amounts paid to state agencies and for certain
telecommunication expenses.
SERVICE DEVELOPMENT COSTS
The Company expenses as incurred the employee costs to develop,
implement, operate and maintain the government portal.
STOCK-BASED COMPENSATION
The Company records as compensation expense the amount by which the fair
value of common stock sold to employees exceeds the amount paid.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying balance sheet as of March 31, 1998, and the related
statements of income, cash flows and changes in shareholders' equity for the
three months ended March 31, 1998, have been prepared by the Company, without
audit, pursuant to the rules of the Securities and Exchange Commission and
reflect all adjustments to present fairly the financial position of the Company
as of March 31, 1998, and the results of its operations and its cash flows for
the three-month period then ended.
2. CONCENTRATION OF CREDIT
For the year ended December 31, 1997, the Company derived 86% of its
transaction fees from four data resellers. At December 31, 1997, 89% of its
accounts receivable were from five data resellers. For the year ended December
31, 1996, the Company derived 83% of its transaction fees from three data
resellers. At December 31, 1996, 89% of its accounts receivable were from the
same three data resellers.
F-60
<PAGE>
NEBRASK@ INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- USEFUL
1996 1997 LIVES
--------- --------- -----------
<S> <C> <C> <C>
Furniture and fixtures..................... $ 718 $ 718 8 years
Purchased software......................... 14,020 18,320 3 years
Equipment.................................. 163,592 170,398 5-8 years
--------- ---------
178,330 189,436
Less accumulated depreciation.............. 48,413 79,278
--------- ---------
$ 129,917 $ 110,158
--------- ---------
--------- ---------
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 was
$36,294 and $37,446, respectively.
4. BANK LINE OF CREDIT
The Company has a $100,000 line of credit with a bank which bears
interest at a rate equal to an index (8.50% at December 31, 1997). The maturity
date of the line is April 30, 2000. At December 31, 1997 and 1996, the amount
outstanding under the line was $89,412 and $48,352, respectively. The line is
collateralized by the Company's assets and guaranteed by affiliated companies.
The Company obtained a $225,000 equipment line of credit from a bank in
April 1998. The interest rate on the line equals the bank's reference rate plus
1.75%. There is no given expiration date on the line. The line is collateralized
by the related equipment and guaranteed by an affiliated company.
5. CAPITAL LEASE OBLIGATION
At December 31, 1996, the Company had a noncancellable capital lease
obligation with a bank for computer equipment totaling $60,148, which was repaid
in August 1997.
6. OPERATING LEASES
The Company leases its office space and certain equipment under
operating leases. The future minimum lease payments under noncancellable
operating leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- ---------------------------------------------------
<S> <C>
1998............................................... $ 28,626
1999............................................... 28,626
2000............................................... 11,296
2001............................................... 7,830
---------
$ 76,378
---------
---------
</TABLE>
Total rent expense for the years ended December 31, 1997 and 1996 was
$22,992 and $21,475, respectively.
F-61
<PAGE>
NEBRASK@ INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTIONS
The Company purchases business and health insurance through an insurance
agency that is controlled by a shareholder of the Company. Insurance expense
totaled approximately $34,400 and $37,800 for the years ended December 31, 1997
and 1996, respectively.
The Company rents an aircraft on an hourly basis from Sky King Leasing,
which has common shareholders with the Company. The amount paid to Sky King
Leasing was approximately $4,700 and $6,600 for the years ended December 31,
1997 and 1996, respectively.
The Company is affiliated, through common ownership, with several
companies that also serve as electronic government solution providers for
various states. The Company is a partial guarantor of certain line of credit
agreements entered into by these affiliated companies. The total amounts
available and outstanding under such agreements at December 31, 1997 were
$950,000 and $178,674.
8. EMPLOYEE BENEFIT PLAN
The Company, in conjunction with affiliated companies, maintains a
401(k) profit sharing plan. In accordance with the plan, all employees are
eligible immediately upon employment. A discretionary match and a discretionary
contribution may be made to the plan as determined by the Board of Directors.
Company contributions totaled $8,163 and $9,319 for the years ended December 31,
1997 and 1996, respectively.
9. RESTRICTIONS ON TRANSFERABILITY OF COMMON STOCK
The Articles of Incorporation of the Company stipulate that should any
shareholders desire to sell or transfer their respective shares of common stock,
such stock must first be offered to the Company. Any stock not purchased by the
Company within a specified time frame must then be offered to the remaining
shareholders. The purchase price must be equivalent to the price that would be
paid by a non-shareholder.
F-62
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
OVERVIEW
On March 31, 1998, National Information Consortium, Inc. (the "Company"
or "NIC") exchanged its common shares for the common shares of five affiliated
companies (the "Exchange Offer") in a transaction accounted for using the
purchase method of accounting. Prior to consummating the Exchange Offer, the
Company was a holding company with no operations of its own. Shareholders of one
of the affiliated companies, National Information Consortium USA, Inc.
("NIC/USA") received 54% of the Company's common shares and NIC/USA has been
treated as the acquirer in applying purchase accounting.
The following unaudited pro forma consolidated statements of operations
give effect to the acquisition by NIC/USA of Kansas Information Consortium, Inc.
("KIC"), Indian@ Interactive, Inc. ("III"), Nebrask@ Interactive, Inc. ("NII")
and Arkansas Information Consortium, Inc. ("AIC") (the "Acquired Companies").
The unaudited pro forma consolidated statements of operations are based on the
individual statements of operations of the Company and the Acquired Companies
appearing elsewhere in this Prospectus, and combine the results of operations of
the Company and the Acquired Companies for the year ended December 31, 1997, the
three month period ended March 31, 1998 and the year ended December 31, 1998 as
if the transaction occurred on January 1, 1997. The pro forma adjustments
include the elimination of all intercompany transactions. These unaudited pro
forma consolidated statements of operations should be read in conjunction with
the historical financial statements and notes thereto of the Company and the
Acquired Companies included elsewhere in this Prospectus.
The unaudited pro forma consolidated statements of operations are not
necessarily indicative of the operating results that would have been achieved
had the transactions been in effect as of the beginning of the periods presented
and should not be construed as being representative of future operating results.
F-63
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NIC III KIC AIC NII ELIMINATIONS ADJUSTMENTS PRO FORMA
--------- ---------- --------- --------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $ 996,550 $12,524,065 $6,067,362 $2,346,889 $2,447,318 $ -- $ -- $24,382,184
Cost of revenues........... 5,168 10,040,041 4,576,795 2,077,144 1,710,699 -- -- 18,409,847
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Gross profit............. 991,382 2,484,024 1,490,567 269,745 736,619 -- -- 5,972,337
Operating expenses:
Service development and
operations............. 224,128 480,492 387,083 90,447 126,510 -- -- 1,308,660
Selling, general and
administrative......... 660,254 1,070,667 812,306 187,567 391,377 -- -- 3,122,171
Stock compensation....... 370,235 13,431 13,276 232,384 1,978 -- -- 631,304
Depreciation and
amortization........... 13,679 107,332 32,496 8,232 36,701 -- 7,575,204(A) 7,773,644
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Total operating
expenses............... 1,268,296 1,671,922 1,245,161 518,630 556,566 -- 7,575,204 12,835,779
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Operating income (loss).... (276,914) 812,102 245,406 (248,885) 180,053 -- (7,575,204) (6,863,442)
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Other income (expense):
Interest expense......... -- (32,330) (13,056) (1,731) (4,552) -- -- (51,669)
Other income (expense),
net.................... 111 24,005 (42,322) 4,083 (2,762) -- -- (16,885)
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Total other income
(expense).............. 111 (8,325) (55,378) 2,352 (7,314) -- -- (68,554)
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Income (loss) before income
taxes.................... (276,803) 803,777 190,028 (246,533) 172,739 -- (7,575,204) (6,931,996)
Income taxes (C)........... -- -- -- -- -- -- -- --
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Net income (loss).......... $(276,803) $ 803,777 $ 190,028 $(246,533) $ 172,739 $ -- ($7,575,204) $(6,931,996)
--------- ---------- --------- --------- --------- ----------- ----------- ----------
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Net loss per share:
Basic and diluted........ $ (0.06) $ (0.80)
--------- ----------
--------- ----------
Weighted average shares
outstanding............ 4,491,943 4,146,800(B) 8,638,743
--------- ----------- ----------
--------- ----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION.
F-64
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTH PERIOD ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
NIC III KIC AIC NII ELIMINATIONS ADJUSTMENTS PRO FORMA
--------- --------- --------- --------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues..................... $ 370,288 $3,541,101 $1,625,487 $2,041,142 $ 706,059 $ (14,030)(D) $ -- $8,270,047
Cost of revenues............. 690 2,727,257 $1,174,015 1,802,776 479,090 -- -- 6,183,828
--------- --------- --------- --------- --------- ----------- ----------- ----------
Gross profit............... 369,598 813,844 451,472 238,366 226,969 (14,030) -- 2,086,219
--------- --------- --------- --------- --------- ----------- ----------- ----------
Operating expenses:
Service development and
operations............... 148,962 225,425 99,685 56,808 59,912 (14,030)(D) -- 576,762
Selling, general and
administrative........... 320,190 424,581 190,994 100,425 134,994 -- -- 1,171,184
Stock compensation......... -- -- -- 5,115 -- -- -- 5,115
Depreciation and
amortization............. 24,031 31,841 9,971 6,236 22,664 -- 1,893,801(A) 1,988,544
--------- --------- --------- --------- --------- ----------- ----------- ----------
Total operating expenses... 493,183 681,847 300,650 168,584 217,570 (14,030) 1,893,801 3,741,605
--------- --------- --------- --------- --------- ----------- ----------- ----------
Operating income (loss)...... (123,585) 131,997 150,822 69,782 9,399 -- (1,893,801) (1,655,386)
--------- --------- --------- --------- --------- ----------- ----------- ----------
Other income (expense):
Interest expense........... (628) (9,633) (4,639) (903) (1,602) -- -- (17,405)
Other income, net.......... -- 8,623 400 3,628 1,974 -- -- 14,625
--------- --------- --------- --------- --------- ----------- ----------- ----------
Total other income
(expense)................ (628) (1,010) (4,239) 2,725 372 -- -- (2,780)
--------- --------- --------- --------- --------- ----------- ----------- ----------
Income (loss) before income
taxes...................... (124,213) 130,987 146,583 72,507 9,771 -- (1,893,801) (1,658,166)
Income taxes (C)............. -- -- -- -- -- -- -- --
--------- --------- --------- --------- --------- ----------- ----------- ----------
Net income (loss)............ $(124,213) $ 130,987 $ 146,583 $ 72,507 $ 9,771 $ -- ($1,893,801) $(1,658,166)
--------- --------- --------- --------- --------- ----------- ----------- ----------
--------- --------- --------- --------- --------- ----------- ----------- ----------
Net loss per share:
Basic and diluted.......... $ (0.03) $ (0.18)
--------- ----------
--------- ----------
Weighted average shares
outstanding.............. 4,884,187 4,146,800(B) 9,030,787
--------- ----------- ----------
--------- ----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION.
F-65
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NIC III(E) KIC(E) AIC(E) NII(E) ELIMINATIONS ADJUSTMENTS PRO FORMA
---------- ---------- --------- --------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $28,623,656 $3,541,101 $1,625,488 $2,041,142 $ 706,059 $ (5,101)(D) $ -- $36,532,345
Cost of revenues......... 21,210,632 2,727,257 1,174,015 1,802,776 479,090 -- -- 27,393,770
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Gross profit........... 7,413,024 813,844 451,473 238,366 226,969 (5,101) -- 9,138,575
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Operating expenses:
Service development and
operations........... 3,884,810 225,425 99,685 56,808 59,912 -- -- 4,326,640
Selling, general and
administrative....... 4,241,780 424,581 190,994 100,425 134,994 (5,101)(D) -- 5,087,673
Stock compensation..... 291,706 -- -- 5,115 -- -- -- 296,821
Depreciation and
amortization......... 5,922,396 31,841 9,971 6,236 22,664 -- 1,893,801(A) 7,886,909
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Total operating
expenses............. 14,340,692 681,847 300,650 168,584 217,570 (5,101) 1,893,801 17,598,043
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Operating income
(loss)................. (6,927,668) 131,997 150,823 69,782 9,399 -- (1,893,801) (8,459,468)
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Other income (expense):
Interest expense....... (88,161) (9,634) (4,639) (903) (1,602) -- -- (104,939)
Other income, net...... 55,839 8,624 401 3,628 1,974 -- -- 70,466
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Total other income
(expense)............ (32,322) (1,010) (4,238) 2,725 372 -- -- (34,473)
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Income (loss) before
income
taxes.................. (6,959,990) 130,987 146,585 72,507 9,771 -- (1,893,801) (8,493,941)
Income taxes (C)......... 718,655 -- -- -- -- -- -- 718,655
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Net income (loss)........ $(7,678,645) $ 130,987 $ 146,585 $ 72,507 $ 9,771 $ -- ($1,893,801) $(9,212,596)
---------- ---------- --------- --------- --------- ----------- ----------- ----------
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Net income (loss) per
share:
Basic and diluted...... $ (0.96) $ (1.02)
---------- ----------
---------- ----------
Weighted average shares
outstanding.......... 8,020,547 1,013,916(B) 9,034,463
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION.
F-66
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following adjustments were applied to the Company's historical
consolidated statements of operations for the periods indicated to arrive at the
pro forma consolidated financial information.
(A) Represents amortization expense related to the contract intangibles and
goodwill resulting from the application of purchase accounting for the
Acquired Companies. For the year ended December 31, 1997, the amount
represents the annual amortization for the twelve month period following the
March 31, 1998 Exchange Offer. For the three months ended March 31, 1998,
the adjustment represents the amortization for the first three months
following the Exchange Offer. The Company's consolidated results for the
year ended December 31, 1998 already reflect amortization for the nine
months following the Exchange Offer. The adjustment represents an additional
three months amortization to arrive at a full year.
(B) For the year ended December 31, 1997 and the three months ended March 31,
1998, represents the Company's common shares issued to the shareholders of
the Acquired Companies in the Exchange Offer. For the year ended December
31, 1998, represents incremental shares needed to reflect the common shares
outstanding for a full year.
(C) For the year ended December 31, 1997 and the three months ended March 31,
1998, all of the companies were S corporations. No provision for income
taxes has been included.
(D) To eliminate intercompany revenues and expenses.
(E) Represents the Acquired Companies results of operations for the three months
ended March 31, 1998. The Company's results of operations already include
the Acquired Companies results of operations for the nine months subsequent
to the March 31, 1998 Exchange Offer.
F-67
<PAGE>
INSIDE BACK COVER
[Map of United States with maps of individual states in which National
Information Consortium operates government portals rising from map into
foreground. Each individual state map contains the logo of that state's
government portal.]
[Listing of the addresses of National Information Consortium's portals
on the Internet.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
NIC LOGO
COMMON STOCK
---------------
PROSPECTUS
---------------
HAMBRECHT & QUIST
THOMAS WEISEL PARTNERS LLC
FAC/EQUITIES
VOLPE BROWN WHELAN & COMPANY
---------
, 1999
--------------
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES
TO PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF
THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO
INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND
THE DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR
COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions, are included in the following table. All amounts are
estimates except the SEC filing fee, the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
Securities and Exchange Commission Filing Fee..................... $ 41,561
NASD Filing Fee................................................... 15,450
Nasdaq National Market Listing Fee................................ *
Accounting Fees and Expenses...................................... *
Blue Sky Fees and Expenses........................................ 3,000
Legal Fees and Expenses........................................... *
Transfer Agent and Registrar Fees and Expenses.................... *
Printing Expenses................................................. *
Miscellaneous Expenses............................................ *
-----------
Total......................................................... $ *
-----------
-----------
</TABLE>
- ------------------------
* To be included by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 7-109-102 and 7-109-107 of the Colorado Business Corporation
Act provide that we may indemnify our directors and officers against all
liabilities and expenses actually and reasonably incurred in connect with the
defense or settlement of any judicial or administrative proceedings in which the
director or officer has have become involved by reason of his or her status as a
director or officer, if it is determined by our disinterested directors, a
committee appointed by our directors, our shareholders or an independent counsel
appointed by our directors that the director or officer acted in good faith and
in the reasonable belief that his or her conduct was not opposed to our best
interests or, in the case of criminal proceedings, unlawful. No indemnification
shall be made with respect to any claim, issue or matter in connection with a
proceeding in which the director or officer being indemnified is adjudged to be
liable to us or in connection with any proceeding in which the director or
officer being indemnified is adjudicated to have derived an improper personal
benefit. Further, indemnification in connection with a proceeding is limited to
reasonable expenses, including attorneys' fees, incurred in connection with the
proceeding.
Article V of our articles of incorporation, which is Exhibit 3.1 to this
Registration Statement, and Article VIII of our bylaws, which is Exhibit 3.2 to
this Registration Statement, provide that we will indemnify any person entitled
to indemnity under the Colorado Business Corporation Act, as it now exists or as
amended, against all liability and expenses to the fullest extent permitted by
the same Act. Further, Article VI of our articles of incorporation provides that
our directors will not incur any personal liability from us or our shareholders
for monetary damages for breach of fiduciary duty as a director, except when the
personal liability arises from any breach of the director's duty of loyalty to
us or our shareholders, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, acts specified in
Section 7-108-403 of the Colorado Business Corporation Act, or any transaction
from which a director derived an improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for our directors or officers under the provisions
contained in our charter documents, the Colorado Business
II-1
<PAGE>
Corporation Act or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities, other than the
payment by us of expenses incurred or paid by one of our directors or officers
in the successful defense of any action, suit, or proceeding, is asserted by
such director or officer, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
In addition to indemnification provided for in our charter documents, we
intend to enter into agreements, a form of which is Exhibit 10.1 to this
Registration Statement, to indemnify our directors and officers. These
agreements provide for the indemnification of our directors and officers for
certain expenses, including attorneys' fees, judgments, fines and settlement
amounts incurred by any such person in any action or proceeding, including any
action by us, arising out of such person's services as one of our directors or
officers, any of our subsidiaries or any other company or enterprise to which
such person provides services at our request, to the fullest extent permitted by
the Colorado Business Corporation Act. Furthermore, we will purchase and
maintain insurance on behalf of our directors and officers insuring them against
liabilities that they may incur in their capacities as or arising out of their
status as directors or officers.
The underwriting agreement, which is Exhibit 1.1 to this Registration
Statement, provides for indemnification by our underwriters and their officers
and directors for certain liabilities arising under the Securities Act or
otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
From our incorporation to May 1, 1999, we have granted or issued and
sold the following unregistered securities:
1. Stock options to employees, officers, directors and consultants under
our 1998 stock option plan exercisable for up to an aggregate of 544,789 shares
of our common stock, at a weighted average exercise price of $6.70 per share.
2. On April 21, 1998, we sold to Ms. Debra Luling 50,000 shares of our
common stock at $1.00 per share for an aggregate of $50,000.
3. On June 29, 1998, we sold to Mr. Everett Wohlers 25,000 shares of our
common stock at $1.00 per share for an aggregate of $25,000.
4. On June 29, 1998, we as a distribution to our shareholders, issued to
Mr. Randall Eccker 37,594 shares of our common stock for his services to our
shareholders in the sale of 2,264,849 shares of our common stock by the voting
trust, for which Messrs. Fraser and Hartley are co-trustees, to Hellman &
Friedman Capital Partners III, L.P., and affiliates.
5. On February 8, 1999, we sold to Mr. Joseph Nemelka 14,925 shares of
our common stock at $6.70 per share for an aggregate of $100,000.
6. On February 9, 1999, we sold to Mr. James B. Dodd 37,313 shares of
our common stock at $6.70 per share for an aggregate of approximately $250,000.
7. On March 1, 1999, we sold to Mr. Robert P. Chandler 14,925 shares of
our common stock at $6.70 per share for an aggregate of $100,000.
8. On March 1, 1999, we sold to Ms. Tamara Dukes 3,731 shares of our
common stock at $6.70 per share for an aggregate of $25,000.
9. On March 1, 1999, we sold to Mr. Richard L. Brown 3,731 shares of our
common stock at $6.70 per share for an aggregate of $25,000.
The issuances of the securities in the transactions above were deemed to
be exempt from registration under the Securities Act in reliance on Section 4(2)
of the Securities Act or Regulation D promulgated under the same as transactions
by an issuer not involving a public offering, where the
II-2
<PAGE>
purchasers represented their intention to acquire the securities for investment
only and not with a view to distribution and received or had access to adequate
information about the Registrant, or Rule 701 promulgated under the Securities
Act as transactions pursuant to a compensatory benefit plan or a written
contract relating to compensation.
On March 31, 1998, we exchanged shares of our common stock for the
common stock of five affiliated companies--NIC/USA, Inc., Kansas Information
Consortium, Inc., Indian@ Interactive, Inc., Nebrask@ Interactive, Inc. and
Arkansas Information Consortium, Inc. The issuance of such securities was exempt
from the registration requirements of the Securities Act of 1933, as amended,
due to the exemptions from registration provided by Sections 3(a)(9) and 4(2)
thereof.
Appropriate legends were affixed to the stock certificates issued in the
above transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. No underwriters were employed in any of
the above transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The exhibits are as set forth in the Exhibit Index.
(b) Financial Statement Schedules
All schedules have been omitted since they are not required or are
not applicable or the required information is shown in the financial statements
or related notes.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this Registration Statement
as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Overland
Park, State of Kansas on the 6th day of May, 1999.
<TABLE>
<S> <C> <C>
NATIONAL INFORMATION CONSORTIUM, INC.
By: /s/ JEFFERY S. FRASER
-----------------------------------------
Jeffery S. Fraser
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jeffery S. Fraser and James B. Dodd, and
each of them, as his true and lawful attorneys-in-fact and agents, 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 (including
post-effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by the Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933 and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith
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 said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman and Chief
/s/ JEFFERY S. FRASER Executive Officer
- ------------------------------ (Principal Executive May 6, 1999
Jeffery S. Fraser Officer)
President, Chief Operating
/s/ JAMES B. DODD Officer and Director
- ------------------------------ (Principal Financial and May 6, 1999
James B. Dodd Accounting Officer)
/s/ JOHN L. BUNCE, JR.
- ------------------------------ Director May 6, 1999
John L. Bunce, Jr.
/s/ DANIEL J. EVANS
- ------------------------------ Director May 6, 1999
Daniel J. Evans
/s/ ROSS C. HARTLEY
- ------------------------------ Director May 6, 1999
Ross C. Hartley
/s/ PATRICK J. HEALY
- ------------------------------ Director May 6, 1999
Patrick J. Healy
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ----------- ----------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of the Registrant*
3.2 Bylaws of the Registrant*
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Investor Rights Agreement dated June 30, 1998
4.3 Specimen Stock Certificate of the Registrant*
5.1 Opinion of Morrison & Foerster LLP as to the legality of the common stock*
9.1 Voting Trust Agreement between Jeffery S. Fraser and Ross C. Hartley and certain
Holders of Shares of National Information Consortium, Inc. dated June 30, 1998 and
form of the voting trust certificate
10.1 Form of Indemnification Agreement between the Registrant and each of its executive
officers and directors
10.2 Registrant's 1998 Stock Option Plan, as amended and restated
10.3 Registrant's 1999 Employee Stock Purchase Plan
10.4 Employment Agreement between the Registrant and Jeffery S. Fraser dated July 1,
1998
10.5 Employment Agreement between the Registrant and William F. Bradley, Jr. dated July
24, 1998
10.6 Employment Agreement between the Registrant and Samuel R. Somerhalder dated July
24, 1998
10.7 Employment Agreement between the Registrant and Harry H. Herington dated July 24,
1998
10.8 Employment Agreement between the Registrant and James B. Dodd dated January 1,
1999
10.9 Contract for Network Manager Services between the Information Network of Kansas
and Kansas Information Consortium, Inc. dated December 18, 1991 with addenda dated
October 15, 1992, August 19, 1993, May 26, 1995 and June 13, 1996 and amendment on
March 2, 1998
10.10 Contract for Network Manager Services between the State of Indiana by and through
the Intelenet Commission and Indian@ Interactive, Inc., dated July 18, 1995
10.11 Services Contract by and between National Information Consortium, U.S.A. and the
GeorgiaNet Authority, an agency of the State of Georgia, dated September 15, 1996
10.12 Contract for Network Manager between Information Network of Arkansas by and
through the Information Network of Arkansas Board and Arkansas Information
Consortium, Inc. dated July 2, 1997
10.13 Contract for Network Manager Services between the Nebraska State Records Board on
behalf of the State of Nebraska and Nebrask@ Interactive, Inc. dated December 3,
1997 with addendum No. 1 dated as of the same date
10.14 Contract for Network Manager Services between the Commonwealth of Virginia by and
through the Virginia Information Providers Network Authority and Virginia
Interactive, LLC dated January 15, 1998
10.15 Contract for Network Manager Services between Iowa Interactive, Inc. and the State
of Iowa by and through Information Technology Services dated April 23, 1998
10.16 Contract for Network Manager Services between the Consolidated City of
Indianapolis and Marion County by and through the Enhanced Access Board of Marion
County and City-County Interactive, LLC dated August 31, 1998 with addendum dated
as of the same date
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ----------- ----------------------------------------------------------------------------------
<S> <C>
10.17 State of Maine Contract for Special Services with New England Interactive, Inc.
dated April 14, 1999
21.1 Subsidiaries of the Registrant
23.1 Consent of Morrison & Foerster LLP. Reference is made to Exhibit 5.1*
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants
24.1 Powers of Attorney. Reference is made to Page II-4
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment
<PAGE>
EXHIBIT 4.2
--------------------------------------------------------------
--------------------------------------------------------------
NATIONAL INFORMATION CONSORTIUM, INC.
INVESTOR RIGHTS AGREEMENT
--------------------------------------------------------------
--------------------------------------------------------------
<PAGE>
NATIONAL INFORMATION CONSORTIUM, INC.
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (the "Agreement") is entered into as of
July 2, 1998, by and among NATIONAL INFORMATION CONSORTIUM, INC., a Delaware
corporation (the "Company"), HELLMAN & FRIEDMAN CAPITAL PARTNERS III, L.P., a
California limited partnership, H&F INTERNATIONAL PARTNERS III, L.P., a
California limited partnership, H&F ORCHARD PARTNERS III, L.P., a California
limited partnership (collectively, the "Investors"), and THE NATIONAL
INFORMATION CONSORTIUM, INC. VOTING TRUST U/A/D JUNE 30, 1998 (the "Voting
Trust").
RECITALS
WHEREAS, the Investors are acquiring 2,264,849 shares of common stock of
the Company, $.01 par value ("Common Stock") pursuant to a Stock Purchase
Agreement dated June 30, 1998 (the "Purchase Agreement") by and among the
Company, the Voting Trust and the Investors; and
WHEREAS, as a condition of entering into the Purchase Agreement and as a
condition precedent to the obligations of the Investors to consummate the
transactions under the Purchase Agreement, the Company shall extend to the
Investors registration rights, information rights and other rights as set
forth below.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as
follows:
SECTION 1 GENERAL
1.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FORM S-3" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"HOLDER" means any person owning of record Registrable Securities
that have not been sold to the public, but only if such holder is an Investor
or any assignee of record of such Registrable Securities in accordance with
Section 2.10 hereof; PROVIDED THAT for the purposes of Sections 2.3, 2.9 and
2.13, "Holder" shall include the Voting Trust.
"INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the
Securities Act.
1
<PAGE>
"INITIATING HOLDERS" means the Holders who in the aggregate hold at
least fifty percent (50%) of the Registrable Securities that consist of
Common Stock of the Company purchased by or issued to the Investors.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
"REGISTRABLE SECURITIES" means (a) Common Stock of the Company; and
(b) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange
for or in replacement of, such above-described securities. Notwithstanding
the foregoing, Registrable Securities shall not include any securities that
have been sold to the public pursuant to a registration statement or Rule 144
or sold in a private transaction in which the transferor's rights under
Section 2 of this Agreement are not assigned. For purposes of the
registration rights granted to holders of Company securities pursuant to
Section 2.3 hereof and for the purposes of obligations imposed upon holders
of Registrable Securities under Sections 2.9 and 2.13, but not for the
purposes of Section 4.6, "Registrable Securities" shall include Voting Trust
Stock.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of
shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (a) are then issued
and outstanding or (b) are issuable pursuant to then exercisable or
convertible securities.
"REGISTRATION EXPENSES" means all expenses incurred by the Company
in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and disbursements
of a single special counsel for the Holders, blue sky fees and expenses and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company which shall be paid in any event by the Company).
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING EXPENSES" means all underwriting discounts and selling
commissions applicable to the sale.
"VOTING TRUST STOCK" means all Common Stock of the Company held by
the Voting Trust as of the date of this Agreement, and any Common Stock
issued or issuable with respect to such Common Stock upon any
recapitalizations, stock splits, stock dividends or similar distributions.
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SECTION 2 REGISTRATION; RESTRICTIONS ON TRANSFER
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all or any
portion of the Registrable Securities unless and until:
(i) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound by
the terms of this Agreement, (B) such Holder shall have notified the Company
of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (C) if reasonably requested by the Company, such Holder shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to
the Company, that such disposition will not require registration of such
shares under the Securities Act. It is agreed that the Company will not
require opinions of counsel for transactions made pursuant to Rule 144 except
in unusual circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder which is (A) a partnership to its
partners or former partners in accordance with partnership interests, (B) a
corporation to its shareholders in accordance with their interest in the
corporation, (C) a limited liability company to its members or former members
in accordance with their interest in the limited liability company, or (D) to
the Holder's family member or trust for the benefit of an individual Holder;
PROVIDED THAT in each case the transferee will be subject to the terms of
this Agreement to the same extent as if such transferee were an original
Holder hereunder.
(b) Each certificate representing Registrable Securities shall
(unless otherwise permitted by the provisions of the Agreement) be stamped or
otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company
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to the effect that the securities proposed to be disposed of may lawfully be
so disposed of without registration, qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 2.2, if the Company
shall receive a written request from the Initiating Holders that the Company
file a registration statement under the Securities Act covering the
registration of at least a majority of the Registrable Securities then
outstanding (or a lesser percent if the anticipated aggregate offering price,
net of underwriting discounts and commissions, would exceed $5,000,000 (a
"Qualified Public Offering")), then the Company shall, within thirty (30)
days of the receipt thereof, give written notice of such request to all
Holders, and subject to the limitations of this Section 2.2, use commercially
reasonable efforts to effect, as soon as practicable, the registration under
the Securities Act of all Registrable Securities that the Holders request to
be registered.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall
so advise the Company as a part of their request made pursuant to this
Section 2.2 or any request pursuant to Section 2.4 and the Company shall
include such information in the written notice referred to in Section 2.2(a)
or Section 2.4(a), as applicable. In such event, the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent
provided herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders (which
underwriter or underwriters shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 2.2 or Section 2.4, if
the underwriter advises the Company that marketing factors require a
limitation of the number of securities to be underwritten (including
Registrable Securities) then the Company shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares that may be included in the underwriting shall be
allocated to the Holders of such Registrable Securities on a PRO RATA basis
based on the number of Registrable Securities held by all such Holders
(including the Initiating Holders); PROVIDED, HOWEVER, that the number of
shares of Registrable Securities to be included in such underwriting and
registration shall not be reduced unless all other securities of the Company
are first entirely excluded from the underwriting and registration. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
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(c) The Company shall not be required to effect a registration
pursuant to this Section 2.2:
(i) prior to the earlier of (A) the fifth anniversary of the
date of this Agreement or (B) one hundred eighty (180) days following the
effective date of the registration statement pertaining to the Initial
Offering;
(ii) after the Company has effected two (2) registrations
pursuant to this Section 2.2, and such registrations have been declared or
ordered effective;
(iii) during the period starting with the date of filing of,
and ending on the date one hundred eighty (180) days following the effective
date of the registration statement pertaining to the Initial Offering;
PROVIDED THAT the Company makes reasonable good faith efforts to cause such
registration statement to become effective;
(iv) if within thirty (30) days of receipt of a written
request from Initiating Holders pursuant to Section 2.2(a), the Company gives
notice to the Holders of the Company's intention to make its Initial Offering
within ninety (90) days;
(v) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2.2, a certificate signed by
the Chairman of the Board stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such registration statement to be effected
at such time, in which event the Company shall have the right to defer such
filing for a period of not more than ninety (90) days after receipt of the
request of the Initiating Holders; PROVIDED THAT such right to delay a
request shall be exercised by the Company not more than once in any twelve
(12) month period; or
(vi) if the Initiating Holders propose to dispose of shares
of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 2.4 below.
2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least fifteen (15) days prior to the
filing of any registration statement under the Securities Act for purposes of
a public offering of securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities of
the Company, but excluding registration statements relating to employee
benefit plans or with respect to corporate reorganizations or other
transactions under Rule 145 of the Securities Act) and will afford each such
Holder an opportunity to include in such registration statement all or part
of such Registrable Securities held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by it shall, within fifteen (15) days after the
above-described notice from the Company, so notify the Company in writing.
Such notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
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registration statements as may be filed by the Company with respect to
offerings of its securities, all upon the terms and conditions set forth
herein.
(a) UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 2.3 is for an underwritten offering,
the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder to be included in a registration pursuant
to this Section 2.3 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their Registrable Securities through such underwriting shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding
any other provision of the Agreement, if the underwriter determines in good
faith that marketing factors require a limitation of the number of shares to
be underwritten, the number of shares that may be included in the
underwriting shall be allocated, first, to the Company; second, to the
Holders on a PRO RATA basis based on the total number of Registrable
Securities held by the Holders; and third, to any stockholder of the Company
(other than a Holder) on a PRO RATA basis. No such reduction shall reduce
the securities being offered by the Company for its own account to be
included in the registration and underwriting. In no event will shares of any
other selling stockholder be included in such registration which would reduce
the number of shares which may be included by Holders without the written
consent of Holders of not less than sixty-six and two-thirds percent (66 2/3%)
of the Registrable Securities proposed to be sold in the offering. If any
Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least ten (10) business days prior to the effective
date of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Holder which is a limited liability company,
partnership or corporation, the members, withdrawn members, partners, retired
partners and stockholders of such Holder, or the estates and family members
of any such members, withdrawn members, partners and retired partners and any
trusts for the benefit of any of the foregoing person shall be deemed to be a
single "Holder", and any PRO RATA reduction with respect to such "Holder"
shall be based upon the aggregate amount of shares carrying registration
rights owned by all entities and individuals included in such "Holder," as
defined in this sentence.
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2.3 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 2.5 hereof.
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2.4 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders of Registrable Securities a written request or requests
that the Company effect a registration on Form S-3 (or any successor to Form
S-3) or any similar short-form registration statement and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the
Company; PROVIDED, HOWEVER, that the Company shall not be obligated to effect
any such registration, qualification or compliance pursuant to this Section
2.4:
(i) if Form S-3 (or any successor or similar form) is not
available for such offering by the Holders, or
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose
to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than one million dollars ($1,000,000),
or
(iii) if within thirty (30) days of receipt of a written
request from Initiating Holders pursuant to Section 2.2(a), the Company gives
notice to the Holders of the Company's intention to make its Initial Offering
or a public offering within ninety (90) days;
(iv) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form
S-3 registration statement for a period of not more than ninety (90) days
after receipt of the request of the Holder or Holders under this Section 2.4;
PROVIDED THAT such right to delay a request shall be exercised by the Company
not more than once in any twelve (12) month period, or
(v) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two (2) registrations on
Form S-3 for the Holders pursuant to this Section 2.4, or
(vi) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent
to service of process in effecting such registration, qualification or
compliance.
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(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Holders. Registrations effected pursuant to this Section 2.4 shall not
be counted as demands for registration or registrations effected pursuant to
Sections 2.2 or 2.3, respectively.
2.5 EXPENSES OF REGISTRATION. Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be
borne by the holders of the securities so registered PRO RATA on the basis of
the number of shares so registered. The Company shall not, however, be
required to pay for expenses of any registration proceeding begun pursuant to
Section 2.2 or 2.4, the request of which has been subsequently withdrawn by
the Initiating Holders unless (a) the withdrawal is based upon material
adverse information concerning the Company of which the Initiating Holders
were not aware at the time of such request or (b) the Holders of a majority
of Registrable Securities agree to forfeit their night to one requested
registration pursuant to Section 2.2 or Section 2.4, as applicable, in which
event such right shall be forfeited by all Holders). If the Holders are
required to pay the Registration Expenses, such expenses shall be borne by
the holders of securities (including Registrable Securities) requesting such
registration in proportion to the number of shares for which registration was
requested. If the Company is required to pay the Registration Expenses of a
withdrawn offering pursuant to clause (a) above, then the Holders shall not
forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand
registration.
2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to
cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to ninety (90)
days or, if earlier, until the Holder or Holders have completed the
distribution related thereto. The Company shall not be required to file,
cause to become effective or maintain the effectiveness of any registration
statement that contemplates a distribution of securities on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the provisions
of the Securities Act with respect to the disposition of all securities
covered by such registration statement for the period set forth in paragraph
(a) above.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Securities Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by
them.
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(d) Use its commercially reasonable efforts to register and
qualify the securities covered by such registration statement under such
other securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Holders; PROVIDED THAT the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such
states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing.
(g) Use its commercially reasonable efforts to furnish, on the
date that such Registrable Securities are delivered to the underwriters for
sale, if such securities are being sold through underwriters, (i) an opinion,
dated as of such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given
to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and (ii) a letter dated as of such date, from the
independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering addressed to the
underwriters.
2.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights
granted under this Section 2 shall terminate and be of no further force and
effect five (5) years after the date of the Company's Initial Offering. In
addition, a Holder's registration rights shall expire if (a) the Company has
completed its Initial Offering and is subject to the provisions of the
Exchange Act, (b) such Holder (together with its affiliates, partners and
former partners) holds less than 1% of the Company's outstanding Common Stock
and (c) all Registrable Securities held by and issuable to such Holder (and
its affiliates, partners, former partners, members and former members) may be
sold under Rule 144 during any ninety (90) day period.
2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) No Holder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them and the intended method
of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
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(c) The Company shall have no obligation with respect to any
registration requested pursuant to Section 2.2 or Section 2.4 if, due to the
operation of subsection 2.2(b), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's
obligation to initiate such registration as specified in Section 2.2 or
Section 2.4, whichever is applicable.
2.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers and directors of each
Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation") by the
Company: (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law in connection with the
offering covered by such registration statement; and, upon final
determination by a court of competent jurisdiction, the Company will pay to
each such Holder, partner, officer, director, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the indemnity agreement
contained in this Section 2.9(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable in any
such case for any such loss, claim, damage, liability or action to the extent
that it arises out of or is based upon a Violation which occurs in reliance
upon and in conformity with written information furnished expressly for use
in connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration, qualifications or compliance is being effected, indemnify and hold
harmless the Company, each of its directors, its officers and each person, if
any, who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, or partner,
director, officer or controlling person of such other Holder may become subject
under
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the Securities Act, the Exchange Act or other federal or state law, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder, partner,
officer, director, affiliate or controlling person of such Holder under an
instrument duly executed by such Holder, partner, officer, director,
affiliate or controlling person of such Holder and stated to be specifically
for use in connection with such registration; and each such Holder will pay
as incurred any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or other Holder,
or partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there was such a
Violation; PROVIDED, HOWEVER, that the indemnity agreement contained in this
Section 2.9(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; PROVIDED FURTHER, that in no event shall any indemnity under this
Section 2.9 exceed the proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 2.9,
deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel in
such proceeding. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action, if
materially prejudicial to its ability to defend such action, shall relieve
such indemnifying party of any liability to the indemnified party under this
Section 2.9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 2.9.
(d) If the indemnification provided for in this Section 2.9 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any losses, claims, damages or liabilities referred to herein,
the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
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knowledge, access to information and opportunity to correct or prevent such
statement or omission; PROVIDED THAT in no event shall any contribution by a
Holder hereunder exceed the proceeds from the offering received by such
Holder.
(e) The obligations of the Company and Holders under this Section
2.9 shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this Agreement. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 2 may be assigned
by a Holder to a transferee or assignee of Registrable Securities which (a)
is a subsidiary, parent, general partner, limited partner, retired partner,
member or withdrawn member of a Holder, (b) is a Holder's family member or
trust for the benefit of an individual Holder, or (c) acquires at least
twenty-five thousand (25,000) shares of Registrable Securities (as adjusted
for stock splits and combinations); PROVIDED, HOWEVER, (i) the transferor
shall, within ten (10) days after such transfer, furnish to the Company
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned
and (ii) such transferee shall agree to be subject to all restrictions set
forth in this Agreement.
2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 2
may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Holders of at least sixty-six
and two-thirds percent (66 2/3%) of the Registrable Securities then
outstanding. Any amendment or waiver effected in accordance with this
Section 2.11 shall be binding upon each Holder and the Company. By
acceptance of any benefits under this Section 2, Holders of Registrable
Securities hereby agree to be bound by the provisions hereunder.
2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of
this Agreement, the Company shall not, without the prior written consent of
the Holders of sixty-six and two-thirds percent (66 2/3%) of the Registrable
Securities then outstanding, enter into any agreement with any holder or
prospective holder of any securities of the Company that would grant such
holder registration rights senior to those granted to the Holders hereunder.
2.13 "MARKET STAND-OFF" AGREEMENT; AGREEMENT TO FURNISH INFORMATION.
Each Holder hereby agrees that such Holder shall not sell or otherwise
transfer or dispose of any Common Stock (or other securities) of the Company
held by such Holder (other than those included in the registration) for a
period specified by the representative of the underwriters of Common Stock
(or other securities) of the Company not to exceed one hundred eighty (180)
days following the effective date of a registration statement of the Company
filed under the Securities Act; PROVIDED THAT (i) such agreement shall apply
only to the Company's Initial Offering; and (ii) all officers and directors
of the Company and holders of at least one percent (1%) of the Company's
voting securities enter into similar agreements.
12
<PAGE>
Each Holder agrees to execute and deliver such other agreements as may
be reasonably requested by the Company or the underwriter which are
consistent with the foregoing or which are necessary to give further effect
thereto. In addition, if requested by the Company or the representative of
the underwriters of Common Stock (or other securities) of the Company, each
Holder shall provide, within ten (10) days of such request, such information
as may be required by the Company or such representative in connection with
the completion of any public offering of the Company's securities pursuant to
a registration statement filed under the Securities Act. The obligations
described in this Section 2.13 shall not apply to a registration relating
solely to employee benefit plans on Form S-1 or Form S-8 or similar forms
that may be promulgated in the future, or a registration relating solely to a
Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares of Common Stock (or other securities) subject to
the foregoing restriction until the end of said one hundred eighty (180) day
period.
2.14 RULE 144 REPORTING. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date
of the first registration filed by the Company for an offering of its
securities to the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act; and
(c) So long as a Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request: a written statement by the Company as
to its compliance with the reporting requirements of said Rule 144 of the
Securities Act, and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
SECTION 3 COVENANTS OF THE COMPANY
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records of account in
which full and correct entries will be made of all its business transactions
pursuant to a system of accounting established and administered in accordance
with generally accepted accounting principles consistently applied, and will
set aside on its books all such proper accruals and reserves as shall be
required under generally accepted accounting principles consistently applied.
(b) As soon as practicable after the end of each fiscal year of the
Company, and in any event within one hundred twenty (120) days thereafter, the
Company will furnish the Investors a balance sheet of the Company, as at the end
of such fiscal year, and a statement of income and a statement of cash flows of
the Company, for such year, all prepared in accordance
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<PAGE>
with generally accepted accounting principles consistently applied and
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail. Such financial statements shall be
accompanied by a report and opinion thereon by independent public accountants
of national standing selected by the Company's Board of Directors.
(c) The Company will furnish the Investors, as soon as practicable
after the end of the first, second and third quarterly accounting periods in
each fiscal year of the Company, and in any event within forty-five (45) days
thereafter, a balance sheet of the Company as of the end of each such
quarterly period, and a statement of income and a statement of cash flows of
the Company for such period and for the current fiscal year to date, prepared
in accordance with generally accepted accounting principles, with the
exception that no notes need be attached to such statements and year-end
audit adjustments may not have been made.
(d) The Company will furnish to the Investors (i) at least thirty
(30) days prior to the beginning of each fiscal year an annual budget and
operating plans for such fiscal year (and as soon as available, any
subsequent revisions thereto); and (ii) as soon as practicable after the end
of each month, and in any event within thirty (30) days thereafter, a balance
sheet of the Company as of the end of each such month, and a statement of
income and a statement of cash flows of the Company for such month and for
the current fiscal year to date, including a comparison to plan figures for
such period, prepared in accordance with generally accepted accounting
principles consistently applied, with the exception that no notes need be
attached to such statements and year-end audit adjustments may not have been
made.
3.2 INSPECTION RIGHTS. The Investors shall have the right to visit and
inspect any of the properties of the Company or any of its subsidiaries, and
to discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, and to review such information as is
reasonably requested all at such reasonable times and as often as may be
reasonably requested; PROVIDED, HOWEVER, that the Company shall not be
obligated under this Section 3.2 with respect to a competitor of the Company
or with respect to information which the Board of Directors determines in
good faith is confidential and should not, therefore, be disclosed.
3.3 CONFIDENTIALITY OF RECORDS. Each Investor agrees to use, and to
use its best efforts to insure that its authorized representatives use, the
same degree of care as such Investor uses to protect its own confidential
information to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Investor may
disclose such proprietary or confidential information to any partner,
subsidiary or parent of such Investor for the purpose of evaluating its
investment in the Company as long as such partner, subsidiary or parent is
advised of the confidentiality provisions of this Section 3.3. All
information disclosed under Section 3.1 hereof shall be deemed to be
confidential information, except such information shall no longer be deemed
confidential if such information (i) was in the public domain at the time it
was communicated to the Investor, (ii) enters the public domain subsequent to
the time it was communicated to the Investor through no fault of the
Investor, (iii) was in the Investor's possession free of any obligation of
confidence at the time it was communicated to the Investor, (iv) is
rightfully communicated to the Investor free of any obligation of confidence
subsequent to the time it was communicated to the Investor; (v) is
communicated by the Company to an
14
<PAGE>
unaffiliated third party free of any obligation of confidence; (vi) is
required to be disclosed in response to a valid order by a court or other
governmental body, is otherwise required by law, or is necessary to establish
the rights of either party under this Agreement any other agreement to which
the Investor and the Company are party.
3.4 KEY PERSON INSURANCE. The Company will assist the Investors in
obtaining and maintaining in full force and effect, at the Investors'
expense, term life insurance in the amount of Fifteen Million Dollars
($15,000,000) dollars on the life of Jeffery S. Fraser; naming the Investors
as beneficiary.
3.5 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Company
shall require all employees and consultants to execute and deliver a
Proprietary Information and Inventions Agreement in the form attached to the
Purchase Agreement.
3.6 APPROVAL. The Company shall not without the approval of a majority
of the disinterested directors of the Board of Directors and the approval at
least one of the Directors nominated by the Investors, authorize or enter
into any transactions with any director or management employee, or such
director's or employee's immediate family.
3.7 DIRECTORS' LIABILITY AND INDEMNIFICATION. The Company's Articles
of Incorporation and Bylaws shall provide (a) for elimination of the
liability of directors to the maximum extent permitted by law and (b) for
indemnification of directors for acts on behalf of the Company to the maximum
extent permitted by law.
3.8 TERMINATION OF COVENANTS. All covenants of the Company contained
in Section 3 of this Agreement shall expire and terminate as to each Investor
upon the earlier of (i) the effective date of the registration statement
pertaining to the Initial Offering or (ii) upon (a) the acquisition of all or
substantially all of the assets of the Company or (b) an acquisition of the
Company by another corporation or entity by consolidation, merger or other
reorganization in which the holders of the Company's outstanding voting stock
immediately prior to such transaction own, immediately after such
transaction, securities representing less than fifty percent (50%) of the
voting power of the corporation or other entity surviving such transaction.
SECTION 4 MISCELLANEOUS
4.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Kansas as applied to agreements among Kansas
residents entered into and to be performed entirely within Kansas.
4.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate
or instrument.
4.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, permitted
15
<PAGE>
assigns, heirs, executors, and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who shall be a
holder of Registrable Securities from time to time; PROVIDED, HOWEVER, that
prior to the receipt by the Company of adequate written notice of the
transfer of any Registrable Securities specifying the full name and address
of the transferee, the Company may deem and treat the person listed as the
holder of such shares in its records as the absolute owner and holder of such
shares for all purposes, including the payment of dividends or any redemption
price.
4.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Purchase Agreement and the other documents delivered pursuant
thereto set forth the entire understanding of the parties relating to the
subject matter thereof and supersede all prior agreements and understandings
among or between any of the parties relating to the subject matter thereof.
4.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
4.6 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the
Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of the
Company and the rights of the Holders under this Agreement may be waived only
with the written consent of the holders of at least sixty-six and two-thirds
percent (66 2/3%) of the Registrable Securities.
(c) Notwithstanding the foregoing, this Agreement may be amended
with only the written consent of the Company to include additional purchasers
of Registrable Securities as "Investors," "Holders" and parties hereto.
4.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement, shall impair
any such right, power, or remedy, nor shall it be construed to be a waiver of
any such breach, default or noncompliance, or any acquiescence therein, of
any similar breach, default or noncompliance thereafter occurring. It is
further agreed that any waiver, permit, consent, or approval of any kind or
character on any Holder's part of any breach, default or noncompliance under
the Agreement or any waiver on such Holder's part of any provisions or
conditions of this Agreement must be in writing and shall be effective only
to the extent specifically set forth in such writing. All remedies, either
under this Agreement, by law, or otherwise afforded to Holders, shall be
cumulative and not alternative.
4.8 NOTICES. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and
shall be deemed properly delivered, given and received when delivered (by
hand, by registered mail, by courier or express delivery service or by
facsimile) to the address or facsimile number set forth on the signature
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<PAGE>
pages hereof or SCHEDULE A hereto (or to such other address or facsimile
number as such party shall have specified in a written notice given to the
other parties hereto.
4.9 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including such reasonable fees, costs and expenses
of attorneys and accountants, with shall include all fees, costs and expenses
of appeals.
4.10 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
4.11 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which,
when taken together, shall constitute one agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this INVESTOR
RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
"INVESTORS": HELLMAN & FRIEDMAN
CAPITAL PARTNERS III, L.P.,
a California limited partnership
By: H&F INVESTORS III,
a California general partnership
By: Hellman & Friedman Associates III, L.P.,
a California limited partnership
Its: Managing General Partner
By: H&F Investors III, Inc.,
a California corporation
Its: Managing General Partner
By: /s/ Patrick J. Healy
----------------------------
Its: Vice President
----------------------------
H&F INTERNATIONAL PARTNERS III, L.P.,
a California limited partnership
By: H&F INVESTORS III,
a California general partnership
By: Hellman & Friedman Associates III, L.P.,
a California limited partnership
Its: Managing General Partner
By: H&F Investors III, Inc.,
a California corporation
Its: Managing General Partner
By: /s/ Patrick J. Healy
----------------------------
Its: Vice President
----------------------------
18
<PAGE>
H&F ORCHARD PARTNERS III, L.P.,
a California limited partnership
By: H&F INVESTORS III,
a California general partnership
By: Hellman & Friedman Associates III, L.P.,
a California limited partnership
Its: Managing General Partner
By: H&F Investors III, Inc.,
a California corporation
Its: Managing General Partner
By: /s/ Patrick J. Healy
----------------------------
Its: Vice President
----------------------------
H&F ORCHARD PARTNERS III, L.P.,
a California limited partnership
By: H&F INVESTORS III,
a California general partnership
By: Hellman & Friedman Associates III, L.P.,
a California limited partnership
Its: Managing General Partner
By: H&F Investors III, Inc.,
a California corporation
Its: Managing General Partner
By:
----------------------------
Its:
----------------------------
"COMPANY": NATIONAL INFORMATION CONSORTIUM, INC.,
a Delaware corporation
By: /s/ Jeffery S. Fraser
----------------------------
Jeffery S. Fraser, President
Address: 4125 Wimbledon Drive,
Lawrence, KS 66047
Fax: (785) 832-2884
19
<PAGE>
"VOTING TRUST": THE NATIONAL INFORMATION CONSORTIUM, INC.
VOTING TRUST U/A/D JUNE 30, 1998
/s/ Jeffery S. Fraser
----------------------------
JEFFERY S. FRASER, co-trustee
/s/ Ross C. Hartley
----------------------------
ROSS C. HARTLEY, co-trustee
Address: 4125 Wimbledon Drive,
Lawrence, KS 66047
Fax: (785) 832-2884
20
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
HELLMAN & FRIEDMAN CAPITAL PARTNERS III, L.P.
One Maritime Plaza, 12th Floor
San Francisco, California 94111
H&F INTERNATIONAL PARTNERS III, L.P.
One Maritime Plaza, 12th Floor
San Francisco, California 94111
H&F ORCHARD PARTNERS III, L.P.
One Maritime Plaza, 12th Floor
San Francisco, California 94111
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1 GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 2 REGISTRATION; RESTRICTIONS ON TRANSFER . . . . . . . . . . . . . . . . .3
2.1 Restrictions on Transfer.. . . . . . . . . . . . . . . . . . . . . . . .3
2.2 Demand Registration. . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.3 Piggyback Registrations. . . . . . . . . . . . . . . . . . . . . . . . .5
2.4 Form S-3 Registration. . . . . . . . . . . . . . . . . . . . . . . . . .6
2.5 Expenses of Registration.. . . . . . . . . . . . . . . . . . . . . . . .8
2.6 Obligations of the Company.. . . . . . . . . . . . . . . . . . . . . . .8
2.7 Termination of Registration Rights.. . . . . . . . . . . . . . . . . . .9
2.8 Delay of Registration; Furnishing Information. . . . . . . . . . . . . .9
2.9 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.10 Assignment of Registration Rights. . . . . . . . . . . . . . . . . . . 12
2.11 Amendment of Registration Rights.. . . . . . . . . . . . . . . . . . . 12
2.12 Limitation on Subsequent Registration Rights.. . . . . . . . . . . . . 12
2.13 "Market Stand-Off" Agreement; Agreement to Furnish
Information.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.14 Rule 144 Reporting.. . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3 COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . 14
3.1 Basic Financial Information and Reporting. . . . . . . . . . . . . . . 14
3.2 Inspection Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.3 Confidentiality of Records.. . . . . . . . . . . . . . . . . . . . . . 14
3.4 Key Person Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . 15
3.5 Proprietary Information and Inventions Agreement.. . . . . . . . . . . 15
3.6 Approval.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.7 Directors' Liability and Indemnification.. . . . . . . . . . . . . . . 15
3.8 Termination of Covenants.. . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.1 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.2 Survival.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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<PAGE>
4.3 Successors and Assigns.. . . . . . . . . . . . . . . . . . . . . . . . 16
4.4 Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.5 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.6 Amendment and Waiver.. . . . . . . . . . . . . . . . . . . . . . . . . 17
4.7 Delays or Omissions. . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.9 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.10 Titles and Subtitles.. . . . . . . . . . . . . . . . . . . . . . . . . 18
4.11 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
ii
<PAGE>
Exhibit 9.1
EXECUTION COPY
VOTING TRUST AGREEMENT
----------------------
THIS AGREEMENT, made and entered into as of this 30th day of
June, 1998, by and between Jeffery S. Fraser and Ross C. Hartley (the "Voting
Trustees"), and those holders of shares of National Information Consortium,
Inc., a Delaware corporation, (formerly International Information Consortium,
Inc.) who shall execute this agreement (hereinafter referred to individually
as "Stockholder" and collectively as "Stockholders"),
WITNESSETH:
WHEREAS, the Stockholders and the Voting Trustees desire to enter
into this voting trust;
NOW, THEREFORE, in consideration of the mutual covenants and
promises hereinafter contained, the parties hereto do hereby severally agree
as follows:
I. DEFINITIONS
----------------
As used in this agreement:
Section 1.1 The term "Code" shall mean the Internal Revenue Code of
1986, as amended.
Section 1.2 The term "Company" shall mean National Information
Consortium, Inc., a Delaware corporation, its successor and successors, any
surviving corporation into which it may be merged, or any corporation
resulting from its consolidation with any other corporation or corporations
and the successor and successors of any such surviving or consolidated
corporation or corporations.
Section 1.3 The term "Entity" shall mean a corporation, trust,
limited liability company, joint venture, general partnership or limited
partnership.
Section 1.4 The term "Sale" shall mean any transfer for
consideration, the terms and conditions of which were arrived at through
arms-length negotiations, other than a pledge, hypothecation or transfer of
shares for security purposes only and not involving a change in voting rights
in respect of any shares.
Section 1.5 The term "Shares" or "Shares of the Company" shall mean
shares of the common stock of the Company or any other shares of the Company
of whatever class having the right to vote for the election of directors of
the Company.
Section 1.6 The term "Securities" as used herein shall include the
Shares of the Company and all other forms of cash, stocks, bonds or other
property held by the Voting Trustees under this Agreement.
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Section 1.7 The term "Voting Trust Certificate" or "Certificate"
shall mean a voting trust certificate issued pursuant to the terms and
provisions of this Voting Trust Agreement, as from time to time amended or
supplemented.
Section 1.8 The term "Voting Trust Certificate Holder" or "Holder"
shall mean the holder of a Voting Trust Certificate.
II. DEPOSIT OF SHARES
Section 2.1 Concurrently with a Stockholder's execution hereof the
Stockholder shall deliver to the Voting Trustees the stock certificates
representing all of the Shares owned by such Stockholder, duly transferred to
the Voting Trustees. Each Stockholder shall deliver to the Voting Trustees
any additional stock certificates representing all the Shares acquired by the
Stockholder at any time after such Stockholder's execution hereof and shall
duly transfer said certificates to the Voting Trustees. The Voting Trustees
shall forthwith cause any certificates of stock so transferred to the Voting
Trustees to be canceled and a new certificate of stock to be issued therefore
to the Voting Trustees as Voting Trustees hereunder, and the Voting Trustees
shall issue to the Stockholder a Voting Trust Certificate for the number of
Shares transferred by the Stockholder to the Voting Trustees.
III. VOTING TRUST CERTIFICATES
Section 3.1 The Voting Trust Certificates to be issued by the Voting
Trustees shall be in the form attached hereto as Exhibit A. These
Certificates may be written, typewritten, mimeographed or printed as
determined by the Voting Trustees. The Voting Trustees may from time to time
change the manner of preparation or general form of the Voting Trust
Certificates and may require Certificates then outstanding to be exchanged
for new Certificates in the modified form; PROVIDED, that no change in the
Certificates shall be inconsistent with this Agreement or alter the rights of
Holders hereunder.
Section 3.2 The Voting Trustees may, in their discretion, issue
Voting Trust Certificates for fractions of a Share, or may issue scrip
certificates in lieu thereof, which scrip certificates shall be in the form
and shall carry the rights and privileges as the Voting Trustees may
determine.
Section 3.3 The Voting Trust Certificates issued by the Voting
Trustees may be transferred on the books of the Voting Trustees upon
surrender of the Certificates, property endorsed by the record owner thereof
in person, or by his attorney duly authorized, in accordance with the rules
established by the Voting Trustees. Until so transferred the Voting Trustees
may treat the record holders as owners thereof for all purposes whatsoever.
The Voting Trustees shall not, however, be required to deliver any Securities
without the surrender of the Voting Trust Certificates representing the
Securities. The transfer books for Voting Trust Certificates may be closed
by the Voting Trustees at any time prior to the payment or distribution of
dividends, or for any other purpose, or the Voting Trustees may fix a record
date in lieu of closing the transfer books.
Section 3.4 No voting right or power with respect to the Shares or
other Securities held in trust hereunder shall pass to the Holders of Voting
Trust Certificates or by or under this
2
<PAGE>
Agreement or any other agreement, whether by implication or otherwise, while
the Shares or other Securities are held in trust hereunder.
IV. POWERS OF THE VOTING TRUSTEES
Section 4.1 Until the complete termination of this Agreement as
herein provided, the Voting Trustees are hereby irrevocably authorized and
empowered in their discretion to exercise the following powers with respect
to the Shares or any other Securities held by them under this Agreement:
(1) To vote or fail to vote for the election of directors and for
any act or purpose, any and all of the Securities having voting rights, or to
consent or fail to consent on behalf of said Securities to any act or
proposal, including, but not limited, to the following:
(a) the increase, reduction or change of any Shares or
the issuance of any different shares or other securities;
(b) the waiver of preemptive rights, if any, of the
Stockholders or Voting Trust Certificate Holders to subscribe to
additional Shares or securities, subject, however, to the
provisions of Section 6.4 below;
(c) the classification or reclassification of Shares or
other securities into any preferred, common or other shares, with
or without par value, or into other securities or partly into
shares and partly into other securities;
(d) the modification, elimination or waiver of the
rights, preferences, privileges, priorities or par or stated value
of any class of Shares or other securities;
(e) the amendment of the charter, articles of
incorporation, bylaws or other organizational documents of the
Company or any other Entity, including but not limited to an
increase or decrease of authorized shares or of stated capital;
(f) the sale, mortgage, hypothecation or lease of all or
any part of the assets of the Company or any other Entity;
(g) the authorization of indebtedness, secured or
unsecured of the Company or any other Entity;
(h) the authorization of the merger or consolidation of
the Company or any other Entity into or with other corporations or
Entities, or of the dissolution, reorganization or recapitalization
of the Company or any other Entity; and
(i) the authorization, ratification or approval of any
other corporate act or other act (or non-action) of any nature
whatsoever as fully as if the Voting Trustees were the absolute
owners of the Securities.
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<PAGE>
(2) To give proxies or other instruments of authority with full
power of substitution and revocation, to vote or consent with respect to any
or all of the Securities in any manner, on any matter, and for any purpose.
(3) To receive dividends or distributions on all Securities.
(4) To exchange Securities, in whole or in part, for other
securities, upon the terms as the Voting Trustees in their sole discretion
may deem advisable, including the surrender and exchange of Securities, in a
merger, consolidation, reorganization or recapitalization, or the sale or
exchange of all or part of the assets of the Company for securities of
another Entity. All securities received in any such exchange shall be held
by the Voting Trustees in lieu of the Securities theretofore held hereunder.
(5) To sell all or any part of the Shares or other Securities for
the consideration and upon the terms as the Voting Trustees in their sole
discretion may deem advisable.
(6) To prepare, execute, verify and file in the name of, and on
behalf of, any Holder any tax, form, return, amended return, declaration of
estimated tax, amended declaration of estimated tax, report, protest,
application for correction of assessed valuation of real or other property,
appeal, brief, claim for refund, or petition, including petition to the Tax
Court of the United States, in connection with any tax imposed or purported
to be imposed by any government, or claimed, levied or assessed by any
government, and to pay any such tax and to obtain any extension of time for
any of the foregoing.
Section 4.2 The Voting Trustees are authorized and empowered to
perform any and all acts necessary and appropriate in connection with the
organization and operation of the Voting Trust.
Section 4.3 The Voting Trustees shall have power to appoint agents
from time to time with powers, duties and functions as the Voting Trustees
may deem advisable. All such appointments shall be made by instrument in
writing and shall specify the authority and duties of the agent, and all such
appointments may be revoked at any time by instrument in writing. These
instruments shall all become effective upon filing an executed copy thereof
with the secretary of the Company, and any agent so appointed may resign by
filing a written notice of resignation with the Voting Trustees and a copy
thereof with the secretary of the Company at least thirty (30) days prior to
the date of resignation specified therein.
Section 4.4 The Voting Trustees are authorized and empowered to
participate in, to intervene in, to become a party to or to defend any
actions of any character, suits or legal proceedings relating to or affecting
this Agreement, or the Securities or the rights of the parties hereto.
Section 4.5 Either of the Voting Trustees may at any time resign by
mailing to the Holders and the Company a resignation in writing. In the
event of the death, resignation or incapacity of either Voting Trustee, the
surviving trustee shall become the sole Voting Trustee hereunder. In the
event of the death, resignation or incapacity of both of the Voting Trustees,
a successor voting trustee shall be appointed by instrument in writing signed
by the Holders representing a majority of the Shares then held in this voting
trust.
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Section 4.6 Every successor voting trustee appointed in accordance
with Section 4.5, shall, upon the acceptance of such appointment, be deemed
the Voting Trustee hereunder, and shall have all the estate, title, rights
and powers of the Voting Trustee hereunder, and all acts and instruments
shall be done or executed which shall be necessary or reasonably requested
for the purpose of effecting the succession and of making the successor
voting trustee the owner of record of the Shares and other Securities held in
this voting trust.
V. LIABILITY AND INDEMNIFICATION
Section 5.1 The Voting Trustees shall not be responsible, as
trustees, Stockholders of the Company or otherwise, by reason of any matter
or thing done or omitted to be done by them, their agents or attorneys or by
the management of the Company, except for their own willful misconduct. The
Voting Trustees shall under no circumstances incur any liability whatsoever
as a result of any action under this Agreement authorized, taken or permitted
to be taken by the Voting Trustees in good faith (i) upon advice of counsel,
or (ii) with the consent of the Holders representing a majority of the Shares
then held hereunder.
Section 5.2 No agent appointed by the Voting Trustees shall be liable
or responsible for any action taken or permitted to be taken upon and in
accordance with the written instructions or with the written approval of the
Voting Trustees.
Section 5.3 The Voting Trustees shall be indemnified in their
capacities as Voting Trustees of the Company for any matter or thing done or
omitted to be done by them, except for conduct which is finally adjudged by a
court of law to have been willful misconduct. Such indemnification shall be
paid out of the cash dividends of the Company, if any, or if there are no
such cash dividends, then the indemnification may be paid out of the proceeds
of the sale of Shares or Securities held hereunder.
VI. DIVIDENDS AND DISTRIBUTIONS
Section 6.1 Within a reasonable time after receipt thereof, the
Voting Trustees shall pay over to each Holder the cash dividends or other
distributions, if any, collected by the VotingTrustees upon the Shares or
other Securities then held hereunder represented by the Holder's Voting Trust
Certificate or Certificates, subject to the provisions of Section 5.3 above.
Section 6.2 In the event that any dividend or other distribution paid
in Shares shall be received by the Voting Trustees, each Holder shall be
entitled to receive an additional Voting Trust Certificate representing the
portion of the Shares so received by the Voting Trustees as the Shares
represented by the Holder's Voting Trust Certificate or Certificates bear to
the total number of Shares held hereunder prior to the receipt of the
distribution. In the event any dividend or other distribution other than
cash or Shares is received by the Voting Trustees, the Voting Trustees shall
promptly distribute the same, less any and all expenses incurred by them in
connection therewith, to the Holders pro rata as provided in the preceding
sentence.
Section 6.3 The Voting Trustees may request the Company to make
payment of any a cash dividends directly to the Holders entitled thereto. If
the Company so agrees, the Voting Trustees,
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in order to assist the Company with such payment, shall provide the Company
with a list of the Holders and any specific direction for the payment of such
dividends.
Section 6.4 If the Company should offer any of its stock or other
securities to its Stockholders for subscription, the Voting Trustees shall
notify the Holders of that fact promptly after the Voting Trustees have
themselves received notice thereof. Upon receiving from any Holder before
the time limited by the Company for subscription and payment, a request to
subscribe on his behalf and the money required to pay for a stated amount of
the stock or other securities (not in excess of the ratable amount
subscribable in respect to the Shares represented by the Holder's Voting
Trust Certificate), the Voting Trustees shall make such subscription and
payment, and upon receiving the shares or other securities so subscribed for,
shall, if Shares of the Company, issue one or more Voting Trust Certificates
in respect thereof to the Holder who shall have made the request and payment,
and if other securities, shall deliver the securities to the Holder who shall
have made the request and payment.
VII. CHARGES
Section 7.1 If at any time the Voting Trustees are of the opinion
that any tax or governmental charge is payable in respect of any Securities,
or in respect of any dividends, distributions or other rights arising from or
pertaining to the subject matter of this Agreement, the Voting Trustees may,
but shall not be required to, pay the tax or charge. Any sum so paid, with
interest thereon at 8% per annum, shall be a first charge against the
Securities on which the tax or charge was levied or in respect of which the
dividends, distributions or rights were received, and the Voting Trustees may
reimburse themselves therefrom or from any funds coming into their possession
as a result thereof.
Section 7.2 The Voting Trustees shall have a lien upon any and all
Securities held hereunder, or the proceeds thereof or the receipts therefrom,
to reimburse themselves for any and all such taxes or governmental charges
and any and all liabilities, claims and expenses which they may incur or pay,
either individually or as Voting Trustees, in the administration and
execution of this trust, including amounts that may be due them under Section
5.3 above; PROVIDED, that all such taxes, charges, liabilities, claims and
expenses which are chargeable to any specific Securities shall be
reimbursable only out of and shall constitute a lien against such specific
Securities or the proceeds thereof or receipts therefrom.
Section 7.3 As a condition of making any payment, issuance, transfer
or distribution under this Agreement, the Voting Trustees may require the
Stockholder to make payment to the Voting Trustees of a sum sufficient to pay
or reimburse them for any transfer, issuance or other tax or governmental
charges in connection therewith.
VIII. TERMINATION
Section 8.1 Unless terminated earlier as hereinafter provided, this
Agreement and the voting trust hereby created shall terminate upon the
expiration of 20 years following the day and year first above written (the
"Expiration Date").
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Section 8.2 The Voting Trustees, at their option, may jointly
terminate this Agreement and the voting trust hereby created at any time by
giving written notice of the termination of this Agreement and the voting
trust hereby created to the Holders.
Section 8.3 If, for whatever reason, the Voting Trustees become
deadlocked, with respect to any matter relating to the Agreement, or any
action to be taken or failure to act hereunder, then, after ninety (90) days
of such deadlock, either of them may terminate this Agreement and the voting
trust hereby created by giving written notice of the intent to terminate this
Agreement and the voting trust hereby created to the other Voting Trustee and
the Holders.
Section 8.4 Upon termination of this Agreement and the voting trust
hereby created, the Voting Trustees shall call upon and require the Holders
then outstanding to surrender their Certificates, and upon presentation of
said Certificates the Holders thereof shall be entitled to receive, in
exchange therefor, the Securities then held hereunder represented by said
Certificates.
Section 8.5 Whenever Securities held by the Voting Trustees shall
become deliverable to the Holders, the Voting Trustees may deliver the
Securities, property endorsed, to any bank or trust company in Kansas City,
Missouri, which they may select, with irrevocable instructions to deliver
them to or upon the order of the appropriate Holders upon the surrender of
said Certificates, and thereupon any further obligation or duty of the Voting
Trustees under this Agreement with respect thereto shall cease.
IX. MEETINGS OF THE HOLDERS
Section 9.1 If the Voting Trustees desire to ascertain the views of
the Holders with respect to any action or thing done or proposed to be done
by the Voting Trustees, or upon any other question, the Voting Trustees may
call a meeting of the Holders, to be held at 4125 Wimbledon Drive, Lawrence,
Kansas 66047 or at any place that the Voting Trustees may select. The notice
of the call shall set forth the time, place and purpose of the meeting, and
shall be mailed at least 10 days before the date of the meeting as
hereinafter provided.
Section 9.2 At each meeting each Holder shall have one vote for each
Share represented by the Certificate or Certificates standing in such
Holder's name, and may vote in person or by proxy. If at any such meeting
the Holders representing a majority of the Shares at the time held in trust
hereunder shall affirmatively concur in any expression or view with regard to
any matter mentioned in the call of the meeting, such expression or view may
conclusively and for all purposes be deemed by the Voting Trustees to be that
of the Holders and each and every Holder agrees for himself, his successors
and assigns, to accept and be bound by that expression or view, except as
provided elsewhere in this Agreement. No action at any such meeting shall
operate to modify the express provisions of this Agreement or in any way
limit the powers and discretion of the Voting Trustees as defined by this
Agreement.
X. RESTRICTIONS ON TRANSFERABILITY
Section 10.1 By signing this Agreement, each Holder acknowledges the
provisions of Section 6.5 of the Company's Bylaws which not only restrict the
transfer of Shares of the Company but also restrict the Holder's ability to
transfer an interest in this voting trust, and which also grants
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the Company an option to purchase interests in this voting trust in certain
defined situations. Further, each Holder agrees that such Holder shall (i)
strictly adhere to the provisions of Section 6.5 of the Company's Bylaws, in
effect from time to time, and (ii) be liable for any and all damages, and
costs and expenses, including, but not limited to, attorneys fees, suffered
by the Company, its stockholders and the Holders caused by Holder's breach of
such provisions.
Section 10.2 In order that all transferees will be put on notice of
the provisions of this Section 10, a legend in substantially the following
form shall be placed on all stock certificates and Voting Trust Certificates
representing Shares or Voting Trust Certificates of the Company.
SUBJECT TO PROVISIONS
RESTRICTING CERTAIN TRANSFERS
The shares or voting trust certificates
represented by this certificate are subject to
certain provisions of a voting trust agreement
imposing certain restrictions on the transfer of
these shares or voting trust certificates and
granting certain rights to the holders of these
shares or voting trust certificates, and these
shares or voting trust certificates cannot be sold,
donated, transferred or in any other manner disposed
of except in accordance with the terms of said
voting trust agreement provisions, a copy of which
is available for inspection at the Company's offices.
XI. MISCELLANEOUS
Section 11.1 This Agreement maybe amended in any and all respects by
agreement in writing signed by the Voting Trustees and the Holders
representing a majority of the Shares then held in this voting trust.
Section 11.2 All notices to the Holders shall be given by mail,
postage prepaid, addressed to the Holders at their addresses shown upon the
books of the Voting Trustees, and any call or notice whatsoever when so
mailed by the Voting Trustees shall be considered as though personally served
on all Holders, and that mailing shall be the only notice required to be
given under any provision of this Agreement.
Section 11.3 A copy of this Agreement shall be filed at the principal
office of the Company, and shall be open to the inspection of any Holder
during business hours.
Section 11.4 The Voting Trustees may act as directors or officers,
with or without compensation therefor, of the Company or any subsidiary or
affiliated corporation of the Company or of any corporation the securities of
which are held by the Voting Trustees hereunder, and the Voting Trustees may
be Holders. The Voting Trustees may own or hold Shares outside of the voting
trust and shall be entitled to vote the same or exercise any and all of the
rights of ownership thereof as fully as if they were not the Voting Trustees.
The Voting Trustees or any firm or corporation in which they may be
interested may contract with, or become pecuniarily interested in, any matter
or transaction with the Company or any subsidiary
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or affiliated corporation of the Company as fully as though they were not the
Voting Trustees. The Voting Trustees shall not be required to give any bond
or security.
Section 11.5 This Agreement may be executed in several counterparts,
each of which so executed shall be deemed to be the original of the
counterpart and the counterparts shall together constitute one and the same
instrument.
Section 11.6 Whenever under the terms of this Agreement the consent or
approval of the Holders is required or may be desired to be obtained, the
same may be evidenced by instruments of approval or consent signed by the
Holders or their attorneys or agents.
Section 11.7 This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, administrators,
executors, successors and assigns.
Section 11.8 If for any reason any provision hereof shall be
determined to be inoperative, the validity and effect of the other provisions
hereof shall not be affected thereby.
Section 11.9 This Agreement and the trust hereby created shall be
construed in accordance with and be governed by the laws of the State of
Delaware.
Section 11.10 The Voting Trustees by signing this Agreement accept the
trust herein created.
IN WITNESS WHEREOF, the parties hereto have hereunto signed this
Agreement as of the day and year first above written.
Voting Trustees:
/s/ Jeffery S. Fraser
-----------------------------------------
/s/ Ross L. Hartley
-----------------------------------------
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EXHIBIT A
No. __________ __________ Shares
NATIONAL INFORMATION CONSORTIUM, INC.
A DELAWARE CORPORATION
VOTING TRUST CERTIFICATE
This is to certify that ________________________________________
hereafter referred to as the "Owner" or "Record Holder" of this certificate)
or predecessor(s) in interest has or have deposited with the undersigned as
voting trustees under the voting trust agreement (the "Agreement")
hereinafter mentioned __________ shares of the common stock of National
information Consortium, Inc., a Delaware corporation (the "Company"), and
that the Owner, or assigns, is/are entitled to all the benefits and interests
specified in the Agreement arising from the deposit of said shares, all as
provided in and subject to the terms of the Agreement, to which reference is
hereby made for a complete statement thereof.
Until the termination of the voting trust as provided in the
Agreement and delivery or deposit of the Securities (as defined in the
Agreement), the Owner of this Certificate or assigns is entitled to receive
his pro rata part of any cash dividends received by the Voting Trustees (as
defined in the Agreement) upon the Shares represented by this Certificate,
subject to and as provided in the Agreement; and the Voting Trustees shall
possess and shall be entitled to exercise the right to vote thereon and to
execute consents with respect thereto for every purpose, and with all those
rights and powers which are more specifically set out in the Agreement, it
being expressly stipulated that no voting right passes to the Owner or
assigns by or under the Agreement or this Certificate or by or under any
agreement, express or implied.
This Certificate is issued under and pursuant to, and the rights
of the Owner and assigns are subject to and limited by, the terms and
conditions of the Agreement which is dated _____________19__ , and a copy of
which is filed with the Company. Receipt of a copy of the Agreement is
hereby acknowledged by the Owner, and the Owner and assigns hereby assent to
the terms and conditions thereof. This Certificate is transferable on the
books of the undersigned Voting Trustees by the Record Holder in person, or
by attorney or agent, duly authorized according to the rules established for
that purpose by the Voting Trustees, upon surrender of this Certificate
properly endorsed; and until so transferred the Voting Trustees may treat the
Record Holder as Owner hereof for all purposes whatsoever, but shall not be
required to deliver any securities hereunder without the surrender hereof.
In connection with and as a condition of making or permitting any transfer or
delivery of Voting Trust Certificates or Securities, the Voting Trustees may
require payment of a sum sufficient to pay or reimburse them for any stamp
tax or other governmental charge in connection therewith.
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IN WITNESS WHEREOF, the undersigned Voting Trustees, personally
or by their duly appointed agent, have executed this certificate this _____
day of ______________ 19__.
-------------------------------------------
Voting Trustees
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Exhibit 10.1
INDEMNITY AGREEMENT
This Indemnity Agreement ("Agreement") is made and entered into by and
between National Information Consortium, Inc., a Colorado corporation
("Company"), and ___________________ ___________________ ("Indemnitee") on
this ______ day of ________________, ______.
INTRODUCTION
Indemnitee is a director and/or officer of the Company. The parties
desire that the Company provide indemnification (including advancement of
expenses) to Indemnitee against any and all liabilities asserted against
Indemnitee to the fullest extent permitted by the Colorado Business
Corporation Act ("Act"), as the Act presently exists and may be expanded from
time to time. Based on such premise, and for certain good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereby agree as follows:
1. CONTINUED SERVICE. Indemnitee will serve at the will of the
Company or under separate contract, if such exists, as a director and/or
officer of the Company for so long as Indemnitee is duly elected and
qualified in accordance with the Bylaws of the Company or until Indemnitee
tenders his or her resignation to the Company.
2. INDEMNIFICATION. The Company shall indemnify Indemnitee as follows:
2.1 The Company shall indemnify Indemnitee when Indemnitee was,
is, or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative and whether formal or informal (other than an action by or
in the right of the Company), by reason of the fact that Indemnitee is or was
a director, officer, employee or agent of the Company or is or was serving at
the request of the Company as a director, officer, employee, associate,
fiduciary, manager, member, partner, promoter, trustee or agent of another
domestic or foreign corporation or other person or of an employee benefit
plan against reasonable expenses (including counsel fees) incurred by
Indemnitee in connection with such proceeding if Indemnitee conducted himself
or herself in good faith and Indemnitee reasonably believed that his or her
conduct was in or not opposed to the best interests of the Company, and, with
respect to any criminal proceeding, had no reasonable cause to believe that
his or her conduct was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent is not, of itself, determinative that Indemnitee did not meet
the standard of conduct described in this Section 2.1.
2.2 The Company shall indemnify Indemnitee when Indemnitee was,
is, or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by or in the right of the Company to
procure a judgment in its favor by reason of the fact that Indemnitee is or
was a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee,
associate, fiduciary, manager, member, partner, promoter, trustee or agent of
another domestic or foreign corporation or other person or of an employee
benefit plan against reasonable expenses (including counsel fees) incurred by
Indemnitee in connection with such proceeding if Indemnitee conducted himself
or herself in good
<PAGE>
faith and Indemnitee reasonably believed that his or her conduct was in or
not opposed to the best interests of the Company and except that no
indemnification pursuant to this Agreement shall be made in connection with a
proceeding (i) in which Indemnitee shall have been adjudged to be liable to
the Company, or (ii) charging that Indemnitee derived an improper personal
benefit, whether or not involving action in an official capacity, in which
proceeding Indemnitee was adjudged liable on the basis that he or she derived
an improper personal benefit, UNLESS and only to the extent that the court in
which such proceeding was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the proceeding, Indemnitee is fairly and reasonably entitled to indemnity for
such reasonable expenses which the court shall deem proper.
2.3 Any indemnification under Sections 2.1 and 2.2 (unless ordered
by a court) shall be made by the Company only as authorized in the specific
proceeding upon a determination, in accordance with the procedures set forth
in Section 3, that indemnification of Indemnitee is proper in the
circumstances because Indemnitee has met the applicable standard of conduct
set forth in such Sections 2.1 and 2.2. Such determination shall be made (1)
by the board of directors of the Company by a majority vote of those present
at a meeting at which a quorum consisting of directors who were not parties
to such proceeding are present, (2) if a quorum cannot be obtained, by a
majority vote of a committee of the board of directors designated by the
board of directors, which committee shall consist of two or more directors
not parties to the proceeding, (3) if a quorum of the board cannot be
obtained nor a board committee established, or if a majority of the directors
constituting such quorum or such board committee so directs, by (a)
independent legal counsel selected by a vote of the board or the board
committee, or if a quorum of the full board cannot be obtained or a board
committee cannot be established, by independent legal counsel selected by a
majority vote of the full Board, or (b) by the stockholders of the Company.
2.4 Reasonable expenses (including counsel fees) incurred by
Indemnitee who is a party to any threatened, pending or completed civil,
criminal, administrative, or investigative action, suit or proceeding shall
be paid by the Company in advance of the final disposition of such
proceeding, as authorized in the manner provided in Section 2.3, within 14
days after the receipt by the Company from Indemnitee of a Statement of
Undertaking in substantially the form set forth in EXHIBIT A, in which
Indemnitee undertakes to repay such amount if it is ultimately determined
that Indemnitee did not meet the standard of conduct. Those people making
the determination must also determine that based upon the facts then known to
them, indemnification would not be precluded.
2.5 The indemnification and advancement of expenses provided by,
or granted pursuant to, this Section 2 shall not be deemed exclusive of any
other rights to which Indemnitee may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to
action in Indemnitee's official capacity and as to action in another capacity
while holding such office, shall continue after Indemnitee has ceased to be a
director, officer, employee or agent of the Company, and shall inure to the
benefit of the heirs, executors and administrators of Indemnitee.
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3. DETERMINATION OF RIGHT TO INDEMNIFICATION. For the purpose of
making the determination of whether to indemnify Indemnitee in a specific
case under Section 2.3, the board of directors of the Company, board
committee, independent legal counsel or stockholders, as the case may be,
shall make the determination in accordance with the following procedures:
3.1 Indemnitee shall submit to the board of directors a Statement
of Request for Indemnification in substantially the form set forth in EXHIBIT
B, in which Indemnitee states that Indemnitee has met the applicable standard
of conduct set forth in Sections 2.1 and 2.2.
3.2 Indemnitee's submission of a Statement of Request for
Indemnification to the board of directors shall create a rebuttable
presumption that Indemnitee has met the applicable standard of conduct set
forth in sections 2.1 and 2.2 and, therefore, is entitled to indemnification
under Section 2. The board of directors, board committee, independent legal
counsel or stockholders, as the case may be, shall determine, within 30 days
after submission of the Statement of Request for Indemnification,
specifically, that Indemnitee is so entitled, unless it or they shall possess
clear and convincing evidence to rebut the foregoing presumption, which
evidence shall be disclosed to Indemnitee with particularity in a sworn
written statement signed by all persons who participated in the determination
and voted to deny indemnification.
4. MERGER, CONSOLIDATION OR CHANGE IN CONTROL. If the Company is a
constituent corporation in a merger or consolidation, whether the Company is
the resulting or surviving corporation or is absorbed as a result thereof, or
if there is a change in control of the Company, Indemnitee shall stand in the
same position under this agreement with respect to the resulting, surviving
or changed corporation as Indemnitee would have with respect to the Company
if its separate existence had continued or if there had been no change in
control of the Company.
5. CERTAIN DEFINITIONS. For the purposes of this Agreement, the
following terms shall have the indicated meanings and understandings:
5.1 The term "change in control" shall include any change in the
ownership of a majority of the outstanding voting securities of the Company
or in the composition of a majority of the members of the board of directors
of the Company.
5.2 The term "corporation" shall include any domestic or foreign
entity that is a predecessor of a corporation by reason of a merger or other
transaction in which the predecessor's existence leased upon consummation of
the transaction.
5.3 The term "director" means an individual who is or was a
director of the Company or an individual who, while a director of the
Company, is or was surviving at the Company's request as a director, an
officer, an agent, an associate, an employee, a fiduciary, a manager, a
member, a partner, a promoter or a trustee of, or to hold any similar
position with, another domestic or foreign corporation or other person or of
an employee benefit plan. A director is considered to be serving an employee
benefit plan at the Company's request if the director's duties
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to the Company also impose duties on, or otherwise involve services by, the
director to the plan or to participants in or beneficiaries of the plan.
"Director" includes, unless the context requires otherwise, the estate or
personal representative of a director.
5.4 The term "liability" means the obligation incurred with
respect to a proceeding to pay a judgment, settlement, penalty, fine,
including an excise tax assessed with respect to an employee benefit plan, or
reasonable expenses.
5.5 The term "official capacity" means, when used with respect to
a director, the office of director in the Company and, when used with respect
to a person other than a director, the office in the Company held by the
officer or the employment, fiduciary or agency relationship undertaken by the
employee, fiduciary or agent on behalf of the Company. "Official capacity"
does not include service for any other domestic or foreign corporation or
other person or employee benefit plan.
5.6 The term "party" includes a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding.
5.7 The term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal.
6. COUNSEL FEES. If Indemnitee institutes any legal action to enforce
Indemnitee's rights under this Agreement, or to recover damages for breach of
this Agreement, Indemnitee, if Indemnitee prevails in whole or in part, shall
be entitled to recover from the Company all fees and expenses (including
counsel fees) incurred by Indemnitee in connection therewith.
7. DEPOSIT OF FUNDS IN TRUST. If the Company voluntarily decides to
dissolve or to file a petition for relief under the applicable bankruptcy,
moratorium or similar laws, then not later than 10 days prior to such
dissolution or filing, the Company shall deposit in trust for the sole and
exclusive benefit of Indemnitee a cash amount equal to all amounts previously
authorized to be paid to Indemnitee hereunder, such amounts to be used to
discharge the Company's obligations to Indemnitee hereunder. Any amounts in
such trust not required for such purpose shall be returned to the Company.
This Section 7 shall not apply to the dissolution of the Company in
connection with a transaction as to which Section 4 applies.
8. AMENDMENTS TO ACT. This Agreement is intended to provide indemnity
to Indemnitee to the fullest extent allowed under Colorado law. Accordingly,
to the extent permitted by law, if the Act permits greater indemnity than the
indemnity set forth herein, or if any amendment is made to the Act expanding
the indemnity permissible under Colorado law, the indemnity obligations
contained herein automatically shall be expanded, without the necessity of
action on the part of any party, to the extent necessary to provide to
Indemnitee the fullest indemnity permissible under Colorado law.
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9. MISCELLANEOUS PROVISIONS.
9.1 SURVIVAL. The provisions of this Agreement shall survive the
termination of Indemnitee's service as a director or officer of the Company.
9.2 ENTIRE AGREEMENT. This Agreement constitutes the full
understanding of the parties and a complete and exclusive statement of the
terms and conditions of their agreement relating to the subject matter hereof
and supersedes all prior negotiations, understandings and agreements, whether
written or oral, between the parties, their affiliates, and their respective
principals, shareholders, directors, officers, employees, consultants and
agents with respect thereto.
INDEMNITEE:
----------------------------------------------
NATIONAL INFORMATION CONSORTIUM, INC.
By:
-------------------------------------------
Title:
----------------------------------------
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EXHIBIT A
STATEMENT OF UNDERTAKING
STATE OF _______________________ )
) ss:
COUNTY OF _____________________ )
I, _______________________, being first duly sworn, depose and say as
follows:
10. This Statement of Undertaking is submitted pursuant to the
Indemnity Agreement dated ___________, 1999, between National Information
Consortium, Inc., a Colorado corporation ("Company"), and me.
11. I am requesting the advancement of certain reasonable expenses
which I have incurred in defending a civil, criminal, investigative or
administrative action, suit or proceeding by reason of the fact that I am or
was a director and/or officer of the Company.
12. I hereby undertake to repay this advancement of expenses if it is
ultimately determined that I did not meet the applicable standard of conduct
to be indemnified by the Company.
13. I am requesting the advancement of reasonable expenses in
connection with the following proceeding:
I have executed this Statement of Undertaking on ________________________.
------------------------------------------------
Signature
------------------------------------------------
Print Name
Subscribed and sworn to before me on ______________________.
My commission expires: ________________________
--------------------------------------------------
Notary Public in and for said state and county
<PAGE>
EXHIBIT B
STATEMENT OF REQUEST FOR INDEMNIFICATION
STATE OF _______________________ )
) ss:
COUNTY OF _____________________ )
I, _____________________________, being first duly sworn, depose and say as
follows:
14. This Statement of Request for Indemnification is submitted pursuant
to the Indemnity Agreement dated ________________, 1999, between National
Information Consortium, Inc., a Colorado corporation ("Company"), and me.
15. I am requesting indemnification against reasonable expenses
(including counsel fees) incurred by me in connection with a certain
proceeding to which I am a party or am threatened to be made a party by
reason of the fact that I am or was a director and/or officer of the Company.
16. With respect to all matters related to any such proceeding, I
conducted myself in good faith and I reasonably believed that my conduct was
in or not opposed to the best interests of the Company, and, with respect to
any criminal proceeding, I had no reasonable cause to believe that my conduct
was unlawful.
17. I am requesting indemnification in connection with the following
proceeding:
I have executed this Statement of Request for Indemnification on
___________________.
----------------------------------------------
Signature
----------------------------------------------
Print Name
Subscribed and sworn to before me on ______________________.
My commission expires: ________________________
----------------------------------------------
Notary Public in and for said state and county
<PAGE>
EXHIBIT 10.2
AMENDED AND RESTATED
NATIONAL INFORMATION CONSORTIUM, INC.
1998 STOCK OPTION PLAN
NATIONAL INFORMATION CONSORTIUM, INC., a Colorado corporation (the
"Company"), (formerly named International Information Consortium, Inc.)
hereby formulates and adopts, voting in person or by proxy at a duly
constituted meeting of the stockholders of the Company, a stock option plan
to offer certain key employees of the Company and its subsidiaries and
directors of the Company, the opportunity to become owners of Common Stock,
no par value per share of the Company ("NIC Common Stock"), under stock
options, certain of which are intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and certain of which are intended to be nonqualified stock options.
The Plan was adopted effective May 5, 1998 and as amended November 3, 1998
and May 4,1999.
1. PURPOSE OF PLAN. The purpose of this 1998 Stock Option Plan (the
"Plan") is to encourage certain employees of the Company and its
subsidiaries, and directors of the Company, to participate in the ownership
of the Company, and to provide additional incentive for such employees and
directors to promote the success of its business through sharing in the
future growth of such business.
2. ADMINISTRATION. This Plan shall be administered by a committee
("Committee") which shall be selected by the Board of Directors and which
shall be composed of not less than two (2) nor more than five (5) members of
the Board of Directors. The Committee shall have full power and authority to
construe, interpret and administer the Plan, and may from time to time adopt
such rules and regulations for carrying out this Plan as it may deem proper
and in the best interests of the Company. Subject to the terms, provisions
and conditions of the Plan, the Committee shall have exclusive authority (i)
to select the employees to whom options shall be granted, (ii) to determine
the number of shares subject to each option, (iii) to determine the time or
times when options will be granted, (iv) to determine the option price of the
shares subject to each option, (v) to determine the time when each option may
be exercised, (vi) to fix such other provisions of each option agreement as
the Committee may deem necessary or desirable, consistent with the terms of
this Plan, and (vii) to determine all other questions relating to the
administration of this Plan. The interpretation and construction of this Plan
by the Committee shall be final, conclusive and binding upon all persons. No
member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan
or any option.
3. DIRECTOR OPTIONS. Options for NIC Common Stock may be awarded by
the Committee to directors of the Company who are not otherwise employees of
the Company, provided such options shall be nonqualified stock options.
<PAGE>
4. ELIGIBILITY.
(1) EMPLOYEES-- KEY EMPLOYEES. Options to purchase shares of NIC
Common Stock shall be granted under this Plan only to employees who are key
employees of the Company or of any of its subsidiary corporations, as that
term is defined in Section 424(f) of the Code. Key employees to whom options
may be granted under this Plan will be those employees selected by the
Committee from time to time who, in the sole discretion of the Committee,
have made material contributions in the past, or who are expected to make
material contributions in the future, to the successful performance of the
Company.
(2) STOCK OWNERSHIP LIMITATION. No option shall be granted under
this Plan to any employee of the Company or of a subsidiary corporation who,
immediately before the option is granted, owns (either directly or by
application of the rules contained in Section 424(d) of the Code) stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or of any of its subsidiary corporations
unless at the time of such grant the option price is fixed at not less than
110 percent of the fair market value of the stock subject to the option., and
the exercise of such option is prohibited by its terms after the expiration
of five (5) years from the date such option is granted.
5. SHARES SUBJECT TO THE PLAN. Options granted under this Plan shall
be granted solely with respect to shares of NIC Common Stock. Subject to any
adjustments made pursuant to the provisions of Section 12, the aggregate
number of shares of NIC Common Stock which may be issued upon exercise of the
options which will be granted under this Plan shall not exceed 2,000,000
shares. The aggregate number of shares of NIC Common Stock that are available
for grant under an option at any particular time shall be equal to 2,000,000
shares, less the sum of: (i) the aggregate number of shares that have been
issued pursuant to the exercise of options granted under the Plan, and (ii)
the aggregate number of shares then subject to options that have not expired
or been canceled (but excluding any shares included in clause (i) as a result
of a partial exercise of an option).
If any option granted under this Plan shall expire or terminate for any
reason without having been exercised in full, the unpurchased shares subject
to such option shall be added to the number of shares otherwise available for
options which may be granted in accordance with the terms of this Plan.
The shares to be delivered upon exercise of the options granted under
this Plan shall be made available, at the discretion of the Board of
Directors, from either the authorized but unissued shares of NIC Common Stock
or any treasury shares of NIC Common Stock held by the Company.
6. OPTION AGREEMENT. Each option granted under this Plan shall be
evidenced by a stock option agreement (an "Agreement"), which shall be signed
by an officer of the Company and by the director or employee to whom the
option is granted (the "Optionee"). The terms of said Agreement shall be in
accordance with provisions as may be approved by the Committee. The
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<PAGE>
granting of an option under this Plan shall be deemed to occur on the date on
which the Board or Committee formally grants such option. Each Agreement
shall constitute a binding contract between the Company and the Optionee, and
every Optionee, upon the execution of an Agreement, shall be bound by the
terms and restrictions of this Plan and such Agreement. Each Agreement
intended to grant an incentive stock option shall contain such terms and
conditions as may be necessary to qualify the option granted thereunder (to
the extent possible) as an incentive stock option.
7. OPTION PRICE. The price at which shares of NIC Common Stock may be
purchased under an option granted pursuant to this Plan shall be determined
by the Committee, but in no event shalt the price be less than the greater of
(a) the par value thereof or (b) 100 percent of the fair market value of such
shares on the date that the option is granted. The fair market value of
shares of NIC Common Stock for purposes of this Plan shall be determined by
the Committee, in its sole discretion, and the Committee may adopt such
formulas as in its opinion shall reflect the true fair market value of such
stock from time to time, and may rely on such independent advice with respect
to such fair market value as the Committee shall deem appropriate.
8. PERIOD AND EXERCISE OF OPTION.
(1) PERIOD. Subject to the provisions of Section 10 hereof with
respect to the death or termination of employment of an Optionee, and Section
4(b) with respect to options granted to individuals owning more than 10% of
the Company, the period during which each option granted under this Plan may
be exercised shall be fixed by the Committee at the time such option is
granted, provided that such period shall expire no later than ten (10) years
from the date on which the option is granted. In the event the Company shall
not be the surviving corporation in any merger, consolidation, or
reorganization, or in the event of acquisition by another corporation of all
or substantially all of the assets of the Company, every option outstanding
hereunder may be assumed (with appropriate changes) by the surviving,
continuing, successor or purchasing corporation, as the case may be subject
to any applicable provisions of the Code or replaced with new options of
comparable value (in accordance with Section 424(a) of the Code). In the
event (i) that such surviving, continuing, successor or purchasing
corporation, as the case may be, does not assume or replace the outstanding
options hereunder, or (ii) of liquidation or dissolution of the Company, the
Committee may provide that each Optionee shall have the right, within a
period commencing not more than 30 days immediately prior to and ending on
the day immediately prior to such merger, consolidation, reorganization or
acquisition by another corporation of all or substantially all of the assets
of the Company or the liquidation or dissolution of the Company, to exercise
the Optionee's outstanding options to the extent of all or any part of the
aggregate number of shares subject to such option(s). In the event of a
"Change of Control" (as defined below) the Committee may accelerate the time
at which options granted under this Plan may be exercised by the Optionee.
For purposes of this paragraph (a) "Change of Control" shall be deemed to
occur when either (i) a person (other than a current stockholder, or a
director nominated or selected by the Board of Directors of the Company or an
officer elected by the Board of Directors of the Company) acquires beneficial
ownership (as defined by Securities and Exchange Commission Rule 13d-3) of 50
percent or more
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<PAGE>
of the combined voting power of the Company's voting securities, or
(ii) less than a majority of the directors are persons who were either
nominated or selected by the Board of Directors.
(2) EXERCISE. Any option granted under this Plan may be
exercised by the Optionee (or by a person acting under Section 10(b) below)
only by (i) delivering to the Company written notice of the number of shares
with respect to which the Optionee is exercising his or her option right,
(ii) paying in full the option price of the purchased shares, and (iii) if
the shares to be purchased have not been registered under the applicable
securities laws and if necessary, in the opinion of counsel for the Company
to secure an exemption from such registration, furnishing to the Company such
representation or agreement in writing signed by the Optionee as shall be
necessary in the opinion of such counsel to secure such exemption. Subject to
the limitations of this Plan and the terms and conditions of the respective
Agreement, each option granted under this Plan shall be exercisable in whole
or in part at such time or times as the Committee may specify in such
Agreement. The granting of an option shall impose no obligation upon the
Optionee to exercise such option.
(3) PAYMENT FOR SHARES. Payment for shares of NIC Common Stock
purchased pursuant to an option granted under this Plan may be made either in
cash or in other shares of NIC Common Stock.
(4) DELIVERY OF CERTIFICATES. As soon as practicable after
receipt by the Company of the notice and representation described in
subsection (b), and of payment in full of the option price for all of the
shares being purchased pursuant to an option granted under this Plan, a
certificate or certificates representing such shares of stock shall be
registered in the name of the Optionee and shall be delivered to the
Optionee. However, no certificate for fractional shares of stock shall be
issued by the Company notwithstanding any request therefor. Neither any
Optionee, nor the legal representative, legatee or distributee of any
Optionee, shall be deemed to be a holder of any shares of stock subject to an
option granted under this Plan unless and until the certificate or
certificates for such shares have been issued. All stock certificates issued
upon the exercise of any options granted pursuant to this Plan may bear such
legend as the Committee shall deem appropriate regarding restrictions upon
the transfer or sale of the shares evidenced thereby.
(5) LIMITATIONS ON EXERCISE. Except as provided in Section 10
hereof, no option granted under this Plan to an employee (rather than a
director to which this Section 8(e) does not apply) shall be exercised unless
the Optionee is at the time of such exercise employed by the Company or one
of its subsidiary corporations and shall have been so employed by the Company
or one of its subsidiary corporations at all times since the date on which
such option was granted.
(6) PARTIAL EXERCISE. Any option otherwise exercisable may be
exercised in whole or in part; PROVIDED, HOWEVER, that the Company shall not
be required to issue any fractional shares and the Committee may, by the
terms of the option, require any partial exercise to be with respect to a
specified minimum number of shares.
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<PAGE>
(7) CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company
shall not be required to issue or deliver any certificate or certificates for
shares of stock purchased upon the exercise of any option or portion thereof
prior to fulfillment (or waiver) of the following conditions:
(1) The completion of any registration or other qualification of
or notice regarding such shares under any state or federal law or under the
rulings or regulations of the Securities and Exchange Commission or any
other governmental regulatory body, which the Committee shall, in its
absolute discretion, deem necessary or advisable; and
(2) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee shall, in its
absolute discretion, determine to be necessary or advisable.
9. LIMITATION ON INCENTIVE STOCK OPTIONS GRANTED TO INDIVIDUAL
EMPLOYEES. The aggregate fair market value (determined at the time the
options are granted) of stock with respect to which incentive stock options
are exercisable for the first time by any individual during any calendar year
under this Plan (and under any other plan or plans of such individual's
employer corporation and any parent or subsidiary corporation or
corporations) shall not exceed $100,000; provided, however, the foregoing
$100,000 limitation shall only apply to incentive stock options and shall not
limit the aggregate fair market value of stock with respect to which all
other options granted under the Plan are exercisable for the first time by
any individual during any calendar year, and any options in excess of the
$100,000 limitation shall be non-statutory stock options subject to all other
provisions of this Plan. The $100,000 limitation provided by the preceding
sentence shall be applied by taking options into account in the order in
which they are granted. For purposes of this Plan, "incentive stock options"
shall mean options that meet the requirements of Section 422 of the Code.
Options granted to directors under Section 3 of this Plan shall not be
incentive stock options.
10. TERMINATION OF EMPLOYMENT. If an Optionee (other than a director)
shall cease to be employed by the Company or any of its subsidiary
corporations for any reason other than death, disability (as defined herein),
for cause (as defined herein) or on account of voluntary termination, any
option or unexercised portion thereof granted to him under this Plan which is
otherwise exercisable shall terminate unless it is exercised within thirty
(30) days of the date on which such Optionee ceases to be so employed, and in
any event no later than the expiration date of such option as specified in
the respective stock option agreement. Nothing in this Plan or in any stock
option agreement shall be construed as an obligation on the part of the
Company or any of its subsidiary corporations to continue the employment of
any employee.
(1) TERMINATION OF EMPLOYMENT FOR CAUSE OR ON ACCOUNT OF VOLUNTARY
TERMINATION. If an Optionee's employment by the Company or by any of its
subsidiary corporations should be terminated for cause or if an Optionee should
voluntarily terminate his employment with the Company or with any subsidiary of
the Company, any option or unexercised portion thereof
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<PAGE>
granted to him under this Plan shall immediately be terminated and forfeited
without any payment being due therefor from the Company or any subsidiary
thereof. For purposes of this paragraph (a), the term "cause" shall mean,
with respect to any Optionee, (1) cause as defined in the employment
agreement with the Company or any subsidiary thereof to which the Optionee is
a party or, if none, (2) the occurrence of any of the following events:
(1) the willful and continued failure by such Optionee to
substantially perform his duties with the Company or any subsidiary thereof
on a full-time basis (other than any such failure resulting from total or
partial incapacity due to physical or mental illness) alter a written
demand for substantial performance is delivered to such Optionee by the
Board, which demand identifies the manner in which the Board believes that
he has not substantially performed such duties;
(2) the willful engaging by such Optionee in conduct which is
significantly injurious to the Company or to any subsidiary of the Company,
monetarily or otherwise, after a written demand for cessation of such
conduct is delivered to such individual by the Board, which demand
specifically identifies the manner in which the Board believes that such
individual has engaged in such conduct and the injury to the Company or to
a subsidiary of the Company resulting therefrom;
(3) the commission by such Optionee of an act or acts
constituting a crime involving moral turpitude;
(4) the breach by such Optionee of one or more covenants, if
any, in an agreement to which the Optionee and the Company are parties;
(5) violation by such Optionee of Company policy; or
(6) the commission by such Optionee of a significant act of
dishonesty, deceit or breach of fiduciary duty in the performance of the
Optionee's duties with the Company or with any subsidiary of the Company.
For purposes of clauses (i) and (ii) of this definition, no act, or failure
to act, on the part of an Optionee shall be deemed to be willful unless
knowingly done, or omitted to be done, by such Optionee not in good faith and
without a reasonable belief that such action or omission was in the best
interests of the Company or of a subsidiary of the Company.
(2) TERMINATION OF EMPLOYMENT ON ACCOUNT OF DEATH OR DISABILITY OF
OPTIONEE. In the event of the death or disability of an Optionee while he is
an employee of the Company or of a subsidiary of the Company (or within
thirty (30) days of the date on which such Optionee ceases to be so employed
for any reason other than those set forth in subsection (a) of this Section
10) any option or unexercised portion thereof granted to him under this Plan
which is otherwise exercisable
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<PAGE>
shall terminate unless it is exercised within a period of one (1) year
following the earliest of the Optionee's death, disability, or such
termination of employment (but in no event later than the expiration date of
the option as specified in the respective option agreement). In the event of
the death of the Optionee, the option may be exercised in accordance with the
provisions of this paragraph (b) only by the person or persons to whom such
Optionee's rights under the option pass by operation of the Optionee's will
or the Laws of descent and distribution. For purposes of this paragraph (b),
the term "disability" shall mean, with respect to any Optionee, physical or
mental incapacity resulting in such Optionee being unable to substantially
perform his duties for more than six (6) consecutive months or an aggregate
of six (6) months in any period of twelve (12) consecutive months as
determined in writing by a qualified independent physician mutually
acceptable to the Optionee and the Company.
11. NONTRANSFERABILITY OF OPTIONS. Each option granted under this Plan
shall not be transferable or assignable by the Optionee other than by will or
the laws of descent and distribution, and during the lifetime of the Optionee
may be exercised only by said Optionee.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any
change in the capital structure of the Company, including but not limited to
a change resulting from a stock dividend, stock split, reorganization,
merger, consolidation, liquidation or any combination or exchange of shares,
the number of shares of NIC Common Stock subject to this Plan and the number
of such shares subject to each option granted hereunder shall be
correspondingly adjusted by the Committee; PROVIDED, HOWEVER, that no such
adjustment shall be made which would modify an option within the meaning of
Section 424(h) of the Code or grant benefits in excess of those permitted by
Section 424(a) of the Code, or any corresponding provisions of any future
internal revenue law. The option price for which shares of NIC Common Stock
may be purchased pursuant to an option granted under this Plan shall also be
adjusted so that there will be no change in the aggregate purchase price
payable upon the exercise of any option.
13. AMENDMENT AND TERMINATION OF PLAN. No option shall be granted
pursuant to this Plan after May 4, 2008, on which date this Plan will expire
except as to options then outstanding under the Plan, which options shall
remain in effect until they have been exercised or have expired. The Board of
Directors may at any time before such date amend, modify or terminate the
Plan; provided, however, that the Board of Directors may not, without further
approval by the holders of a majority of the issued and outstanding shares of
NIC Common Stock voting in person or by proxy at a duly constituted meeting
of the stockholders of the Company, (i) increase the maximum number of shares
of NIC Common Stock as to which options may be granted pursuant to this Plan,
(ii) change the class of employees eligible to be granted options pursuant to
the Plan, (iii) extend the period under this Plan during which options may be
granted or exercised, or (iv) change the provisions of Section 7 hereof with
respect to the determination of the option price, other than to change the
manner of determining the fair market value of shares of NIC Common Stock. No
amendment, modification or termination of this Plan may adversely affect the
rights of any Optionee under any then outstanding option granted hereunder
without the consent of such Optionee.
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<PAGE>
14. GOVERNING LAW. This Plan and the rights of all persons claiming
hereunder shall be construed and determined in accordance with the laws of the
State of Delaware.
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<PAGE>
Exhibit 10.3
NATIONAL INFORMATION CONSORTIUM
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
The purpose of the National Information Consortium Employee Stock
Purchase Plan ("Plan") is to provide a means by which an employee of National
Information Consortium, a Colorado corporation ("Company"), and any affiliate
of the Company ("Affiliate") may be given an opportunity to purchase stock of
the Company. By means of the Plan, the Company seeks to attract and retain
the services of persons of ability as employees and motivate such employees
to exert their best efforts on behalf of the Company, any Affiliate or other
shareholder of the Company. For the purposes of the Plan, the term
"Affiliate" means with respect to the Company either a parent corporation as
defined in Section 424(e) of the Internal Revenue Code of 1986, as amended
("Code"), or a subsidiary corporation as defined in Code Section 424(f). The
Plan is intended to qualify as an employee stock purchase plan under Code
Section 423.
2. SHARES SUBJECT TO THE PLAN.
Subject to the provisions of Plan Section 12, 500,000 shares of the
common voting stock of the Company ("Common Stock") will be reserved and may
be sold pursuant to stock purchase rights granted under the Plan. The
reserved shares will be such authorized and unissued shares of the Company as
determined by the Company's Board of Directors ("Board"). If any right to
purchase Common Stock granted under the Plan terminates for any reason
without having been exercised, the Common Stock which was not purchased
pursuant to such right will again be available under the Plan.
3. ADMINISTRATION OF THE PLAN.
The Plan will be administered by the Board or a committee thereof
consisting of three or more Board members, who may or may not be employees of
the Company or an Affiliate, ("Committee"). The members of the Committee
will be appointed by and will serve at the pleasure of the Board. Any
vacancies in the membership of the Committee will be filled by an appointment
by the Board. If the Board administers the Plan, the term "Committee" will
include the Board.
The Committee will keep minutes of its meetings. All actions of the
Committee will be taken by a majority of its members at a meeting duly called
and held and at which a quorum is present. Any act approved in writing by
all of the Committee members will be as fully effective as if it had been
taken by a vote of a majority of the members at a meeting duly called and
held and at which a quorum is present.
Subject to and not inconsistent with the provisions of the Plan, the
Committee will have complete authority in its sole discretion to determine
the employees to whom stock purchase rights will be granted and the
provisions for each offering of stock purchase rights (which need not be
identical); to construe and interpret the Plan, including disputed and
doubtful terms and provisions;
<PAGE>
to establish, amend and rescind rules and guidelines for administering the
Plan; and to make all determinations necessary or advisable for the
administration of the Plan.
All decisions, determinations and interpretations of the Committee will
be consistently and uniformly applied and will be conclusive and binding on
all parties.
4. GRANT OF STOCK PURCHASE RIGHTS.
The Committee may from time to time grant to eligible employees the
right to purchase Common Stock under the Plan ("Offering") on a date
("Offering Date") designated by the Committee. Each Offering will be in such
form and will contain such terms and conditions as the Committee will deem
appropriate, which will comply with the requirements of Code Section
423(b)(5) so that all eligible employees granted rights to purchase stock
under the Plan will have the same rights and privileges. The terms and
conditions of an Offering will be incorporated by reference into the Plan and
treated as part of the Plan. The provisions of an Offering need not be
identical to the terms and conditions of any other Offering. Each Offering,
however, will include (through incorporation of the provisions of this Plan
by reference in the document comprising the Offering) the period during which
the Offering will be effective, which period will not exceed twenty-seven
months beginning with the Offering Date, and the substance of the provisions
contained in Plan Sections 5 through 8, inclusive.
5. ELIGIBILITY FOR STOCK PURCHASE RIGHTS.
(a) Subject to the provisions of this Section 5, any employee of the
Company is eligible to be granted a stock purchase right under the Plan. Any
employee of an Affiliate which adopts the Plan with the approval of the Board
also is eligible to be granted a stock purchase right under the Plan, subject
to the provisions of this Section 5. For the purposes of the Plan, the term
"employee" means a common law employee as determined in accordance with the
rules of Code Section 3401(c) and the related Treasury regulations. The term
"employee will not include a member of the Board or of the board of directors
of an Affiliate who is not also an employee of the Company or an Affiliate,
or a leased employee within the meaning of Code Section 414(n). Additionally,
the term employee will not include a person who provides services to the
Company or an Affiliate under an agreement, contract or other arrangement
pursuant to which he is classified initially as an independent contractor or
whose remuneration for services to the Company or an Affiliate is treated
initially as not subject to federal income tax withholding under Code Section
3402, unless he is subsequently reclassified as a common law employee as a
result of a final decree of a court of competent jurisdiction or the
settlement of an administrative or judicial proceeding.
(b) Except as provided in Plan Section 5(c), an employee of the
Company or any Affiliate will not be eligible to be granted a stock purchase
right under the Plan in an Offering, unless on the Offering Date, such
employee has been in the employ of the Company or any Affiliate for such
continuous period preceding such grant as the Committee may require. Any
period of continuous employment required by the Committee with respect to a
particular Offering will not exceed two
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years and will be set forth in the terms of that Offering. In addition,
unless otherwise determined by the Committee and set forth in the terms of
the particular Offering, no employee of the Company or of any Affiliate will
be eligible to be granted a stock purchase right under the Plan, unless on
the Offering Date, such employee's customary employment with the Company or
such Affiliate is for at least twenty hours per week and at least five months
in any calendar year.
(c) The Committee may provide that each person who, within a
prescribed period during the course of an Offering and after the Offering
Date, first becomes eligible to be granted a stock purchase right under the
Plan will, on a date specified in the Offering which coincides with or
follows the date when such person becomes an eligible employee, receive under
the Offering a stock purchase right which will be deemed to be a part of that
Offering. Such right will have the same characteristics as any right
originally granted under that Offering, except that:
(i) The date on which such right is granted will be the
"Offering Date" of such right for all purposes, including determination of
the exercise price for the right; and
(ii) The period of the Offering with respect to the right
will begin on its Offering Date and end coincident with the end of such
Offering.
(d) No employee will be eligible for the grant of any stock purchase
right in an Offering under the Plan if, immediately after the right is
granted, such employee owns or would own stock possessing five percent or
more of the total combined voting power or value of all classes of stock of
the Company or any Affiliate. For purposes of this Section 5(d), the rules
of Code Section 424(d) of the Code will apply in determining the stock
ownership of any employee, and stock which such employee may purchase under
all outstanding rights and options will be treated as stock owned by such
employee.
(e) An eligible employee may be granted a stock purchase right under
the Plan only to the extent that the right, together with all other stock
purchase rights granted to him under any "employee stock purchase plan" of
the Company and any Affiliates, as specified by Code Section 423(b)(8), does
not permit the eligible employee's rights to purchase stock of the Company or
any Affiliate under all such plans to accrue at a rate which exceeds twenty
five thousand dollars of Fair Market Value of such stock (as defined in
Section 6(c) and determined at the time such rights are granted) for each
calendar year in which such rights are outstanding at any time.
6. PURCHASE PRICE.
(a) On each Offering Date, each eligible employee will be granted
the right to purchase up to the number of shares of Common Stock of the
Company purchasable with a maximum percentage designated by the Committee not
exceeding fifteen percent of such eligible employee's Compensation (as
defined in Plan Section 7(a)) during the period which begins on the Offering
Date (or such later date as the Committee determines for a particular
Offering) and ends on the date stated in the Offering, which date will be no
later than the end of the Offering. The Committee will
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establish one or more dates during an Offering ("Purchase Date") on which
stock purchase rights granted under the Plan will be exercised and Common
Stock will be purchased pursuant to the Offering.
(b) In connection with each Offering made under the Plan and subject
to the Plan terms, the Committee may specify a maximum number of Common Stock
shares that may be purchased by each eligible employee and a maximum
aggregate number of Common Stock shares that may be purchased by all eligible
employees pursuant to such Offering. In addition, in connection with each
Offering that contains more than one Purchase Date, the Committee may specify
a maximum aggregate number of Common Stock shares which may be purchased by
all eligible employees on any given Purchase Date under the Offering. If the
aggregate purchase of Common Stock shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the
Committee will make a pro rata allocation of the Common Stock shares
available in as nearly a uniform manner as will be practicable and as it will
deem to be equitable.
(c) The purchase price of Common Stock acquired pursuant to rights
granted under the Plan will be not less than the lesser of:
(i) An amount equal to eighty-five percent of the Fair
Market Value of the Common Stock on the Offering Date; or
(ii) An amount equal to eighty-five percent of the Fair
Market Value of the Common Stock on the Purchase Date.
For the purposes of the Plan, unless otherwise defined by the Committee for
any particular Offering, the "Fair Market Value" of the Common Stock on any
date means the closing price on that date on the NASDAQ National Market, the
principal stock exchange or other market on which the Common Stock is traded.
If the Common Stock is not traded on a particular date, the Fair Market
Value of this stock will be determined from the closing price on the
immediately preceding date when the stock is traded. If the Common Stock
price is not reported on any securities exchange or national market system,
the "Fair Market Value" of the stock for the purposes of the Plan will be the
value determined by the Committee.
7. PARTICIPATION IN THE PLAN.
(a) An eligible employee may become a Plan participant pursuant to
an Offering by delivering a Plan participation agreement to the Company
within the time specified by the Offering, in such form as the Committee
provides. Each such agreement will authorize payroll deductions of up to the
maximum percentage specified by the Committee of such eligible employee's
Compensation during the Offering. For the purposes of the Plan,
"Compensation" is defined as an employee's regular salary or wages.
"Compensation" does not include overtime, bonuses, commissions, severance
pay, incentive pay, shift premium differentials, pay in lieu of vacation,
imputed income for income tax purposes, patent fees, awards and prizes, back
pay awards,
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reimbursement of expenses and living allowances, educational allowances,
expense allowances, disability benefits, fringe benefits, deferred
compensation, compensation under any stock plan maintained by the Company or
an Affiliate, amounts paid for services as an independent contractor, or such
other inclusions or exclusions as may be determined by the Committee, in its
sole discretion, in a uniform and nondiscriminatory manner. Notwithstanding
the preceding sentence, "Compensation" will be determined for any participant
before giving effect to any salary reduction or cash or deferred arrangement
under Code Section 401(k) or to a salary reduction arrangement pursuant to
Code Section 125. The payroll deductions made for any participant will be
credited to a nominal account for such participant under the Plan, will be
deposited with the general funds of the Company, and will not accrue interest
for the benefit of the participant.
A participant may prospectively reduce (including to zero) or increase
his authorized payroll deductions for any Offering, and an eligible employee
may prospectively begin such payroll deductions, after the beginning of any
Offering only as provided for in the Offering. A participant may make
payments to be credited to his nominal account under the Plan, in addition to
his payroll deductions, only if specifically provided in the Offering and
only if the participant has not had the maximum amount withheld during the
Offering.
(b) At any time during an Offering, a participant may completely
terminate his payroll deductions under the Plan and withdraw from the
Offering by delivering to the Company a notice of withdrawal in such form as
the Committee provides. Such a withdrawal may be made at any time prior to
the end of the Offering, except as provided by the Committee in the Offering.
Upon a participant's withdrawal from the Offering, the Company will
distribute to the participant without interest all of his accumulated payroll
deductions (to the extent they have not been used to acquire Common Stock for
the participant) under the Offering. Immediately upon such distribution, the
participant's interest in the Offering will automatically terminate. A
participant's withdrawal from an Offering will have no effect upon his
eligibility to participate in any subsequent Offering under the Plan;
provided, however, that any such participant will be required to deliver a
new participation agreement in order to participate in a subsequent Offering.
(c) If the Fair Market Value of the Common Stock on any Purchase
Date is lower than the Fair Market Value of the Common Stock on the Offering
Date for the Offering in which such Purchase Date occurs, then all
participants in such Offering will be automatically withdrawn from such
Offering immediately after the exercise of their right to purchase Common
Stock on such Purchase Date and automatically re-enrolled in the next
Offering, which Offering will commence on the day immediately following such
Purchase Date.
(d) Any stock purchase right granted pursuant to any Offering under
the Plan to an eligible employee will terminate immediately upon his
separation from service with the Company and any Affiliate, for any reason.
Within an administratively practicable time thereafter, the Company will
distribute to a terminated employee who is a participant all of his
accumulated payroll deductions without interest (to the extent they have not
been used to acquire Common Stock for the participant) under the Offering. A
certificate for all whole shares purchased by the terminated
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employee under the Plan will be automatically issued, at the Company's
expense, as soon as administratively practicable after the last day of the
sixth month following the Purchase Date immediately preceding his separation
from service. Prior to such date, the terminated employee may request a
certificate, at his expense, for all whole shares credited to his Plan
nominal account for more than sixth months.
(e) Rights granted under the Plan will not be transferable by a
participant other than by will or the laws of descent and distribution, or by
a beneficiary designation as provided in Plan Section 14. During his
lifetime, a stock purchase right under the Plan will be exercisable only by
the participant to whom it is granted.
8. EXERCISE OF STOCK PURCHASE RIGHTS.
(a) On each Purchase Date specified in the relevant Offering, each
participant's accumulated payroll deductions and other additional payments
specifically permitted in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of Common Stock, up to the
maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares will be issued upon the exercise of a stock purchase right
granted under the Plan. The amount, if any, of accumulated payroll
deductions remaining in each participant's nominal account after the purchase
of shares which is less than the amount required to purchase one share of
Common Stock on the final Purchase Date of an Offering will be held in each
such participant's nominal account for the purchase of shares under the next
Offering under the Plan, unless such participant withdraws from such next
Offering, as provided in Plan Section 7(b), or is no longer eligible to be
granted a stock purchase right under the Plan, as provided in Plan Section 5,
in which case such amount will be distributed without interest to the
participant after such final Purchase Date. The amount, if any, of
accumulated payroll deductions remaining in any participant's nominal account
after the purchase of shares which is equal to the amount required to
purchase whole shares of Common Stock on the final Purchase Date of an
Offering will be distributed in full without interest to the participant
after such Purchase Date.
(b) On each Purchase Date during an Offering, the Plan custodian
designated by the Committee will receive from the Company at the price
provided in Plan Section 6(c), as many whole shares of Common Stock as may be
purchased with the funds withheld from participants since the immediately
preceding Purchase Date, or the Offering Date as the case may be, plus any
excess funds accumulated as provided in Section 8(a). Upon the receipt of
the Common Stock so purchased, the Plan custodian will allocate to the credit
of each participant the number of whole shares of Common Stock to which he is
entitled under the Offering. Subject to any restriction imposed by the
Committee as provided in this Section 8, and any other restriction imposed by
the Committee, a certificate representing the number of whole shares of
Common Stock purchased by a participant under this Plan will be issued to the
participant upon his request and at his expense. No such certificate will be
issued with respect to any Common Stock share prior to the last day of the
sixth month following the Purchase Date for that share. Unless otherwise
requested by the participant, and if permitted by this Section 8, Common
Stock shares purchased under the Plan will
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be held in the name of, or in the name of a nominee of, the Plan custodian
for the benefit of each participant, who will thereafter be a beneficial
shareholder of the Company.
(c) A participant will have no right to sell, encumber, or otherwise
transfer a Common Stock share purchased under the Plan until after the last
day of the sixth calendar month following the month when the share was
purchased, unless the Committee in its sole discretion waives or modifies
this restriction. Any attempt to sell, encumber or otherwise transfer a
Common Stock share in violation of this Section 8(c) will be null and void.
The Committee will enforce the restriction provided in this Section 8(c) by
requiring that the Company or the Plan custodian hold the certificate for any
share of Common Stock while the restriction is in effect for that share. The
Committee in its sole discretion may enforce this restriction through
different or additional means as it deems necessary or appropriate.
(d) No stock purchase right granted under the Plan may be exercised
to any extent unless the Common Stock shares to be issued upon such exercise
under the Plan (including rights granted thereunder) are covered by an
effective registration statement pursuant to the Securities Act of 1933, as
amended ("Securities Act") and the Plan is in material compliance with all
applicable state, foreign and other securities and other laws applicable to
the Plan. If on a Purchase Date in any Offering hereunder the Plan is not so
registered or in such compliance, no stock purchase right granted under the
Plan or any Offering will be exercised on such Purchase Date, and the
Purchase Date will be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date
will not be delayed more than twelve months and the Purchase Date will in no
event be more than twenty-seven months from the Offering Date. If on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no stock
purchase right granted under the Plan or any Offering will be exercised and
all payroll deductions accumulated during the Offering (to the extent they
have not been used to acquire Common Stock for participants) will be
distributed without interest to the participants.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the stock purchase rights granted under the
Plan, the Company will keep available at all times the number of shares of
Common Stock required to satisfy such rights.
(b) The Company will seek to obtain from each federal, state,
foreign or other regulatory commission or agency having jurisdiction over the
Plan such authority as may be required to issue and sell shares of Common
Stock upon exercise of the rights granted under the Plan. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems
necessary for the lawful issuance and sale of Common Stock under the Plan,
the Company will be relieved from any liability for failure to issue and sell
stock upon exercise of such rights unless and until such authority is
obtained.
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10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the
Plan will constitute general funds of the Company.
11. RIGHTS AS A SHAREHOLDER.
A participant will not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any Common Stock share subject to any
right granted under the Plan unless and until the participant's shareholdings
acquired upon exercise of rights under the Plan are recorded in the books of
the Company. Subject to the provisions of Plan Section 8(c), a share of
Common Stock issued to a participant under the Plan will be transferable in
accordance with the applicable securities laws.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the Common Stock subject to the Plan,
or subject to any right granted under the Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other
transaction not involving the receipt of consideration by the Company), the
Plan and any outstanding rights will be appropriately adjusted in the class
and maximum number of shares subject to the Plan and in the class, number of
shares, and price per share of stock subject to outstanding rights. Such
adjustments will be made by the Board, the determination of which will be
final, binding and conclusive. (The conversion of any convertible securities
of the Company will not be treated as an above-described "transaction not
involving the receipt of consideration by the Company.")
(b) In the event of (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4)
the acquisition by any person, entity or group within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended ("Exchange
Act") or any comparable successor provisions (excluding any employee benefit
plan, or related trust, sponsored or maintained by the Company or any
Affiliate of the Company) of the beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent of the combined
voting power entitled to vote in the election of directors, then, as
determined by the Board in its sole discretion (1) any surviving or acquiring
corporation may assume outstanding rights or substitute similar rights for
those under the Plan, (2) such rights may continue in full force and effect,
or (3) the participants' accumulated payroll deductions may be used to
purchase Common Stock immediately prior to the transaction described above
and all participants' rights under the ongoing Offering terminated.
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13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan; provided, that, except as provided in Plan Section 12 relating to
adjustments upon changes in stock, no amendment will be effective unless
approved by the shareholders of the Company within twelve months before or
after the adoption of the amendment by the Board, where the amendment will:
(i) Increase the number of shares reserved for rights under
the Plan;
(ii) Modify the provisions as to eligibility for participation
in the Plan (to the extent such modification requires shareholder approval in
order for the Plan to obtain employee stock purchase plan treatment under
Code Section 423, and the related Treasury regulations, or to comply with the
requirements of Rule 16b-3 under the Exchange Act, as amended ("Rule
16b-3")); or
(iii) Modify the Plan in any other way if such modification
requires shareholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Code Section 423 of the Code, and the related
Treasury regulations, or to comply with the requirements of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan in any respect
that the Board deems necessary or advisable to bring the Plan and any stock
purchase right granted under the Plan into compliance with the Code and the
related Treasury regulations.
(b) Rights and obligations under any stock purchase right granted
before a Plan amendment will not be impaired by any amendment of the Plan,
except with the consent of the eligible employee or participant to whom such
rights were granted, or as necessary to comply with any laws or governmental
regulations, or as necessary to ensure that the Plan and any stock purchase
right granted under the Plan comply with the requirements of Code Section 423
and the related Treasury regulations.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any Common Stock shares and cash, if any, from the
participant's nominal account under the Plan in the event of such
participant's death during or after the end of an Offering but prior to
delivery to the participant of such shares and cash.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company will
deliver such Common Stock shares and cash to the executor or administrator of
the estate of the participant, or if no such executor or administrator has
been appointed (to the knowledge of the
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Company), the Company, in its sole discretion, may deliver such shares and
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan
at any time. No right may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any stock purchase right granted
while the Plan is in effect will not be impaired by suspension or termination
of the Plan, except as expressly provided in the Plan or with the consent of
the person to whom such right was granted, or except as necessary to comply
with any laws or governmental regulation, or except as necessary to ensure
that the Plan and rights granted under the Plan comply with the requirements
of Code Section 423 and the related Treasury regulations.
16. EMPLOYMENT RIGHTS.
The Plan and any stock purchase right granted under the Plan will
neither confer on any employee any right with respect to continuation of
employment by the Company or any Affiliate, nor will it interfere in any way
with the right of the Company or any Affiliate to terminate such employment
at any time.
17. MISCELLANEOUS.
(a) As used in this Plan the term "and" means "and/or", the singular
includes the plural, and the masculine includes the feminine and neuter.
Headings of articles are not to be considered in the construction of the Plan.
(b) In the event that any provision of this Plan is held to be
contrary to any statute or law, or otherwise unenforceable, the remaining
provisions of this Plan will be enforced to the fullest extent practicable.
(c) The expenses of administering the Plan, including any expense
incurred to purchase Common Stock to be issued under the Plan will be paid by
the Company. Except as provided in Plan Section 7(d), a participant will be
responsible for any expense incurred to certify or sell shares purchased by
him under the Plan.
(d) All rights and obligations under the Plan will be construed and
interpreted in accordance with the laws of the State of Colorado, without
giving effect to the conflict of laws principles of such laws.
18. EFFECTIVE DATE.
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The Plan will become effective on the effective date of our initial
public offering. No stock purchase right under the Plan will be exercised
until the Plan has been approved by the Company's shareholders within twelve
months before or after the date the Plan is adopted by the Board.
NATIONAL INFORMATION CONSORTIUM
By: /s/ Jeffery S. Fraser
---------------------------------------
Title: Chief Executive Officer
------------------------------------
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Exhibit 10.4
NATIONAL INFORMATION CONSORTIUM, INC.
KEY EMPLOYEE AGREEMENT
FOR
Jeffery S. Fraser
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 1st
day of July 1998, by and between JEFFERY S. FRASER ("Executive") and NATIONAL
INFORMATION CONSORTIUM, INC. a Delaware corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide personal
services to the Company and to the Company's subsidiaries, and wishes to
provide Executive with certain compensation and benefits in return for his
services; and
WHEREAS, Executive wishes to be employed by the Company and provide
personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 Subject to terms set forth herein, the Company or a subsidiary of
the Company, agrees to employ Executive in the position of
President and Executive hereby accepts such employment effective
as of the date first written above. During the term of his
employment with the Company, Executive will devote his best
efforts and substantially all of his business time and attention
(except for vacation periods and reasonable periods of illness or
other incapacity's permitted by the Company's general employment
policies) to the business of the Company.
1.2 Executive will serve in an executive capacity and shall perform
such duties as are customarily associated with his then current
title, consistent with the Bylaws of the Company and as required
by the Company's Board of Directors (the "Board").
1.3 The employment relationship between the parties shall also be
governed by the general employment policies and practices of the
Company, including those relating to protection of confidential
information and assignment of inventions, except that when the
terms of this Agreement differ from or are in
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conflict with the Company's general employment policies or
practices, this Agreement shall control.
2. COMPENSATION
2.1 SALARY. Executive shall receive for services to be rendered
hereunder an annualized base salary of $249,000, payable in equal
installments (prorated for portions of a pay period) on the
Company's regular pay days and the Company will withhold from
such compensation all applicable federal and state income, social
security and disability and other taxes as required by applicable
laws.
2.2 STANDARD COMPANY BENEFITS. Executive shall be entitled to all
rights and benefits for which he is eligible under the terms and
conditions of the standard Company benefits and compensation
practices which may be in effect from time to time and provided
by the Company to its employees generally.
3. PROPRIETARY INFORMATION OBLIGATIONS
3.1 AGREEMENT. Executive agrees to execute and abide by the
Proprietary Information and Inventions Agreement attached hereto
as EXHIBIT A (the "Proprietary Information Agreement").
4. TERMINATION OF EMPLOYMENT
4.1 TERMINATION WITHOUT CAUSE.
(a) The Company shall have the right to terminate Executive's
employment with the Company at any time without cause.
(b) In the event Executive's employment is terminated without
cause before July 1st, 2001, the Company shall pay Executive
one year's base compensation in a single lump sum
distribution on the first regular Company pay period after
said termination; PROVIDED, HOWEVER, if Executive is
terminated without cause during the final twelve months of
his Employment Agreement, he shall only be entitled to the
equivalent of his base compensation in a single lump sum
distribution on the first regular Company pay period after
said termination for the remaining number of months until
expiration of Employment Agreement,
(c) In the event Executive's employment is terminated without
cause on or after July 1st, 2001, he will not be entitled
to severance pay, pay in lieu of notice or any other such
compensation, except as provided in the
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Company's Severance Benefit Plan, if any, in effect on the
termination date.
4.2 TERMINATION FOR CAUSE.
(a) The Company shall have the right to terminate Executive's
employment with the Company at any time for cause. Written
notification of termination and specific cause of
termination shall be provided to the Executive at the time
of termination.
(b) "Cause" for termination shall mean: (a) indictment or
conviction of any felony or of any crime involving
dishonesty; (b) willful participation in any fraud against
the Company; (c) willful breach of Executive's duties to the
Company, including persistent unsatisfactory performance of
job duties; (d) intentional damage to any property of the
Company; or (e) conduct by Executive which in the good faith
and reasonable determination of the Board demonstrates gross
unfitness to serve.
(c) In the event the Executive is notified in writing that his
employment is to be terminated for cause, the Executive
shall be given thirty days from date of notification to cure
the specific cause(s) set forth in the notification.
(d) In the event Executive's employment is terminated at any
time with cause, the executive will not be entitled to
severance pay, pay in lieu of notice or any other such
compensation; PROVIDED, HOWEVER, Executive is entitled and
shall receive all compensation earned prior to and including
the date of termination.
4.3 VOLUNTARY OR MUTUAL TERMINATION.
(a) Executive may voluntarily terminate his employment in
writing with the Company at any time, after which no
further compensation will be paid to Executive.
(b) In the event Executive voluntarily terminates his
employment, he will not be entitled to severance pay, pay in
lieu of notice or any other such compensation; PROVIDED,
HOWEVER, Executive is entitled and shall receive all
compensation earned prior to and including the date of
termination.
5. NON-INTERFERENCE; NON-COMPETITION.
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(a) While employed by the Company, and for three (3) years
immediately following the Termination Date, Executive agrees not
to interfere with the business of the Company by:
(i) soliciting, attempting to solicit, inducing, or otherwise
causing any employee of the Company to terminate his or her
employment in order to become an employee, consultant or
independent contractor to or for any competitor of the
Company; or
(ii) directly or indirectly soliciting the business of any
customer of the Company which at the time of termination or
one year immediately prior thereto was listed on the
Company's customer list.
(b) Executive agrees to execute and abide by the Non-Competition Agreement
attached hereto as EXHIBIT B.
6. GENERAL PROVISION.
6.1 NOTICES. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery
(including personal delivery by telex) or the third day after mailing
by first class mail, to the Company at its primary office location and
to Executive at his address as listed on the Company payroll.
6.2 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement is
held to be invalid, illegal or unenforceable in any respect under any
applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision or
any other jurisdiction, but this Agreement will be reformed, construed
and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provisions had never been contained herein.
6.3 WAIVER. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to
have waived any preceding or succeeding breach of the same or any
other provision of this Agreement.
6.4 COMPLETE AGREEMENT. This Agreement and its Exhibits, constitute
the entire agreement between Executive and the Company and it is the
complete, final, and exclusive embodiment of their agreement with
regard to the material terms of executive employment, compensation,
and duration. It is entered into without reliance on any promise or
representation other than those expressly contained herein, and it
cannot be modified or amended except in a writing signed by Executive
and an officer of the Company.
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6.5 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more
than one party, but all of which taken together will constitute one
and the same Agreement.
6.6 HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof
nor to affect the meaning thereof.
6.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the
Company, and their respective successors, assigns, heirs, executors
and administrators, except that Executive may not assign any of his
duties hereunder and he may not assign any of his rights hereunder
without the written consent of the Company, which shall not be
withheld unreasonably.
6.8 ATTORNEY FEES. If either party hereto brings any action to
enforce his or its rights hereunder, the prevailing party in any such
action shall be entitled to recover his or its reasonable attorneys'
fees and costs incurred in connection with such action.
6.9 CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the
law of the State of Kansas.
IN WITNESS WHEREOF, the parties have executed this Key Employee Agreement
on the day and year first above written.
NATIONAL INFORMATION
CONSORTIUM, INC.:
By: /s/ Ross C. Hartley
-----------------------------
Name: Ross C. Hartley
---------------------------
Title: Vice President
EXECUTIVE:
/s/ Jeffery S. Fraser
--------------------------------
Name: Jeffery S. Fraser
---------------------------
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Exhibit 10.5
NATIONAL INFORMATION CONSORTIUM, INC.
KEY EMPLOYEE AGREEMENT
FOR
WILLIAM F. BRADLEY JR.
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 24 day
of July 1998, by and between WILLIAM F. BRADLEY JR. ("Executive") and
NATIONAL INFORMATION CONSORTIUM, INC. a Delaware corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide personal
services to the Company and to the Company's subsidiaries, and desires to
provide Executive with certain compensation and benefits in return for his
services; and
WHEREAS, Executive desires to be employed by the Company and provide
personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 Subject to terms set forth herein, the Company or a subsidiary
of the Company, agrees to employ Executive in the position of Subsidiary
President and Executive hereby accepts such employment effective as of the
date first written above. During the term of his employment with the Company,
Executive will devote his best efforts and substantially all of his business
time and attention (except for vacation periods and reasonable periods of
illness or other incapacities permitted by the Company's general employment
policies) to the business of the Company.
1.2 Executive will serve in an executive capacity and shall
perform such duties as are customarily associated with his then current
title, consistent with the Bylaws of the Company and as required by the
Company's Board of Directors (the "Board").
1.3 The employment relationship between the parties shall also be
governed by the general employment policies and practices of the Company,
including those relating to protection of confidential information and
assignment of inventions, except that when the terms of this Agreement differ
from or are in conflict with the Company's general employment policies or
practices, this Agreement shall control.
2. COMPENSATION.
2.1 SALARY. Executive shall receive for services to be rendered
hereunder an annualized base salary of $140,000, payable in equal installments
(prorated for portions of a pay
1
<PAGE>
period) on the Company's regular pay days and the Company will withhold from
such compensation all applicable federal and state income, social security
and disability and other taxes as required by applicable laws.
2.2 STANDARD COMPANY BENEFITS. Executive shall be entitled to all
rights and benefits for which he is eligible under the terms and conditions
of the standard Company benefits and compensation practices which may be in
effect from time to time and provided by the Company to its employees
generally.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Executive agrees to execute and abide by the
Proprietary Information and Inventions Agreement attached hereto as EXHIBIT A
(the "Proprietary Information Agreement").
4. OUTSIDE ACTIVITIES.
4.1 Except with the prior written consent of the Company's Board
of Directors, Executive will not during the term of this Agreement undertake
or engage in any other employment, occupation or business enterprise, other
than ones in which Executive is a passive investor. Executive may engage in
civic and not-for-profit activities so long as such activities do not
materially interfere with the performance of his duties hereunder.
4.2 Except as permitted my Section 4.3, Executive agrees not to
acquire, assume or participate in, directly or indirectly, any position,
investment or interest known by him to be adverse or antagonistic to the
Company, its business or prospects, financial or otherwise.
4.3 During the term of his employment by the Company, except on
behalf of the Company, Executive will not directly or indirectly, whether as
an officer, director, stockholder, partner, proprietor, associate,
representative, consultant, or in any capacity whatsoever engage in, become
financially interested in, be employed by or have any business connection
with any other person, corporation, firm, partnership or other entity
whatsoever which were known by him to compete directly with the Company,
throughout the world, in any line of business engaged in (or planned to be
engaged in) by the Company; provided, however, that anything above to the
contrary notwithstanding, he may own, as a passive investor, shares of a
publicly-held corporation that is competitive with the Company, if such
shares are actively traded on an established national securities market, so
long as the number of shares of such corporation's capital stock that are
owned beneficially (directly or indirectly) by Executive shall not in the
aggregate constitute more than 5% of the outstanding voting stock of such
corporation.
5. TERMINATION OF EMPLOYMENT.
5.1 TERMINATION WITHOUT CAUSE.
(a) The Company shall have the right to terminate Executive's
employment with the Company at any time without cause.
2
<PAGE>
(b) In the event Executive's employment is terminated without
cause before July 1, 2001, the Company shall pay Executive one year's base
compensation in equal monthly payments on the first day of the month for each
of the twelve months following such termination; PROVIDED HOWEVER that if
Executive is terminated without cause during the final twelve months of
Executive's employment Agreement, Executive shall only be entitled to the
equivalent of Executive's base compensation for the remaining number of
months until the expiration of that employment Agreement.
(c) In the event Executive's employment is terminated without
cause on or after July 1st, 2001, he will not be entitled to severance pay,
pay in lieu of notice or any other such compensation, except as provided in
the Company's Severance Benefit Plan, if any, in effect on the termination
date.
5.2 TERMINATION FOR CAUSE.
(a) The Company shall have the right to terminate Executive's
employment with the Company at any time for cause. Written notification of
termination and specific cause of termination shall be provided to the
Executive at the time of termination.
(b) "Cause" for termination shall mean: (i) indictment or
conviction of any felony or of any crime involving dishonesty; (ii) willful
participation in any fraud against the Company; (iii) breach of Executive's
duties to the Company, including persistent unsatisfactory performance of job
duties; (iv) intentional damage to any property of the Company; or (v)
conduct by Executive which in the good faith and reasonable determination of
the Board demonstrates gross unfitness to serve. With respect to clause
(iii) above, Executive shall be given written notice of such unsatisfactory
performance and 30 days from the date of such notice to cure the causes set
forth therein.
(c) In the event Executive's employment is terminated at any
time with cause, the executive will not be entitled to severance pay, pay in
lieu of notice or any other such compensation; PROVIDED, HOWEVER, that
Executive is entitled and shall receive all compensation earned prior to and
including the date of termination.
5.3 VOLUNTARY OR MUTUAL TERMINATION.
(a) Executive may voluntarily terminate his employment with
the Company in writing at any time, after which no further compensation will
be paid to Executive.
(b) In the event Executive voluntarily terminates his
employment, he will not be entitled to severance pay, pay in lieu of notice
or any other such compensation; PROVIDED, HOWEVER, that Executive shall
receive all compensation earned prior to and including the date of
termination.
3
<PAGE>
6. NON-INTERFERENCE; NON-COMPETITION.
(a) While employed by the Company, and for three (3) years
immediately following the Termination Date, Executive agrees not to interfere
with the business of the Company by:
(i) soliciting, attempting to solicit, inducing, or
otherwise causing any employee of the Company to terminate his or her
employment in order to become an employee, consultant or independent
contractor to or for any competitor of the Company; or
(ii) directly or indirectly soliciting the business of
any customer of the Company which at the time of termination or one year
immediately prior thereto was listed on the Company's customer list.
(b) Executive agrees to execute and abide by the
Non-Competition Agreement attached hereto as EXHIBIT B.
7. GENERAL PROVISION.
7.1 NOTICES. Any notices provided hereunder must be in writing
and shall be deemed effective upon the earlier of personal delivery
(including personal delivery by telex) or the third day after mailing by
first class mail, to the Company at its primary office location and to
Executive at his address as listed on the Company payroll.
7.2 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision or any other jurisdiction, but this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provisions had never been contained
herein.
7.3 WAIVER. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision
of this Agreement.
7.4 COMPLETE AGREEMENT. This Agreement and its Exhibits,
constitute the entire agreement between Executive and the Company and it is
the complete, final, and exclusive embodiment of their agreement with regard
to this subject matter. It is entered into without reliance on any promise
or representation other than those expressly contained herein, and it cannot
be modified or amended except in a writing signed by Executive and an officer
of the Company.
7.5 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
4
<PAGE>
7.6 HEADINGS. The headings of the sections hereof are inserted
for convenience only and shall not be deemed to constitute a part hereof nor
to affect the meaning thereof.
7.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive and the Company,
and their respective successors, assigns, heirs, executors and
administrators, except that Executive may not assign any of his duties
hereunder and he may not assign any of his rights hereunder without the
written consent of the Company, which shall not be withheld unreasonably.
7.8 ATTORNEY FEES. If either party hereto brings any action to
enforce his or its rights hereunder, the prevailing party in any such action
shall be entitled to recover his or its reasonable attorneys' fees and costs
incurred in connection with such action.
7.9 CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of
the State of Kansas.
IN WITNESS WHEREOF, the parties have executed this Key Employee
Agreement on the day and year first above written.
NATIONAL INFORMATION
CONSORTIUM, INC.
By:/s/ Jeff Fraser
---------------------
Name: Jeff Fraser
-------------------
Title: President
------------------
EXECUTIVE:
By: /s/ William F. Bradley, Jr.
----------------------------
Name: William F. Bradley, Jr.
----------------------------
5
<PAGE>
EXHIBIT 10.6
NATIONAL INFORMATION CONSORTIUM, INC.
KEY EMPLOYEE AGREEMENT
FOR
SAMUEL SOMERHALDER
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 24th
day of July 1998, by and between SAMUEL SOMERHALDER ("Executive") and
NATIONAL INFORMATION CONSORTIUM, INC. a Delaware corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide personal
services to the Company and to the Company's subsidiaries, and desires to
provide Executive with certain compensation and benefits in return for his
services; and
WHEREAS, Executive desires to be employed by the Company and provide
personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 Subject to terms set forth herein, the Company or a subsidiary
of the Company agrees to employ Executive in the position of Subsidiary
President and Executive hereby accepts such employment effective as of the
date first written above. During the term of his employment with the Company,
Executive will devote his best efforts and substantially all of his business
time and attention (except for vacation periods and reasonable periods of
illness or other incapacities permitted by the Company's general employment
policies) to the business of the Company.
1.2 Executive will serve in an executive capacity and shall
perform such duties as are customarily associated with his then current
title, consistent with the Bylaws of the Company and as required by the
Company's Board of Directors (the "Board").
1.3 The employment relationship between the parties shall also be
governed by the general employment policies and practices of the Company,
including those relating to protection of confidential information and
assignment of inventions, except that when the terms of this Agreement differ
from or are in conflict with the Company's general employment policies or
practices, this Agreement shall control.
2. COMPENSATION.
2.1 SALARY. Executive shall receive for services to be rendered
hereunder an annualized base salary of $115,000, payable in equal installments
(prorated for portions of a pay
1
<PAGE>
period) on the Company's regular pay days and the Company will withhold from
such compensation all applicable federal and state income, social security
and disability and other taxes as required by applicable laws.
2.2 STANDARD COMPANY BENEFITS. Executive shall be entitled to all
rights and benefits for which he is eligible under the terms and conditions
of the standard Company benefits and compensation practices which may be in
effect from time to time and provided by the Company to its employees
generally.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Executive agrees to execute and abide by the
Proprietary Information and Inventions Agreement attached hereto as EXHIBIT A
(the "Proprietary Information Agreement").
4. OUTSIDE ACTIVITIES.
4.1 Except with the prior written consent of the Company's Board
of Directors, Executive will not during the term of this Agreement undertake
or engage in any other employment, occupation or business enterprise, other
than ones in which Executive is a passive investor. Executive may engage in
civic and not-for-profit activities so long as such activities do not
materially interfere with the performance of his duties hereunder.
4.2 Except as permitted my Section 4.3, Executive agrees not to
acquire, assume or participate in, directly, any position, investment or
interest known by him to be adverse or antagonistic to the Company, its
business or prospects, financial or otherwise.
4.3 During the term of his employment by the Company, except on
behalf of the Company, Executive will not directly or indirectly, whether as
an officer, director, stockholder, partner, proprietor, associate,
representative, consultant, or in any capacity whatsoever engage in, become
financially interested in, be employed by or have any business connection
with ant other person, corporation, firm, partnership or other entity
whatsoever which were known by him to compete directly with the Company,
throughout the world, in any line of business engaged in (or planned to be
engaged in) by the Company; provided, however, that anything above to the
contrary notwithstanding, he may own, as a passive investor, shares of a
publicly-held corporation that is competitive with the Company, if such
shares are actively traded on an established national securities market, so
long as the number of shares of such corporation's capital stock that are
owned beneficially (directly or indirectly) by Executive shall not in the
aggregate constitute more than 5% of the outstanding voting stock of such
corporation.
5. TERMINATION OF EMPLOYMENT.
5.1 TERMINATION WITHOUT CAUSE.
(a) The Company shall have the right to terminate Executive's
employment with the Company at any time without cause.
2
<PAGE>
(b) In the event Executive's employment is terminated without
cause before July 1, 2001, the Company shall pay Executive one year's base
compensation in equal monthly payments on the first day of the month for each
of the twelve months following such termination; PROVIDED HOWEVER that if
Executive is terminated without cause during the final twelve months of
Executive's employment Agreement, Executive shall only be entitled to the
equivalent of Executive's base compensation for the remaining number of
months until the expiration of that Employment Agreement,
(c) In the event Executive's employment is terminated without
cause on or after July 1, 2001, he will not be entitled to severance pay, pay
in lieu of notice or any other such compensation, except as provided in the
Company's Severance Benefit Plan, if any, in effect on the termination date.
5.2 TERMINATION FOR CAUSE.
(a) The Company shall have the right to terminate Executive's
employment with the Company at any time for cause. Written notification of
termination and specific cause of termination shall be provided to the
Executive at the time of termination.
(b) "Cause" for termination shall mean: (i) indictment or
conviction of any felony or of any crime involving dishonesty; (ii) willful
participation in any fraud against the Company; (iii) breach of Executive's
duties to the Company, including persistent unsatisfactory performance of job
duties; (iv) intentional damage to any property of the Company; or (v)
conduct by Executive which in the good faith and reasonable determination of
the Board demonstrates gross unfitness to serve. With respect to clause
(iii) above, Executive shall be given written notice of such unsatisfactory
performance and 30 days from the date of such notice to cure the causes set
forth therein.
(c) In the event Executive's employment is terminated at any
time with cause, the executive will not be entitled to severance pay, pay in
lieu of notice or any other such compensation; PROVIDED, HOWEVER, that
Executive shall receive all compensation earned prior to and including the
date of termination.
5.3 VOLUNTARY OR MUTUAL TERMINATION.
(a) Executive may voluntarily terminate his employment with
the Company in writing at any time, after which no further compensation will
be paid to Executive.
(b) In the event Executive voluntarily terminates his
employment, he will not be entitled to severance pay, pay in lieu of notice
or any other such compensation; PROVIDED, HOWEVER, Executive is entitled and
shall receive all compensation earned prior to and including the date of
termination.
3
<PAGE>
6. NON-INTERFERENCE; NON-COMPETITION.
(a) While employed by the Company, and for three (3) years
immediately following the Termination Date, Executive agrees not to interfere
with the business of the Company by:
(i) soliciting, attempting to solicit, inducing, or
otherwise causing any employee of the Company to terminate his or her
employment in order to become an employee, consultant or independent
contractor to or for any competitor of the Company; or
(ii) directly or indirectly soliciting the business of
any customer of the Company which at the time of termination or one year
immediately prior thereto was listed on the Company's customer list.
(b) Executive agrees to execute and abide by the
Non-Competition Agreement attached hereto as EXHIBIT B.
7. GENERAL PROVISION.
7.1 NOTICES. Any notices provided hereunder must be in writing
and shall be deemed effective upon the earlier of personal delivery
(including personal delivery by telex) or the third day after mailing by
first class mail, to the Company at its primary office location and to
Executive at his address as listed on the Company payroll.
7.2 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision or any other jurisdiction, but this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provisions had never been contained
herein.
7.3 WAIVER. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision
of this Agreement.
7.4 COMPLETE AGREEMENT. This Agreement and its Exhibits,
constitute the entire agreement between Executive and the Company and it is
the complete, final, and exclusive embodiment of their agreement with regard
to this subject matter. It is entered into without reliance on any promise or
representation other than those expressly contained herein, and it cannot be
modified or amended except in a writing signed by Executive and an officer of
the Company.
7.5 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
4
<PAGE>
7.6 HEADINGS. The headings of the sections hereof are inserted
for convenience only and shall not be deemed to constitute a part hereof nor
to affect the meaning thereof.
7.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive and the Company,
and their respective successors, assigns, heirs, executors and
administrators, except that Executive may not assign any of his duties
hereunder and he may not assign any of his rights hereunder without the
written consent of the Company, which shall not be withheld unreasonably.
7.8 ATTORNEY FEES. If either party hereto brings any action to
enforce his or its rights hereunder, the prevailing party in any such action
shall be entitled to recover his or its reasonable attorneys' fees and costs
incurred in connection with such action.
7.9 CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of
the State of Kansas.
IN WITNESS WHEREOF, the parties have executed this Key Employee
Agreement on the day and year first above written.
NATIONAL INFORMATION
CONSORTIUM, INC.
By:/s/ Jeff Fraser
--------------------
Name: Jeff Fraser
Title: President
------------
EXECUTIVE:
/s/ Samuel Somerhalder
-----------------------
Name:Samuel Somerhalder
-------------------
5
<PAGE>
Exhibit 10.7
NATIONAL INFORMATION CONSORTIUM, INC.
KEY EMPLOYEE AGREEMENT
FOR
HARRY H. HERINGTON
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 24 day
of July 1998, by and between HARRY H. HERINGTON ("Executive") and NATIONAL
INFORMATION CONSORTIUM, INC. a Delaware corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide personal
services to the Company and to the Company's subsidiaries, and desires to
provide Executive with certain compensation and benefits in return for his
services; and
WHEREAS, Executive desires to be employed by the Company and provide
personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE the parties hereto agree as follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 Subject to terms set forth herein, the Company or a subsidiary
of the Company agrees to employ Executive in the position of Subsidiary
President and Executive hereby accepts such employment effective as of the
date first written above. During the term of his employment with the Company,
Executive will devote his best efforts and substantially all of his business
time and attention (except for vacation periods and reasonable periods of
illness or other incapacities permitted by the Company's general employment
policies) to the business of the Company.
1.2 Executive will serve in an executive capacity and shall
perform such duties as are customarily associated with his then current
title, consistent with the Bylaws of the Company and as required by the
Company's Board of Directors (the "Board").
1.3 The employment relationship between the parties shall also be
governed by the general employment policies and practices of the Company,
including those relating to protection of confidential information and
assignment of inventions, except that when the terms of this Agreement differ
from or are in conflict with the Company's general employment policies or
practices, this Agreement shall control.
2. COMPENSATION.
2.1 SALARY. Executive shall receive for services to be rendered
hereunder an annualized base salary of $125,000, payable in equal
installments (prorated for portions of a pay period) on the Company's regular
pay days and the Company will
1
<PAGE>
withhold from such compensation all applicable federal and state income,
social security and disability and other taxes as required by applicable laws.
2.2 STANDARD COMPANY BENEFITS. Executive shall be entitled to all
rights and benefits for which he is eligible under the terms and conditions
of the standard Company benefits and compensation practices which may be in
effect from time to time and provided by the Company to its employees
generally.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Executive agrees to execute and abide by the
Proprietary Information and Inventions Agreement attached hereto as EXHIBIT A
(the "Proprietary Information Agreement").
4. OUTSIDE ACTIVITIES.
4.1 Except with the prior written consent of the Company's Board
of Directors, Executive will not during the term of this Agreement undertake
or engage in any other employment, occupation or business enterprise, other
than ones in which Executive is a passive investor. Executive may engage in
civic and not-for-profit activities so long as such activities do not
materially interfere with the performance of his duties hereunder.
4.2 Except as permitted my Section 4.3, Executive agrees not to
acquire, assume or participate in, directly, any position, investment or
interest known by him to be adverse or antagonistic to the Company, its
business or prospects, financial or otherwise.
4.3 During the term of his employment by the Company, except on
behalf of the Company, Executive will not directly or indirectly, whether as
an officer, director, stockholder, partner, proprietor, associate,
representative, consultant, or in any capacity whatsoever engage in, become
financially interested in, be employed by or have any business connection
with any other person, corporation, firm, partnership or other entity
whatsoever which were known by him to compete directly with the Company,
throughout the world, in any line of business engaged in (or planned to be
engaged in) by the Company; provided, however, that anything above to the
contrary notwithstanding, he may own, as a passive investor, shares of a
publicly-held corporation that is competitive with the Company, if such
shares are actively traded on an established national securities market, so
long as the number of shares of such corporation's capital stock that are
owned beneficially (directly or indirectly) by Executive shall not in the
aggregate constitute more than 5% of the outstanding voting stock of such
corporation.
5. TERMINATION OF EMPLOYMENT.
5.1 TERMINATION WITHOUT CAUSE.
(a) The Company shall have the right to terminate Executive's
employment with the Company at any time without cause.
2
<PAGE>
(b) In the event Executive's employment is terminated without
cause before July 1, 2001, the Company shall pay Executive one year's base
compensation in equal monthly payments on the first day of the month for each
of the twelve months following such termination; PROVIDED HOWEVER that if
Executive is terminated without cause during the final twelve months of
Executive's base compensation for the remaining number of months until the
expiration of that Employment Agreement.
(c) In the event Executive's employment is terminated without
cause on or after July 1, 2001, he will not be entitled to severance pay, pay
in lieu of notice or any other such compensation, except as provided in the
Company's Severance Benefit Plan, if any, in effect on the termination date.
5.2 TERMINATION FOR CAUSE.
(a) The Company shall have the right to terminate Executive's
employment with the Company at any time for cause. Written notification of
termination and specific cause of termination shall be provided to the
Executive at the time of termination.
(b) "Cause" for termination shall mean: (i) indictment or
conviction of any felony or of any crime involving dishonesty; (ii) willful
participation in any fraud against the Company; (iii) breach of Executive's
duties to the Company, including persistent unsatisfactory performance of job
duties; (iv) intentional damage to any property of the Company; or (v)
conduct by Executive which in the good faith and reasonable determination of
the Board demonstrates gross unfitness to serve. With respect to clause
(iii) above, Executive shall be given written notice of such unsatisfactory
performance and 30 days from the date of such notice to cure the causes set
forth therein.
(c) In the event Executive's employment is terminated at any
time with cause, the executive will not be entitled to severance pay, pay in
lieu of notice or any other such compensation; PROVIDED, HOWEVER, Executive
is entitled and shall receive all compensation earned prior to and including
the date of termination.
5.3 VOLUNTARY OR MUTUAL TERMINATION.
(a) Executive may voluntarily terminate his employment with
the Company in writing at any time, after which no further compensation will
be paid to Executive.
(b) In the event Executive voluntarily terminates his
employment, he will not be entitled to severance pay, pay in lieu of notice
or any other such compensation; PROVIDED, HOWEVER, that Executive shall
receive all compensation earned prior to and including the date of
termination.
3
<PAGE>
6. NON-INTERFERENCE; NON-COMPETITION.
(a) While employed by the Company, and for three (3) years
immediately following the Termination Date, Executive agrees not to interfere
with the business of the Company by:
(i) soliciting, attempting to solicit, inducing, or
otherwise causing any employee of the Company to terminate his or her
employment in order to become an employee, consultant or independent
contractor to or for any competitor of the Company; or
(ii) directly or indirectly soliciting the business of
any customer of the Company which at the time of termination or one year
immediately prior thereto was listed on the Company's customer list.
(b) Executive agrees to execute and abide by the
Non-Competition Agreement attached hereto as EXHIBIT B.
7. GENERAL PROVISION.
7.1 NOTICES. Any notices provided hereunder must be in writing
and shall be deemed effective upon the earlier of personal delivery
(including personal delivery by telex) or the third day after mailing by
first class mail, to the Company at its primary office location and to
Executive at his address as listed on the Company payroll.
7.2 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision or any other jurisdiction, but this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provisions had never been contained
herein.
7.3 WAIVER. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision
of this Agreement.
7.4 COMPLETE AGREEMENT. This Agreement and its Exhibits,
constitute the entire agreement between Executive and the Company and it is
the complete, final, and exclusive embodiment of their agreement with regard
to this subject matter. It is entered into without reliance on any promise or
representation other than those expressly contained herein, and it cannot be
modified or amended except in a writing signed by Executive and an officer of
the Company.
7.5 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
4
<PAGE>
7.6 HEADINGS. The headings of the sections hereof are inserted
for convenience only and shall not be deemed to constitute a part hereof nor
to affect the meaning thereof.
7.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive and the Company,
and their respective successors, assigns, heirs, executors and
administrators, except that Executive may not assign any of his duties
hereunder and he may not assign any of his rights hereunder without the
written consent of the Company, which shall not be withheld unreasonably.
7.8 ATTORNEY FEES. If either party hereto brings any action to
enforce his or its rights hereunder, the prevailing party in any such action
shall be entitled to recover his or its reasonable attorneys' fees and costs
incurred in connection with such action.
7.9 CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of
the State of Kansas.
IN WITNESS WHEREOF, the parties have executed this Key Employee
Agreement on the day and year first above written.
NATIONAL INFORMATION
CONSORTIUM, INC.
By:/s/ Jeff Fraser
--------------------
Name:Jeff Fraser
------------------
Title:President
---------
EXECUTIVE:
/s/ Harry H. Herington
------------------------
Name:Harry H. Herington
-------------------
5
<PAGE>
EXHIBIT 10.8
NATIONAL INFORMATION CONSORTIUM, INC.
KEY EMPLOYEE AGREEMENT
FOR
JAMES B. DODD
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 1
day of January 1999, by and between James B. Dodd ("Executive") and NATIONAL
INFORMATION CONSORTIUM, INC., a Delaware corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide
personal services to the Company and to the Company's subsidiaries, and
desires to provide Executive with certain compensation and benefits in return
for his services; and
WHEREAS, Executive desires to be employed by the Company and
provide personal services to the Company in return for certain compensation
and benefits;
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 Subject to terms set forth herein, the Company or a subsidiary
of the Company agrees to employ Executive in the position of President &
Chief Operating Officer and Executive hereby accepts such employment
effective as of the date first written above. During the term of his
employment with the Company, Executive will devote his best efforts and
substantially all of his business time and attention (except for vacation
periods and reasonable periods of illness or other incapacities permitted by
the Company's general employment policies) to the business of the Company.
1.2 Executive will serve in an executive capacity and shall
perform such duties as are customarily associated with his then current
title, consistent with the Bylaws of the Company and as required by the
Company's Board of Directors (the "Board").
1.3 The employment relationship between the parties shall also be
governed by the general employment policies and practices of the Company,
including those relating to protection of confidential information and
assignment of inventions, except that when the terms of this Agreement differ
from or are in conflict with the Company's general employment policies or
practices, this Agreement shall control.
2. COMPENSATION.
2.1 SALARY. Executive shall receive for services to be rendered
hereunder an annualized base salary of $200,000, payable in equal
installments (prorated for portions of a pay period) on the Company's regular
pay days and the Company will withhold from such compensation all applicable
federal and state income, social security and disability and other taxes as
required by applicable laws.
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2.2 STANDARD COMPANY BENEFITS. Executive shall be entitled to all
rights and benefits for which he is eligible under the terms and conditions
of the standard Company benefits and compensation practices which may be in
effect from time to time and provided by the Company to its employees
generally.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 Agreement. Executive agrees to execute and abide by the
Proprietary Information and Inventions Agreement attached hereto as EXHIBIT A
(the "Proprietary Information Agreement").
4. OUTSIDE ACTIVITIES.
4.1 Except with the prior written consent of the Company's Board
of Directors, Executive will not during the term of this Agreement undertake
or engage in any other employment, occupation or business enterprise, other
than ones in which Executive is a passive investor. Executive may engage in
civic and not-for-profit activities so long as such activities do not
materially interfere with the performance of his duties hereunder.
4.2 Except as permitted by Section 4.3, Executive agrees not to
acquire, assume or participate in, directly or indirectly, any position,
investment or interest known by him to be adverse or antagonistic to the
Company, its business or prospects, financial or otherwise.
4.3 During the term of his employment by the Company, except on
behalf of the Company, Executive will not directly or indirectly, whether as
an officer, director, stock-holder, partner, proprietor, associate,
representative, consultant, or in any capacity whatsoever engage in, become
financially interested in, be employed by or have any business connection
with any other person, corporation, firm, partnership or other entity
whatsoever which were known by him to compete directly with the Company,
throughout the world, in any line of business engaged in (or planned to be
engaged in) by the Company; provided, however, that anything above to the
contrary notwithstanding, he may own, as a passive investor, shares of a
publicly-held corporation that is competitive with the Company, if such
shares are actively traded on an established national securities market, so
long as the number of shares of such corporation's capital stock that are
owned beneficially (directly or indirectly) by Executive shall not in the
aggregate constitute more than 5% of the outstanding voting stock of such
corporation.
5. TERMINATION OF EMPLOYMENT.
5.1 TERMINATION WITHOUT CAUSE.
(a) The Company shall have the right to terminate Executive's
employment with the Company at any time without cause.
(b) In the event Executive's employment is terminated without
cause before January 1, 2002, the Company shall pay Executive severance equal to
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eighteen months at Executive's then-current salary. This severance will be
paid in equal monthly payments on the first day of the month for each of the
eighteen months following such termination.
(c) In the event Executive's employment is terminated without
cause on or after January 1, 2002, Executive will not be entitled to
severance pay, pay in lieu of notice or any other such compensation, except
as provided in the Company's Severance Benefit Plan, if any, in effect on the
termination date.
5.2 TERMINATION FOR CAUSE.
(a) The Company shall have the right to terminate Executive's
employment with the Company at any time for cause. Written notification of
termination and specific cause of termination shall be provided to Executive
at the time of termination.
(b) "Cause" for termination shall mean: (1) indictment or
conviction of any felony or of any crime involving dishonesty; (ii) willful
participation in any fraud against the Company; (iii) breach of Executive's
duties to the Company, including persistent unsatisfactory performance of job
duties; (iv) intentional damage to any property of the Company; or (v)
conduct by Executive which in the good faith and reasonable determination of
the Board demonstrates gross unfitness to serve. With respect to clause
(iii) above, Executive shall be given written notice of such unsatisfactory
performance and 30 days from the date of such notice to cure the causes set
forth therein.
(c) In the event Executive's employment is terminated at any time with
cause, Executive will not be entitled to severance pay, pay in lieu of notice
or any other such compensation; PROVIDED, HOWEVER, that Executive shall
receive all compensation earned prior to and including the date of
termination.
5.3 VOLUNTARY OR MUTUAL TERMINATION.
(a) Executive may voluntarily terminate his employment with
the Company in writing at any time, after which no further compensation will
be paid to Executive.
(b) In the event Executive voluntarily terminates his
employment, he will not be entitled to severance pay, pay in lieu of notice
or any other such compensation; PROVIDED, HOWEVER, that Executive shall
receive all compensation earned prior to and including the date of
termination.
6. NON-INTERFERENCE; NON-COMPETITION.
(a) While employed by the Company, and for three (3) years
immediately following the Termination Date, Executive agrees not to interfere
with the business of the Company by:
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(i) soliciting, attempting to solicit, inducing, or
otherwise causing any employee of the Company to terminate his or her
employment in order to become an employee, consultant or independent
contractor to or for any competitor of the Company; or
(ii) directly or indirectly soliciting the business of
any customer of the Company which at the time of termination or one year
immediately prior thereto was listed on the Company's customer list.
(b) Executive agrees to execute and abide by the
Non-Competition Agreement attached hereto as EXHIBIT B.
7. GENERAL PROVISIONS.
7.1 NOTICES. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telex) or the third day after mailing by first class
mail, to the Company at its primary office location and to Executive at his
address as listed on the Company payroll.
7.2 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision or any other jurisdiction, but this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provisions had never been contained
herein.
7.3 WAIVER. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision
of this Agreement.
7.4 COMPLETE AGREEMENT. This Agreement and its Exhibits,
constitute the entire agreement between Executive and the Company and it is
the complete, final, and exclusive embodiment of their agreement with regard
to this subject matter. It is entered into without reliance on any promise
or representation other than those expressly contained herein, and it cannot
be modified or amended except in a writing signed by Executive and an officer
of the Company.
7.5 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
7.6 HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
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7.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Executive may not assign any of his duties hereunder and he may
not assign any of his rights hereunder without the written consent of the
Company, which shall not be withheld unreasonably.
7.8 ATTORNEY FEES. If either party hereto brings any action to
enforce his or its rights hereunder, the prevailing party in any such action
shall be entitled to recover his or its reasonable attorneys' fees and costs
incurred in connection with such action.
7.9 CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of
the State of Kansas.
IN WITNESS WHEREOF, the parties have executed this Key Employee
Agreement on the day and year first above written.
NATIONAL INFORMATION
CONSORTIUM, INC.
By:/s/ William F. Bradley, Jr.
---------------------------
Name: William F. Bradley, Jr.
-------------------------
Title: Secretary
------------------------
EXECUTIVE:
/s/ James B. Dodd
-------------------------------
Name: James B. Dodd
------------------------
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EXHIBIT 10.9
CONTRACT FOR NETWORK MANAGER SERVICES
THIS CONTRACT is between the Information Network of Kansas, a public
instrumentality created by K.S.A. 1990 Supp. 74-9303, hereinafter referred to
as INK, and the Kansas Information Consortium, a for-profit Kansas
corporation, hereinafter referred to as KIC.
WHEREAS, INK issued a request for proposals for a network manager, dated
June 18, 1991, and addenda thereto dated June 28, 1991 and July 25, 1991. The
request and addenda are hereinafter collectively referred to as the RFP.
WHEREAS, KIC submitted a 117 page proposal in response to the RFP. The
proposal is hereinafter referred to as the KIC Proposal.
WHEREAS, INK is desirous of entering into a contract with KIC to serve
as network manager to develop, operate, maintain and expand a network for
electronic access to public information as contemplated by K.S.A. 1990 Supp.
74-9301, et seq., and amendments thereto, hereinafter referred to as the
Network.
NOW THEREFORE, the parties agree as follows:
1. PURPOSE OF NETWORK.
The purposes of the Network and this Contract are expressed by statute
and in INK's general policies and principles, which may be summarized as
follows:
a. To provide a public service to the citizens and businesses of
Kansas by increasing accessibility to public information and other useful
information services through electronic means.
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b. To provide such public service without increasing the tax
burden on the citizens of Kansas, through utilization of private capital and
management and appropriate payment for the same.
2. HARDWARE, SOFTWARE AND ACCESS LINES.
KIC will provide hardware and provide or develop software as enumerated
in the KIC proposal and such other hardware and software as may be necessary
to make the Network operational. Copies of application software,
documentation and source code, together with all updates and revisions, shall
be provided to INK as they are prepared or developed. Upon termination or
expiration of this Contract, all Network and manager records, work papers and
operations documentation shall be delivered to INK within thirty (30) days
after termination or expiration and shall become the property of INK, if not
already such.
Copies of application software, documentation and source code, together
with all updates and revisions developed by KIC, shall be the intellectual
and tangible property of KIC. However, such application software,
documentation and source code, together with all updates and revisions made
during the term of this Contract, are considered during the life of this
Contract and perpetually thereafter, to be licensed for use to the State of
Kansas through INK or any successor to be used in operation and expansion of
the Network or any successor Network. Such license is provided to the State
of Kansas in consideration for the opportunity to develop such application
software, documentation and source code, together with all updates and
revisions thereof, which may have application in other states.
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KIC will be responsible during the term of this Contract for maintaining
such hardware and software, including items provided to the Division of
Information Systems and Computing, hereafter referred to as DISC. Items
provided to DISC will be maintained as allowed by DISC.
3. CONNECTIONS BETWEEN NETWORK AND STATE AGENCIES.
Costs associated with and maintenance of communication links from state
facilities to KIC facilities for Network purposes shall be the responsibility
of KIC.
4. NETWORK SERVICE.
KIC on behalf of INK shall negotiate with and obtain written contracts
from each separate state agency from which electronic access is desired. Such
contracts shall provide for the costs state agencies will charge KIC for
information to be provided, the time period and means by which KIC will pay
state agencies for access, the criteria the state agency and KIC will utilize
for system development, testing and acceptance in order to assure the
reliability of the Network, protection of data, Network security and any
other reasonable special requirement for access to agency data. Payments to
state agencies for state agency information shall be due from KIC and paid
within 60 days from the usage or sale date unless a shorter period is
specified in the agreement between KIC and a state agency.
INK will cooperate in assisting electronic access, which may be funded by INK
in appropriate circumstances. After negotiating an agency agreement, the
agreement shall be presented to INK for final approval. When an agreement is
presented to INK, KIC shall also present to INK a recommendation for prices
to be charged users for the applicable Network service.
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All subscribers will be required to execute a contract for services. KIC
shall be authorized to execute such contracts on behalf of INK. The form
shall be approved by INK.
5. REGULATION OF RATES BY INK.
All charges to Network users shall be subject to the final approval of
INK for fairness, reasonableness and appropriateness. In setting such rates
INK shall consider the following factors:
a. The need to reward innovation and efficiency in management.
b. A commitment to the public policy requirement to provide
electronic access to public records at the most reasonable rate possible.
c. That the provider of such access has a virtually sole source
monopolistic control of such access.
d. The fact that some batch records are already provided
electronically by the State.
e. The entrepreneurial and start-up nature of the business and
attendant risk of capital for KIC.
f. The need to invest in expansion of and improvement in services.
g. Any other reasonable factor which in the opinion of INK should
be considered.
Such services will thereafter be subject to periodic review and
adjustment by INK. Recommendations for amended rates shall be made by KIC in
the annual business plan submitted to INK.
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The maximum initial subscription fee that mainframe bulk and interactive
subscribers and PC/modem interactive subscribers shall pay is $50.00. The
maximum on-going fee shall be approved by INK. These fees may be reduced at
the discretion of KIC. Touch-tone request fees and services of credit card
companies will be updated as determined by policy.
In the event that costs which KIC pays state agencies for data or data
access are reduced as a result of legislation or administrative changes, such
reductions shall be passed on directly to subscribers and users of the
Network unless otherwise approved in writing by INK.
6. NETWORK MANAGER REMUNERATION.
Within the framework of the rate setting procedure addressed in section
5 above, the disbursement of all funds received by KIC/INK as a result of the
operation of this Contract will be as follows:
a. INK will receive before all other payments 2% of gross revenue
per annum, payable monthly, which INK may use to support Board operations and
to pay audit and other expenses. Such funds shall be deposited in the
Information Network of Kansas fund.
b. KIC shall receive a 25% rate of return per annum on its risk
capital from net income before taxes. This 25% rate of return on risk
capital shall be cumulative and no net income before taxes on income shall be
returned to INK, per paragraph c below, until prior year(s) net losses, if
any, are subtracted from current net income and the 25% rate of return on
risk capital has been paid.
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The 25% rate of return on risk capital referred to herein will be based
upon the average daily balance of risk capital. The calculation of this rate
of return shall be computed as of December 31st each year.
For purpose of this paragraph, "risk capital" is defined as and limited
to the following:
1. PAID-IN CAPITAL. Paid-in capital means the amount of money
or other consideration actually paid for stock issued by KIC. Paid-in
capital for purposes of this section does not include retained earnings.
2. CORPORATE LOANS. Corporate loans are defined as those which
are in furtherance of the purpose of the Network as expressed in section 1
above, which have a payback period exceeding one year, and which are
memorialized by written agreement. Operating loans, which are defined as
loans in furtherance of the purpose of the Network as expressed in section 1
above, but have a payback period of one year or less and tax obligations,
accounts payable or other operating credits of less than one year's duration
are specifically excluded from the definition of risk capital. For the
purpose of computing return on investment of a corporate loan, the value of
the corporate loan will be based on the amount of remaining obligation.
3. CORPORATE LEASES. A corporate lease is a written contractual
obligation of KIC which is entered into for a purpose in furtherance of
Network operations. For a corporate lease to qualify for risk capital
treatment, it must be a written obligation for a set non-negotiable period of
time with no provision for termination at will within the period of set
obligation. For the purpose of computing return on
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investment of a corporate lease, the value of the lease will be based on the
amount of remaining obligation.
All risk capital of KIC in excess of $500,000 total shall be subject to
the express written approval of INK.
c. INK will receive one-third of the net income before taxes, if
any, which is in excess of the 25% rate of return on risk capital, referenced
in paragraph b above. This one-third will be paid to INK annually by June
15, following the close of each year. This payment is separate and distinct
from the payment specified in paragraph a above. Such funds shall be
deposited in the Information Network of Kansas fund and used as the Board
shall determine in furtherance of the general purpose of the Network.
d. KIC will be entitled to retain the sums remaining after
payment of the amounts specified in paragraphs a, b and c above.
7. CHANGES IN NETWORK.
A planned material change in Network operations cannot be made by KIC
without the prior written consent of INK. A "material change" is defined as
a change which increases response time to inquiries, adds to the complexity
of system use, diminishes services provided, or results in a comparable
impact on operations.
KIC will provide to INK at least 30 days prior written notice of a
planned material change in Network operations.
8. NOTICES.
The INK contact person shall be the Chairperson of the INK Board of
Directors. The KIC contact person shall be Jeff Fraser, Manager. These
designations may be changed following written notice to the other party to
this Contract.
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Notices by the parties to one another shall be given in writing to the
persons identified above or to such other persons as may be subsequently
identified in a written notice.
Such notices shall be effective on the date of receipt if sent by U.S.
first-class mail, postpaid, or by overnight delivery, prepaid.
9. FINANCES AND RECORDS.
All KIC documents and records will be available for inspection, auditing
and copying by INK, the Legislative Division of Post Audit or other
authorized representatives designated by INK. Monthly income statements and
balance sheets will be provided to INK by KIC.
KIC also agrees to make other changes requested by INK to comply with
recommendations made in any audit, which are agreed to by both INK and KIC.
To the extent the audit report discloses any discrepancies in the KIC
charges, billings or financial records, and following a period for review and
verification of the amount by KIC, KIC will adjust the next monthly bill as
soon as reasonably possible but not to exceed 90 days. KIC shall cooperate to
assure that verification is completed in a timely manner.
The accounting system is to include a numbered chart of accounts, books
of original entry of all transactions, appropriate subsidiary ledgers, a
general ledger which includes to-date postings and an audit trail through
financial statements. KIC shall from the beginning of this Contract adopt the
calendar year ending December 31, for reporting purposes.
10. MANAGEMENT REPORTS AND BUSINESS PLAN.
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Attachment B to this Contract is the INK Business Plan for years 1-5 of
operations and the pre-operations period. Such plan is derived from the
hardware, software, development and marketing, financial projection and
expansion provisions of the RFP and KIC's proposal. Network operations and
development shall be in accordance with the INK Business Plan. Between May 15
and June 15 of each year, KIC shall submit to INK a proposed update to INK's
Business Plan for INK's approval. KIC shall timely provide to INK such
management reports as INK may reasonably request. The Business Plan may be
adjusted as required by mutual consent of KIC and INK.
11. KIC SHAREHOLDERS.
KIC agrees to provide and continually update a list of names and
addresses of stockholders of KIC and the percentage of ownership of each
stockholder.
As a basic policy all shareholders of KIC shall be natural persons;
however, exceptions to this requirement may be approved by INK on a case by
case basis. Such approval is not to be unreasonably withheld. The intent of
this section is that INK shall know the identity of all KIC investors back to
natural persons.
12. PROHIBITION ON INTERESTED PARTY PAYMENTS.
"Interested party" means any KIC officer, director, stockholder and any
family member of the foregoing. No payments shall be made to an interested
party or a business entity controlled by an interested party except for the
fair value of lawful goods or services actually rendered to the Network.
This requirement shall not be applicable to shareholder dividends.
13. FULL-TIME EQUIVALENT POSITIONS AND SALARIES, BENEFITS AND RELATED
EMPLOYER EXPENSES.
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KIC agrees to provide a staffing level during each fiscal year of at
least six full-time equivalent employee positions, based on an eight-hour
work day per position. Attachment A indicates the position title, amount of
time committed to this Contract and Contract location of each KIC employee
for the current fiscal year. Proposed changes in the staffing pattern for the
ensuing fiscal year shall be set forth in the proposed update of the INK
business plan which KIC submits to INK and such changes shall be subject to
the approval of INK.
The hiring, firing, recruitment, management, and training of KIC
employees will not be the responsibility of INK. INK's involvement in the
personnel affairs of KIC shall be limited to disclosure of the maximum total
compensation in terms of employment (including benefits and required employer
contributions) to officers and employees of KIC.
Attachment A also sets forth the maximum compensation payable during the
current fiscal year for each officer, or director or employee of KIC and
indicates what such compensation equates to on an annual basis. No officer,
employee, director or shareholder of KIC shall receive a salary, except as
and for services performed by such officer, employee, or director or
shareholder for KIC on behalf of the Network.
KIC shall be responsible for all required employer costs attributable to
its officers and employees, including but not limited to, workers'
compensation premiums and deductible, unemployment compensation tax
withholding contributions and similar items.
14. REVENUE ACCOUNT AND PAYMENTS THEREFROM.
a. GENERAL PROVISIONS. The initial capital investment of KIC
shall be $250,000, plus capital equipment previously acquired, which shall be
deposited in the
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Revenue Account for the start-up, maintenance, operation and expansion of the
Network. Additional working capital of up to $250,000 shall be added if
operating balances fall below $50,000. KIC shall establish one or more
accounts in Kansas financial institutions which are federally insured and
shall furnish INK with the names of the institutions, the account numbers and
the names of those having signatory authority. INK has the right, but not the
obligation, to negotiate with KIC to change any interest bearing account to
another financial institution.
b. PAYMENTS FROM ACCOUNTS. Payments from the accounts are
authorized as follows:
1. Payments to state agencies for electronic access to
information.
2. Payment of ordinary, necessary and reasonable operating
expenses for operation of the Network.
3. System development costs, including programming (to the extent
not covered by regular salary under ordinary operating expenses) and one time
purchases or upgrades of software or hardware.
4. Payment of dividends.
5. Payment to INK.
15. INCORPORATION BY REFERENCE.
The provisions of the RFP are hereby incorporated into this contract and
made a part hereof. If there is any conflict between the terms of the RFP and
the provisions of this Contract, the terms of the Contract shall control over
the terms of the RFP. The KIC proposal shall not be controlling between the
parties. KIC acknowledges and agrees to all terms and conditions of the RFP,
except those modified by this Contract.
16. INSURANCE AND BONDS.
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This Contract shall not become operative until KIC provides to INK
written proof of the following provided by a qualified firm
authorized/admitted to do business in Kansas:
a. A $100,000 performance bond for this Contract.
b. Proof of a general comprehensive liability insurance policy in
the amount of at least $500,000 and a deductible of not more than $5,000.
c. Employment Dishonesty Bond covering all KIC officers and
employees in an amount of at least $100,000 per employee.
17. TERMINATION OF CONTRACT.
INK shall have the right to terminate this Contract for cause by
providing written notice of termination to KIC. Such notice shall specify the
time, parameters of this Contract, or "for cause" reason that gives rise to
the termination and shall specify action that can be taken by KIC to avoid
termination of the Contract. INK shall provide a period of time of up to one
hundred eighty (180) days, unless otherwise specified in this Contract, for
KIC to cure breaches and deficiencies of its performance obligations under
this Contract.
INK may terminate this Contract at any time and without cause if
directed to do so by statute.
18. TERMINATION FOR CAUSE.
For purposes of this Contract, the phrase "for cause" shall mean:
a. Any material breach or evasion by KIC of the terms or
conditions of this Contract and its amendments if any.
b. Ownership in KIC by a shareholder unacceptable to INK.
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c. Substantial cessation of Network services by KIC shall be
cause for immediate termination of this Contract.
d. Fraud, misappropriation, embezzlement, malfeasance,
significant misfeasance, or illegal conduct by KIC, its officers, directors
or shareholders.
e. Substantial failure to comply with the Business Plan.
f. Dissolution of KIC or forfeiture of its corporate existence.
g. Repeal of the INK enabling statute. This is cause for
immediate termination.
h. Amendment of the INK enabling statute so that network
operations are no longer feasible.
i. Insolvency of KIC.
j. Breach of an agreement with any state agency.
k. Disclosure of any confidential information.
19. CONTRACTUAL PROVISIONS ATTACHMENT.
The provisions found in Contractual Provisions Attachment (Form
DA-146a), which is attached hereto, are hereby incorporated in this Contract
and made a part hereof.
20. STANDARD USE MESSAGES.
KIC shall display a standard use message to all subscribers upon initial
log-on the Network and such subscriber shall be required to verify compliance
to said message terms. Upon subsequent log-ons, message shall be displayed
only without verification if prior verification is logged in user file. All
messages must contain language that is at least as restrictive as the
following:
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"As a requester of public information, I do hereby certify by making
inquiry that I do not intend to and will not:
a. Use any list of names or addresses contained in or derived
from public records or information for the purpose of selling or offering for
sale any property or service to any persons listed or to any persons who
reside at any address listed; or
b. Sell, give or otherwise make available to any person any list
of names or addresses contained in or derived from records or information for
the purpose of allowing that person to sell or offer for sale any property or
service to any person listed or to any persons who reside at any address
listed. I understand that my Network privileges may be terminated for
violations of the certification and further that such violations are
violations of State law for which I may be prosecuted."
KIC shall provide record custodial agencies the opportunity to include
additional wording if determined necessary by the custodial agency. The
standard use message shall be compliant with any amendments to the law.
21. STATE AGENCY ACCESS.
a. Data owning agencies must have terminal (read) access to KIC'S
computerized log of subscribers and their security status, without access
cost to the data supplying agency. The agencies will be responsible for the
cost of terminal(s) and the cost of a dial-up or lease line, whichever is
used.
b. Data owners must be able to sign on to the KIC'S system to
audit the dissemination of records. On-line audit capability must be
available for 18 months after transaction processing. After the initial 18
month period, KIC shall maintain this
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information either on-line or off-line. The retention period shall never be
less than that approved by the State Records Board.
At a minimum, KIC shall retain the following data: name of subscriber,
transaction data and time, type of inquiry and access keys.
c. KIC shall notify agencies within two hours of unauthorized
attempts to gain access to classified data. The notice shall contain detailed
information to aid the agency supplier to examine the matter.
22. LIMITATION OF PURPOSE.
KIC shall engage solely in the business or businesses expressly approved
by INK which shall initially be only and solely the start-up, operation,
maintenance and expansion of the Network. KIC shall furnish INK with
certified copies of Articles of Incorporation reflecting this limitation of
purpose.
23. PATENT, COPYRIGHT, TRADEMARKAND TRADE SECRET INDEMNITY.
KIC warrants that its proposed operations of the Network does not and shall
not infringe on the United States patent, copyright, trademark or trade secret
rights of any person or entity. INK shall be provided with prompt notice of any
such claim of infringement and KIC shall have the exclusive right to defend or
settle such claim at KIC's option. INK shall cooperate with KIC in its defense
or settlement of such claim at no expense to INK. If KIC determines that the
right of users to use the Network is likely to be abridged, KIC shall (a) take
all reasonable steps necessary to procure for users the right to continue to use
the Network; or (b) modify the network so that no such abridgment will occur and
correspondingly reduce charges if the modified Network is not
15
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substantially comparable to what it was before the modification. If (a) and
(b) fail, then KIC may discontinue such service without liability.
24. LIABILITY.
INK and the State of Kansas, its agents and employees shall not be
legally responsible to KIC for errors due to Network problems.
KIC agrees for itself, its agents, employees and assigns to hold
harmless, indemnify and, if necessary, defend INK and the State of Kansas,
its agents and employees from any actions arising out of KIC's negligence or
failure to perform under the terms of this Contract.
25. ASSIGNMENT AND SUBCONTRACTING.
KIC may not assign any of its rights or delegate any of its duties
hereunder unless done pursuant to prior written consent of INK.
KIC may subcontract portions of work to be performed by it under this
Contract with the written consent of INK.
26. TERM OF CONTRACT.
This Contract shall be for a term of 5 years, commencing January 1, 1992
and expiring at 12:00 a.m., December 31, 1996, unless earlier terminated by
the Board for cause.
Subject to the agreement in writing of the parties, this Contract may be
renewed or amended and renewed.
27. RELATIONSHIP OF PARTIES.
Notwithstanding any other provisions contained herein, it is expressly
agreed that KIC is an independent contractor in the performance of each and
every part of this
16
<PAGE>
Contract. As such, KIC is solely and personally liable for all labor and
expenses in furtherance of such performance and for any and all damages which
may be occasioned on account of its performance hereunder.
KIC may become an agent of INK only by the expressed written consent of
INK.
KIC will not pledge any assets of INK in its care, custody or control or
cause any type of lien to attach to such.
28. CONTINUATION OF OPERATIONS DURING TRANSITION PERIOD.
If for any reason this Contract shall be terminated or upon expiration
of the Contract, KIC shall, at the option of INK, continue to operate under
this Contract as network manager in accordance with all terms and conditions
of this Contract, together with any amendments or modifications in existence
at such time, for a period of up to 12 months from the time of expiration or
notification of termination from INK to KIC. The intent of this provision is
to insure continuation of network operations while a successor network
manager is chosen and installed.
29. AGREEMENT NOT TO COMPETE.
As a condition to commencing operations as network manager under the
terms of this Contract, KIC shall deliver to INK signed statements by KIC
(which also binds its successors and assigns) and its shareholders, officers,
and directors, in substantially the following form:
In consideration for the award of the contract for
providing electronic access to state information and
other information services by the Information Network
of Kansas to the Kansas Information Consortium, and my
continuing association with the Kansas Information
Consortium in the capacity of
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shareholder, officer, or director, I hereby agree that
I will not compete, directly or indirectly, or assist
others in competing with, the Information Network of
Kansas while I am associated with KIC and while KIC is
associated with INK and for a period of three years
following the termination of my relationship with the
Kansas Information Consortium, Incorporated, or the
Kansas Information Consortium's relationship with the
Information Network of Kansas, whichever is later. I
understand that "to compete" includes but is not
limited to providing alternate electronic access to
state data bases of Kansas.
Any substitute or new employees, shareholders or directors shall be
required to execute such an agreement not to compete, as a condition of
assuming their duties.
30. ENTIRE CONTRACT.
This Contract constitutes the entire contract of the parties and
supersedes all other prior written or oral contracts between the parties with
respect to the subject matter hereof. This Contract may be amended only by a
writing signed by the parties hereto.
INFORMATION NETWORK OF KANSAS
12-18-91
/s/William F. Bradley, Jr. ------------------
- -------------------------------------------- Date
William F. Bradley, Jr.
Chairperson
ATTEST
/s/Charlotte Shawver
- --------------------------------------------
Charlotte Shawver, Secretary 12-18-91
--------------------
Date
KANSAS INFORMATION CONSORTIUM
/s/Ross Hartley
- -------------------------------------------- ---------------------
Ross Hartley Date
President
18
<PAGE>
ATTEST
/s/Jeff Fraser
- --------------------------------------------
Jeff Fraser, Secretary 12-18-91
---------------------
Date
19
<PAGE>
ADDENDUM TO CONTRACT FOR NETWORK MANAGER SERVICES
BETWEEN THE INFORMATION NETWORK OF KANSAS, INC.
AND THE KANSAS INFORMATION CONSORTIUM
WHEREAS, the Information Network of Kansas, Inc. (hereinafter "INK")
made and entered into a Contract for Network Manager Services (hereinafter
"the Contract") with the Kansas Information Consortium (hereinafter "KIC") on
December 18, 1991; and
WHEREAS, Section 16, subparagraph a, of the Contract states:
"a. A $100,000 performance bond for this Contract." and
WHEREAS, compliance with Section 16, subparagraph a of the Contract is a
prerequisite, according to the terms of the Contract, to the Contract
becoming effective; and,
WHEREAS, KIC and INK have otherwise operated under the Contract for nine
months without performance problems; and,
WHEREAS, KIC has attempted to obtain such performance bond, but has been
unable to do so, due to the insurers being unsure when a default would be
deemed to occur under the Contract, how damages under such default would be
determined, and for what they would be liable; and,
WHEREAS, a committee of the INK Board of Directors, after study, has
recommended deletion of subparagraph a of Section 16, which recommendation
was adopted unanimously by a quorum of the Board of Directors at their
regular meeting September 17, 1992;
NOW THEREFORE, KIC and INK do hereby AMEND the Contract by deleting
subparagraph a. of Section 16 of the Contract, the performance bond
requirement.
IN WITNESS to their agreement to all of the above and foregoing, the
parties have authorized their respective officers to execute this AMENDMENT
on the date below written, by subscribing their signatures thereto.
INFORMATION NETWORK OF KANSAS
/s/William F. Bradley, Jr. 10-15-92
- ------------------------------------------------- -----------------
William F. Bradley, Jr. Date
Chairperson
ATTEST
/s/Charlotte Shawver
- --------------------------------------------------
Charlotte Shawver, Secretary 10-15-92
-----------------
Date
1
<PAGE>
KANSAS INFORMATION CONSORTIUM
/s/Ross C. Hartley 10-15-92
- ------------------------------------------------ -------------------------
Ross C. Hartley, Chairman Date
ATTEST
/s/Jeff S. Fraser
- ------------------------------------------------
Jeff S. Fraser, Secretary 10-15-92
--------------------------
Date
2
<PAGE>
ADDENDUM #2 TO CONTRACT FOR NETWORK MANAGER SERVICES
BETWEEN THE INFORMATION NETWORK OF KANSAS, INC.
AND THE KANSAS INFORMATION CONSORTIUM
DATED DECEMBER 18,1991
WHEREAS, the Information Network of Kansas, Inc. (hereinafter "INK")
made and entered into a Contract for Network Manager Services (hereinafter
"the Contract") with the Kansas Information Consortium (hereinafter "KIC") on
December 18, 1991; and
WHEREAS, Section 21, subparagraph b, of the Contract states:
"b. Data owners must be able to sign on to the KIC's system to audit the
dissemination of records. On-line audit capability must be available for 18
months after transaction processing. After the initial 18 month period, KIC
shall maintain this information either on-line or off-line. The retention
period shall never be less than that approved by the State Records Board.
At a minimum, KIC shall retain the following data: name of subscriber,
transaction data and time, type of inquiry, and access keys."; and
WHEREAS, the INK Board of Directors, after study, has recommended
replacement of subparagraph b of Section 21, which recommendation was adopted
unanimously by a quorum of the Board of Directors at their regular meeting July
15, 1993; with language as follows:
"b. Data owners must be able to sign on to the KIC's system to audit the
dissemination of records. On-line audit capability must be available for
the length of time specified by the data owners. After the on-line
retention period has expired, KIC shall as specified in a contract between
the data owners and KIC, retain, destroy, or provide the record information
to the data owners without cost."
At a minimum, KIC shall retain the following data: name of subscriber,
transaction data and time, type of inquiry, and access keys."; and
WHEREAS, KIC's Board of Directors have similarly agreed to the adoption
of the same language in amendment to the Contract, by a quorum of the Board
of Directors at a regularly scheduled meeting;
NOW THEREFORE, KIC and INK do hereby AMEND the Contract at subparagraph
b of Section 21 of the Contract, the State Agency Access, access as indicated
above.
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<PAGE>
IN WITNESS to their agreement to all of the above and foregoing,
the parties have authorized their respective officers to execute this
ADDENDUM #2 on the date below written, by subscribing their signatures
thereto.
INFORMATION NETWORK OF KANSAS
/s/William F. Bradley, Jr. 8-19-93
- ---------------------------------------------- --------------------------
William F. Bradley, Jr. Date
Chairperson
ATTEST
/s/Charlotte Shawver 8-19-93
- ---------------------------------------------- ---------------------------
Charlotte Shawver, Secretary Date
2
<PAGE>
KANSAS INFORMATION CONSORTIUM, INC.
/s/Jeffrey S. Fraser 8-19-93
- --------------------------------------------- --------------------------
Jeffrey S. Fraser Date
President
ATTEST
/s/Chris Shults 8-19-93
- --------------------------------------------- --------------------------
Chris Shults, Secretary Date
3
<PAGE>
THE INFORMATION NETWORK OF KANSAS
AND
THE KANSAS INFORMATION CONSORTIUM
Amendment #1 to the Contract for Network Manager Services
WHEREAS, the Information Network of Kansas, Inc. (hereinafter "INK")
made and entered into a contract (hereinafter "the Contract") for network
manager services with the Kansas Information Consortium (hereinafter "KIC")
on December 18, 1991, with addendums on October 15, 1992 and August 19, 1993,
respectively; and
WHEREAS, Section 26, of the Contract states, in part: "This Contract
shall be for a term of 5 years, commencing January 1, 1992 and expiring at
12:00 A.M., December 31, 1996. . . . . ." and
WHEREAS, the INK Board of Directors, after study, has recommended the
extension of the Contract as adopted unanimously by a quorum of the Board of
Directors at their regular meeting May 18, 1995; with language as follows:
"This Contract shall now be for a term of eight (8) years, commencing January
1, 1992 and expiring at 12:00 a.m., December 31, 1999 . . . . . ."
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, receipt of which is hereby acknowledged by each
party, the parties hereto agree to AMEND Section 26 of the Contract, as
indicated above.
IN WITNESS to their agreement to all of the above and foregoing, the
parties have authorized their respective officers to execute this AMENDMENT
#1 on the date below written by subscribing their signatures thereto.
INFORMATION NETWORK OF KANSAS, INC.
/s/Charles R. Warren 5-26-95
- ------------------------------------------------- -------------------------
Charles R. Warren Date
President
ATTEST
/s/Don Morris 5-26-95
- ------------------------------------------------- -------------------------
Don Morris Date
Secretary
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<PAGE>
KANSAS INFORMATION CONSORTIUM, INC.
/s/Jeffrey S. Fraser 5-26-96
- --------------------- ------------------------
Jeffrey S. Fraser Date
President
ATTEST:
5-26-96
/s/Chris Shults
- ------------------------------------------------- -------------------------
Chris Shults Date
Secretary
2
<PAGE>
ADDENDUM TO CONTRACT FOR NETWORK MANAGER SERVICES
BETWEEN THE INFORMATION NETWORK OF KANSAS, INC.
AND THE KANSAS INFORMATION CONSORTIUM
WHEREAS, the Information Network of Kansas, Inc. (Hereinafter "INK")
made and entered into a contract for Network Manager services (hereinafter
"the Contract') with the Kansas Information Consortium (hereinafter "KIC') on
December 18, 1991, with addendums on October 15, 1992, August 19, 1993 and
May 26, 1995, respectfully; and
WHEREAS, Section 6, subparagraph a, of the contract states:
"a. INK will receive before all other payments 2% of gross revenue
per annum, payable monthly, which INK may use to support Board operations
and to pay audit and other expenses. Such funds shall be deposited in the
Information Network of Kansas fund."; and
WHEREAS, the INK Board of Directors, after study, has recommended
replacement of subparagraph a of Section 6, which recommendation was adopted
unanimously By a quorum of the Board of Directors at a properly held special
meeting on May 28, 1996; with the language as follows:
"a. Except as stated below, INK will receive before all other
payments 2% of gross revenue per annum, payable monthly, which INK may use
to support Board operations and to pay audit and other expenses. Such funds
shall be deposited in the Information Network of Kansas fund.
INK shall receive before all other payments 2% of $3.00 for each Batch
Driver License Record and 2% of $2.50 for each Batch Title and Registration
Record sold by KIC. The remainder of any revenue generated by the sale of
Batch Driver License Records and Batch Title and Registration Records shall
not be included in the 2% of gross revenue per annum which is paid to
INK."; and
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, receipt of which is hereby acknowledged by each
party, INK, and KIC hereto agree to AMEND subparagraph a of Section 6 of the
contract, Network Manager Remuneration, as indicated above.
IN WITNESS to their agreement to all of the above and foregoing, the
parties have authorized their respective officers to execute this AMENDMENT
on the date below written by subscribing their signatures thereto.
INFORMATION NETWORK OF KANSAS
/s/Charles R. Warren 6-13-96
- -------------------------------------------- ----------------------------
Charles R. Warren Date
Chairman
1
<PAGE>
ATTEST:
/s/Charlotte Shawver 6-13-96
- -------------------------------------------- ----------------------------
Charlotte Shawver Date
Secretary
2
<PAGE>
KANSAS INFORMATION CONSORTIUM INC.
/s/Jeffrey S. Fraser 6-13-96
- -------------------------------------------- ----------------------------
Jeffrey S. Fraser Date
President
ATTEST:
/s/Chris Shults 6-13-96
- -------------------------------------------- ----------------------------
Chris Shults Date
Secretary
3
<PAGE>
AMENDMENT TO CONTRACT
FOR
NETWORK MANAGER SERVICES
This amendment is entered into and executed this 2nd day of March 1998,
between Information Network of Kansas, Inc. (INK), and Kansas Information
Consortium (KIC) for the purpose of amending the Contract for Network Manager
Services, dated December 18, 1991, as subsequently modified by addendums
executed October 15, 1992, August 19, 1993, May 26, 1995, and June 13, 1996,
(the Contract).
WHEREAS, KIC has requested approval of a transfer of all of its issued
and outstanding common to a corporate entity, International Information
Consortium, Inc., not a natural person; and
WHEREAS, INK has agreed to approve IIC as the sole Stockholder of KIC,
in accordance with Section 11. Of the Contract, provided Section 11. is
amended, as provided below, and other conditions are met.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged by the parties, it is agreed:
1. Section 11. of the contract is hereby deleted and in lieu thereof
the following is inserted:
"11. SHAREHOLDERS. KIC has provided to INK a current list of the names,
addresses, and percentage of ownership interest of each KIC stockholder.
KIC shall continue to update that list so that INK shall always have a
current list of the persons holding one hundred percent (100%) of the
ownership interest in KIC. In addition thereto, KIC shall deliver, or
shall cause International Information Consortium, Inc., a Delaware, for
profit corporation (IIC), to deliver to INK a list showing the names,
addresses, and percentage of ownership interest in IIC of all of its
stockholders, and shall further cause IIC to update that list on an annual
basis to provide INK with a current list of the owners of one hundred
percent (100%) of the interest in IIC.
INK has approved a stock exchange transaction whereby IIC will become the
holder of one hundred percent (100 %) of the issued and outstanding stock
of KIC. If, after the completion of that transaction, IIC contemplates any
change in the ownership interest it holds in KIC, IIC shall give notice of
the proposed change to INK, not less than forty-five (45) days before that
change is to become effective. The proposed change shall not become
effective unless KIC and IIC have received the prior written consent of
INK, authorized by action of the INK board of directors. The intent of
this section is that INK shall know the identity of all KIC investors back
to natural persons and, further, that INK shall have the right to approve
any change in the ownership of KIC.
2. The contract, as modified above, is hereby ratified and
confirmed, as modified by this Amendment and the prior
addendums described above.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year set forth above.
KANSAS INFORMATION INFORMATION NETWORK OF
CONSORTIUM, INC KANSAS, INC.
By: /s/ Jeffrey S. Fraser By: /s/ Leroy Gattin
----------------------------- ----------------------------
Jeffrey S. Fraser, President Leroy Gattin, Chairman
ATTEST:
/s/ Ross Hartley /s/ James W. Mcbride, Jr.
- --------------------------------- -------------------------------
, Secretary , Secretary
2
<PAGE>
GUARANTEE
WHEREAS, pursuant to that certain Contract for Network Manager Services,
dated as of December 18, 1991, between Kansas Information Consortium, Inc., a
Kansas corporation ("KIC"), and the Information Network of Kansas, a public
instrumentality created by K.S.A. 74-9303 ("INK"), as amended (the
"Contract"), KIC has requested that INK approve a corporate reorganization
(the "Reorganization") pursuant to which KIC will become a wholly owned
subsidiary of International Information Consortium, Inc., a Delaware
Corporation(" IIC
WHEREAS, INK'S approval of the Reorganization is conditioned upon IIC'S
undertaking of the following conditions;
NOW, THEREFORE, for good and sufficient consideration IIC hereby agrees as
follows:
1. IIC shall cause KIC to continue to perform its obligations
under the Contract;
2. IIC shall give notice to INK in the event the Board of
Directors of IIC determines that IIC will: (a) undertake an initial public
offering of its stock; (b) make a substantial change in the stock ownership
of IIC; and (c) sell, dispose, merge or dissolve KIC.
3. IIC shall cause the operations of KIC to be limited to providing
those certain services which are required for KIC to comply with the terms of
the Contract.
INTERNATIONAL INFORMATION
CONSORTIUM, INC.
By: /s/ Jeffrey S. Fraser
----------------------------
Name: Jeffrey S. Fraser
Title: President
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<PAGE>
Exhibit 10.10
CONTRACT FOR NETWORK MANAGER SERVICES
THIS CONTRACT is between the State of Indiana, by and through the
Intelenet Commission, a body corporate and politic created pursuant to
Indiana Code 5-21-1-1 ET. SEQ. by the Indiana General Assembly, hereinafter
referred to as the Commission, and Indiana Interactive, Inc., a for-profit
Indiana corporation, without seal, hereinafter referred to as I@I.
WHEREAS, the Access Indiana Committee worked diligently on the Access
Indiana project on behalf of the various state funded governmental entities
and all state governmental offices to create this opportunity for providing
electronic (enhanced) access to public information for Indiana citizens in
the most cost-effective, progressive, and cooperative means possible; and
WHEREAS, the Access Indiana project is poised to become a significant
public access, economic development and educational tool for the State and its
residents; and
WHEREAS, the Access Indiana project will significantly benefit the State
through:
a. Increased public services with minimal use of tax dollars;
b. Electronic (enhanced) public access to State governmental data;
c. Equality of access to State government data regardless of geographic
location;
d. Increased efficiency of State government agencies and offices
without budget increases;
e. Providing additional resources to State agencies and offices as the
Access Indiana project grows;
f. Providing additional resources for the State to assist in its
information management and access functions; and
g. Providing a base of Network services, as determined by the
Governing Body, for which no access fee will be charged; and
1
<PAGE>
WHEREAS, in order to effectuate electronic access throughout the State,
the Commission issued Broad Agency Announcement 95-39 dated December 19,
1994, along with amendments dated January 10, 199S (A-1), February 17, 1995
(A-2) and March 1, 1995 (A-3), hereinafter collectively the BAA, seeking
proposals for a private network manager; and
WHEREAS, I@I submitted a proposal in response to the BAA, and such
proposal was determined by the Access Indiana Committee to be the one
best-suited to the goals of the State and the needs of the Access Indiana
project. The proposal is hereinafter referred to as the I@I Proposal; and
WHEREAS, the State desires to enter into a contract with I@I for I@I to
serve as the network services manager to establish, develop, operate,
maintain and fulfill the electronic gateway service component of the Access
Indiana project (which is hereinafter referred to as the Network) as mutually
agreed to by I@I and the Commission for increased electronic access by
Indiana residents, businesses, and other state government agencies to public
and other useful and relevant information;
NOW THEREFORE, the parties agree as follows:
1. PURPOSE OF NETWORK.
The purpose of the Network and this Contract may be summarized as follows:
a. To create and provide a significant and diligently promoted public
service to Indiana citizens and businesses by: (1) increasing accessibility
to government data and other useful information and services through
electronic means; and (2) promoting economic development by increasing ease
of access to government data and other useful information and by promoting
the sharing of that information.
b. To provide such public service without increasing the tax burden on
the citizens of Indiana, through utilization of private capital and
management and appropriate payment for the same.
2
<PAGE>
2. LIMITATION OF PURPOSE.
I@I shall engage solely in the business or businesses expressly approved
by the Network Governing Body established by the Commission (hereinafter,
'Governing Body') which shall initially be only and solely the start-up,
operation, maintenance and expansion of the Network. I@I shall furnish the
Governing Body with certified copies of Articles of Incorporation reflecting
this limitation of purpose at the time of presenting this Contract for state
of Indiana approvals.
3. TERM OF CONTRACT.
This Contract shall be for a term of five (5) years, commencing August
___, 1995 and expiring at 12:00 a.m., August ___, 2000, unless earlier
terminated by the Commission for cause.
This Contract may be renewed, or amended and renewed, for up to an
additional five (5) years. The Commission shall give written notice of the
renewal to I@I no later than July 31, 1999 unless otherwise mutually agreed
to by the parties in writing.
The term "Contract" as used in this Agreement shall mean the initial term,
together with any renewal term(s) which are approved.
Prior to the end of the Contract term or renewal as is applicable, I@I
covenants to the State to make an orderly transition of the Network and to
perform any and all tasks in good faith which are necessary to preserve the
integrity of the Network operations. I@I shall make every reasonable effort
to ensure that any such Network transition shall be performed in a
professional and business like manner, and shall comply with the reasonable
requests and requirements of the Commission, Governing Body, data-providing
state governmental entities (hereinafter DPE's) and the successor network
services manager, if any, to guarantee a successful, unhindered transfer.
4. RELATIONSHIP OF PARTIES.
Notwithstanding any other provisions contained herein, both parties
hereto, in the performance of this Contract, will be acting in an individual
capacity and not as agents, employees, partners, joint venturers or
associates of one another. The employees or agents of one party shall not be
deemed or construed to be the employees or agents of the other party for any
purpose whatsoever. Neither party will assume any liability for any injury
(including death)
3
<PAGE>
to any persons, or any damage to any property arising out of the acts or
omissions of the agents, employees, or subcontractors of the other party.
I@I is solely liable for all labor and expenses in furtherance of such
performance.
I@I may become an agent of the Commission or a DPE only by the expressed
written consent of the Commission or a DPE.
I@I will not pledge any assets of the State in its care, custody or
control, or cause any type of lien to attach to such.
5. HARDWARE, SOFTWARE AND ACCESS LINES.
I@I will provide hardware, and provide or develop software as enumerated
and described in the I@I proposal, and such other hardware and software
necessary to make the Network fully operational in accord with this Contract
and all other agreements between I@I and the DPE's. In accordance with the
BAA, the State shall be entitled to obtain a perpetual right to use only
license and a complete copy of all application and network software,
documentation and source code related thereto and utilized in operating the
Network, (whether originally developed by I@I, or one of its 'Sister Network
Companies' including, but not necessarily limited to, the Kansas Information
Consortium and Nebrask@ Interactive, Inc.), but not software or documentation
created by third parties and purchased by I@I together with any software
updates or upgrades made by I@I or one of its Sister Network Companies while
I@I operates the Network, to any software used to operate the Network
(hereinafter collectively "The Software") upon completion of the initial five
(5) year term, August ___, 2000. The Software shall be delivered to the
Governing Body no later than August ___, 2000 or as otherwise agreed to
mutually by the parties.
Upon termination or expiration of this Contract all Network and manager
records, work papers, plans, correspondence, operations documentation,
customer lists, customer account information, financial information and any
other records or documentation of any kind (hereinafter collectively
'records') shall be delivered to the Governing Body within thirty (30) days
after termination or expiration and shall become the exclusive property of
the State, if not already such.
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<PAGE>
I@I will be responsible during the term of this Contract for maintaining
all Network hardware and software and records, including items provided to
the Commission, to a DPE or to their contractors or subcontractors. Items
provided to any entity by I@I will be maintained as agreed to between I@I and
the affected entity.
6. CONNECTIONS BETWEEN NETWORK AND STATE AGENCIES.
Costs associated with and maintenance of communication links from state
facilities to I@I facilities for Network purposes, including but not limited
to leased circuits from telephone or cable companies, shall be paid as
expenses from the Network revenue account. Communication links from state
facilities to I@I facilities shall be procured from the Commission's
preferred providers except as otherwise agreed to by the Commission.
7. NETWORK SERVICE.
I@I, on behalf of the Commission and as directed by the Governing Body,
shall use best efforts to negotiate with DPE's and obtain their approval
through written interagency agreements (hereinafter, agreement) to implement
electronic access for the public. The terms of this Contract, and the
documents and exhibits incorporated herein by reference, shall be deemed as
included in any DPE agreement whether or not specific reference is made. The
terms of this Contract shall govern any DPE agreement in the event of a
conflict unless there is an express written waiver from the Governing Body to
deviate from the Contract in the DPE agreement.
Through the separate DPE agreements, the DPE and the Governing Body, in
full consideration of the DPE's statutory limitations and the DPE's stated
operational requirements, shall establish charges for and other conditions of
implementing electronic access. I@I shall direct payments for such access to
the DPE and/or the Commission but only as instructed by the Governing Body in
writing.
The DPE agreement shall at a minimum address the following issues: the
costs the DPE will charge for access, and which will be paid as expenses from
the Network revenue account for information access to be provided, the time
period and means by which DPE's will be paid from the Network revenue account
for access, the criteria which the DPE and I@I will utilize for system
development, testing and acceptance in order to assure the reliability of the
Network,
5
<PAGE>
procedures and means for protection of data, Network security, a project work
plan, a schedule with dates of events, specific confidentiality and privacy
requirements, type and content of management and financial reports to be
delivered, training, marketing plan, network performance criteria and the
DPE's rights of termination along with any other reasonable special
requirement to successfully implement and operate electronic access to the
DPE's data.
Payments to the Governing Body or to DPE's for DPE access shall be due from
the Network revenue account and paid within sixty (60) calendar days from the
usage or sale date unless a shorter period is specified in Indiana statutes or
in the DPE agreement. The Governing Body will reasonably cooperate in assisting
electronic access to DPE's, which may, in the sole discretion of the Governing
Body, be funded by the State in appropriate circumstances. After negotiating
any DPE agreement, the DPE agreement shall be presented by I@I to the Governing
Body for its approval. When a DPE agreement is presented to the Governing Body,
I@I shall also present to the Governing Body a recommendation for prices to be
charged users for the applicable Network service. The DPE shall be responsible
for obtaining any and all other State approvals as may be required under Indiana
law to enter into the interagency agreement following Governing Body approval.
I@I shall be authorized to execute subscription contracts on behalf of the
Commission. The basic form shall be approved by the Governing Body.
8. REGULATION OF RATES BY THE STATE.
Any charges for Network services shall be subject to the final approval
of the Governing Body for fairness, reasonableness and appropriateness. THE
SUGGESTED RATES SET FORTH IN I@I'S PROPOSAL SHALL IN NO WAY BE BINDING ON THE
GOVERNING BODY IN SETTING RATES IN THIS CONTRACT OR IN A DPE AGREEMENT. In
setting rates the Governing Body shall consider the following factors:
a. A commitment to the public policy requirement to provide electronic
access to public records at the most reasonable rate possible.
b. That the rates to be charged may be adjusted to permit funding of
special projects and enhancement of public service.
6
<PAGE>
c. The entrepreneurial and start-up nature of the business and attendant
risk of capital for I@I and the need to earn an acceptable rate of return.
d. The need to invest in the reasonable expansion of and improvement
in network and information services.
e. The need of I@I to earn a reasonable profit on Network operations.
f. Any other reasonable factor which in the opinion of the Governing
Body should be considered.
Such rates will thereafter be subject to periodic review and adjustment
by the Governing Body. Recommendations for amended rates shall be made by
I@I to the Governing Body as deemed necessary or desirable.
The maximum fees that users shall pay will be approved by the Governing
Body. These fees may be reduced at the discretion of I@I as an inducement to
increase usage of the Network, but any such reduction is subject to review
and approval of the Governing Body.
In the event that costs which I@I pays DPE's for data or data access are
reduced or increased as result of legislation or administrative changes, such
reductions or increases shall be passed on directly to Network users unless
otherwise approved in writing by the Governing Body or unless to do so would
otherwise violate applicable Indiana law.
9. NETWORK MANAGER REMUNERATION.
Within the framework of the rate-setting procedure addressed in section
8 above, the disbursement of all funds received by I@I as a result of the
operation of this Contract will be as follows unless otherwise mutually
agreed to between I@I and the Governing Body in writing:
a. 2% of gross revenue to the Commission as determined by the Governing
Body for electronic access to information.
b. Payments to DPE's in accordance with interagency agreements.
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c. I@I will be entitled to retain any sums remaining after payment of all
Network operating and administrative expenses.
d. In addition to amounts paid and to be paid from the Network revenue
account for Network expansion and improvement, the Governing Body may direct
I@I to expend up to 25% of net earnings, if there are net earnings, of the
Network on special projects for Network enhancements, at the Governing Body's
sole discretion.
10. CHANGES IN NETWORK.
A planned material change in Network operations cannot be made by I@I
without the prior written consent of the Governing Body. A "material change"
includes, but is not limited to, a change which increases response time to
inquiries, adds to the complexity of system use, diminishes services provided
to users, or results in a comparable impact on operations noticeable by
users. I@I will provide to the Governing Body at least thirty (30) days,
prior written notice of a planned material change in Network operations.
11. NOTICES.
The Executive Director of the Commission is hereby designated by the
Commission as the person to receive legal notices hereunder. The I@I contact
person shall be the President of I@I. Each party may change its designation
for notice following written notice to the other party to this Contract.
Notices by the parties to one another shall be given in writing to the
persons identified above or to such other persons as may be subsequently
identified in a written notice. Such notices shall be effective on the date
of receipt if sent by U.S. first-class or restricted delivery mail, postpaid,
or by any reputable overnight delivery service, prepaid. However, notices
pertaining to legal matters including, but not necessarily limited to,
termination, default or liability, shall be sent in compliance with
applicable law and via prepaid, certified mail, return receipt requested.
12. FINANCES AND RECORDS.
All I@I documents and records (as defined in section 5 above), by
whatever name and in whatever form, pertaining to operation of the Network
will be available for inspection, auditing
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and copying by the State, or other authorized representatives designated by
the State. Monthly income statements and balance sheets for the Network will
be provided to the Governing Body by I@I. All such records are the exclusive
property of the State, and must be retained in accordance with Indiana Code
5-15-5.1 ET. SEQ., the Indiana Administrative Code and all State record
retention policies. All such records shall be delivered immediately upon the
termination of the Contract.
I@I also agrees to make other changes requested by the Governing Body to
comply with recommendations made in any audit, which changes are agreed to by
both the Governing Body and I@I. Any such audit will be performed by a
competent and reputable CPA licensed in Indiana and with the consent of the
State Board of Accounts.
To the extent the audit report discloses any discrepancies in the I@I
charges, billings or financial records, and following a period for review and
verification of the amount by I@I, I@I will adjust the next monthly bill as
soon as reasonably possible, but not to exceed ninety (90) calendar days.
I@I shall cooperate to assure that verification is completed in a timely
manner.
The accounting system is to include a numbered chart of accounts, books
of original entry of all transactions, appropriate subsidiary ledgers, a
general ledger which includes to-date postings and an audit trail through
financial statements. Such books may either be maintained on paper or on
computer with appropriate backup. I@I shall from the beginning of this
Contract adopt the calendar year ending December 31, for reporting purposes.
13. MANAGEMENT REPORTS AND BUSINESS PLAN.
Network operations and development shall generally be in accordance with
the I@I proposal, and in particular in compliance with the DPE agreement and
incorporated project plan. As deemed necessary or desirable, I@I may depart
from such proposal or DPE project plan regarding non-material issues;
however, in the event of any material departure, I@I must obtain the approval
of the Governing Body and DPE in advance. I@I shall timely provide to the
Governing Body all management, financial and operational and network reports
as the Governing Body may reasonably request or as is provided for in the DPE
agreement to implement the electronic access.
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14. I@I SHAREHOLDERS.
I@I agrees to provide and continually keep updated a list of names and
addresses of stockholders of I@I and the percentage of ownership of each
stockholder.
As a basic policy all shareholders of I@I shall be natural persons;
however, exceptions to this requirement may be approved by the Governing Body
on a case by case basis. Such approval is not to be unreasonably withheld.
The intent of this section is that the Governing Body shall know the identity
of all I@I investors, back to natural persons.
15. STATE TO DESIGNATE SUPERVISORY AGENCY
The Governing Body shall have oversight of the Network. Oversight shall
include, but not be limited to:
a. Establishing Network pricing upon recommendation from I@I and the DPE.
b. Establishing Network policy, with input from I@I.
16. FULL-TIME EQUIVALENT POSITIONS AND SALARIES, BENEFITS AND RELATED
EMPLOYER EXPENSES.
I@I agrees to attain a staffing level during the first fiscal year of at
least twelve full-time equivalent employee positions, based on an eight-hour
work day per position, five days per working week unless the I@I and the
Governing Body agree that such a staffing level is not necessary based on the
level of DPE commitments.
I@I employee salaries shall be reasonable in comparison with salaries
for persons with like employment responsibilities, education and experience
in this field and employed in the midwestern United States.
The hiring, firing, recruitment, management, and training of I@I
employees will not be the responsibility of the State. The State's
involvement in the personnel affairs of I@I shall be limited to disclosure of
the names and positions of officers and employees of I@I.
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No officer, employee, director or shareholder of I@I shall receive ANY
COMPENSATION IN ANY FORM from I@I, except as and for services performed by
such officer, employee, or director or shareholder for I@I on behalf of the
Network.
I@I shall be responsible for all required employer costs attributable to
its officers and employees, including but not limited to, workers'
compensation premiums and deductible, unemployment compensation tax
withholding contributions, tax withholding contributions, and similar items.
17. BANK ACCOUNT FOR REVENUE AND PAYMENTS THEREFROM.
a. General Provisions. The initial capital investment of I@I shall be
$500,000. I@I shall establish one or more accounts in Indiana financial
institutions which are federally insured, for deposit of revenue from network
operations and shall furnish the Governing Body with the names of the
institutions, the account numbers and the names of those persons having
signatory authority. Any funds deemed by I@I to be "idle" or "excess" funds,
(defined as those not required to meet immediate needs) may be deposited at
I@I's discretion in money market accounts, treasury bills, or other suitable
investment vehicles until needed.
b. Payments from Accounts. Payments from the Network revenue accounts
are authorized as follows:
1. Payments to DPE's and/or the Commission for electronic access to
information.
2. Payment of ordinary, necessary and reasonable operating expenses
for operation of the Network.
3. Payment of reasonable system development costs, including
programming (to the extent not covered by regular salary under ordinary
operating expenses) and purchases or upgrades of software or hardware.
4. Payments to I@I, its shareholders or directors.
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c. Ownership of Accounts Receivable. Accounts receivable, and
proceeds therefrom not yet disbursed by the Network, which are generated from
Network operations conducted by I@I, are the sole property of I@I until
disbursed; however, the State shall have the right to inspect and copy such
records during the regular business hours of I@I upon request in advance.
18. INCORPORATION BY REFERENCE.
The entire BAA and the amendments thereto dated January 10 (A-1),
February 17 (A-2) and March 1 (A-3), all in 1995, and the I@I proposal are
attached hereto and incorporated into this Contract and made a part hereof.
If there is any conflict between the terms of the BAA and the provisions of
this Contract, the terms of the contract shall control. If there is any
conflict between the BAA and the I@I proposal, the BAA shall control. If
there is any conflict between the terms of the I@I proposal and this
Contract, the terms of the Contract shall control. In the event situations
arise which were not contemplated by the parties, or in the event that
provisions herein are determined mutually by the parties to be unworkable or
in the event that a change in terms would be mutually advantageous, this
contract may be amended by mutual expressed written consent.
19. INSURANCE AND BONDS.
I@I shall provide the Governing Body written proof, at the time of
presenting this Contract for State approvals, of the following to be provided
by a qualified firm authorized and admitted to do business in the state of
Indiana:
a. Proof of a general comprehensive liability insurance policy in the
amount of at least $500,000 and a deductible of not more than $5,000. The
State of Indiana shall be listed as an additional insured.
b. Employment Dishonesty Bond covering all I@I officers and employees
in an amount of at least $100,000 per employee. The State shall be listed as
obligee.
c. I@I shall maintain all workers' compensation insurance coverage as
required by law.
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20. TERMINATION OF CONTRACT.
The State shall have the right to terminate this Contract for cause,
subject to cure, by providing written notice of termination to I@I. Such
notice shall specify the time, the specific provision of this Contract or
"for cause" reason that gives rise to the termination, and shall specify
reasonable appropriate action that can be taken by I@I to avoid termination
of the Contract. The State shall provide a period of time of up to sixty
(60) calendar days, unless otherwise specified in this Contract, for I@I to
cure breaches and deficiencies of its performance obligations under this
Contract.
The State may terminate this Contract at any time and without cause if
directed to do so by statute.
21. TERMINATION FOR CAUSE.
For purposes of this Contract, the phrase "for cause" shall mean:
a. Any material breach or evasion by I@I of the terms or conditions of
this Contract and its amendments, if any.
b. Ownership in I@I by a shareholder unacceptable to the State (for
example, but not limited to, ownership by a multinational corporation).
c. Substantial cessation or material degradation of Network services
by I@I shall be cause for immediate termination of this Contract.
d. Fraud, misappropriation, embezzlement, malfeasance, significant
misfeasance, or illegal conduct by I@I, its officers, directors or
shareholders.
e. Dissolution of I@I or forfeiture of its corporate existence.
f. Repeal of the Commission's or a DPE's enabling statutes. This is
cause for immediate termination, unless another agency is designated for such
oversight within a reasonable time thereafter.
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g. Amendment of the Commission's or DPE's enabling statute or an
adverse judicial decision by a court of competent jurisdiction, which has the
effect of rendering network operations no longer feasible.
h. Insolvency of I@I
i. Material breach of an agreement with any DPE.
j. Intentional or negligent act or omission by I@I resulting in the
disclosure of any information clearly indicated as being confidential.
22. MULTI-TERM FUNDING CANCELLATION CLAUSE
When the Director of the State Budget Agency makes a written
determination that funds are not appropriated or otherwise available to
support continuation of this Contract or of a DPE agreement, the Contract or
the DPE agreement shall be immediately cancelled. A determination by the
State Budget Director that funds are not appropriated or otherwise available
to support continuation of the Contract or DPE agreement shall be final and
conclusive.
23. FORCE MAJEURE
In the event that either party is unable to perform any of its
obligations under this contract or to enjoy any of its benefits because of
(or if failure to perform the services is caused by) natural disaster,
actions or decrees of governmental bodies, or other event or failure not the
fault of the affected party (hereinafter referred to as a "Force Majeure
Event"), the party who has been so affected shall immediately give notice to
the other party and shall use reasonable efforts to resume performance. Upon
receipt of such notice, all obligations under this Contract shall be
immediately suspended. If the period of nonperformance exceeds sixty (60)
calendar days from the receipt of notice of the Force Majeure event, the
party whose ability to perform has not been so affected may, by giving
written notice, terminate this Contract without incurring any liability,
liquidated damages or termination charges whatsoever.
24. STANDARD USE MESSAGES.
If necessary or required by law, I@I shall cause the Network to display a
standard use message upon initial log-on to the Network, and each Network user
shall be required to verify
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compliance with said message terms. Upon subsequent log-ons, such
message may be displayed only, without verification, if prior verification is
logged in user file. Messages shall state in understandable and clear terms
what, if any, restriction(s) exist with regard to accessing the information,
and that the individual accessing the information must accept any and all
such restriction(s) before proceeding with the authorized access. Moreover,
in addition to any overall messages, the Network shall include any language
or restriction as is required by Indiana law for information from a
particular DPE. The standard use message shall be updated to comply with any
amendments to the law.
25. DATA PROVIDING ENTITY ACCESS.
a. DPE's must have terminal (read) access to the computerized log of
Network users accessing DPE data and their security status, without access
cost to the DPE's. The DPE's will be responsible for the cost of terminal(s)
and the cost of a dial-up or lease line, whichever is used.
b. DPE's must be able to sign on to I@I's system to audit the
dissemination of its records. On-line audit capability must be available for
the length of time specified by the data owning agencies after transaction
processing. After the on-line retention period has expired, I@I shall, as
specified between I@I and the DPE's, retain, destroy, or provide the record
information to the data owning agencies without cost.
At a minimum, the Network shall retain the following data: name of
Network user, transaction data and time, type of inquiry and access keys.
c. I@I shall notify affected DPE's and the Governing Board within two
(2) hours of unauthorized attempts to bypass Network security. The notice
shall contain detailed information to aid the affected DPE in examining the
matter.
26. PATENT, COPYRIGHT, TRADEMARK AND TRADE SECRET INDEMNITY.
I@I shall indemnify, defend and hold harmless the State against any claim
that any programming or operation provided by or to be provided by I@I infringes
a U.S. patent or
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copyright, trade secret or trademark of any person or entity, and the
Contractor will pay all resulting costs, damages, and attorney's fees finally
awarded.
The State shall be provided with prompt notice of any claim of
infringement, and I@I shall have the exclusive right to defend or settle such
claim at I@I's option except that the State shall have the right to
participate in the defense when issues of State law or policy are involved.
The State shall cooperate with I@I in its defense or settlement of such claim
at no expense to the State.
If I@I determines that, as a result of such claim the right of users to
use the Network is likely to be abridged, I@I shall (a) take all reasonable
steps necessary to procure for the State the right to continue to use
programming or operation; or (b) modify the Network so that no such
abridgment will occur and correspondingly reduce charges if the modified
Network is not substantially comparable to what it was before the
modification. If (a) and (b) fail, then I@I may discontinue such service
without liability.
27. LIABILITY.
The State of Indiana, its agents and employees shall not be legally
responsible to I@I for errors due to Network problems.
I@I agrees for itself, its agents, employees and assigns to hold
indemnify, defend and hold harmless the Commission and the State, its agents
and employees from any and all loss, damage or liability caused by I@I's
intentional acts, negligent acts or omissions or material failure to perform
under the terms of this Contract.
I@I agrees that it has no right of subrogation or contribution from the
State of Indiana for any judgment rendered against I@I or any claim settled
by I@I.
The Commission warrants through its representative's signature hereto
that it has the legal authority to enter into this Contract with I@I.
28. ASSIGNMENT AND SUBCONTRACTING.
I@I may not assign any of its rights or delegate any of its duties
hereunder unless done pursuant to prior written consent of the Governing Body.
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I@I may subcontract portions of work to be performed by it under this
Contract with the written consent of the Governing Body.
I@I shall be fully responsible for all performance activities,
compliance with this Contract and all DPE agreements and compliance with all
federal, state and local laws including, but not limited to, any equal
employment opportunity and affirmative action statutes and regulations, for
all subcontractors, if used.
29. COMPLIANCE WITH LAWS
I@I agrees to comply with all applicable federal, state and local laws,
rules, regulations, or ordinances, and all provisions required thereby to be
included herein are hereby incorporated by reference. I@I hereby agrees to
indemnify and hold the State harmless from any and all loss, damage or
liability resulting from a violation on the part of I@I of such laws, rules,
regulations or ordinances except such as is caused or induced by the
Commission, the Governing Body or any DPE. The enactment of any state or
federal statute or the promulgation of regulations thereunder after execution
of this Contract shall be reviewed by the Indiana Attorney General and I@I to
determine whether the Contract requires a formal amendment.
30. NONDISCRIMINATION
Pursuant to IC 22-9-1-10, I@I and its subcontractors, if any, shall not
discriminate against any employee or applicant for employment, to be employed
in the performance of this Contract, with regard to the person's hire,
tenure, terms, conditions or privileges of employment or any matter directly
or indirectly related to employment, because of that person's race, color,
religion, sex, handicap, national origin, ancestry or status as a veteran.
I@I understands that the State is a recipient of federal funds. Pursuant to
that understanding, I@I, and its subcontractors, if any, agree that if the
I@I at any time employs fifty (50) or more employees and generates at least
$50,000 worth of business and is not exempt, I@I will comply with the
affirmative action reporting requirements of 41 CFR 60-1.7, as amended.
Breach of this covenant may be regarded as a material breach of the Contract.
The State shall comply with Section 202 of Executive Order 11246, as
amended, 41 CFR 60-250, and 41 CFR 60-741, as amended, which are incorporated
herein by specific reference.
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31. GOVERNING LAW
This Contract shall be construed in accordance with and governed by the
laws of state of Indiana, and suit, if any, must be brought in the state of
Indiana.
32. SEVERABILITY
Should any section of this Contract be found invalid, ineffective or
unenforceable under present or future law, the remainder of the sections shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
33. TAXES
The State is exempt from all federal, state, and local taxes. The State
will not be responsible for any taxes levied on I@I in performing hereunder.
34. WAIVER OF BREACH
No waiver of a breach of any section of this Contract shall constitute a
waiver of any other breach, or of such section. Failure of the State to
enforce at any time, any section of this Contract shall not be construed as a
waiver thereof.
35. MAINTAINING A DRUG FREE-WORKPLACE
a. I@I hereby covenants and agrees to make a good faith effort to
provide and maintain during the term of this Contract a drug-free workplace,
and that it will give written notice to the Governing Body and the Indiana
Department of Administration within ten (10) working days after receiving
actual notice that an employee of I@I has been convicted of a criminal drug
violation occurring in I@I's workplace.
b. In addition to the requirements in subsection a. above, if the
total Contract value is in excess of $25,000.00, I@I hereby further agrees
that this Contract is expressly subject to the terms, conditions, and
representations obtained in the Drug-Free Workplace Certification executed by
I@I in conjunction with this Contract, which is appended to this Contract and
incorporated herein by reference.
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c. It is further expressly agreed that the failure of I@I to in good
faith comply with the terms of subsection a. above or falsifying or otherwise
violating the terms of the certifications referenced in subsection b. above
shall constitute a material breach of this Contract, and shall entitle the
State to impose sanctions against I@I including, but not limited to,
suspension of Contract payments, termination of this Contract and/or
debarment of the I@I from doing further business with the State for up to
three (3) years.
36. NON-COLLUSION AFFIDAVIT
I@I, by the signature of its duly authorized representative to the
attached non-collusion affidavit, swears, affirms, and gives assurance that
there has been no collusion between I@I and any State employee, officer or
agent in the awarding of this Contract, and that I@I has, prior to the
execution of the affidavit, caused an inquiry to be made of all interested
employees, agents, or representatives of I@I to ensure compliance.
37. PENALTIES/INTEREST/ATTORNEY'S FEES
The State will in good faith perform its required obligations under this
Contract and does not agree to pay any penalties, liquidated damages,
interest, or attorney's fees, except as required specifically by Indiana law,
in part, IC 5-17-5-1 ET. SEQ., IC 34-2-22-1 ET. SEQ., and IC 34-4-16-1.1 ET.
SEQ.
38. PROHIBITION AGAINST HIRING STATE EMPLOYEES
Throughout the entire term of this Contract, including any renewal
period(s) and for six (6) months following the termination of the Contract,
I@I covenants and hereby agrees that it shall not hire or represent, or
assist in any way, any existing or future Sister Network Company in the
hiring of any State employee to work for I@I or any existing or future Sister
Network Company unless otherwise agreed to by the State.
39. FAITHFUL PERFORMANCE BOND
Within ninety (90) days following the execution of this Contract by both
parties, I@I shall deliver a faithful performance bond or a certified or
cashier's check in the amount of Fifty Thousand U.S. Dollars and No Cents
($50,000) to the Commission. The performance bond may be forfeited upon the
Governing Body's determination that a material breach of Contract exists.
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The Governing Body shall deduct the amount of the bond from the total damages
due and owing to the State for the material breach. If a performance bond is
used, it must be supplied by a surety company authorized to do business in
the state of Indiana as certified by the Indiana Department of insurance.
The performance bond must be made payable to Commission. The Commission may
hold the bond or check for a period not to exceed six months (6) months from
the date of its delivery, and shall be promptly delivered to I@I upon demand
and following the expiration of the six (6) month period.
40. WARRANTY
I@I warrants, represents and assures that during the entire term of the
Contract, and any renewal period, that the Network, and I@I's related
management services thereof, shall comply with all the requirements set forth
in the BAA as well as the responses provided in I@I's proposal and the
requirements and performance standards mutually agreed to in writing in the
individual DPE agreements.
I@I further warrants that it will perform all of its personal services
to the State at all times in a workmanlike manner, with a professional degree
of skill and in a timely fashion consistent with schedules and work plans.
41. DISASTER RECOVERY
I@I shall deliver to the Governing Body a copy of I@I's written disaster
recovery plan (hereafter, DRP) no later than six (6) months after Contract
execution or ninety (90) days following public access to the first commercial
offering made available hereunder. The DRP shall indicate in detail how I@I
will meet its proposal representation that I@I shall make a good faith effort
to recover all ongoing network management services within twenty-four (24)
hours from the time of a disaster declaration. The DRP shall at a minimum
establish that I@I has made all the necessary and binding arrangements to
secure alternative facilities, equipment, software, services necessary to
meet I@I's disaster recovery commitments. The DRP shall also include a
testing process to validate the probable success of the DRP and such results
shall be shared with the Governing Body. A failure of I@I to establish a DRP
acceptable to the Governing Body or a failure of I@I to have in place the
necessary binding arrangements to implement a sound and orderly DRP or a
failure of testing to show that the DRP will be reasonably successful shall
be
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grounds for the Governing Body to exercise its rights as is appropriate under
the Termination for Cause section 21, above. Supplemental disaster recovery
commitments to this initial DRP may be identified in the individual DPE
agreements as is required for a particular Network service.
42. COUNTERPARTS
This Contract shall be executed simultaneously in two counterparts, each
of which will be deemed an original, but all of which together will
constitute one in the same instrument.
43. ENTIRE AGREEMENT
This Contract constitutes the entire understanding between the parties
and supersedes all other prior written or oral agreements between the parties
with respect to the subject matter hereof. This Contract may be amended only
by a writing signed by the parties thereto.
The parties having read and understood the foregoing sections of the
Contract including all documents and exhibits incorporated therein by
reference, expressly agree to these terms and conditions as evidenced by
their respective dated signatures below:
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
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INDIAN@ INTERACTIVE, INC.
/s/William F. Bradley, Jr., President 7-18-95
- ------------------------------------------ -------
ATTEST:
/s/Jeffery S. Fraser 7-18-95
- ------------------------- -------
<PAGE>
FOR THE STATE OF INDIANA:
Intelenet Commission: Attested by:
---------------------------------- ----------------------------------
Signature of Commission Chair Jerry Sullivan
Executive Director
----------------------------------
Printed Name Date:
-----------------------------
Date:
------------------------------
Department of Administration: State Budget Agency:
----------------------------------- ----------------------------------
William Shrewsberry Katherine L. Davis
Commissioner Director
Date: Date:
------------------------------ -----------------------------
Approved as to form and legality:
----------------------------------
Pamela Carter
Attorney General
Date:
-----------------------------
<PAGE>
STATE OF INDIANA
DRUG-FREE WORKPLACE CERTIFICATION
This certification is required by Executive Order No. 90-5, April 12,
1990, issued by the Governor of Indiana. Pursuant to its delegated
authority, the Indiana Department of Administration is requiring the
inclusion of this certification in all contracts with and grants from the
State of Indiana in excess of $25,000. No award of a contract or grant shall
be made, and no contract, purchase order or agreement, the total amount of
which exceeds $25,000, shall be valid unless and until this certification has
been fully executed by the Contractor or Grantee and attached to the contract
or agreement as part of the contract documents. False certification or
violation of the certification may result in sanctions including, but not
limited to, suspension of contract payments, termination of the contract or
agreement and/or debarment of contracting opportunities with the State for up
to three (3) years.
The Contractor/Grantee certifies and agrees that it will provide a
drug-free workplace by:
(a) Publishing and providing to all of its employees a statement
notifying employees that the unlawful manufacture, distribution, dispensing,
possession or use of a controlled substance is prohibited in the Contractor's
workplace and specifying the actions that will be taken against employees for
violations of such prohibition; and
(b) Establishing a drug-free awareness program to inform employees
about (1) the dangers of drug abuse in the workplace; (2) the Contractor's
policy of maintaining a drug-free workplace; (3) any available drug
counseling, rehabilitation, and employee assistance programs; and (4) the
penalties that may be imposed upon an employee for drug abuse violations
occurring in the workplace;
(c) Notifying all employees in the statement required by subparagraph
(a) above that as a condition of continued employment the employee will (1)
abide by the terms of the statement; and (2) notify the employer of any
criminal drug statute conviction for a violation occurring in the workplace
no Later than five (5) days after such conviction;
(d) Notifying in writing contracting state Agency and the Indiana
Department of Administration within ten (10) days after receiving notice from
an employee under subdivision (c)(2) above, or otherwise receiving actual
notice of such conviction;
(e) within thirty (30) days after receiving notice under subdivision
(c)(2) above of a conviction, imposing the following sanctions or remedial
measures on any employee who is convicted of drug abuse violations occurring
in the workplace: (1) take appropriate personnel action against the employee,
up to and including termination; or (2) require such employee to
satisfactorily participate in a drug abuse assistance or rehabilitation
program approved for such purposes by a Federal, State or Local health, law
enforcement, or other appropriate agency; and
(f) Making a good faith effort to maintain a drug-free workplace
through the implementation of subparagraphs (a) through (e) above.
THE UNDERSIGNED AFFIRMS, UNDER PENALTIES OF PERJURY, THAT HE OR SHE IS
AUTHORIZED TO EXECUTE THIS CERTIFICATION ON BEHALF OF THE DESIGNATED
ORGANIZATION.
Indian@Interactive, Inc. ------------------------
------------------------ Contract/Grant ID Number
Printed Name of Organization
/s/William F. Bradley, Jr., ------------------------
President Date
Signature of Authorized Representative
William F. Bradley, Jr.
-----------------------
Printed Name and Title
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Exhibit 10.11
SERVICES CONTRACT--NATIONAL INFORMATION CONSORTIUM
Agreement made this 15th day of September, 1996, by and between the National
Information Consortium, Inc. hereinafter referred to as NIC, and the
GeorgiaNet Authority, an agency of the State of Georgia, hereinafter referred
to as GANET.
WHEREAS, the GeorgiaNet Authority has identified a need for certain data
processing and marketing services to enable it to carry out its functions; and
WHEREAS, NIC is in the business of providing services to users such as GANET
in order to fulfill the need for such services;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. SCOPE OF WORK: NIC agrees to provide all goods, services and other
deliverables as required and set forth in Exhibit "A" attached hereto
(hereinafter collectively referred to as the "Services"). The payments made
hereunder shall in no event exceed the contracted amount. As used in this
Contract, the term "the State" shall mean and refer to the State of Georgia.
2. NIC'S EMPLOYEES: NIC shall provide personnel in such numbers and at
such levels of experience as may be necessary to perform the Services
required under this Contract.
NIC shall provide a minimum of 5 full time employees, dedicated to fulfilling
the obligations of the provisions of this contract. In the event that
additional full time employees are deemed necessary, by mutual consent of NIC
and GANET, NIC shall supply those employees under the terms and conditions as
set forth in this contract and as stated in "Exhibit A."
NIC reserves the right to use, in addition to the five employees dedicated
full time to GANET, employees from any of its sister companies on a temporary
basis to satisfy any obligation as set forth in this contract. All expenses
associated with the temporary use of said employee, including but not limited
to travel expenses, salary and appropriate employment taxes, shall be borne
entirely by NIC.
Neither NIC nor any of its agents, servants, or employees shall become or be
deemed to become agents, servants, or employees of the State of Georgia or
GANET. NIC and all such agents, servants, and employees shall for all
purposes be deemed to be independent contractors; and this Contract shall not
be construed so as to create partnership or joint venture between NIC, GANET
and/or the State of Georgia or any of its agencies. NIC acknowledges that
any individuals supplied to GANET hereunder are employees of NIC and it shall
be responsible for all FICA, federal and state withholding taxes, for
Worker's Compensation coverage, and for any and all employment benefits due
such employees.
3. REMUNERATION: GANET shall be obligated to pay NIC for Services as are
actually performed hereunder. The amount to be paid by GANET is set forth in
Exhibit "A."
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4. TERM: The anticipated term of this contract is five (5) years. The
initial term of this contract shall commence on September 15, 1996 and shall
continue until and through September 15, 1997. Thereafter, this contract may
be renewed for four additional one year terms, by GANET, upon the same terms
and conditions set forth herein and as stipulated by Exhibit "A", unless
contract is terminated pursuant to the stipulations in section 10 and Exhibit
"A."
5. ORIGINALITY:
a. NIC warrants all materials produced by its employees hereunder will be
of original development by NIC and/or its sister companies and will be
specifically developed for fulfillment of this contract and will not
infringe upon or violate any patent, copyright, trade secret, or other
property right of any third party. In the event NIC shall elect to
use or incorporate any components of a system already existing, NIC
shall first notify GANET who, after whatever investigation GANET may
elect to make, may direct NIC not to so use any such components.
GANET's investigation and subsequent notification of NIC shall be
completed within five business days of GANET's being notified by NIC
of its election to use components of a system already existing. If
GANET shall not object, NIC may use such components at NIC's expense
after obtaining the written consent of the party owning the same and
furnishing a copy thereof to GANET; in all events such components
shall be similarly warranted (except for originality) by NIC, and NIC
will arrange to transfer a perpetual license to use such components to
GANET for the purposes of this Contract and shall indemnify GANET in
the manner aforesaid with respect thereto.
b. NIC shall, at its expense, be entitled to and shall have the duty to
participate in the defense of any suit instituted against GANET or the
State (hereinafter "Indemnities") and indemnify Indemnities against
any award of damages or costs made against Indemnities by a final
judgment of a court of last resort in such suit insofar as the same is
based upon any claim that any of the work performed, materials used,
or goods, services and equipment furnished by NIC in connection with
this Contract (hereafter collectively referred to as the "Contract
Deliverables") constitute an infringement of any United States Letters
of Patent, copyright, trade secret, or other proprietary interest;
provided Indemnities gives NIC immediate notice in writing of the
institution of such suit, permits NIC to fully participate in the
defense of the same, and gives NIC all available information,
assistance and authority to enable NIC to do so. NIC shall not be
liable for any award or judgment against Indemnities reached by
compromise or settlement unless NIC accepts the compromise or
settlement. NIC shall have the right to enter into negotiations for
and the right to effect settlement or compromise of any such action,
but no such settlement shall be binding upon Indemnities unless
approved by Indemnities. In case any portion of the Contract
Deliverables is in any suit held to constitute infringement in its use
enjoined, NIC shall, at its option and expense: (1) procure for
Indemnities the right to continue using the Contract Deliverables; or
(2) replace or modify the same so that it becomes non-infringing.
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6. FUNDING:
a. Upon the signing of this contract, funds for the tasks defined in
Exhibit "A" will be encumbered for the full amount of the initial term
of this Contract.
b. The total obligation established hereunder is payable by GANET solely
from fees received by GANET from its customers. In no event shall the
sum paid out in any fiscal year of GANET exceed the sum of the fees so
received by GANET during such fiscal year.
c. In the event that the source of payment for the total obligation no
longer exists or is insufficient with respect to the services, then
this Contract as to all services or, as the case may be, as to any
services included under this contract, shall terminate without further
obligation of GANET as of that moment. The certification by GANET of
the events stated above shall be conclusive.
7. INDEMNIFICATION: NIC hereby waives, releases, relinquishes, discharges
and agrees to indemnify, protect and save harmless the State of Georgia
(including the State Tort Claims Trust Fund), and GANET, their officers and
employees (hereinafter collectively referred to as "Indemnities"), of and
from any and all claims, demands, liabilities, loss, costs or expenses for
any loss or damage (including but not limited to bodily injury or personal
injury including death, property damage, workers' compensation benefits,
employment benefits, libel, slander, defamation of character, and invasion of
privacy) and attorneys' fees, caused by, growing out of, or otherwise
happening in connection with this Contract, due to any act or omission
(whether intentional or negligent, through theft or otherwise) on the part of
NIC, its agents, employees, subcontractors, or others working at the
direction of NIC or on its behalf; or due to any breach of this Contract by
NIC; or due to the application or violation of any pertinent Federal, State
or local law, rule or regulation by NIC, its agents, employees,
subcontractors, or others working at the direction of NIC or on its behalf;
or caused by any other person.
This indemnification applies whether: (i) the activities involve
third parties or employees or agents of NIC or Indemnities; or (ii) a claim
results in a monetary obligation that exceeds any contractual commitment.
This indemnification extends to the successors and assigns of NIC,
and this indemnification and release survives the termination of this
Contract and the dissolution or, to the extent allowed by law, the bankruptcy
of NIC.
The indemnification does not apply to the extent of the willful or
wanton misconduct of the Indemnities, their officers or employees. This
indemnification does not apply to the extent of the sole negligence of the
Indemnities, their officers or employees, concerning activities within the
scope of O.C.G.A. Section 13-8-2 (b) relative to the construction,
alteration, repair, or maintenance of a building structure, appurtenances,
and appliances, including moving, demolition, and excavating connected
therewith.
If and to the extent such damage or loss as covered by this
indemnification is covered by the State Tort Claims Fund (the "Fund")
established and maintained by DOAS, NIC agrees to reimburse the Fund for such
funds paid out by the Fund. To the full extent permitted by the
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Constitution and the laws of the State of Georgia and the terms of the Fund,
NIC and its insurers waive any right of subornation against the State of
Georgia, the Indemnities, and the Fund and insurers participating thereunder,
to the full extent of this indemnification.
NIC shall, at its expense, procure a Commercial General Liability
Insurance Policy, including personal and advertising liability (or a
Comprehensive General Liability Policy with endorsement to insure contractual
liability, broad form property damage, personal injury, personal and
advertising liability), and the other insurance policies in coverage amounts
as specified in this Contract, with endorsement waiving right of subornation
against the State, the Indemnities, the Fund and insurers participating
thereunder.
NIC shall, at its expense, be entitled to and shall have the duty
to participate in the defense of any suit against the Indemnities. No
settlement or compromise of any claim, loss or damage asserted against
Indemnities shall be binding upon Indemnities unless expressly approved by
the Indemnities.
8. INSURANCE: The following requirements shall be adhered to by
CONTRACTORS throughout the term of the Contract, any renewal thereof, and as
may otherwise be specified herein:
a. Insurance Certificate:
NIC certifies that they shall procure and maintain insurance which
shall protect NIC and the State from any claims for bodily injury,
property damage, or personal injury which may arise out of operations
under the Contract. NIC shall procure the insurance policies at NIC's
own expense and submit certificates to GANET. The insurance
certificate must document that the liability insurance coverage
purchased by NIC includes contractual liability coverage to protect
the State. In addition, the insurance certificate must provide the
following information:
(1) Name and address of authorized agent,
(2) Name and address of insured,
(3) Name of insurance company (licensed to operate in Georgia),
(4) Description of coverage in standard terminology,
(5) Policy period,
(6) Limits of liability,
(7) Name and address of certificate holder,
(8) Acknowledgment of notice of cancellation to the State,
(9) Signature of authorized agent,
(10) Telephone number of authorized agent
(11) Details of policy exclusions in comments section of Insurance
Certificate.
b. NIC also certifies that the following types of insurance coverages
have been purchased by NIC:
(1) Workers' Compensation Insurance:
To insure the statutory limits as established by the General
Assembly of the State of Georgia (NOTE: A self-insurer must
submit a certificate from
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the Georgia State Board of Workers' Compensation stating NIC
qualifies to pay its own workers' compensation claims.)
The Workers' Compensation Policy must include Coverage B -
Employer's Liability Limits of:
Bodily Injury by Accident: $ 500,000 each accident
Bodily Injury by Disease: $ 500,000 each employee
$1,000,000 policy limits
NIC shall require all subcontractors performing work under this
Contract to obtain an insurance certificate showing proof of
Workers' Compensation Coverage.
(2) Commercial General Liability Policy:*
Combined Single Limits: $1,,000,000 per person
$3,000,000 per occurrence
The Commercial General Liability Policy must be on an
"occurrence" basis, and include coverage for premises operations
(including, but not limited to explosion, collapse and
underground coverage) elevators, independent CONTRACTORS and
completed operations.
* A Comprehensive General Liability Policy may be substituted for
the Commercial General Liability Policy if the Comprehensive
General Liability Policy has been endorsed to insure contractual
liability, broad form property damage, and personal injury
liability.
All policies must be on an "occurrence" basis, unless expressly
otherwise stated, and include coverage for premises operations, elevators,
independent CONTRACTORS and completed operations.
The foregoing policies shall contain a provision that coverages
afforded under the policies will not be canceled or not renewed until at
least thirty (30) days prior written notice has been given to the GANET. NIC
certifies Certificates of Insurance showing such coverages to be in force
prior to commencement of any work under this Contract. The foregoing
policies shall be obtained from insurance companies licensed to do business
in Georgia and shall be with companies acceptable to GANET. It shall be the
responsibility of NIC to require any subcontractors to secure the same
insurance coverage as prescribed herein for NIC, and to obtain a certificate
or certificates evidencing that such insurance is in effect. All such
coverages shall remain in full force and effect during the initial term of
the Contract and any renewal thereof.
9. CONFIDENTIALITY: NIC acknowledges that much of the data, information,
plans, and strategies it will become privy to in the performance of this
Contract is of a confidential nature, and NIC shall not disclose such
confidential information to anyone other than its employees, who have a
reasonable need to know same in connection with the performance of this
contract. Provided,
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further, all employees of NIC who become privy to such confidential
information shall sign a non-disclosure agreement regarding same in a form
acceptable to GANET.
10. TERMINATION:
(A ) GANET may, in its sole discretion, terminate this Contract for any
reason upon giving ninety (90) days written notice to NIC. In the
event that the written notice of termination pursuant to this section
states that termination is for the convenience of GANET, NIC shall be
entitled to payment for work performed through the date of the notice
of termination (not the date of termination) to the extent that there
exists adequate funds available to make payment.
(B) In the event that NIC breaches the Contract, GANET may terminate this
Contract upon providing NIC with 20 days written notice-, provided,
however, NIC may avoid termination of the Contract pursuant to this
subparagraph (B) by curing, to the satisfaction of GANET, the
breach(es) identified in the written notice within the 20 day period.
(C) This Contract may be immediately terminated in the event that any of
the following occurs:
1. NIC becomes insolvent or liquidation or dissolution of NIC
begins;
2. A voluntary or involuntary bankruptcy petition is filed by or
against NIC under the U.S. Bankruptcy Code or any similar
petition under any state insolvency law;
3. An assignment is made by NIC for the benefit of creditors; or
4. A proceeding for the appointment of a receiver, custodian,
trustee or similar agent are initiated with respect to NIC.
Upon termination or other expiration of this Contract, each party shall
forthwith return to the other all papers, materials, and other properties of
the other held by each for purposes of execution of this Contract. In
addition, each party will assist the other party in the orderly termination
of this contract and the transfer of all aspects hereof, tangible or
intangible, as may be necessary for the orderly, nondisruptive business
continuation of each party.
11. QUALITY OF WORK: NIC shall perform all Services hereunder in accordance
with specific directions from GANET, to meet the requirements of GANET. All
application components developed by NIC subsequent to this agreement shall be
of superior quality and employ a standard outward appearance so that all
graphical interfaces shall display commonality in screen layout and flow of
information across applications.
12. SURVIVAL: The terms, provisions, and representations contained in this
Contract shall survive the termination or expiration of this Contract and the
payment of any and all sums due NIC.
13. FORCE MAJEURE: Neither party shall be responsible for delays or failure
in performance resulting from acts beyond the control of such party. Such
acts shall include, but are not limited to, acts of God, strikes, lockouts,
riots, acts of war, epidemics, governmental regulations superimposed after
the fact, fire, communication line failures, power failures, earthquakes or
other disasters.
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14. COOPERATION WITH OTHER CONTRACTORS: In the event that GANET has entered
into or enters into agreements with other contractors for additional work
related to the services rendered hereunder, NIC agrees to cooperate fully
with such other contractors, provided that said cooperation does not
jeopardize any of NIC's trade secrets or application licenses. NIC shall not
commit any act which will interfere with the performance of work by any other
contractor or subcontractor.
15. FINANCIAL STATEMENTS: Upon request by GANET, NIC shall supply a
certified copy of its annual report and financial statements.
16. ASSIGNMENT: Performance under this contract shall not be assigned or
subcontracted by NIC without the prior written consent of GANET. GANET
hereby reserves the right to reject any subcontractors suggested by NIC at
its sole option.
17. NON-HIRE OF EMPLOYEES: For the term of this contract and for six months
after its termination, NIC agrees not to employ any employee of GANET, in any
capacity, without the prior approval of GANET.
18. AUDIT RIGHTS: GANET shall have the right, exercisable at any reasonable
time during normal business hours, to inspect and audit any records
concerning the development of this software package including, but not
limited to, books, records, documents and other evidence pertaining to work
done and/or the cost and expenses incurred by NIC in performing this
contract. Information made available to GANET as a result of such audit
shall be treated as proprietary information by GANET, shall be utilized
solely for the purposes of review/evaluation of NIC's performance under this
contract and shall not be released to any parties other than those within
GANET possessing a valid "need to know;" provided, however, nothing in this
paragraph shall prohibit or limit GANET's ability to disclose information
made available to GANET under this paragraph to others for purposes of
enforcing GANET's rights and remedies under this contract.
19. TIME OF THE ESSENCE: GANET and NIC will use all reasonable effort to
ensure that all project schedules are met.
20. TRADING WITH STATE EMPLOYEES: The provisions of Official Code of
Georgia Annotated, Sections 45-10-20 et. seq., have not and will not be
violated under the terms of this agreement.
21. GOVERNING LAW: This contract is deemed to be made under and shall be
construed according to the laws of the State of Georgia.
22. TAXES: NIC shall forthwith pay all taxes lawfully imposed upon it with
respect to this agreement or any product delivered in accordance herewith.
GANET makes no representation whatsoever as to the liability or exemption
from liability of the NIC to any tax imposed by any governmental entity.
23. CONSENT TO BREACH NOT WAIVER: The waiver by GANET or NIC of any breach
of any provision contained in this agreement shall not be deemed to be a
waiver of such provision on any subsequent breach of the same or any other
provision contained in this agreement and shall not establish a course of
performance between the parties contradictory to the terms hereof.
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24. AMENDMENTS IN WRITING: No amendment to this agreement shall be
effective unless it is in writing and signed by duly authorized
representatives of all parties.
25. HEADINGS NOT CONTROLLING: The headings used in this agreement are for
reference purposes only and shall not be deemed to be a part of this agreement
26. NOTICES: All notices provided for herein shall be deemed duly given
upon delivery if delivered by hand, or on three days after posting if sent by
certified mail, return receipt requested. Notice shall only be given to the
following persons or officials at the following addresses:
A. NIC: Address notice to:
Mr. Jeffery S. Fraser
Chairman, CEO
National Information Consortium, Inc.
400 SW 8th Ave
Suite 106
Topeka, KS 66603
B. GANET: Address notice to:
Mr. Thomas M. Bostick
Executive Director
GeorgiaNet Authority
100 Peachtree Street
Suite 1440
Atlanta, GA 30303-3404
27. DRUG FREE WORKPLACE:
a. NIC hereby certifies that:
1. A drug-free workplace will be provided for NIC's employees
during the performance of this Contract; and
2. It will secure from any subcontractors hired to work in a
drug-free workplace the following written certification:
"As part of the subcontracting agreement with (NIC's Name),
(Subcontractor's Name) certifies to NIC that a drug-free
workplace will be provided for the subcontractor's employees
during the performance of this Contract pursuant to
paragraph 7 of subsection B of Code Section 50-24-3."
b. NTC may be suspended, terminated, or debarred if it is determined
that:
1. NIC has made false certification herein above; or
2. NIC has violated such certification by failure to carry out
the requirements of O.C.G.A. 50-24-3.
28. AUTHORITY: The parties hereto warrant that each has full power and
authority to enter into and perform this Contract, and the person signing on
behalf of each respective party has been properly authorized and empowered to
enter into this Contract. Each party further acknowledges that it has read
this Contract, understands it and agrees to be bound by it.
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29. SEVERABILITY: If any term or provision of this Contract shall be found
to be illegal or unenforceable then, notwithstanding the offending terms or
provisions, this Contract shall remain in full force and effect and such term
or provision shall be deemed stricken here from.
30. PARTIES BOUND: This Contract shall be binding on and inure to the
benefit of the parties to this Contract and their respective heirs,
executors, administrators, legal representatives, successors, and assigns as
permitted by this Contract.
31. COMPLIANCE WITH STATUTES: NIC shall perform its obligations hereunder
in accordance with all applicable federal and state laws and regulations now
or hereafter in effect.
32. LIMITATION OF LIABILITY: Notwithstanding anything to the contrary, in
no event will NIC or GANET be liable for any special incidental or
consequential damages. Further, neither party hereto will be liable for any
damages resulting from a breach of the contract requirements outlined in
Exhibit "A" in excess of the amount specified in Exhibit "A." Provided,
however, the limitation of NIC's liability for special, incidental, and
consequential damages, or damages resulting from a breach of the contract
requirements outlined in Exhibit "A" as set forth in this paragraph, shall
not apply if and to the extent said damages would be covered losses,
occurrences, or events under the insurance coverages required to be purchased
by NIC pursuant to paragraph 8 of this contract.
33. ENTIRE AGREEMENT: This agreement embodies the entire agreement between
the parties. If any provision herein is held to be invalid, it shall be
considered deleted and shall not invalidate the remaining provisions.
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EXHIBIT A
STATEMENT OF TERMS
SCOPE: NIC shall assist GANET in creating and providing a significant and
diligently promoted public service to Georgian citizens and businesses by
increasing accessibility to government data and other useful information and
services through the GeorgiaNet network. NIC shall provide this service
utilizing its own employees and GANET employees in conjunction with NIC
application and network software. NIC will develop a description of the
tasks that NIC's employees will perform during the term of the contract and a
work plan for completing these tasks. The work plan must be completed and
agreed to by GANET prior to October 31,1996. Prior to renewal each year, a
revised work plan must be presented to GANET for approval.
NIC SOFTWARE APPLICATIONS AND TECHNOLOGY ADVANCES: GANET shall be entitled
to obtain a perpetual right to a "use only" license and a complete copy of
all application and network software, documentation and source code related
thereto and utilized in operating of the GANET network, (whether originally
developed by NIC, or one of its 'Sister Network Companies' including, but not
necessarily limited to, the Kansas Information Consortium, Nebrask@
Interactive, Inc., and Indian@ Interactive, Inc.), but not software or
documentation created by third parties and purchased by NIC, together with
any software updates or upgrades made by NIC or one of its Sister Network
Companies while NIC contracts to perform services for GANET.
Upon GANET's election to maintain a perpetual right to a "use only" license
of NIC software applications and technology after termination or other
expiration of this contract prior to the anticipated five (5) year term of
this contract, GANET shall pay NIC within thirty (30) days of said
termination the following amount for the software applications and technology
incorporated into GANET:
a. If GANET fails to renew after the initial term of the contract or
otherwise terminates the contract within the first year of the
contract, GANET may, at it's option, pay NIC $1,000,000.00. Upon
receipt of the entire fee, GANET shall be entitled to obtain a
perpetual right to "use only" license and a complete copy of all
application and network software, documentation and source code
related thereto.
b. If GANET fails to renew after the second one year term of the
contract or otherwise terminates the contract within the second
year of the contract, GANET may, at it's option pay NIC
$750,000.00. Upon receipt of the entire fee, GANET shall be
entitled to obtain a perpetual right to "use only" license and a
complete copy of all application and network software,
documentation and source code related thereto.
c. If GANET fails to renew after the third or fourth one year term
of the contract or otherwise terminates the contract within the
third, fourth year or fifth year of the contract, GANET may, at
it's option pay NIC $500,000.00. Upon receipt of the entire fee,
GANET shall be entitled to obtain a perpetual right to "use only"
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license and a complete copy of all application and network
software, documentation and source code related thereto.
d. At the end of the fifth term of the contract, GANET shall be
entitled to obtain a perpetual right to "use only" license and a
complete copy of all application and network software,
documentation and source code related thereto at no cost.
The perpetual right to "use only" license does not authorize GANET
to distribute the software applications or technology to any entity outside
of GANET. In addition, GANET is prohibited with sharing the software
applications, technology, documentation and/or source code with any current
or future contractor of GANET without the prior written approval of NIC.
NIC will provide to GANET a list of specific software applications,
network software, and intellectual properties which will be subject to a "use
only" license agreement upon non-renewal or termination of the contract
with-in ninety (90) days of the signing of this contract. This list will be
continuously updated during the term of the contract.
FULL-TIME EQUIVALENT POSITIONS AND SALARIES, BENEFITS AND RELATED EXPENSES:
NIC shall dedicate qualified and experienced personnel to work with current
GANET staff in order to enhance the products and services offered by GANET.
NIC shall attain a staffing level during the term of this contract
of at least five (5) full-time equivalent employee positions, based on an
eight-hour work day per position, five days per working week. NIC shall have
two (2) full time employees on site within thirty (30) days of the
commencement of this contract. The remaining three (3) full time employees
will be on site within sixty (60) days of the commencement of this contract.
NIC shall be responsible for providing NIC employees with all
necessary workstations and personal equipment. GANET shall be responsible
for supplying appropriate office space, network connections, necessary third
party network software and reasonable office supplies.
NIC shall be responsible for all required employer costs
attributable to its officers and employees, including but not limited to,
workers' compensation premiums and deductible, unemployment compensation tax
withholding contributions, tax withholding contributions, and similar items.
In the event that both parties mutually agree that NIC should
employ additional full time employees in order to further the development and
success of GeorgiaNet, GANET shall pay a $50,000 fee annually for each
additional employee. This fee will be subject to a maximum 5% yearly
increase as mutually agreed upon by NIC and GeorgiaNet. Both parties shall
be subject to the same expenses as set forth for existing NIC employees under
this contract and Exhibit "A".
TRAVEL AND MARKETING EXPENSES: NIC shall be responsible for all travel and
meeting related expenses of NIC employees. GANET shall be responsible for
all travel and meeting related expenses of GANET employees. NIC understands
the importance of marketing GANET and shall reasonably furnish related
marketing expenses associated with promoting GANET.
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NIC REMUNERATION: GANET shall pay NIC the following remuneration, unless
otherwise mutually agreed upon between NIC and GANET in writing:
a. $800,000 per year, in equal amounts of $200,000 every consecutive
three month period beginning October 1, 1996 until the expiration
or other termination of this contract. This fee may be subject
to a maximum 5% yearly increase as mutually agreed upon by NIC
and GeorgiaNet. NIC shall provide a performance bond equal to
one quarterly payment prior to October 1, 1996; and
b. 5% of gross GANET revenue per annual quarter, excluding all
current bulk products, payable within 30 days of the end of each
annual quarter. The first payment will be based upon revenue
received from October 1, 1996 through December 31,1996.
WITNESS WHEREOF the parties have executed this agreement on the
date first written above.
NATIONAL INFORMATION CONSORTIUM, INC.
By: /s/Jeff Fraser
----------------------------
Jeff Fraser
Chairman, CEO
FEI No.
GEORGIANET AUTHORITY
By: /s/ Thomas M. Bostick
----------------------------
Thomas M. Bostick
Executive Director
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Exhibit 10.12
CONTRACT FOR NETWORK MANAGER SERVICES
THIS CONTRACT is between the Information Network of Arkansas, by and
through the Information Network of Arkansas Board, hereinafter referred to as
the "INA", a public instrumentality carrying out an essential government
function, and the Arkansas Information Consortium, Inc., a for-profit
Arkansas corporation, without seal, hereinafter referred to as AIC.
The INA issued RFP 97-0140 seeking proposals for a network manager,
dated August 5, 1996. The request is hereinafter referred to as the RFP.
AIC submitted a proposal dated May 9, 1997, in response to the RFP, and
such proposal was determined by the INA to meet the requirements of the RFP.
The proposal is hereinafter referred to as the AIC Proposal.
The INA enters into a contract with AIC for AIC to serve as network
manager to establish, develop, operate, maintain and expand the information
network, as defined in the RFP and this contract, for increased electronic
access to public and other useful and relevant information as contemplated by
the grant of authority by the Arkansas General Assembly to the Information
Network of Arkansas.
NOW THEREFORE, the parties agree as follows:
1. PURPOSE OF INFORMATION NETWORK.
The purpose of the information network and this Contract may be
summarized as follows:
a. To create and provide a significant and aggressively promoted
public service to the citizens and businesses of Arkansas by (1) increasing
accessibility to public information and other useful information and services
through electronic means, and (2) promoting economic development by
increasing ease of access to public information and other useful information,
and by promoting the sharing of that information.
b. To provide such public service without increasing the tax
burden on the citizens of Arkansas, through utilization of private capital
and management.
2. HARDWARE AND SOFTWARE AGREEMENTS.
AIC will provide hardware, and provide or develop software as enumerated
in the AIC Proposal, and such other hardware and software as may be necessary
to make the information network operational.
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<PAGE>
All INA trademarks, tradenames, logos and other INA identifiers,
Internet uniform resource locators, Internet addresses and e-mail addresses
obtained or developed pursuant to this Contract shall be the property of INA.
3. CONNECTIONS BETWEEN INFORMATION NETWORK AND STATE AGENCIES.
Costs associated with and maintenance of communication links from state
facilities to AIC facilities for information network purposes, including but
not limited to leased circuits from telephone or cable companies, shall be
paid as expenses from the information network revenue account.
4. INFORMATION NETWORK SERVICE.
AIC on behalf of the INA shall negotiate with and obtain written
contracts for each separate data-providing entity (hereinafter, DPE) from
which electronic access is desired.
All subscribers will be required to execute a contract for services.
All contracts with subscribers and agencies shall be subject to approval
and continuing monitoring of the INA.
5. REGULATION OF RATES BY THE INA.
All rates and fees charged to information network users shall be subject
to the final approval of the INA. The INA may on its own motion review and
regulate any and all rates and fees for fairness, reasonableness and
appropriateness. The AIC may at any time recommend changes in rates and fees
to the INA.
The maximum initial annual subscription fee that mainframe bulk and
interactive subscribers and PC/modem interactive subscribers shall pay is
$50.00.
In the event that costs which AIC pays state agencies for data or data
access are reduced or increased as a result of legislation or state
regulatory administrative changes, such reductions or increases shall be
passed on directly to subscribers and users of the information network unless
otherwise approved in writing by the INA.
6. NETWORK MANAGER REMUNERATION.
General Provisions: The initial cash investment of AIC shall be $300,000.
AIC shall establish one or more accounts in Arkansas financial institutions
which are federally insured, for deposit of revenue from information network
operations and shall furnish the INA with the names of the institutions, the
account numbers and the names of those persons having signatory authority. Any
funds deemed
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by AIC to be "idle" or "excess" funds (defined as those not required to meet
immediate needs) may be deposited at AIC's discretion in money market
accounts, treasury bills, or other suitable investment vehicles until needed.
Within the framework of the rate-setting procedure addressed in section
5 above, the disbursement of all funds received by the information network as
a result of the operation of this Contract will be as follows:
a. For information network operating expenses, including
disbursement to DPEs for electronic and administrative expenses.
b. 5% of the difference between gross network revenues and the
amount payable to state agencies.
c. AIC will be entitled to retain any sums remaining after payment
of the amounts specified in paragraphs a. and b. above.
Accounts receivable and proceeds therefrom not yet disbursed by the
information network, which are generated from information network operations
conducted by AIC, are the sole property of AIC until disbursed.
7. CHANGES IN INFORMATION NETWORK.
Information network operations and development shall be in accordance
with the AIC Proposal and the RFP.
A planned material change in the information network operations cannot
be made by AIC without the prior written consent of the INA. A "material
change" includes, but is not limited to, a change which increases response
time to inquiries, adds to the complexity of information network use,
diminishes services provided to users, or results in a comparable impact on
operations noticeable by users.
AIC will provide to the INA at least thirty (30) days prior written
notice of a planned material change in information network operations.
AIC shall timely provide to the INA such management reports as the INA
may reasonably request.
8. NOTICES.
The INA contact person shall be designated by the INA in writing no
later than upon the execution of this Agreement. The AIC contact person
shall be the President of AIC. Each party may change its designation for
notice following written notice to the other party to this Contract.
Notices by the parties to one another shall be given in writing to the
persons identified above or to such other persons as may be subsequently
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<PAGE>
identified in a written notice. Such notices shall be effective on the date
of receipt if sent by U. S. first-class or restricted delivery mail,
postpaid, or by any reputable overnight delivery service, prepaid.
9. FINANCES AND RECORDS.
All AIC documents and records pertaining to operation of the information
network will be available for inspection, auditing and copying by the INA, or
other authorized representatives designated by the INA. Monthly income
statements and balance sheets for the information network will be provided to
the INA by AIC.
AIC also agrees to comply with any recommendations made in any audit,
unless AIC and INA otherwise mutually agree. Any such audit will be
performed by a competent and reputable CPA licensed in Arkansas.
To the extent the audit report discloses any discrepancies in the AIC
charges, billings or financial records, and following a period for review and
verification of the amount by AIC, AIC will adjust the next monthly bill as
soon as reasonably possible, but not to exceed 90 days. AIC shall cooperate
to assure that verification is completed in a timely manner.
The accounting system is to include a numbered chart of accounts, books
of original entry of all transactions, appropriate subsidiary ledgers, a
general ledger which includes to-date postings and an audit trail through
financial statements. Such books may either be maintained on paper or on
computer with appropriate backup. AIC shall from the beginning of this
Contract adopt the calendar year ending December 31, for reporting purposes.
10. AIC SHAREHOLDERS.
AIC agrees to provide and continually keep updated a list of names and
addresses of stockholders of AIC for those shareholders holding five percent
(5%) or more of any class of stock and the percentage of ownership of each
stockholder.
As a basic policy all shareholders of AIC shall be natural persons;
however, exceptions to this requirement may be approved by the INA on a case
by case basis. Such approval is not to be unreasonably withheld. The intent
of this section is that the INA shall know the identity of AIC investors,
back to natural persons.
11. THE INFORMATION NETWORK OF ARKANSAS AND THE NETWORK MANAGER.
The duties of the INA and the network manager are as set forth in A.C.A.
25-27-101 et seq.
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<PAGE>
12. FULL-TIME EQUIVALENT POSITIONS AND SALARIES, BENEFITS AND RELATED
EMPLOYER EXPENSES.
AIC agrees to attain a staffing level during the first fiscal year of at
least eight (8) full-time equivalent employee positions, based on an
eight-hour work day per position, five days per working week.
The hiring, firing, recruitment, management, and training of AIC
employees will not be the responsibility of the INA. The INA's involvement
in the personnel affairs of AIC shall be limited to disclosure of the names
and positions of officers and employees of AIC.
No officer, employee, director or shareholder of AIC shall receive a
salary, except as and for services performed by such officer, employee, or
director or shareholder for AIC on behalf of the information network.
AIC shall be responsible for all required employer costs attributable to
its officers and employees, including but not limited to, workers'
compensation premiums and deductible, unemployment compensation tax
withholding contributions, tax withholding contributions, and similar items.
13. INCORPORATION BY REFERENCE.
The provisions of the RFP and the AIC Proposal are hereby incorporated
into this Contract and made a part hereof. If there is any conflict among
the provisions of the RFP, the AIC proposal, this Contract and state law then
those conflicts will be resolved in the following order of precedence:
a. State law
b. This Contract
c. The RFP and addenda
d. The AIC proposal
This Contract may be amended only by mutual expressed written consent.
14. INSURANCE AND BONDS.
AIC shall provide the INA written proof of the following provided by a
qualified firm authorized / admitted to do business in Arkansas:
a. Proof of a general comprehensive liability insurance policy in
the amount of at least $1,000,000.
b. AIC shall maintain all workers' compensation insurance coverage
as required by law.
c. AIC shall maintain an Employers' Liability Insurance - Coverage
B, as required by law.
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<PAGE>
d. AIC shall maintain a commercial automobile policy in the amount
of at least $1,000,000.
e. AIC shall maintain a fidelity bond in the amount of at least
$100,000 per employee.
15. TERMINATION OF CONTRACT.
The INA shall have the right to terminate this Contract for cause,
subject to cure, by providing written notice of termination to AIC. Such
notice shall specify the time, the specific provision of this Contract or
"for cause" reason that gives rise to the termination, and shall specify
reasonable appropriate action that can be taken by AIC to avoid termination
of the Contract. The INA shall provide a period of up to thirty (30) days,
unless otherwise specified in this Contract, for AIC to cure breaches and
deficiencies of its performance obligations under this Contract.
The INA may terminate this Contract at any time and without cause if
directed to do so by statute.
If the State decides to extend the Contract through June 30, 2003, or at
anytime thereafter, the INA shall be entitled to a perpetual for-use-only
license with the right to modify, along with application software
documentation and source code, for no additional compensation to AIC. Prior
to June 30, 2003, the INA reserves the right to negotiate terms for licensure
of software, which may include perpetual for-use-only license with a right to
modify software application documentation and source code, notwithstanding
the terms set forth in the section of this Contract concerning Continuation
of Operations During Transition Period.
16. TERMINATION FOR CAUSE
For purposes of this Contract, the phrase "for cause" shall mean, but
not be limited to:
a. Any material breach or evasion by AIC of the terms or
conditions of this Contract and its amendments, if any;
b. Ownership in AIC by a shareholder unacceptable to the INA.
c. Substantial cessation of information network services by AIC
shall be cause for immediate termination of this Contract.
d. Fraud, misappropriation, embezzlement, malfeasance, significant
misfeasance, or illegal conduct by AIC, its officers, directors or
shareholders.
e. Dissolution of AIC or forfeiture of its corporate existence.
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<PAGE>
f. Repeal of the INA's enabling statutes. This is cause for
immediate termination, unless another agency is designated for oversight of
the information network within a reasonable time thereafter.
g. Amendment of the INA's enabling statue or an adverse judicial
decision by a court of competent jurisdiction, which has the effect of
rendering information network operations no longer feasible.
h. Insolvency of AIC.
I. Material breach of an agreement with any state agency.
j. Intentional disclosure of any confidential information.
17. APPROPRIATE USE MESSAGES.
The information network shall display an appropriate use message to all
subscribers upon initial log-on to the information network. Each subscriber
shall be required to verify compliance with said message terms. Upon
subsequent log-ons, such message shall be displayed, without verification,
only if prior verification is logged in the user file.
The information network shall provide DPEs the opportunity to include
additional wording if determined necessary by the DPE. The appropriate use
message shall be approved by the INA and updated to comply with any
amendments to the law, or as required by the INA.
18. ACCESS TO INFORMATION NETWORK BY DATA PROVIDING ENTITY.
a. DPEs must have terminal (read) access to the information
network's computerized log of subscribers using the DPEs' data and their
security status, without access cost to the DPEs. The DPEs will be
responsible for the cost of terminal(s) and the cost of a dial-up or lease
line, whichever is used.
b. DPEs must be able to sign on to AIC's information network to
audit the dissemination of its records. On-line audit capability must be
available for the length of time specified by the data owning agencies after
transaction processing. After the on-line retention period has expired, AIC
shall, as specified between AIC and the DPEs, retain, destroy, or provide the
record information to the data owning agencies without cost. At a minimum,
the information network shall retain the following data: name of subscriber,
transaction date and time, type of inquiry and access keys.
c. AIC shall notify affected DPEs and the INA within two (2) hours
of unauthorized attempts to gain access to classified data. The notice shall
contain detailed information to aid the affected DPE in examining the matter.
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<PAGE>
19. LIMITATION OF PURPOSE.
AIC shall engage solely in the business or businesses expressly approved
by the INA which shall initially be only and solely the start-up, operation,
maintenance and expansion of the information network. AIC shall furnish the
INA with certified copies of Articles of Incorporation reflecting this
limitation of purpose.
20. PATENT, COPYRIGHT, TRADEMARK AND TRADE SECRET INDEMNITY.
AIC warrants that its proposed operation of the information network does
not and shall not infringe on the United States patent, copyright, trademark
or trade secret right of any person or entity. The INA shall be provided
with prompt notice of any such claim of infringement and AIC shall have the
exclusive right to defend or settle such claim at AIC's option. The INA
shall cooperate with AIC in its defense or settlement of such claim at no
expense to the INA.
21. LIABILITY.
The State of Arkansas, its agents and employees shall not be legally
responsible for errors due to information network problems.
AIC agrees for itself, its agents, employees and assigns to hold
harmless, indemnify and defend the INA and the State of Arkansas, its agents
and employees from any actions arising out of AIC's negligence or material
failure to perform under the terms of this Contract.
AIC agrees that it has no right of subrogation or contribution from the
State of Arkansas for any judgment rendered against AIC.
AIC agrees to indemnify, defend, and save harmless the State and INA
board members, its officers, agents and employees from the claims enumerated
in RFP 60.14.1 through 60.14.4.
22. APPROPRIATION AND LEGISLATION.
The INA may cancel this Contract to the extent funds or regulatory or
statutory fees are no longer legally available for expenditures under this
Contract. In the event legislation alters the authority or duties of INA,
the legislation controls the terms and conditions of this Contract.
23. ASSIGNMENT AND SUBCONTRACTING.
AIC may not assign any of its rights or delegate any of its duties
hereunder unless done pursuant to prior written consent of the INA.
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<PAGE>
AIC may subcontract portions of work to be performed by it under this
Contract with the written consent of the INA.
24. TERM OF CONTRACT.
This Contract shall be for a term of three (3) years, commencing July 1,
1997, and expiring at 12:00 a.m., June 30, 2000, unless earlier terminated by
the INA.
a. By March 31, 2000, the INA will inform AIC of the INA's
decision on whether or not to extend the contract period through June 30,
2001.
b. By March 31, 2001, the INA will inform AIC of the INA's
decision on whether or not to extend the contract period through June 30,
2002.
c. By March 31, 2002, the INA will inform AIC of the INA's
decision on whether or not to extend the contract period through June 30,
2003.
d. By March 31, 2003, the INA will inform AIC of the INA's
decision on whether or not to extend the contract period through June 30,
2004.
Upon termination or expiration of this Contract all information network
and manager records, work papers and operations documentation shall be
delivered to the INA within thirty (30) days after termination or expiration
and shall become the property of the INA, if not already such.
AIC will be responsible during the term of this Contract for maintaining
information network hardware and software.
25. RELATIONSHIP OF PARTIES.
Notwithstanding any other provisions contained herein, it is expressly
agreed that AIC is an independent contractor in the performance of each and
every part of this Contract. As such, AIC is solely liable for all labor and
expenses in furtherance of such performance and for any and all damages which
may be occasioned on account of its performance hereunder.
AIC may become an agent of the INA only by the expressed written consent
of the INA.
AIC will not pledge any assets of the INA or State of Arkansas in its
care, custody or control, or cause any type of lien to attach to such.
It is expressly agreed that the contractor and any subcontractors and
agents, officers, and employees of the contractor or any subcontractors in
the performance of this Contract shall act in an independent capacity and not
as officers or employees of the State. It is further expressly agreed that
this
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<PAGE>
Contract shall not be construed as a partnership or joint venture between the
contractor or any subcontractor and the State of Arkansas.
26. CLAIMS.
This Contract shall be construed according to the laws of the State of
Arkansas. Any legal proceedings against the INA regarding this request for
proposals or any resultant contract shall be brought in the State of
Arkansas' administrative, legislative or judicial forums. Venue will be in
Pulaski County.
27. CONTINUATION OF OPERATIONS DURING TRANSITION PERIOD.
If for any reason this Contract shall be terminated or upon expiration
of the Contract without extension, or at the end of any extension, AIC shall,
at the option of the INA, continue to operate under this Contract as network
manager in accordance with all terms and conditions of this Contract,
together with any amendments or modifications in existence at such time, for
a period of up to twelve (12) months from the time of expiration or
notification of termination from the INA to AIC. The intent of this
provision is to insure continuation of information network operations while a
successor network manager is chosen and installed.
28. ENTIRE AGREEMENT.
This Contract, including any documents incorporated by reference,
constitutes the entire agreement of the parties and supersedes all other
prior written or oral contracts between the parties with respect to the
subject matter hereof. This Contract may be amended only by a writing signed
by the parties thereto.
IN WITNESS to the agreement of the Information Network of Arkansas and
the Arkansas Information Consortium, Inc., to all of the above terms and
conditions, the respective governing bodies or Boards of Directors of the two
organizations have approved the same and have authorized their chief
executive officers and secretaries to affix their signatures below indicating
such upon this 2 day of JULY, 1997.
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<PAGE>
ARKANSAS INFORMATION CONSORTIUM, INC.
/s/ Joseph Nemelka 7/2/97
- ------------------ ------
Joseph Nemelka, President/CEO Date
ATTEST:
/s/ Sharon Priest 7/2/97
- ----------------- ------
Date
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INFORMATION NETWORK OF ARKANSAS
/s/ Sharon Priest 7/2/97
- ----------------- ------
Date
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<PAGE>
EXHIBIT 10.13
CONTRACT FOR NETWORK MANAGER SERVICES
BETWEEN
THE NEBRASKA STATE RECORDS BOARD
ON BEHALF OF THE
STATE OF NEBRASKA
AND
NEBRASK@ INTERACTIVE, INC.
DECEMBER 3, 1997
<PAGE>
CONTRACT FOR NETWORK MANAGER SERVICES
THIS CONTRACT is between the Nebraska State Records Board, established
under the Records Management Act (84-1204 R.R.S. 1943), hereinafter referred
to as "NSRB" and Nebrask@ Interactive, Inc., a for-profit Nebraska
corporation, without seal, hereinafter referred to as "NII".
WHEREAS, NSRB, under the authority granted by the Records Management
Act, is interested in furthering access by Nebraskans to public information
and for transactions with the public in the most cost-effective, progressive,
and cooperative means possible; and
WHEREAS, the NSRB desires to operate Nebrask@ Online as an electronic
network (synonymous with the term "gateway" for purposes of this contract)
access service in furtherance of this goal, and has concluded the network
must continue to be enhanced; and
WHEREAS, Nebrask@ Online is poised to become one of the most significant
economic development and educational tools in the country; and
WHEREAS, an enhanced Nebrask@ Online will significantly benefit the
state through:
a. Compensation to The State for electronic access to certain
information;
b. A reduced burden for public access and data collection upon
data providing and collecting entities, including state agencies;
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 2
c. Increased efficiency of data providing and collecting entities,
including state agencies, without budget increases;
d. Additional resources to data providing and collecting entities
as Nebrask@ Online grows;
e. Additional and leveraged resources for NSRB to assist in its
records management, information management, data collection, and access
functions; and
WHEREAS, in order to effectuate this enhancement, NSRB, as the Nebraska
Online network authority, issued a request for proposals for a public-private
partnership with a private network manager, dated September 8, 1997. The
request is hereinafter referred to as "the RFP"; and
WHEREAS, NII submitted a proposal in response to the RFP, and such
proposal was determined by the NSRB to be the one best-suited to the goals of
NSRB and the needs of an enhanced Nebrask@ Online. The proposal is
hereinafter referred to as the "NII Proposal"; and
WHEREAS, NSRB desires to enter into a contract with NII for NII to serve
as network manager in a public-private partnership to enhance, develop,
operate, maintain and expand Nebrask@ Online (hereinafter referred to as the
Network) for increased electronic access to and collection of public and
other useful and relevant information as contemplated by the grant of
authority to NSRB, in Section 84-1204 R. R. S. 1943, which provides in part
that NSRB shall develop and maintain a gateway or electronic network
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 3
for accessing public records.
WHEREAS, pursuant to Section 84-1204 R.R.S. 1943, the NSRB also supports
and advises the Nebraska Records Management Division and the State Records
Administrator in accomplishing their legislative purposes, and for which the
Network will furnish further valuable support.
NOW THEREFORE, the parties agree as follows:
1. PURPOSE OF NETWORK.
The purpose of the Network and this Contract may be summarized as
follows:
a. To provide a significantly expanded and aggressively enhanced
public service to the citizens and businesses of Nebraska by (1) increasing
accessibility to and collection of public information and other useful
information and services through various means, including electronic means,
and (2) promoting economic development by increasing ease of access to and
collection of public information and other useful information, and by
promoting the sharing of that information.
b. To provide such public service without increasing the tax burden
on the citizens of Nebraska, through utilization of private capital and
management and appropriate payment for the same.
2. HARDWARE, SOFTWARE AND ACCESS LINES.
NII will provide hardware, and provide or develop software as enumerated
in
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 4
the NII proposal (dated 10-30-97), and such other hardware and software as
may be necessary to make the Network operational. In accordance with the
RFP, NSRB shall be entitled to a perpetual right-to-use only license to all
application software, documentation and source code utilized in operating the
Network which is developed or utilized by NII (but not software or
documentation created by third parties and purchased by or licensed to NII,
hereinafter "Third Party Software") together with any amendments thereto made
by NII while NII operates the Network, (hereinafter collectively "The
Software") upon the following terms and conditions:
a. By January 31, 2002, NSRB shall be entitled to a non-exclusive
perpetual right-to-use-only license with rights to make derivative works as
it desires, for no additional compensation.
b. The Software, or such portion as NSRB may elect to license,
shall be delivered to NSRB upon January 31, 2002, or the end of any renewal
periods, beyond that date, exercised by NSRB.
c. NII shall deposit, on a quarterly basis, the most recent
version of all network application source code in escrow with a neutral third
party to be mutually chosen by NII and NSRB. Over the term of the contract
NII will have the authority to remove superseded source code. Upon notice of
termination or expiration of this contract, which shall be transmitted to the
escrow agent, neither party shall have authority to remove any source code
held in escrow.
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 5
Upon termination or expiration of this Contract all other Network
and manager records, work papers and operations documentation pertaining to
network operations shall be delivered to NSRB within thirty (30) days after
termination or expiration and shall become the property of NSRB, if not
already such.
NII will be responsible during the term of this Contract for maintaining
Network hardware and software (including items provided to the Department of
Administrative Services, Division of Central Data Processing, hereafter
referred to as "CDP", as allowed by CDP).
3. CONNECTIONS BETWEEN NETWORK AND STATE AGENCIES.
Costs associated with and maintenance of communication links from
state facilities to NII facilities for Network purposes, including but not
limited to leased circuits from telephone or cable companies, shall be paid
as expenses from the Network revenue account.
4. NETWORK SERVICES.
a. NII on behalf of NSRB shall negotiate with and obtain written
agreements from each separate data providing/collecting entity (hereinafter,
"DP/CE") with which electronic communication is desired, but only if such
agreements are needed to supplement the broad grant of authority to access
public records or collect information data from the public which has already
been granted to NSRB. In the absence of any specific separate agreement,
this Contract, together with any addenda, shall serve as the
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 6
document granting NII access to or the authority to electronically collect
any such data.
b. Through addenda to this Contract or through the separate DP/CE
contracts, NII and NSRB shall, by mutual agreement, establish charges for, if
appropriate, and other conditions of such access or collection with each
DP/CE. In the case of addenda, NSRB shall be responsible for any payments to
other DP/CEs whose information is so accessed or collected, and NII shall
either pay to NSRB directly, or direct payments to the DP/CE as instructed by
NSRB.
c. Such agreements, if any, or addenda to this Contract, shall
provide for the costs DP/CEs will charge, and which will be paid as expenses
from the Network revenue account for information access or collection, the
time period and means by which DP/CEs will be paid from the Network revenue
account for access or collection, the criteria the DP/CE and NII will utilize
for system development, testing and acceptance in order to assure the
reliability of the Network, protection of data, Network security, and any
other reasonable special requirement (such as---providing credit card
authorization service for State's Credit Card Payment Program with regard to
certain services made available via the Internet) for access to and
collection of DP/CE data. (NSRB will cooperate in obtaining electronic access
to DP/CEs for Nebrask@ Online which may be funded by NSRB in appropriate
circumstances).
d. Payments to NSRB or to DP/CEs for DP/CE access or collection
shall be due from the Network revenue account and paid within 60 days from
the usage or
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 7
sale of data unless a shorter period is specified in Nebraska statutes, in
the agreement between the Network and a DP/CE, or in any Contract addendum
between NII and NSRB. Specific terms of payment shall be specified in
additional agreements or addenda to current agreements/contracts between NSRB
and DP/CEs and NSRB and NII; such payment terms shall include two monthly
payments, one at or near the 15th of the month and one on the last business
day of the month with such payments to be made by electronic means. NSRB
will cooperate in assisting electronic access to DP/CEs, which may be funded
by NSRB in appropriate circumstances.
e. After negotiating any separate DP/CE agreement, the agreement
shall be presented by the Network to NSRB for final approval. When an
agreement is presented to NSRB, the Network and respective DP/CE shall also
present to NSRB a recommendation for prices, if appropriate, to be charged
users for the applicable Network service.
f. All subscribers will be required to execute a contract for
services. NII shall be authorized to execute such contracts on behalf of
NSRB and the Network. The basic form shall be approved by NSRB.
g. NII on behalf of NSRB, shall provide continued and uninterrupted
network manager services to any state agency which has an existing contract or
contracts with NSRB, or has an existing contract or contracts which were
originally executed between the agency and the Nebraska Library Commission and
subsequently assigned to
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 8
the NSRB, obligating NSRB to provide electronic access to agency records on
Nebrask@ Online through NSRB's private network manager.
5. REGULATION OF RATES BY NSRB.
All charges to Network users shall be subject to, after mutual
agreement between NII and NSRB, the final approval of NSRB for fairness,
reasonableness and appropriateness. In establishing such Network prices NII
and NSRB shall consider the following factors:
a. The need to reward innovation and efficiency in Network
management.
b. A commitment to the public policy requirement to provide electronic
access to public records or electronic transactions with the public at the
most reasonable prices possible.
c. That the prices to be charged may be adjusted to permit funding of
special projects and enhancement of public service.
d. The fact that some public records may already be provided
electronically by the State.
e. The entrepreneurial and start-up nature of the business and
attendant risk of capital for NII and the need for them to earn an acceptable
rate of return.
f. The need to invest in expansion of and improvement in The Network
and its information services.
g. The need of NII to earn a reasonable profit on Network operations.
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 9
h. The need to comply with Legislative requirements.
I. Any other reasonable factor which in the opinion of NSRB should be
considered.
Such services will thereafter be subject to periodic review and
adjustment by NSRB, in conformance with the appropriate Reissue Revised
Statutes of Nebraska. Recommendations for amended rates shall be made by NII
to NSRB as deemed necessary or desirable.
The maximum initial subscription fee that mainframe bulk and interactive
subscribers shall pay is $50.00, which will be used to cover NII costs of
account management, licensing communication software, if any, and providing
1-800 technical support. The maximum annual renewal fee shall be approved by
NSRB. These fees may be reduced at the discretion of NII as an inducement to
further increase the number of subscribers and with the intent of increasing
the overall billed usage of the Network. Should NII provide appropriate
justification, NSRB may increase the initial or the annual renewal
subscription fees. In addition, subscribers utilizing Network provided
dial-in modem bank will pay NII a per minute connect time fee to cover the
telecommunications costs of providing 800 and Internet service to these
subscribers.
In the event that costs which NII pays state agencies for data or data
access are reduced or increased as result of legislation or administrative
changes, such reductions or increases shall be passed on directly to subscribers
and users of the Network unless
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 10
otherwise mutually approved in writing by NSRB and NII.
6. NETWORK MANAGER REMUNERATION.
Within the framework of the pricing approval procedure addressed in
section 5 above, the disbursement of all funds received by the Network as a
result of the operation of this Contract will be as follows:
a. NSRB will operate the Network within the records management
cash fund allocation allowed by the Reissue Revised Statutes of Nebraska, and
revenue generated from electronic access fees generated from new services
implemented during and/or between Legislative Sessions.
b. NSRB will receive 4.5% of Gross Profit (Gross Revenue less
Internet and 800 service costs and amounts to be remitted to state agencies
other than the NSRB) of the first $89,900 and 2.0% on any Gross Profit over
that amount, computed and payable monthly,
c. NII shall be entitled to retain all revenue generated from
subscription fees, and connect time charges, and shall be paid the revenue
generated from electronic access fees for currently existing services, after
payment of the fees specified in the respective DP/CE agreements, payments
specified in paragraph b. above, and all other network operating costs.
Revenue from electronic access fees for new services shall be divided as
agreed upon at the time the NSRB approves the fees for services.
7. CHANGES IN NETWORK.
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 11
A planned material change in Network operations cannot be made by
NII without the prior consent of NSRB. A "material change" includes, but is
not limited to, a change which materially increases on-line response time to
user inquiries; significantly adds to the complexity of system use;
materially diminishes on-line services provided to users; or results in a
significant detrimental impact on operations noticeable by users.
NII will provide to NSRB at least 30 days' prior written notice of
a planned material change in Network operations, to allow time for NSRB
review.
8. NOTICES.
The NSRB contact person shall be the NSRB Chairman. The NII
contact person shall be the President of NII. Each party may change its
designation for notice by written notice to the other party to this Contract.
Notices by the parties to one another shall be given in writing to
the persons identified above or to such other persons as may be subsequently
identified in a written notice. Such notices shall be effective on the date
of receipt if sent by U.S. restricted delivery mail, postpaid, or by any
reputable overnight delivery service, prepaid.
9. FINANCES AND RECORDS.
All NII documents and records pertaining to Network operations will
be available for compliance auditing and inspection by NSRB, or other
authorized representatives designated by NSRB. Monthly income statement and
balance sheet
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 12
information will be provided to NSRB by NII.
NII also agrees to make other changes requested by NSRB to comply
with recommendations made in any compliance audit, which changes are agreed
to by both NSRB and NII. Any such compliance audit will be performed by a
competent and reputable CPA licensed in Nebraska.
To the extent the compliance audit report discloses any
discrepancies in the NII charges, billings or financial records, and
following a period for review and verification of the amount by NII, NII will
adjust the next monthly bill as soon as reasonably possible, but not to
exceed 90 days. NII shall cooperate to assure that verification is completed
in a timely manner.
The accounting system is to include a numbered chart of accounts,
books of original entry of all transactions, appropriate subsidiary ledgers,
a general ledger which includes to-date postings and an audit trail through
financial statements. Such books may either be maintained on paper or on
computer with appropriate backup. NII shall adopt the calendar year ending
December 31, for reporting purposes.
On an annual basis, NII will provide audited financial statements
to the NSRB.
10. MANAGEMENT REPORTS AND BUSINESS PLAN.
Network operations and development shall generally be in accordance
with the NII proposal, which shall be considered the Network business plan.
As deemed
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 13
necessary or desirable, NII may depart from such proposal, but in the event
of any material departure NII shall notify NSRB in advance. NII shall timely
provide to NSRB such management reports as NSRB may reasonably request. NII
shall update the business plan annually.
11. PROHIBITION ON CERTAIN PAYMENTS TO INTERESTED PARTIES
"Interested party" means any NII officer, director, stockholder and
any state employee directly involved in negotiation of the Contract, and any
immediate family member of the foregoing.
No payments shall be made to an interested party or a business
entity controlled by an interested party except for the fair value of lawful
goods or services actually rendered to the Network.
This requirement shall not be applicable to shareholder
distributions.
12. FULL-TIME EQUIVALENT POSITIONS AND SALARIES, BENEFITS AND RELATED
EMPLOYER EXPENSES.
NII agrees to provide a staffing level during each fiscal year of
at least six full-time equivalent employees positions, based on an
eight-hour work day per position, five days per working week.
The hiring, firing, recruitment, management, and training of NII
employees will not be the responsibility of NSRB. NSRB's involvement in the
personnel affairs of NII shall be limited to disclosure of the names and
positions of officers and
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 14
employees of NII.
NII shall be responsible for all required employer costs
attributable to its officers and employees, including but not limited to
workers' compensation premiums and deductible, unemployment compensation tax
withholding contributions, tax withholding contributions, and similar items.
13. BANK ACCOUNT FOR REVENUE AND PAYMENTS THEREFROM.
a. General Provisions. The initial capital and debt infusion of
NII will be greater than $340,000. Additional working capital shall be added
whenever necessary. NII shall establish one or more accounts in Nebraska
financial institutions which are federally insured, for deposit of revenue
from network operations (the "Network revenue account(s)") and shall furnish
NSRB, if requested, with the names of the institutions, the account numbers
and the names of those persons having signatory authority. Any funds deemed
by NII to be "idle" or "excess" funds, (defined as those not required to meet
immediate needs) may be deposited at NII's discretion in money market
accounts, treasury bills, or other suitable investment vehicles until needed.
b. Payments from Accounts. Payments from the Network revenue
accounts are authorized as follows:
1. Payments to DP/CEs or NSRB for electronic access to or
collection of information.
2. Payment of ordinary, necessary and reasonable operating
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 15
expenses for the Network.
3. System development costs, including programming (to the
extent not covered by regular salary under ordinary operating expenses) and
purchases or upgrades of software or hardware.
4. Payment of Shareholder distributions.
5. Any other payments to NSRB.
14. INCORPORATION BY REFERENCE.
The provisions of the RFP and the NII proposal are hereby
incorporated into this Contract and made a part hereof. If there is any
conflict between the terms of the RFP and the provisions of this Contract,
the terms of the Contract shall control over the terms of the RFP. If there
is any conflict between the terms of the NII proposal and this Contract, the
terms of the Contract shall control. This contract may be amended by mutual
expressed written consent of the parties.
15. INSURANCE AND BONDS.
NII shall provide NSRB written proof of the following provided by a
qualified firm authorized/admitted to do business in Nebraska:
a. Proof of a general comprehensive liability insurance policy in
the amount of at least $500,000 with a deductible of not more than $5,000.
NSRB and the State of Nebraska shall be listed as additional insureds.
b. Employment Dishonesty Bond covering all NII officers and
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 16
employees in an amount of at least $100,000 per employee. NSRB and the State
of Nebraska shall be listed as additional obligees.
c. NII shall maintain all workers' compensation insurance
coverage as required by law.
16. TERMINATION OF CONTRACT.
NSRB shall have the right to terminate this Contract for cause as
defined in Section 17 herein, subject to cure, by providing written notice of
intent to terminate for cause to NII. Such notice shall specify the time for
termination if not cured, the specific "for cause" reason that gives rise to
the intent to terminate, and shall specify reasonable appropriate action that
can be taken by NII to avoid termination of the Contract. NSRB shall provide
a period of time of not less than 60 nor more than one hundred eighty (180)
days, unless otherwise specified in this Contract, for NII to cure such
"causes" under this Contract of which it receives written notice.
NSRB may terminate this Contract at any time and without cause if
directed to do so by statute; if there is a substantial cessation of Network
services by NII; failure of appropriation by the Legislature as found in
section 5.26 of the RFP (SCA-0099); or if there is a repeal of the NSRB
enabling statutes unless other statutory provisions allow continuation of the
Network.
17. TERMINATION FOR CAUSE.
For purposes of this Contract, the phrase "for cause" shall mean:
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 17
a. Any material breach or evasion by NII of the terms or
conditions of this Contract and its amendments, if any.
b. Fraud, misappropriation, embezzlement, malfeasance,
significant misfeasance, or illegal conduct by NII, its officers, directors
or shareholders.
c. Dissolution of NII or forfeiture of its corporate existence.
d. Amendment of the NSRB enabling statute or an adverse judicial
decision by a court of competent jurisdiction, which has the effect of
rendering network operations no longer feasible.
e. Insolvency of NII.
f. Breach of an agreement with any state agency.
g. Intentional disclosure of any confidential information.
18. STANDARD USE MESSAGES.
The Network shall display such standard use message(s) to all
subscribers upon initial access to the Network or a part thereof as may from
time to time be appropriate, and a subscriber shall be required to indicate
the subscriber's compliance with said message terms. Upon subsequent
accesses, such message shall be displayed only, without compliance
indication, if prior compliance indication is logged in the user's session
log. All messages must contain language that is at least as restrictive as
the following:
"As a requester of public information, I do hereby certify by making
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 18
inquiry that I do not intend to and will not (the Network will include any
such language or restriction as is required by Nebraska law.)"
The Network shall provide DP/CEs the opportunity to include
additional wording if determined necessary by the DP/CE. The standard use
message shall comply with any amendments to the law.
19. DATA PROVIDING ENTITY ACCESS.
a. DP/CEs may, if they desire and if approved by NSRB, have
terminal (read) access to the Network's computerized log of subscribers and
each user's security status, without access cost to the DP/CEs. The DP/CEs
will be responsible for the cost of terminal (s) and the cost of a dial-up or
lease line, whichever is used.
b. DP/CEs must be able to sign on to NII's system to audit the
dissemination of "premium service" records (records with an associated fee).
On-line audit capability must be available for the length of time specified
by the particular DP/CE after transaction processing. After the on-line
retention period has expired, NII shall, as specified between NII and the
DP/CEs, retain, destroy, or provide the record information to the DP/CE
without cost.
c. At a minimum, the Network shall retain the following data:
name of subscriber, transaction date and time, type of inquiry and access
keys.
d. NII shall notify affected DP/CEs and NSRB within two hours of
unauthorized attempts to gain access to password protected data. The notice
shall contain
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 19
detailed information to aid the DP/CE to examine the matter.
20. PATENT, COPYRIGHT, TRADEMARK AND TRADE SECRET INDEMNITY.
NII warrants that its proposed operation of the Network does not
and shall not infringe on the United States patent, copyright, trademark or
trade secret rights of any person or entity. NSRB shall be provided with
prompt notice of any such claim of infringement and NII shall have the
exclusive right to defend or settle such claim at NII's option. NSRB shall
cooperate with NII in its defense or settlement of such claim at no expense
to NSRB. If NII determines that, as a result of such claim the right of
users to use the Network is likely to be abridged, NII shall (a) take all
reasonable steps necessary to procure for users the right to continue to use
the Network; or (b) modify the Network so that no such abridgment will occur
and correspondingly reduce charges if the modified Network is not
substantially equivalent or better than what it was before the modification.
If (a) and (b) fail, then NII may discontinue such service without liability.
21. LIABILITY.
NSRB and the State of Nebraska, its agents and employees shall not
be legally responsible to NII for errors due to Network problems.
NII agrees for itself, its agents, employees and assigns to hold
harmless, indemnify and defend NSRB and the State of Nebraska, its agents and
employees from any actions by third parties arising out of NII's negligence
or material failure to perform under the terms of this Contract.
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 20
NII agrees that it has no right of subrogation or contribution from
the NSRB or the State of Nebraska for any judgment rendered against NII under
such circumstances.
22. ASSIGNMENT AND SUBCONTRACTING.
NII may not assign any of its rights or delegate any of its duties
hereunder unless done pursuant to the prior written consent of NSRB.
NII may subcontract portions of work to be performed by it under
this Contract with the written consent of NSRB.
23. TERM OF CONTRACT.
This Contract shall be for a term of 4 years, commencing February
1, 1998 and expiring at 12:00 a.m., January 31, 2002, unless earlier
terminated by the Board for cause.
Subject to the agreement in writing of the parties, this Contract
may be renewed, or amended and renewed, for additional terms. Notification
by NSRB for additional renewal terms of one year each shall be given by NSRB
at least 1 year before the expiration of the initial term and of any renewal
term. The term "this Contract" as used in this Agreement shall mean the
initial term, together with any renewal terms which are approved. NSRB
acknowledges that the length of this Contract and the length of any renewal
term or terms, has a material effect on the capital invested in the Network
considering the potential profit margin hereunder.
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 21
24. RELATIONSHIP OF PARTIES.
Notwithstanding any other provisions contained herein, it is
expressly agreed that NII is an independent contractor in the performance of
each and every part of this Contract. As such, NII is solely and personally
liable for all labor and expenses in furtherance of such performance and for
any and all damages which may be occasioned on account of its performance
hereunder.
NII may become an agent of NSRB only by the expressed written
consent of NSRB.
NII will not pledge any assets of NSRB in its care, custody or
control, or cause any type of lien to attach to such.
25. CONTINUATION OF OPERATIONS DURING TRANSITION PERIOD.
If for any reason this Contract shall be terminated or upon
expiration of the Contract without extension, or at the end of any extension,
NII shall, at the option of NSRB, continue to operate under this Contract as
Network Manager in accordance with all terms and conditions of this Contract,
together with any amendments or modifications in existence at such time, for
a period of up to 12 months from the time of expiration or notification of
termination from NSRB to NII, whichever occurs earlier. The intent of this
provision is to insure continuation of Network operations while a successor
Network Manager is chosen and contracted.
26. ENTIRE AGREEMENT.
<PAGE>
Contract for Network Manager Services
NSRB & NII
December 3, 1997
Page 22
This Contract constitutes the entire agreement of the parties and
supersedes all other prior written or oral contracts between the parties with
respect to the subject matter hereof. This Contract may be amended only bya
writing signed by the parties thereto.
IN WITNESS to the agreement of the Nebraska State Records Board and
Nebrask@ Interactive, Inc. to all of the above terms and conditions, the
respective governing bodies or Boards of Directors of the two organizations
have approved the same and have authorized their chief executive officers,
chairman or secretaries to affix their signatures below indicating such upon
this 3rd day of December, 1997.
NEBRASK@ INTERACTIVE, INC.
/s/Samuel R. Somerhalder 12-3-97
- ------------------------------------------- ----------------------
PRESIDENT/CEO Date
NEBRASKA STATE RECORDS BOARD
/s/Scott Moore 12-3-97
- ------------------------------------------- ----------------------
CHAIRMAN Date
<PAGE>
EXHIBIT 10.13
ADDENDUM #1
TO
CONTRACT FOR NETWORK MANAGER SERVICES
BETWEEN THE NEBRASKA STATE RECORDS BOARD
AND
NEBRASK@ INTERACTIVE, INC.
(DATED DECEMBER 3, 1997)
This addendum to the contract for network manager services dated
December 3, 1997 (hereinafter master contract), is made between the Nebraska
State Records Board (hereinafter "NSRB") and Nebrask@ Interactive, Inc.
(hereinafter "NII"), to clarify and define provisions found in the master
contract, including provisions related to payment and disbursement of network
revenue.
WHEREAS, pursuant to the public bidding process NSRB and NII have
entered into an agreement for network manager services whereby NII shall
provide the means for public electronic access to government information;
WHEREAS, electronic access fees are charged for with certain types of
information;
WHEREAS, Neb. Rev. Stat. 84-1205.02 specifically provides that all
electronic access fees be deposited in the Records Management Cash Fund;
WHEREAS, the master contract contemplates the details of the receipt and
disbursement of electronic access fees through an addendum to that contract;
NOW THEREFORE, the parties agree to the following terms and conditions
of this addendum to the master contract:
1. Unless otherwise specifically provided in statute or existing
agreement, all electronic access fees for state government information
collected by NII shall be deposited in the Records Management Cash Fund by
NII by electronic means. Deposits by NII shall be made as follows:
a. On the 15th day of each month, or the next following business day to
the 15th of the month if the fifteenth does not fall on a business day NII
shall deposit in the Records Management Cash Fund by electronic means
payment for the estimated portion of funds received for services rendered
in the prior month ultimately retained by NSRB and data providing
contracting entities (hereinafter "DP/CE") under all agreements for such
payment in effect between the NSRB and DP/CE's and NSRB and NII.
Page 1 of 3
<PAGE>
b. On the last business day of the month NII shall deposit in the Records
Management Cash Fund by electronic means the total amount of funds payable
to NSRB for services rendered in the prior month payable to NSRB and
DP/CE's under all agreements for such payment in effect between NSRB and
DP/CE's or NSRB and NII less amounts received from the mid-month payment
provided in paragraph (a) above.
c. At least seven days prior to the last business day of the month NII
shall provide an itemized statement of all payments to be deposited for
that month including a breakdown by data type (i.e. driver's license
records, UCC searches) and volume activity and amount of revenue by data
type.
d. On the last business day of the month NSRB shall transfer to NII by
electronic means all amounts due under agreements in effect at that time
for services, to include the $1.00 per Department of Motor Vehicles
driver's license record and $1.00 for each interactive Secretary of State
Uniform Commercial Code and Effective Financing Statement Search processed
through the network, rendered in the month prior to payment.
2. This addendum is hereby incorporated and made part of the RFP
(SCA-0099) issued by the State of Nebraska and Proposal received from NII in
response to that proposal and the master contract referenced above. The
purpose of this addendum is to clarify and outline procedures for existing
provisions relating to transfer of funds under the contract.
NEBRASK@ INTERACTIVE, INC.
/s/ Samuel D. Somerhalder 12-3-97
- ------------------------------ -----------
President/CEO Date
Page 2 of 3
<PAGE>
NEBRASKA STATE RECORDS BOARD
/s/ Scott D. Moore 12-3-97
- -------------------- --------
Chairman Date
Page 3 of 3
<PAGE>
EXHIBIT 10.14
COMMONWEALTH OF VIRGINIA
CONTRACT FOR NETWORK MANAGER SERVICES
BETWEEN
THE VIRGINIA INFORMATION PROVIDERS NETWORK AUTHORITY
AND
VIRGINIA INTERACTIVE, LLC
This Contract is between the Commonwealth of Virginia, hereinafter
referred to as the "Commonwealth", operating by and through the Virginia
Information Providers Network Authority, hereinafter referred to as the
"Authority", a political subdivision created pursuant to Chapter 46, Code of
Virginia, by the Virginia General Assembly for the purpose of carrying out an
essential government function and matters of public necessity, and Virginia
Interactive, LLC, a Virginia limited liability company of which the National
Information Consortium, Inc., is the controlling member.
WHEREAS, on May 15, 1997, the Authority issued a request, hereinafter
referred to as the "Solicitation", to all interested vendors advising vendors
of the Authority's desire to execute its responsibilities through the
services of a Network Manager and seeking proposals that would help the
Authority structure a mutually advantageous relationship with a Network
Manager; and
WHEREAS, the National Information Consortium, Inc., submitted a
proposal, dated June 16, 1997, and a proposal addendum, dated July 16, 1997,
hereinafter referred to as the "Proposal", in response to the Solicitation,
and such Proposal was determined by the Authority to meet the requirements of
the Solicitation; and
WHEREAS, the Authority desires to enter into a contract with Virginia
Interactive, LLC., hereinafter referred to as "VI", for VI to serve as Network
Manager to establish, develop, operate, maintain, and expand the Virginia
Information Providers Network, hereinafter referred to as the "Network", as
outlined in the Code of Virginia, in the Solicitation, and in this Contract, for
the purpose of providing increased electronic access to public and other useful
and relevant information and electronic transactions with government as
Page 1 of 12 Pages
<PAGE>
contemplated by the grant of authority issued by the Virginia General
Assembly to the Authority;
NOW THEREFORE, the parties agree as follows:
1. PURPOSE OF THE INFORMATION NETWORK.
The purpose of the Virginia Information Providers Network and this
Contract may be summarized as follows:
a. To create and provide a significant and aggressively promoted
public service to the citizens and businesses of Virginia by (1) increasing
accessibility to public information and other useful information and services
through electronic means, and (2) promoting economic development by
increasing ease of access to public information and other useful information,
and by promoting the sharing of that information through electronic
transactions.
b. To provide such public service through private capital and
management.
2. TERM OF CONTRACT.
The term "Contract" as used in this document shall mean the initial
term, together with any renewal term which is approved.
This Contract shall be for a term of five (5) years, commencing
September 1, 1997, and expiring at 12:00 a.m., August 31, 2002, unless
earlier terminated by the Authority. At the option of the Authority, the
Contract may be renewed for a period of five (5) additional years. By March
31, 2001, the Authority will inform VI of the Authority's decision on whether
or not to extend the contract period through August 31, 2007.
VI will be responsible during the term of this Contract for procurement,
installation, maintenance and testing, and production operation of Network
hardware and software.
If the Authority decides to extend the Contract through August 31, 2007,
the Authority shall be entitled to a perpetual for-use-only software license
with the right to modify, along with application software documentation and
source code, for no additional compensation to VI. The latest production
version of documentation and source code will be maintained in escrow by VI,
to the benefit of the Authority, throughout the life of this contract.
Page 2 of 12 Pages
<PAGE>
Prior to August 31, 2002, the Authority reserves the right to negotiate
terms for licensure of software, which may include a perpetual for-use-only
software license with a right to modify software application documentation
and source code, notwithstanding the terms set forth in the section of this
Contract concerning Continuation of Operations During Transition Period.
3. INCORPORATION BY REFERENCE.
The provisions of the Solicitation and the Proposal are hereby
incorporated into this Contract and made a part hereof. If there is any
conflict among the provisions of the Solicitation, the Proposal, this
Contract, and the laws of the Commonwealth, then those conflicts will be
resolved in the following order of precedence:
a. Virginia law
b. This Contract
c. The Solicitation
d. The Proposal
This Contract may be amended only by mutual expressed written consent.
4. RELATIONSHIP OF PARTIES.
Notwithstanding any other provisions contained herein, it is expressly
agreed that VI is an independent contractor in the performance of each and
every part of this Contract. As such, VI is solely liable for all labor and
expenses in furtherance of such performance and for any and all damages which
may be occasioned on account of its performance hereunder.
VI may become an agent of the Authority only by the expressed written
consent of the Authority.
VI understands the role of the Authority in the policy making process
and agrees to be responsive to policy decisions of the Authority.
VI will not pledge any assets of the Authority or the Commonwealth in
its care, custody or control, or cause any type of lien to attach to such,
except with the express written permission of the Authority.
It is expressly agreed that VI and any subcontractors and agents,
officers, and employees of VI or any subcontractors in the performance of
this Contract shall act in an independent capacity and not as officers or
employees of the Commonwealth. It is further expressly agreed that this
Contract shall not be
Page 3 of 12 Pages
<PAGE>
construed as a partnership or joint venture between the contractor or any
subcontractor and the Commonwealth.
5. HARDWARE AND SOFTWARE AGREEMENTS.
VI will provide hardware, and provide or develop software as enumerated
in the Proposal, and such other hardware and software as may be necessary to
make the Network operational.
All Network trademarks, tradenames, logos and other Network identifiers
(e.g. VIPNet), Internet uniform resource locators, Internet addresses, and
e-mail addresses obtained or developed pursuant to this Contract shall be the
property of the Authority. VI is hereby granted a full license to the same
for the duration of this Contract and any extensions thereof.
6. CONNECTIONS WITH STATE AGENCIES.
Costs associated with and maintenance of communication links from state
facilities to VI facilities for Network purposes, including but not limited
to leased circuits from telephone or cable companies, shall be paid as
expenses by VI.
7. INFORMATION NETWORK SERVICE.
On behalf of the Authority, VI shall negotiate with and obtain written
contracts from each separate data-providing entity, hereinafter referred to
as DPE, from which electronic access is desired.
All subscribers will be required to execute a contract for services.
All contracts with DPEs shall be subject to the approval of and review
by the Authority.
8. REGULATION OF RATES BY THE AUTHORITY
All rates and fees charged to Network users shall be subject to the
final approval of the Authority. The Authority may on its own motion review
and regulate any and all rates and fees for fairness, reasonableness, and
appropriateness. VI may at any time recommend changes in rates and fees to
the Authority.
9. FINANCIAL MANAGEMENT.
Page 4 of 12 Pages
<PAGE>
The Network Manager shall operate in accordance with an annual
management and budget plan prepared and amended in consultation with the
Authority. The management and budget plan shall be approved by the
Authority and shall reflect the priorities for the Network established by the
Authority in consultation with the Network Manager. The Network Manager
shall ensure regular review by the Authority of progress made in relation to
the management and budget plan.
VI shall establish one or more accounts in Virginia financial
institutions which are federally insured for deposit of revenue from Network
operations and shall furnish the Authority with the names of the
institutions, the account numbers, and the names of those persons having
signatory authority.
The disbursement of funds received by the Network Manager as a result of
the operation of this Contract will be as follows:
a. Payment of all Network operating expenses.
b. Transfer of funds to the Authority in accordance with (i)
Interagency Agreements between the Authority and respective data providing
entities, and (ii) amounts for the reasonable and necessary expenses of the
Authority as determined by the Authority and stated in the budget plan.
c. All remaining funds will be retained by VI.
10. FINANCE INFORMATION AND RECORDS.
All VI documents and records pertaining to operation of the Network will
be available for inspection, auditing, and copying by the Authority, or other
authorized representatives designated by the Authority, at any reasonable
time. Monthly income statements and balance sheets for the Network will be
provided to the Authority by VI.
VI also agrees to comply with any recommendations made in any audit,
unless VI and the Authority otherwise mutually agree. Any such audit will be
performed by a competent and reputable CPA licensed in Virginia.
To the extent an audit report discloses any discrepancies in the VI
charges, billings, or financial records, and following a period for review
and verification of the amount by VI, VI will adjust the monthly bill as soon
as reasonably possible, but not to exceed 90 days. VI shall cooperate to
assure that verification is completed in a timely manner.
Page 5 of 12 Pages
<PAGE>
The accounting system is to include a numbered chart of accounts, books
of original entry of all transactions, appropriate subsidiary ledgers, a
general ledger which includes to-date postings and an audit trail through
financial statements. Such books may either be maintained on paper or on
computer with appropriate backup. VI shall from the beginning of this
Contract adopt the calendar year ending December 31, for reporting purposes.
11. PERSONNEL PRACTICES.
The hiring, recruitment, management, training, and firing of VI
employees will be the responsibility of VI. The Authority's only involvement
in the personnel affairs of VI shall be limited to disclosure of the names
and positions of officers and employees of VI.
No officer, employee, director, or member of VI shall receive a salary,
except as and for services performed by such officer, employee, or director,
or member for VI on behalf of the Virginia Information Providers Network.
VI shall be responsible for all required employer costs attributable to
its officers and employees, including but not limited to, workers'
compensation premiums and deductible, unemployment compensation tax
withholding contributions, tax withholding contributions, and similar items.
12. CHANGES IN INFORMATION NETWORK.
Network operations and development shall be in accordance with the
Proposal, the Solicitation, and this Contract.
A planned material change in Network operations cannot be made by VI
without the prior written consent of the Authority. A "material change"
includes, but is not limited to, a change which is substantial and which
increases response time to inquiries, adds to the complexity of Network use,
diminishes services provided to users, or results in a comparable impact on
operations noticeable by users.
VI will provide to the Authority at least thirty (30) days prior written
notice of a planned material change in Network operations.
VI shall timely provide to the Authority such other management reports
as the Authority may reasonably request.
13. NOTICES.
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The Authority contact person shall be designated by the Authority in
writing no later than upon the execution of this Contract. The VI contact
person shall be the President of VI. Each party may change its designation
for notice following written notice to the other party to this Contract.
Notices by the parties to one another shall be given in writing to the
persons identified above or to such other persons as may be subsequently
identified in a written notice. Such notices shall be effective on the date
of receipt if sent by U. S. first-class or restricted delivery mail,
postpaid, or by any reputable overnight delivery service, prepaid.
14. APPROPRIATE USE MESSAGES.
Where appropriate within the website, the Network Manager shall display
an appropriate use message to all Network subscribers on a screen prior to
accessing the affected information. Each subscriber shall be required to
verify compliance with said message terms. Upon subsequent log-ons, such
message shall be displayed, without verification, only if prior verification
is logged in the user file.
The Network Manager shall provide DPEs the opportunity to include
additional wording if determined necessary by the DPE. The appropriate use
message may be approved by the Authority and updated to comply with any
amendments to the law, or as required by the Authority.
15. ACCESS BY DATA PROVIDING ENTITY.
a. DPEs furnishing information for which Network fees are charged shall
have terminal (read) access to the Network's computerized log of subscribers
using that DPE's data and their security status, without access cost to the
DPEs. The DPEs will be responsible for the cost of terminal(s) and the cost
of a dial-up or lease line, or Internet access, whichever is used.
b. Each respective DPE shall be able to sign on to the Network to audit
the dissemination of its records. On-line audit capability must be available
for the length of time specified by the data owning agencies after
transaction processing. At a minimum, the Network shall retain the following
data: name of subscriber, transaction date and time, type of inquiry and
access keys. After the on-line retention period has expired, VI shall, as
specified between VI and the DPEs, retain, destroy, or provide the record
information to the data owning agencies without cost.
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c. VI shall notify affected DPEs and the Authority within two (2) hours
of unauthorized attempts to gain access to data which is restricted by the
terms of the Interagency Agreement with the DPE. The notice shall contain
detailed information to aid the affected DPE in examining the matter.
d. Only information that is legally distributable will be included on
the Network. The DPE will remain the legal custodian of any data placed on
the Network. In accessing data on any DPE's host platform, the Network
Manager will comply with the DPE's security requirements or work with the DPE
to improve security procedures, if such action is deemed appropriate.
16. INSURANCE AND BONDS.
VI shall provide the Authority written proof of the following provided
by a qualified firm authorized/admitted to do business in Virginia:
a. Proof of a general comprehensive liability insurance policy in
the amount of at least $1,000,000.
b. VI shall maintain all workers' compensation insurance coverage
as required by law.
c. VI shall maintain Employers' Liability Insurance - Coverage B,
as required by law.
d. VI shall maintain a commercial automobile policy in the amount
of at least $1,000,000.
e. VI shall maintain a fidelity bond in the amount of at least
$100,000 per employee.
17. TERMINATION OF CONTRACT.
The Authority shall have the right to terminate this Contract for cause,
subject to cure, by providing written notice of termination to VI. Such
notice shall specify the time, the specific provision of this Contract or
"for cause" reason that gives rise to the termination, and shall specify
reasonable appropriate action that can be taken by VI to avoid termination of
the Contract. The Authority shall provide a period of up to sixty (60) days,
unless otherwise specified in this Contract, for VI to cure breaches and
deficiencies of its performance obligations under this Contract.
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<PAGE>
The Authority may terminate this Contract at any time, and without
cause, if directed to do so by statute.
18. TERMINATION FOR CAUSE
For purposes of this Contract, the phrase "for cause" shall mean, but
not be limited to:
a. Any material breach or evasion by VI of the terms or conditions of
this Contract and its amendments, if any;
b. Ownership in VI by a member unacceptable to the Authority.
c. Substantial cessation of Network services by the Network.
d. Fraud, misappropriation, embezzlement, malfeasance, significant
misfeasance, or illegal conduct by VI, its officers, directors, or members.
e. Dissolution of VI or forfeiture of its company's existence.
f. Repeal of the Authority's enabling statutes. This is cause for
immediate termination, unless another agency is designated for oversight of
the Network within a reasonable time prior thereto.
g. Amendment of the Authority's enabling statue or an adverse judicial
decision by a court of competent jurisdiction, which has the effect of
rendering Network operations no longer feasible.
h. Insolvency of VI.
I. Material breach of an agreement with any DPE.
j. Intentional disclosure of any confidential information.
19. LIMITATION OF PURPOSE.
VI shall engage solely in the business or businesses expressly approved
by the Authority which shall initially be only and solely the start-up,
operation, maintenance and expansion of the Network.
20. PATENT, COPYRIGHT, TRADEMARK,TRADE SECRET INDEMNITY.
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VI warrants that its proposed operation of the Network does not and
shall not infringe on the United States patent, copyright, trademark or trade
secret right of any person or entity. The Authority shall be provided with
prompt notice of any such claim of infringement and VI shall have the
exclusive right to defend or settle such claim at VI's option. The Authority
shall cooperate with VI in its defense or settlement of such claim at no
expense and no liability to the Authority. VI and the National Information
Consortium, Inc., will be responsible for all expenses necessary to hold the
Authority or its members harmless from any claims arising from the subject of
this section.
21. LIABILITY.
The Commonwealth, its agents, and employees shall not be legally
responsible for errors due to Network problems.
VI agrees for itself, its agents, employees, and assigns to hold
harmless, indemnify and defend the Authority and the Commonwealth, its agents
and employees from any actions arising out of VI's negligence or material
failure to perform under the terms of this Contract.
VI agrees that it has no right of subrogation or contribution from the
Commonwealth for any judgment rendered against VI.
VI agrees to indemnify, defend, and hold harmless the Commonwealth and
Authority board members, its officers, agents and employees from claims
against VI.
22. APPROPRIATION AND LEGISLATION.
The Authority may cancel this Contract to the extent funds or regulatory
or statutory fees are no longer legally available for expenditures under this
Contract. In the event legislation alters the authority or duties of the
Authority, that legislation controls the terms and conditions of this
Contract.
VI may cancel this Contract in the event that (a) legislation
materially alters the authority or duties of the Authority to the extent that
operation of the Network, as currently envisioned, cannot be supported, or
(b) the financial base for the Network does not materialize or is removed in
the future.
23. ASSIGNMENT AND SUBCONTRACTING.
VI may not assign any of its rights or delegate any of its duties
hereunder unless done pursuant to prior written consent of the Authority.
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VI may subcontract portions of work to be performed by it under this
Contract with the written consent of the Authority.
24. CLAIMS.
This Contract shall be construed according to the laws of the
Commonwealth. Any legal proceedings against the Authority regarding this
solicitation or any resultant contract shall be brought in the Commonwealth's
administrative, legislative, or judicial forums.
25. CONTINUATION OF OPERATIONS DURING TRANSITION PERIOD.
If for any reason this Contract shall be terminated, or upon expiration
of the Contract without extension, or at the end of the extension, VI shall,
at the option of the Authority, continue to operate under this Contract as
Network Manager in accordance with all terms and conditions of this Contract,
together with any amendments or modifications in existence at such time, for
a period of up to twelve (12) months from the time of expiration or
notification of termination from the Authority to VI.
The intent of this provision is to insure continuation of Network
operations while a successor Network Manager is chosen and installed.
26. ENTIRE AGREEMENT.
This Contract, including any documents incorporated by reference,
constitutes the entire agreement of the parties and supersedes all other
prior written or oral contracts between the parties with respect to the
subject matter hereof. This Contract may be amended only by a writing signed
by the parties thereto.
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IN WITNESS to the agreement of the Authority and Virginia Interactive,
LLC., to all of the above terms and conditions, the respective governing
bodies or Boards of Directors of the two organizations have approved the same
and have authorized their chief executive officers and secretaries to affix
their signatures below indicating such.
VIRGINIA INTERACTIVE, LLC
/s/Daniel D. Houlihan 7/30/97
- ----------------------- -------
Daniel D. Houlihan Date
President, Virginia Interactive, LLC
ATTEST:
/s/William F. Bradley, Jr 7/30/97
- ------------------------- -------
Date
VIRGINIA INFORMATION PROVIDERS NETWORK AUTHORITY
/s/ Clyde R. Christofferson 7/31/97
- --------------------------- -------
Clyde R. Christofferson, Date
Chairman, VIPNet Board
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EXHIBIT 10.15
AGREEMENT
State of Iowa Contract No. 2501.
1.0. PARTIES AND TERM.
This Agreement is effective this 23rd day of April, 1998, by and
between IOWA INTERACTIVE, INC. (Vendor) and the STATE OF IOWA, by and through
INFORMATION TECHNOLOGY SERVICES (State). The Initial Term of this contract
is from the effective date up to and including September 30, 1998. The
Initial Term of this contract is predicated on federal funding which will
expire September 30, 1998. In the event that the State obtains an extension
of time beyond September 30, 1998 from the federal funding source to expend
the funds for the purpose of completing Phases I, II, and III of the Project
for which the funds were granted, the State may elect, in its sole
discretion, to extend this Agreement for the purpose of completing Phases I,
II and III of the Project.
In the sole discretion of the State, the State may elect to extend
this Agreement beyond the Initial Term for a period not to exceed a term of
Three (3) years (the First Extension Period). Following the First Extension
Period, the State may elect to renew this Agreement in Two (2) year
increments for an additional period not to exceed Four (4) years (Subsequent
Extension Period[s]).
The State shall determine whether to renew the Agreement and shall
notify the Vendor in writing at least One Hundred Eighty (180) Days in
advance of the expiration of the First Extension Period or Subsequent
Extension Period. Within Thirty (30) Days of the notice to the Vendor, the
parties shall agree on the length of the transition period. However, the
Vendor shall not be obligated to continue to operate the Network under this
subsection beyond the One Hundred Eighty (180) Days if the Network operations
are incurring a net loss (as defined in the Project Plan) at the time of
expiration or during the period of transition unless any such loss is
reimbursed by the State during the transition period.
1.1 DEFINITIONS
As used herein, the following terms mean:
"Acceptance of Service" or "Accept Service" means the date on which
the Project is activated by the State and use of the Project is commenced for
purposes other than Testing and Acceptance following the Testing and
Acceptance period.
"Project" means the timely development and implementation of a citizen's
information network, including but not limited to Phases I, II and III as
described in the Request for Proposal #18001S (RFP) and provision of related
services for the State, as defined and specified in the RFP, and includes, but
is not limited to the purchase, maintenance and replacement of hardware,
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software, peripheral equipment, operating systems and communications
equipment and connections (collectively "Network") to be provided by the
Vendor.
"Project Plan" means the document developed by the parties which
outlines specifically the manner in which the Project will be developed,
completed and implemented, the manner by which the Vendor shall be paid, the
timelines for completion of various deliverables of the Project, and such
other matters as the parties deem necessary to effectuate this Agreement.
The Project Plan will also contain provisions regarding the establishment,
development, maintenance, operation and expansion of the Network (Phase IV),
if applicable.
"Testing and Acceptance" means that the Vendor has completed the
design, development and installation of Phases I, II and III of the Project
and has completed its notification of readiness for Project testing, the
State and the Vendor have completed the Project testing, all notices required
to be given by the Vendor to the State or the State to the Vendor have been
completed, and the Project has been accepted by the State. The Project Plan
will also contain provisions establishing criteria for Testing and Acceptance
for each of the Phases of the Project.
1.2 PROJECT COMPLETION; PAYMENT TO VENDOR
A. The Vendor shall complete phased implementation of the Project not
later than dates to be agreed by the parties, and incorporated into the
Project Plan, which is incorporated herein by reference. The Project Plan
may be modified from time-to-time with the mutual agreement and consent of
both parties; all such modifications shall be in writing signed by both
parties to this Agreement.
B. If the Vendor fails to make timely, substantial and material progress
toward the completion of the Project by the date or dates specified in
subsection A above, or in the Project Plan, the State may, in its sole
discretion, terminate the Agreement with the Vendor following notice of
default and opportunity to cure as provided in Section 1.6 herein. In the
event that the Vendor fails to complete the Project as required herein, and
the State terminates the agreement with the Vendor, the State may withhold
any outstanding payments to the Vendor, and pursue any other remedy provided
herein and by law.
C. 1. The State declares and the Vendor acknowledges that time is of the
essence in the completion of the Project, and further that the State may
suffer damages if the Vendor fails to complete the Project by the date(s)
specified. Specifically, the State may lose certain federal funding for the
development, completion and implementation of a citizens' information
network, as well as other related federal funds and may be required to
reimburse the federal government for such funds previously expended by the
State if the Vendor fails to complete the Project by the date or date(s)
specified in Subsection A above, or in the Project Plan.
2. If the Vendor fails to complete the Project by the date or date(s)
specified in subsection A above, or in the Project Plan and the State elects to
continue the Agreement with the Vendor, the State may assess the Vendor
liquidated damages in the amount of One Thousand
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Dollars and No Cents ($1,000.00) for each week (seven consecutive days) in
which the Vendor fails to complete Phases I, II and III of the Project.
Liquidated damages shall not be considered a penalty and may be deducted from
the amount of the Vendor's monthly payment. There shall be no concurrent
applications of liquidated damages due to cascading failures resulting from a
single failure.
3. If the Vendor makes timely, substantial and material progress
toward the completion of the Project but is not able to complete the Project
prior to September 30, 1998, and further, provided that the Vendor is not in
breach of a material term of the Agreement, the State will timely request an
extension of time from the federal funding source in which to complete the
Project. The State makes no representations with respect to the grant or
denial of such a request from the federal funding source with regard to an
extension.
D. The State shall pay the Vendor an amount not to exceed Five Hundred
Sixty-Two Thousand Dollars and No Cents ($562,000.00) for the timely
development and successful implementation of Phases I, II, and III of the
Project. The Vendor may invoice the State monthly in accordance with the
payment schedule set forth in Attachment 2 attached hereto and incorporated
herein by reference and subject to any adjustments identified in this
Agreement, liquidated damages or offsets pursuant to the terms and conditions
as stated in this Agreement. Payment terms for Phase IV of the Project, if
applicable, shall be incorporated into the Project Plan.
E. The Vendor shall not be reimbursed for any costs incurred by the
Vendor, including but not limited to Workers Compensation costs or insurance
premiums, unemployment compensation costs, taxes, costs of the Network (as
defined in this Agreement) or other obligations of the Vendor associated with
the provision of services requested under the RFP, except as agreed upon by
the parties and incorporated herein.
F. Upon receipt of a properly submitted and appropriately documented
invoice to the State, the State will promptly process and pay the invoice.
If State does not pay a properly submitted and appropriately documented
invoice within sixty (60) Days after presentation to the State, the Vendor
may add an interest charge not to exceed one percent (1%) per month on the
unpaid balance in accordance with Iowa Code Section 421.40, or the maximum
allowed under section 421.40, if less than one percent (1%).
1.3 TESTING AND ACCEPTANCE
A. Testing and Acceptance of the Project shall be completed not later
than the date or dates specified in the Project Plan. The State, in its sole
discretion, may require Testing and Acceptance for each major application in
the Project Plan. The State shall Accept Service from the Vendor promptly
following the installation, and Testing and Acceptance of the Project. The
Vendor shall notify the State of its readiness for Testing and Acceptance of
the Project and shall participate in and cooperate with the State in
completing Testing and Acceptance prior to the State's Acceptance of Service
from the Vendor.
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B. During the period of Testing and Acceptance, the State may accept or
reject the Project. If the State rejects the Project during Testing and
Acceptance, the State will notify the Vendor in writing of its rejection and
may include in the notification any relevant identified defects or
deficiencies in the Project, if known. The State shall not declare the
Vendor in Default of this Agreement during the initial Testing and Acceptance
period unless or until the State provides the Vendor with an additional
Fifteen (15) Days from the date of notification of rejection in which to
correct the deficiencies or defects in the Program. Upon the Vendor's
renotification of readiness for Testing and Acceptance, the State and the
Vendor shall recommence the Testing and Acceptance period. If the State
rejects the Project during the recommenced Testing and Acceptance period, the
State may declare the Vendor in default under this Agreement as specified
herein.
1.4 CORRECTION OF DEFECTS OR DEFICIENCIES; MAINTENANCE OF PROJECT
A. The Vendor shall at all times use its best efforts to maintain the
Network in such a condition throughout the term of this Agreement and any
extension thereof so as to deliver service contemplated by this Agreement on
an uninterrupted basis, Twenty-Four (24) hours a day, Seven (7) consecutive
days a week, except as provided herein. During the term of the Agreement and
any extension thereof, the Vendor, at its sole expense, shall maintain,
repair or replace any and all Network components or other materials necessary
to provide uninterrupted Twenty-Four (24) hours a day service to the State.
B. The State or its designated representative may periodically and
without notice to the Vendor monitor the performance of the Network and the
Project. In the event that the monitoring reflects that the Network is
experiencing errors in data transmission or interruption of service to the
State, the State shall notify the Vendor of service interruption or errors in
data transmission. The Vendor shall respond to commence and complete repairs
to the Network as specified in Subsection C below.
C. The Vendor shall develop a plan for regular monitoring of the
performance of the Network. The monitoring plan shall be subject to approval by
the State, and the monitoring plan shall be included in the Project Plan. In
the event that the Vendor's monitoring of the Network reflects that the Network
is experiencing errors in data transmission or interruption of service to the
State, the Vendor shall notify the State (in the manner specified in the Project
Plan) of service interruption or errors in data transmission. The Vendor shall
respond to commence repairs to correct the interruption in service or errors in
data transmission within two (2) hours of the commencement of the interruption
in service or errors in data transmission, and shall use its best efforts to
repair the Network and return the Network to normal service. The Vendor shall
respond to interruptions in service and errors in data transmission Twenty-Four
(24) hours a day, including Saturdays, Sundays and holidays. If the Vendor is
unable to respond to repair the Network within Two (2) hours of commencement of
the interruption in service or errors in data transmission, it shall escalate
its internal procedures for repairing the Network. The Vendor shall at all
times keep and maintain a service interruption log which shall be available for
inspection
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by the State.
D. The Vendor shall exercise its best efforts to limit any interruption
of service for the purpose of preventive maintenance to, repair or
replacement of or upgrading the Network to periods of minimum use. The
Vendor shall develop and adopt a preventive and routine maintenance schedule
for the Network which is subject to approval by the State, and which shall be
included in the Project Plan.
E. The Vendor shall not be subject to default for a service interruption
caused by a failure or malfunction of equipment which was not installed or
maintained by the Vendor or an affiliate, vandalism by third parties, or a
service interruption due to circumstances beyond the reasonable control of
the Vendor. Routine and preventive maintenance which is performed in
accordance with Subsection D above, shall not subject the Vendor to default.
F. In the event that the Vendor is unwilling or unable to correct the
interruption in service within Twenty-Four (24) consecutive hours following
the commencement of the service interruption (an interruption caused in whole
or in part by the Vendor or an interruption deemed to be within the control
of the Vendor), the State may make or cause to have made any repair necessary
for the continued operation of the Network and shall charge the Vendor for
such repair or replacement. The charges made to the Vendor by the State may
be offset from payments due or to become due to the Vendor. Further, if the
Vendor fails or is unwilling to repair, maintain, or replace any component of
the Network, the Vendor shall at all times during the term of this agreement
permit the State or its designated representative, reasonable access to the
Network, wherever located, for the purposes of performing maintenance,
repairs, replacement and other activities associated with the performance or
non-performance of the Network.
1.5 ASSIGNMENT OF AGREEMENT
The Vendor may not assign this Agreement to another person or entity
without the prior written consent of the State.
1.6 DEFAULT; REMEDIES OF STATE
A. The State may declare the Vendor in default of its obligations under
the Agreement for any of the following reasons:
1. Failure by the Vendor to meet the Project completion deadline(s) as
required in Section 1.2 herein.
2. Failure by the Vendor to substantially and materially conform to
the specifications as required by the Project Plan.
3. A breach of any term of this Agreement.
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4. Failure to meet the deadline(s) established herein.
5. Non-performance of this Agreement.
6. After One Hundred Twenty (120) Days from commencement of on-line
service, Four (4) or more service interruptions of a duration of Four (4) or
more hours each in a Thirty (30) Day consecutive period.
B. The State shall issue a written notice of default providing therein
for a Ten (10) Day period in which the Vendor shall have an opportunity to
cure, provided that cure is possible and feasible. Time allowed for cure of
a default shall not diminish or eliminate the Vendor's liability for
liquidated damages, if any.
C. If, after opportunity to cure, the default remains, the State may do
one or more of the following:
1. Exercise any remedy provided by law, including injunctive relief;
2. Terminate the Agreement, and
3. Obtain liquidated damages from the Vendor, as described herein.
1.7 INCORPORATED DOCUMENTS & GENERAL PROVISIONS
A. The following documents containing specifications for services
requested under Request for Proposal Number 18001S are listed below:
1. This Agreement together with any exhibits, Project Plans,
attachments or addenda, attached hereto or incorporated herein by reference.
2. Any License Agreements between the State and the Vendor for Vendor
owned software.
3. Any third party License Agreements for software owned by others and
provided by the Vendor to the State.
4. The Request for Proposal No. 18001S, including any and all addenda,
tables, exhibits and appendices, and the Vendor's Response to the Request for
Proposal, incorporated herein by reference as if set forth fully in this
Agreement. The RFP and the Vendor's Response to the RFP shall be deemed to
be of equal rank.
In the event of a conflict among the incorporated or attached documents,
the order of precedence shall be as set forth above.
B. Changes in the provisions of this Agreement may be made only in
writing signed by all parties hereto.
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C. This Agreement constitutes the entire agreement between the parties,
and any prior understanding or representation of any kind preceding this
Agreement shall not be binding upon either party except to the extent
incorporated herein.
D. All notices required to be given by either party to the other in
accordance with the terms of this Agreement shall be directed as follows:
STATE: Name: James R. Youngblood, Director or Designee
Information Technology Services
Hoover State Office Building, Level B, Des
Moines, Iowa 50319
Phone Number: 515-281-8699
Facsimile Transmission No. 515-281-6137
VENDOR: Name: W. Kent Hiller or Designee
Iowa Interactive, Inc.
Address: 210 South Prairie View Drive, #218, West Des
Moines, Iowa 50266
Phone Number: 515-490-3896
Facsimile Transmission No: 515-457-9125
1.8 ACTS OF GOD (FORCE MAJEURE)
Neither party shall be considered in default under any provision of
this Agreement if performance is delayed or made impossible by any causes
beyond the control of and without the fault of the party occasioning the
delay or impossibility of performance, including, but not limited to: acts of
God, fires, floods, severe weather, epidemics or any other natural disaster,
embargoes, or quarantines.
1.9 VENDOR'S OBLIGATIONS FOR SUBCONTRACTOR; OFFSETS AND DEDUCTIONS
A. A breach of this Agreement which is the result of a subcontractor's
conduct, negligence or failure to perform shall not excuse the Vendor from
the provisions of this Agreement.
B. Should the State obtain a money judgment against the Vendor as a
result of a breach of this Agreement, the Vendor consents to such judgment
being set-off against moneys owed the Vendor by the State under this
Agreement or any other Agreement between the Vendor and the State.
C. Amounts due to the State as liquidated damages or any other damages
may be deducted by the State without a judgment or any court action from any
money payable to the Vendor pursuant to this Agreement or any other Agreement
between the Vendor and the State. The State shall notify the Vendor in
writing of any claim for liquidated damages or any other damages on or before
the date the State deducts such sums from money payable to the Vendor.
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1.10 DEFAULT; REMEDIES OF VENDOR; EARLY TERMINATION BY VENDOR
Should the Vendor consider the State to be in default of its
obligations, the Vendor shall issue a written notice of default providing
therein for a Fifteen (15) Day period in which the State shall have an
opportunity to cure, provided that cure is possible and feasible. If, after
opportunity to cure, the default remains, the Vendor may exercise any remedy
provided by law.
The Vendor may cancel this Agreement upon reasonable notice to the
State, and subject to the orderly transition provisions contained herein, if
legislation materially alters the authority or duties of Information
Technology Services or the Vendor under this Agreement to the extent that
continued operation of the Network cannot be supported, or the financial
basis upon which the Network relies for solvent Network operations does not
materialize or is removed in the future. If the Vendor provides notice to
the State under this provision based on financial considerations, the Vendor
shall provide at least One Hundred Eighty (180) Days notice, together with a
transition plan. However, the Vendor shall not be obligated to continue to
operate the Network under this subsection beyond the One Hundred Eighty (180)
Days notice period if the Network operations are incurring a net loss as
defined in the Project Plan.
1.11 TERMINATION DUE TO NON-APPROPRIATION
Iowa Information Technology Services will make a reasonable request
for the necessary funds for the continued funding of the Project subject of
this Agreement during the budget process before the budget is submitted to
the General Assembly. Notwithstanding any other provision of this Agreement,
if funds anticipated for the continued fulfillment of the Agreement are, at
any time, not forthcoming or are insufficient, either through the failure of
the State to appropriate funds, or as a result of a deappropriation, or an
across-the-board spending reduction ordered by the Governor or the General
Assembly, or funding from a federal funding source is reduced or discontinued
for any reason, or through discontinuance or material alteration of the
Project for which funds were provided, the State shall give the Vendor
written notice as soon as practicable documenting the lack of funding.
Unless otherwise agreed to by the parties, the Agreement shall terminate on
the last day of the fiscal year for which appropriations were available.
However, in the event that an appropriation to cover the cost of this
Agreement becomes available within Sixty (60) Days subsequent to termination
under this section, the State agrees to re-enter the Agreement with the
terminated Vendor under the same provisions, terms and conditions as the
original Agreement.
1.12 TERMINATION FOR CONVENIENCE
The State may terminate this Agreement for convenience for any reason
upon Three Hundred Sixty-Five (365) Days written notice to the Vendor of the
State's intent to terminate, and the Vendor's sole remedy in the event of
termination for convenience is payment for satisfactory services rendered prior
to the date of termination for convenience, except as otherwise provided for
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herein and subject to liquidated damages and offsets as specified in this
Agreement. The notice provisions of this paragraph do not apply to the
Initial Term of the Agreement.
In the State's sole discretion and at the State's sole option, if, for
any reason, this Agreement is terminated or expires (with or without
extension), the Vendor shall continue to operate the Network in accordance
with all the terms and conditions enunciated herein, together with any
amendments and modifications in existence at the time, for a period up to
Twelve (12) months from the time of notification of termination or
expiration, whichever occurs earlier. At the time the State exercises its
rights under this section, the State shall notify the Vendor of the number of
months, during which the Vendor shall continue to operate the Network under
this provision. However, the Vendor shall not be obligated to continue to
operate the Network under this subsection if the Network operations are
incurring a net loss (as defined in the Project Plan) at the time of
termination or expiration or during the period of transition unless any such
loss is reimbursed by the State during the transition period.
1.13 REMEDIES OF VENDOR IN EVENT OF NON-APPROPRIATION OR FOR CONVENIENCE
In the event of termination of this Agreement due to non-appropriation
under Section 1.11 above or for convenience pursuant to Section 1.12 above,
the Vendor's sole and exclusive remedy is as provided for herein.
If the Agreement is terminated due to non-appropriation, the Vendor's
sole and exclusive remedy is to remove any equipment, hardware, software, and
other components of the Network furnished by the Vendor for which payment has
not been made. Additionally, the Vendor shall be entitled to collect any
amounts due to the Vendor on the date of termination of the Agreement for
non-appropriation.
In the event of termination of this Agreement for any reason, the
State shall not be liable for the payment of Unemployment Compensation to the
Vendor's employees, nor shall the State be liable to the Vendor for payment
of Workers' Compensation claims which occur during the Agreement or extend
beyond the date on which this Agreement terminates or for any other costs
incurred by the Vendor in its performance of the Agreement, except amounts,
if any, due and owing to the Vendor by the State on the date of termination.
If the State terminates this Agreement pursuant to Section 1.11 or
1.12 above prior to or effective September 30, 1998, or elects not to extend
the Agreement for the First Extension Period, the State shall purchase from
the Vendor all hardware, software furnished by the Vendor and third party
software furnished by the Vendor to the extent that the Vendor has the right
to assign such third party software, and used in the performance of the
Agreement for a price not to exceed that provided for and identified on
Attachment 2, attached hereto and incorporated herein by reference. A copy
of the list of items subject of this provision is attached hereto and
incorporated herein by reference as part of Attachment 2. The list may be
modified by the parties from time-to-time.
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If the State, in its sole discretion, elects to extend this Agreement
for the First Extension Period or a Subsequent Extension Period and
subsequently terminates the Agreement for convenience under circumstances in
which the final date of service by the Vendor pursuant to the notice of
termination for convenience is less than Sixty (60) months after April 23,
1998, the effective date of this Agreement, the Vendor's software license
price to the State shall be an amount determined by applying straight-line
monthly increment amortization over a Sixty (60) month period ($16,666 per
month) as measured from the effective date of the Agreement, April 23, 1998,
to the initial price of One Million Dollars and No Cents ($1,000,000.00).
This payment provision does not apply to any termination date or failure of
the State to extend for a Subsequent Extension period which occurs more than
Sixty (60) months after the effective date, April 23, 1998, of this
Agreement. Upon payment of the amount as specified herein, if any, the State
shall receive from the Vendor a license of the type described in Section 1.27.
The Vendor shall, in addition to the other remedies as provided in
this section, be entitled to collect any monies due to the Vendor as of the
date of termination, cancellation or expiration of the Agreement.
If the Agreement remains in effect for a period of Sixty (60) months
after the effective date, April 23, 1998, then the License of the type
described in Section 1.27, Subsection B, vests in the State without any
additional payment by the State to the Vendor.
1.14 VENDOR DUTIES
A. All records of the Vendor relating to this Agreement shall be retained
for five (5) years following the date of final payment under this Agreement.
Nothing in this Agreement shall be construed to permit or authorize the
Vendor to destroy or eliminate documents, records, or files in violation of
any statute or rule governing the Vendor's retention of records.
B. 1. The Vendor agrees that the Auditor of the State of Iowa or any
authorized representative of the State, and where federal funds are involved,
the Comptroller General of the United States or any other authorized
representatives of the United States Government, shall have access to and the
right to examine, audit, excerpt and transcribe any directly pertinent books,
documents, papers, and records of the Vendor relating directly or indirectly
to the activities of the Vendor under this Agreement.
2. The Vendor further agrees that the State or a representative of its
selection may conduct a complete technology (contract compliance) audit at
least once annually to determine whether or not the Vendor is complying with
the terms of this Agreement, the Project Plan, criteria established for
access to data, state and federal law regarding confidential records, and any
other applicable state and federal laws and regulations.
3. The Vendor shall promptly comply with and correct any
deficiencies noted in the audit reports as audit exceptions and will promptly
implement any recommendations requested by the State or its representative to
which the Vendor and the State agree. The Vendor shall not impose
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any charges on the State, the federal government or their authorized
representatives for access to any relevant documents or records, however
compiled and maintained, and shall fully cooperate with the State or federal
government and their authorized representatives in the conduct of the
financial and technology (contract compliance) audits. The State shall not
impose a charge on the Vendor for the financial or technology (contract
compliance) audit. The State may declare the Vendor in default of its
obligations under this Agreement in the event that financial or technology
audit exceptions disclose material, significant or repeated violations of the
terms of this Agreement. To the extent that audit report discloses any
discrepancies in the Vendor's charges, billings, or financial records and
following a reasonable period for review and verification of the amount of
any discrepancy by the Vendor, the Vendor shall adjust the next monthly
billing to the State, and, in any event, the adjustment shall occur within
Ninety (90) calendar days after the date of the audit report. The Vendor
shall exercise its best efforts to cooperate with the State or its
representative to assure that any verification is completed in a timely
manner.
C. The Vendor shall comply with the applicable provisions of federal,
state and local laws and regulations to insure that no employee or applicant
for employment is discriminated against because of race, religion, color,
age, sex, national origin, or disability. The Vendor shall have an
affirmative action plan, if required by law.
D. The Vendor warrants that no person or selling agency has been employed
or retained to solicit and secure this Agreement upon an agreement or
understanding for commission, percentage, brokerage or contingency excepting
bona fide employees or selling agents retained for the purpose of securing
business. In the event of breach of this subsection, which shall be
considered a material term of this Agreement, the State shall have, in
addition to the remedies contained in Section 1.6 above, a right to
liquidated damages in the sum of $50,000.00. Such damages are not a penalty
and would be assessed only because the monetary damage to the State's
competitive bidding process resulting from breach of this subsection is
difficult, if not impossible, to measure.
E. In the event that the Vendor utilizes subcontractors for the purpose
of fulfilling its obligations under this Agreement, all such subcontractors
shall be procured with appropriate attention to the principles of competition
and quality of workmanship; however, the Vendor shall not be required to
adhere to the State's competitive bidding procedures in its selection of
subcontractors. All records relating to subcontracts shall be retained as
required in Subsection A. above and available for audit or examination as
required in Subsection B. above.
F. If the Vendor is a joint entity, consisting of more than one
individual, partnership, corporation or other business organization, all such
entities shall be jointly and severally responsible for fulfilling the
activities and obligations under this Agreement, and for any default under
this Agreement. The Vendor asserts that it is not a joint entity.
G. The Vendor shall provide and pay for all labor, materials, tools,
machinery, storage of same and transportation necessary for the Vendor to
provide the services required under this Agreement, except as otherwise provided
in this Agreement. The Vendor shall be solely responsible for recruitment,
hiring, management of, training, discipline and termination, and any other
indicia of an
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employer, including payment of salaries, benefits, bonuses and the like with
respect to its employees during the term of this Agreement and any extension
thereof.
H. 1. Some data, software programs, operating systems and platforms,
including third party proprietary software and methodologies, copyrighted and
patented information and other information including, but not limited to
information contained in the State's files and records however maintained and
stored, as well as policies and activities of the State are confidential
(collectively Confidential Information). The Vendor shall preserve the
confidentiality of such Confidential Information which may be revealed to the
Vendor in its performance of this Agreement. The Vendor shall maintain
adequate and appropriate network security in accordance with standards
mutually agreed upon by the parties to insure the safeguarding of the State's
Confidential Information and other data, electronic files, systems,
applications and programs. In the event of breach of this provision, the
State may suspend this Agreement immediately upon notice to the Vendor of
default and may, in its sole discretion, terminate this Agreement with the
Vendor if the default remains uncured after Seven (7) consecutive days
following notice to the Vendor. The Vendor shall comply with all applicable
federal and State laws and regulations regarding confidentiality of the
records to which the Vendor is permitted access. The Vendor, its agents and
employees may be required to execute Confidentiality and Non-Disclosure
Agreements to obtain access to certain Confidential Information.
Provided that the Vendor has complied with the conditions specified in
this provision for safeguarding the State's Confidential Information, the
State will not terminate this Agreement with the Vendor if the Vendor shall
within Three (3) business days following notification of the breach,
determine the cause or source of the breach and take all reasonable
corrective measures to eliminate the cause or source of the breach, and to
the extent possible cure the breach.
2. Both parties agree to protect all Confidential Information provided
by one party to the other, and not to publish or disclose to any third party,
misuse, alter or destroy or make any use whatsoever of such information
without the other party's written permission by using those methods and
procedures normally used to protect one's own Confidential Information.
3. Confidential Information will remain the property of the disclosing
party, and the receiving party will not be deemed by virtue of this Agreement
or any access to the disclosing party's Confidential Information to have
acquired any right or interest in or to any such Confidential Information.
The receiving party agrees: (i) to hold the Confidential Information in
strict confidence; (ii) to limit disclosure of the Confidential Information
to the receiving party's own employees having a need to know the Confidential
Information for the purposes of this Agreement; (iii) not to disclose any
Confidential Information to any third party; (iv) to use the Confidential
Information solely and exclusively in accordance with the terms of this
Agreement in order to carry out its obligations and exercise its rights under
this Agreement; and (v) to notify the disclosing party promptly of any
unauthorized use or disclosure of the Confidential Information and to
cooperate with and assist the disclosing party in every reasonable way to
stop or minimize such unauthorized use or disclosure.
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4. The Vendor agrees that if a court of competent jurisdiction
determines that the Vendor has breached, or attempted or threatened to
breach, its confidentiality obligations to the State or the State's
proprietary rights, the State will be entitled to obtain appropriate
temporary and/or permanent injunctive relief and other measures restraining
further, attempted or threatened breaches of such obligations and the Vendor
hereby consents to a court order granting such relief. Such relief or
measures shall be in addition to, and not in lieu of, any other rights and
remedies available to the State.
5. The provisions of this section shall remain in full force and
effect and otherwise survive the expiration or termination of this Agreement
or any extension thereof for a period of Three (3) years following the last
day that the Vendor provides service, or as prescribed by statute, whichever
is longer, or as determined by the parties and included in the Project Plan.
I. The State declares and the Vendor acknowledges the purpose of this
Agreement is to facilitate efficient and effective electronic access to the
State's public records as defined in Iowa Code chapter 22, and other State
records, data (inbound and outbound), and electronic filings (collectively
Electronic Transactions) over public networks such as the Internet for the
use and benefit of governmental entities, citizens, and members of the public
generally, and further to facilitate effective and efficient interaction
between Iowa State government and its citizens using such electronic means as
the Internet. The State hereby appoints the Vendor as an agent of the State
for the limited purpose of transmitting Electronic Transactions under this
provision and such appointment is specifically limited to the Vendor's
obligations under this provision.
Electronic Transactions involving such public records or other data,
however stored, maintained, or conducted by the Vendor on the State's behalf
for the purposes enunciated in this Agreement does not represent the
assignment or sale of the records or other data to the Vendor, nor may the
Vendor pledge or obligate the records or data as security for a loan,
mortgage, or any other financing transaction. The Vendor may not, outside of
fulfilling its obligations to the State, independently package, sell, or
otherwise provide the State's data to any third party for consideration,
monetary or other gain.
J. The Vendor shall have and maintain a disaster recovery plan which
provides for the efficient and effective resumption and continuation of the
Project's activities following a disaster.
K. The Vendor shall have and maintain a secure additional off site
storage facility for Network software which shall be "backed up" daily or
periodically as appropriate and removed from the primary business location.
The Vendor shall maintain redundant capabilities for critical functions as
defined by the parties and included in the Project Plan so as to minimize any
disruption in service to the State.
L. The State may provide the Vendor with access to data contained in the
State's computer system for the purpose of the Vendor's activities under this
Agreement; however, the State shall not be liable to the Vendor for any
direct or indirect costs or expenses which may be incurred by
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the Vendor during periods when the computer system or any component is being
serviced, maintenance is being performed, the system is inoperable for any
reason, or the Vendor is unable to access the data for any reason. The Vendor
shall hold harmless the State from and against any and all liability,
including any losses, damages, including lost profits, claims, and expenses
to the Vendor occasioned by the State's failure to transmit signals
accurately, even if such outage, interruption or failure was occasioned in
whole or in part by the acts or omissions of the State.
M. Nothing in this Agreement shall be construed as creating or
constituting the relationship of a partnership or joint venture between the
parties hereto. Except as specifically authorized in this Agreement, each
party shall be deemed to be an independent contractor contracting for
services and acting toward the mutual benefits expected to be derived
herefrom. No party, unless otherwise specifically provided for herein, has
the authority to enter into any contract or create an obligation or liability
on behalf of, in the name of, or binding upon another party to this Agreement.
In the event that the Vendor collects fees pursuant to Iowa Code
chapter 22 or any other statutory provision for and on behalf of the State
under this Agreement, the State hereby appoints the Vendor as an agent for
the limited purposes of collecting, accounting for and transferring said fees
to the State.
N. The Vendor shall not load, use, transmit, store or maintain any
application which would track an individual's use of the citizen's
information network except to the extent necessary to prevent unauthorized
access to confidential data, to preserve the integrity of "firewalls", to
document a subscriber's account activity, to collect fees as authorized by
the State, to comply with a specific request by the State, or to comply with
an order of a court of competent jurisdiction.
1.15 INDEMNIFICATION; CONSEQUENTIAL AND INDIRECT DAMAGES
The Vendor shall indemnify and hold harmless the State, its officials,
agents and employees, from and against any and all claims, damages, losses,
settlements, judgments, costs and expenses, including attorney's fees
(collectively Damages), arising out of or resulting from the Vendor's
performance or attempted performance of its obligations under this Agreement;
claims for infringement of patents, trademarks, trade dress, trade secrets,
or copyrights arising from the design of the project; and, any violation of
this Agreement, to the extent that any such Damages are caused in whole or in
part by an intentional or negligent act or omission by the Vendor, any
subcontractor, agent, representative or anyone directly or indirectly
employed by any of them or anyone for whose acts any of them may be liable.
The Vendor shall indemnify and hold harmless the State, its officials,
agents and employees, from and against any and all claims by an employee of the
Vendor, its subcontractors, anyone directly or indirectly employed by any of
them, or anyone for whose acts any of them may be liable. The indemnification
under this subsection shall not be limited in any way by any limitation on the
amount or type of damages, compensation or benefits payable by or for the
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Vendor or a subcontractor under Workers Compensation Acts, disability benefit
acts or other employee benefit acts.
Neither party shall be liable to the other party for lost profits,
indirect, special, punitive or consequential damages arising under this
Agreement or from any breach or partial breach of the provisions of this
Agreement or arising out of any act or omission of any party to this
Agreement, its subcontractor, employees, servants, representatives or agents,
or arising under theories of strict liability or tort.
The obligations of the respective parties under this section shall
survive the expiration or termination of this Agreement, including any
extensions thereto, with respect to any occurrences within the term of this
Agreement.
1.16 TAXES: STATE AND LOCAL; OFFSET BY STATE
The State declares and the Vendor acknowledges that the Vendor and its
subcontractors, may be subject to certain taxes, including but not limited to
sales tax, motor vehicle fuel tax, personal or corporate income tax or other
taxes or assessments, and to licensing fees or other miscellaneous fees or
charges which may be imposed by Federal State or local law or ordinance. The
Vendor and its subcontractors shall be solely responsible for the payment of
such taxes. The Vendor shall promptly pay all such taxes, fees or charges
when due. The State is a tax exempt entity and no payment will be made for
any taxes levied on the Vendor for any purpose. If the Vendor is in arrears
in payment of any state taxes which are due and payable to the State, the
State may offset any taxes in arrears from payments to the Vendor under this
Agreement.
1.17 PROPERTY DAMAGE
The Vendor shall exercise its best efforts to prevent damage to
property of the State in the course of performing its obligations under this
Agreement. The Vendor shall restore damaged property to the extent possible
to its condition prior to the damage at the sole expense of the Vendor. Such
restoration shall be complete when judged satisfactory by the State.
1.18 SAFETY OF PERSONS AND PROPERTY; INSURANCE
The Vendor shall maintain in full force and effect during the term of
this Agreement and during any extensions or renewals thereof, liability and
property damage insurance to protect the Vendor, its subcontractors, if any,
and the State from claims for damage which may arise from operations under
this Agreement, and the amount of such insurance shall not be less than the
following:
(1) Bodily injury liability insurance in an amount to be determined
by the State for injuries, including accidental death, to any person, and
subject to the same limitation for each person, in an amount not less than
One Million Dollars and No Cents ($1,000,000.00) per occurrence.
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(2) Property damage insurance in an amount not less than One Million
Dollars and No Cents ($1,000,000.00) per occurrence.
(3) Workers' Compensation - Statutory.
The Vendor shall arrange with its insurer for notice of cancellation
of the required insurance coverages to be directed to the State in addition
to any notices of cancellation which may be directed to the Vendor. The
Vendor's insurer shall state in the certificate of insurance that no
cancellation of the insurance is effective without Ten (10) Days prior
written notice to the State. All insurance coverage required by this
Agreement shall provide coverage for all claims arising from activities
occurring during the term of the policy regardless of the date the claim is
filed or expiration of the policy.
1.19 RECEIVERSHIP
The Vendor shall immediately, and not later than two business days
after any such filing, notify the State, in writing, if: (a) the Vendor files
a voluntary petition in bankruptcy, a voluntary petition to reorganize its
business, or a voluntary petition to effect a plan or other arrangement with
creditors; (b) the Vendor files an answer admitting the jurisdiction of the
court and the material allegations of an involuntary petition filed pursuant
to the United State bankruptcy code, as amended; (c) an order for relief
under the Bankruptcy Code is entered for the Vendor, or the Vendor makes an
assignment for the benefit of creditors, applies for or consents to the
appointment of a receiver or trustee for all or any part of its property; (d)
the Vendor institutes dissolution or liquidation proceedings with respect to
its business; (e) an order is entered approving an involuntary petition to
reorganize the business of the Vendor or to effect a plan or other
arrangement with creditors or appointing a receiver or trustee for the Vendor
for all or part of its property; or (f) if a writ or warrant of attachment,
execution, distraint, levy, possession, or any similar process which may
materially affect the operation of the Vendor, is issued by any court against
all or any material part of the Vendor's property.
In the event that said petition, writ or warrant is not dismissed or a
stay of foreclosure obtained or said appointment, assignment, or proceedings
are not rescinded or terminated within One Hundred Twenty (120) Days of the
issuance, making, or commencement thereof, and the effect thereof is to
materially impede or frustrate the ability of the Vendor to fulfill its
obligations under this Agreement, then the State may terminate this Agreement
without penalty, unless: (a) within One Hundred Twenty (120) Days after the
election or appointment, any receiver or trustee of the Vendor, or the Vendor
as a debtor-in-possession in connection with any reorganization or similar
proceedings, shall have remedied any uncured failure to comply with any
provision of this Agreement; and, (b) within said One Hundred Twenty (120)
Days, the receiver or trustee, or the Vendor as a debtor-in-possession, shall
have executed an agreement with the State, which shall have been approved by
the court having jurisdiction, whereby the receiver or trustee, or the Vendor
in its capacity as a debtor-in-possession, assumes all obligations and agrees
to be bound fully by each and every provision of this Agreement.
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1.20 OBLIGATIONS BEYOND AGREEMENT TERM
The obligations of the State and the Vendor incurred or existing under
this Agreement as of the date of expiration, termination or cancellation will
survive the expiration, termination or cancellation of this Agreement and
include the following sections: Section 1.9, subsection B; Section 1.14,
subsections A, B, E, H, I, N; Section 1.15; Section 1.22; Section 1.23,
subsections A, B, C, F, G; Section 1.25; Section 1.27; and Section 1.28.
1.21 AUTHORIZATION
Each party to this Agreement represents and warrants to the other that:
1. It has the right, power and authority to enter into and perform
its obligations under this Agreement.
2. It has taken all requisite action (corporate, statutory or
otherwise) to approve execution, delivery and performance of this Agreement,
and this Agreement constitutes a legal, valid and binding obligation upon
itself in accordance with its terms.
1.22 SOVEREIGN IMMUNITY
The State specifically reserves the defense of sovereign immunity as
allowed by state or federal law or regulations for any claim arising out of
or related to the duties and obligations imposed by this Agreement.
1.23 MISCELLANEOUS
A. This Agreement shall be interpreted in accordance with the laws of the
State of Iowa, and any action relating to this Agreement shall only be
commenced in Polk County, Iowa, District Court or in the United States
District Court for the Southern District of Iowa. This provision shall not
be construed as waiving any immunity to suit or liability which may be
available to the State.
B. If any provision of this Agreement is held to be invalid or
unenforceable, the remaining provisions shall be valid and enforceable to the
extent that the essential purpose of this Agreement will not be defeated by
such an interpretation.
C. Failure of either party at any time to require strict performance of
any provision of this Agreement shall not constitute a waiver of that
provision nor in any way limit enforcement of the provision.
D. The parties agree to execute any additional documents necessary to
effectuate this Agreement.
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E. This Agreement supersedes any and all prior Agreements between the
State and the Vendor for the purpose of completing the project contemplated
by this Agreement.
F. The various rights, powers, options, elections and remedies of either
party, provided in this Agreement, shall be construed as cumulative and no
one of them is exclusive of the others or exclusive of any rights, remedies
or priorities allowed either party by law, and shall in no way affect or
impair the right of either party to pursue any other equitable or legal
remedy to which either party may be entitled as long as any default remains
in any way unremedied. unsatisfied, or undischarged.
G. The Vendor irrevocably consents to service of process by certified or
registered mail addressed to the Vendor's designated agent. The Vendor
appoints W. Kent Hiller at Des Moines, Iowa, as its agent to receive service
of process. If for any reason the Vendor's agent for service is unable to act
as such or the address of the agent changes, the Vendor shall immediately
appoint a new agent and provide the State with written notice of the change
in agent or address. Any change in the appointment of the agent or address
will be effective only upon actual receipt by the State. Nothing in this
provision will alter the right of the State to serve process in any other
manner permitted by law.
1.24 REQUIRED PROVISIONS
A. Should the Vendor fail either to include in the quoted price, or to
deliver to the State any of the requirements as specified in the RFP for
Phases I, II, and III or any negotiated agreements between the parties, the
Vendor shall be required to install the same or provide the service at the
Vendor's own expense, prior to the date on which the Agreement is implemented.
B. The Vendor shall be responsible for the performance of any
subcontractors who are retained by the Vendor in the performance of this
Agreement.
1.25 YEAR 2000 COMPLIANCE
The Vendor warrants that each item of hardware, software, firmware or
a custom designed and delivered software Project or a system which is
developed or delivered under this Agreement shall accurately process date
data, including but not limited to calculating, comparing and sequencing,
from, into, between and among the nineteenth, the twentieth and the
twenty-first centuries, including leap year calculations, when used in
accordance with the item(s) documentation provided by the Vendor. If the
items to be developed and delivered under this Agreement are to perform as a
system with other hardware and/or software, then the warranty shall apply to
the items developed and delivered and as the items process, transfer,
sequence data, or otherwise interact with other components or parts of the
system. The duration of this warranty and the remedies available to the
State for a breach of this warranty include, but are not limited to repair or
replacement of non-compliant items or systems. Nothing in this warranty
shall be construed to limit any rights or remedies of the State under this
Agreement with respect to defects in the items other than year 2000
compliance.
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1.26 PERFORMANCE BOND
On the effective date of this Agreement, the Vendor has furnished
surety satisfactory to the State for the faithful performance of the
Agreement, with the additional obligation that the Vendor shall promptly pay
all persons supplying labor or material in the performance of work pursuant
to the Agreement. The Vendor shall maintain the required surety in full
force and effect during the first contract year. If the Vendor is not in
default of a material term of this Agreement at the end of the first contract
year, the State will permit the Vendor to reduce the surety. If, however,
the Vendor is in breach of a material term of this contract at the end of the
first or any subsequent contract year, the Vendor shall maintain the surety
in the amount set for the first year of performance in full force and effect
for the subsequent year.
1.27 LICENSE AGREEMENTS; INTELLECTUAL PROPERTY
The parties agree that all license agreements for Vendor owned or
third party software to be provided by the Vendor to the State shall contain
provisions which shall make clear certain rights of the parties, including
but not limited to ownership of the software, the rights of the respective
parties in the software, the rights and obligations of the parties in the
event of insolvency of the Vendor, payments due to the Vendor for perpetual
use of the software in the event of termination or expiration of the
Agreement prior to certain milestone events, escrow of source code, ownership
of the hardware, operating systems, software, and peripheral equipment (other
than the aforementioned software), indemnification with respect to
infringements, and other related provisions. The following provisions with
respect to intellectual property shall apply to any license agreement under
this Agreement unless otherwise agreed to by the parties.
A. Warranty Regarding Intellectual Property Rights. The Vendor
warrants that, in the performance of this Agreement, the Vendor's work
product and the information, data, designs, processes, inventions,
techniques, devices, and other such intellectual property furnished, used, or
relied upon by the Vendor will not infringe any copyright, patent, trademark,
trade dress or other intellectual property right of third parties.
B. Right to Use License to Intellectual Property. The Vendor grants
the State, subject to the applicable provisions relating to payment as
specified in this Agreement, a perpetual, right-to-use only, license in and
to Network software, whether furnished to the State or developed on behalf of
the State, together with regulated access to the source code and the right to
modify the Network software. The Network components include, but are not
limited to the items identified on Attachment 1 and Attachment 2, attached
hereto and incorporated herein by reference. The parties may modify these
lists from time-to-time.
1.28 FIDELITY BOND
The Vendor shall post a fidelity bond in the amount of one million
dollars ($1,000,000). The bond shall be delivered to the State and shall be
issued by a qualified surety, licensed to do
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business in Iowa, which is acceptable to the State. The cost of this bond
shall be paid by the Vendor. The bond shall provide funds in the event that
the Vendor or State suffers any liability, loss, damage, or expense as a
result of any fraudulent or dishonest act or omission of the Vendor or any
subcontractor or any officer, employee, or agent of the Vendor or any
subcontractor or any parent or subsidiary corporation of the Vendor or any
subcontractor. Subject to annual renewal, this bond shall be in force
throughout the term of this Agreement; shall be renewed for one (1) year
following expiration (including any extensions or renewals) or termination of
this Agreement; and, further shall provide that it cannot be canceled during
the annual term of the bond. The Vendor warrants that it will maintain the
required fidelity bond coverage at all times during the term of this
Agreement without any lapse in coverage. (THIS PROVISION WILL TAKE EFFECT IF
AND WHEN, AND PRIOR TO COLLECTION OF FEES BY THE VENDOR.)
(SIGNATURE PAGES FOLLOW THIS PAGE.)
Page 20 of 27
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SIGNATURE PAGE (VENDOR)
- ----------------------------------
IOWA INTERACTIVE, INC.
BY: /s/ W. Kent Hiller ( W. Kent Hiller )
-------------------------- ------------------------------
(SIGNATURE OF AUTHORIZED REPRESENTATIVE) (PLEASE PRINT NAME OF AUTHORIZED
REPRESENTATIVE)
Page 21 of 27
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SIGNATURE PAGE (STATE)
STATE OF IOWA
/s/ James R. Youngblood
- ------------------------
STATE OF IOWA
BY: James R. Youngblood
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EXHIBIT 10.16
CONTRACT FOR NETWORK MANAGER SERVICES
BETWEEN
THE CONSOLIDATED CITY OF INDIANAPOLIS AND MARION COUNTY
AND
CITY-COUNTY INTERACTIVE, L.L.C. (CCI)
This Contract is between the Consolidated City of Indianapolis and
Marion County ("City/County"), by and through the Enhanced Access Board of
Marion County ("EAB"), and City-County Interactive, L.L.C. ("CCI"), a
wholly-owned subsidiary of Indian@ Interactive ("I@I"), an Indiana
corporation.
WHEREAS, The Enhanced Access Board of Marion County was created under
the REVISED CODE OF THE CONSOLIDATED CITY AND COUNTY, SEC. 285-303, to
oversee enhanced access to city/county information and transactions.
WHEREAS, On September 16, 1997, the EAB and CCI entered into a
Memorandum of Understanding ("MOU") to provide enhanced access to city/county
information and transactions.
WHEREAS, The EAB and City/County desire to extend the provisions of the
MOU and enter into a longer term contract with CCI to serve as Network
Manager to establish, develop, operate, maintain, and expand an Internet
website, hereinafter referred to as the "Network" or "CivicNet," for the
purpose of providing increased electronic access to public and other useful
and relevant information and electronic transactions with City/County.
NOW THEREFORE, the parties agree as follows:
1. PURPOSE OF THE INFORMATION NETWORK.
The purpose of the Network and this Contract may be summarized as
follows:
a. To create and provide a significant and aggressively promoted
public service to the citizens and businesses of the City of Indianapolis and
Marion County by (1) increasing accessibility to public information and other
useful information and services through electronic means, (2) promoting
economic development by increasing ease of access to public information and
other useful information, and by promoting the sharing of that information
through electronic transactions and (3) promoting interaction electronically
between citizens and government for the convenience of the citizenry and the
efficiency of the government.
b. To provide such public service through private capital, marketing
and management.
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2. TERM OF CONTRACT.
The term "Contract" as used in this document shall mean the initial
term, together with any renewal term(s) which may be approved.
This Contract shall be for a term of five (5) years, commencing 12:00 am
January 1, 1998, and expiring at 11:59 p.m., December 31, 2002, unless
earlier terminated according to the terms of this Agreement. At the option
of the City/County, the Contract may be renewed for up to two (2) additional
three (3) year terms. By December 31, 2001, and by December 31 of the next
to last year of each successive term, the City/County will inform CCI of
City/County's decision on whether or not to extend the contract period.
CCI will be responsible during the term of this Contract for
procurement, installation, maintenance and testing, and production operation
of Network hardware and software, which shall either be owned by CCI or
licensed to CCI or I@I by third-party vendors.
I@I's initial contribution of intellectual property to CCI for the
CivicNet service under this Agreement is valued at $1,000,000.00. For
purposes of this Agreement, such amount shall be amortized over the initial
five (5) year term of this Agreement at a rate of twenty per cent (20%) per
year. Upon expiration of the initial five (5) year term of this Agreement,
City/County shall be entitled to a perpetual for-use-only software license
with the right to modify, along with application software documentation and
source code, for no additional compensation to CCI. The latest version of
documentation and source code will be maintained in escrow by CCI, to the
benefit of the City/County, throughout the life of this Agreement.
In the event this Agreement is terminated prior to the completion of the
initial five (5) year term, City/County shall be entitled to a perpetual
for-use-only software license with the right to modify, along with
application software documentation and source code upon payment of the
amortized balance of the value of the initial contributed intellectual
property.
Prior to the termination of this contract, either upon expiration of the
initial term or any applicable renewal term, or upon early termination, as
provided by this Agreement, CCI covenants to City/County to make an orderly
transition of CivicNet and to perform any and all tasks in good faith which
are necessary to preserve the integrity of CivicNet operations. CCI shall
make every reasonable effort to ensure that any such transition shall be
performed in a professional and business like manner, and shall comply with
the reasonable requests of the City/County, the EAB, and successive network
managers, if any, to guarantee a successful, unhindered transfer in
accordance with this Agreement. Additionally, City/County may exercise
provisions concerning continuation of operations during transition period as
set forth in Section 27 of this Agreement.
3. AMENDMENT OF CONTRACT.
No waiver or modification of this Agreement or of any covenant, condition,
or limitation herein contained shall be valid unless in writing and executed by
all the parties hereto. The
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parties further agree that the provisions of this paragraph may not be waived
except as herein set forth.
4. RELATIONSHIP OF PARTIES.
Notwithstanding any other provisions contained herein, it is expressly
agreed that CCI is an independent contractor in the performance of each and
every part of this Contract. As such, CCI is solely liable for all labor and
expenses in furtherance of such performance and for any and all damages which
may be occasioned on account of its performance hereunder.
CCI may become an agent of City/County only by the expressed written
consent of City/County.
CCI understands the role of the City/County's designated agent, EAB in
the policy making process and agrees to be responsive to policy decisions of
the EAB.
CCI will not pledge any assets of the City/County or the city/county EAB
in its care, custody or control, or cause any type of lien to attach to such,
except with the express written permission of the City/County or EAB.
It is expressly agreed that CCI and any subcontractors and agents,
officers, and employees of CCI or any subcontractors in the performance of
this Contract shall act in an independent capacity and not as officers or
employees of City/County. It is further expressly agreed that this Contract
shall not be construed as a partnership or joint venture between the
contractor or any subcontractor and City/County. CCI shall have no authority
to bind City/County for the performance of any contract or otherwise obligate
City/County, except as specifically set forth in this Agreement.
5. HARDWARE AND SOFTWARE AGREEMENTS.
CCI will provide hardware, and provide or develop software as enumerated
in the I@I Proposal, and such other hardware and software as may be necessary
to make the Network interfaces on the Web operational. City/County shall be
responsible for all City/County hardware, software, data and operations.
All Network trademarks, trade names, logos and other Network identifiers
(e.g. CivicNet), Internet uniform resource locators, Internet addresses, and
e-mail addresses obtained or developed pursuant to this Contract shall be the
property of the City/County. CCI is hereby granted a full license to the
same for the duration of this Contract and any extensions thereof.
6. CONNECTIONS WITH CITY/COUNTY AND DPE OFFICES.
Costs associated with and maintenance of communication links from
City/County facilities to CCI facilities for Network purposes, including but
not limited to leased circuits from telephone or cable companies, shall be
paid as expenses by CCI, with the exception of installation charges, which
shall be borne by City/County.
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7. INFORMATION NETWORK SERVICE.
a. On behalf of City/County, CCI shall negotiate with and obtain
written contracts ("interagency agreements") from each separate
data-providing entity (typically a city or county agency), ("DPE") from which
electronic access is desired. The rights and responsibilities of CCI,
City/County, and each respective DPE shall be governed by the terms and
conditions of each interagency agreement. All contracts with DPEs shall be
subject to the approval of and review by the EAB.
b. All third party subscribers to the Network will be required to
execute a contract for services.
c. CCI shall be responsible for billing and collecting all fees due
and payable from subscribers.
8. REGULATION OF RATES.
A Pricing Committee will be appointed by the EAB to review and recommend
Network fees to the EAB. The Pricing Committee will convene as necessary or
as requested by CCI to review Network fees. In order to offer Network
services and enhancements as quickly as possible, the Pricing Committee will
review and fees and make recommendations within 10 days of receipt.
The EAB may on its own motion or upon request by CCI review and regulate
any and all Network fees for services. CCI may at any time recommend changes
in rates and fees to the City/County.
All Network fees charged to Network users shall be subject to the final
approval of the EAB.
9. FINANCIAL MANAGEMENT.
CCI shall operate in accordance with an annual management and budget
plan prepared and amended in consultation with the EAB. The management and
budget plan shall be reviewed by the EAB and shall reflect the priorities for
the Network established by CCI in consultation with the EAB. CCI shall
ensure regular review by the EAB of progress made in relation to the
management and budget plan.
CCI shall establish one or more accounts in Indiana financial
institutions which are federally insured for deposit of revenue from Network
operations and shall furnish the EAB with the names of the institutions, the
account numbers, and the names of those persons having signatory authority.
The disbursement of funds received by CCI as a result of the operation
of this Contract will be as follows:
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a. Any City/County statutory fees which are collected by the Network
will be distributed to the appropriate City/County agency;
b. Payment of all Network operating expenses, including charge-back
expenses from the Marion County Information Services Agency, necessary for
the development, operation, management and expansion of the Network;
c. Transfer of funds, if any, to the EAB in accordance with
Interagency Agreements between the EAB and respective entities; and
d. Fee adjustments, if appropriate, will be made by the EAB, pursuant
to recommendations by CCI. Should the business climate or network
performance materially change for the worse and upon request by CCI, EAB
shall conduct a review to determine whether the fees should increase.
10. FINANCE INFORMATION AND RECORDS.
All CCI documents and records pertaining to operation of the Network
will be available for inspection, auditing, and copying by the City/County,
the EAB, or other authorized representatives designated by the City/County,
at any reasonable time. Monthly income statements and balance sheets for the
Network will be provided to the EAB by CCI.
CCI also agrees to comply with any recommendations made in any audit,
unless CCI and the EAB otherwise mutually agree. Any such audit will be
performed by a competent and reputable CPA licensed in Indiana.
To the extent an audit report discloses any discrepancies in the CCI
charges, billings, or financial records, and following a period for review
and verification of the amount by CCI, CCI will adjust the monthly bill as
soon as reasonably possible, but not to exceed 90 days. CCI shall cooperate
to assure that verification is completed in a timely manner.
The accounting system is to include a numbered chart of accounts, books
of original entry of all transactions, appropriate subsidiary ledgers, a
general ledger which includes to-date postings and an audit trail through
financial statements. Such books may either be maintained on paper or on
computer with appropriate backup. CCI shall from the beginning of this
Contract adopt the calendar year ending December 31, for reporting purposes.
11. PERSONNEL PRACTICES.
The hiring, recruitment, management, training, and firing of CCI
employees will be the responsibility of CCI. The EAB's only involvement in
the personnel affairs of CCI shall be limited to disclosure of the names and
positions of officers and employees of CCI.
All CCI employees with access to City/County data bases shall go through
a criminal background check prior to hiring. City/County reserves the right
to refuse access to City/County data bases to any CCI employees, agent or
subcontractor who has been convicted of a felony.
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No officer, employee, director, or member of CCI shall receive a salary,
except as and for services performed by such officer, employee, or director
or shareholder for CCI on behalf of the Network. This provision shall not
apply to distribution of profits from CCI to I@I.
CCI shall be responsible for all required employer costs attributable to
its officers and employees, including but not limited to, workers'
compensation premiums and deductible, unemployment compensation tax
withholding contributions, tax withholding contributions, and similar items.
CCI agrees that neither it nor any subcontractor approved by City/County
and engaged by CCI to perform any activities which are the subject of this
Agreement will discriminate against any employee or applicant for employment
in the performance of this Agreement with respect to hiring, tenure, terms,
conditions or privileges of employment, or any matter directly or indirectly
related to such employment, because of race, sex, religion, color, national
origin, ancestry, age, handicap, disabled veteran status and Vietnam-era
veteran status. Breach of this provision may be regarded as a material
breach of the Agreement.
12. CHANGES IN INFORMATION NETWORK.
Network operations and development shall be in accordance with the I@I
Proposal, the MOU, and this Contract.
A planned material change in Network operations cannot be made by CCI
without the prior written consent of the City/County. A "material change"
includes, but is not limited to, a change which is substantial and which
increases response time to inquiries, adds to the complexity of Network use,
diminishes services provided to users, or results in a comparable impact on
operations noticeable by users.
CCI will provide to the EAB at least thirty (30) days' prior written
notice of a planned material change in Network operations.
CCI shall timely provide to the EAB such other management reports as the
EAB may reasonably request.
The EAB may establish policies to guide and develop the expansion of the
Network, including at the request of CCI.
13. NOTICES.
The City/County contact person shall be designated by the City/County in
writing no later than upon the execution of this Contract. The CCI contact
person shall be the Director of CCI or the Network General Manager of I@I.
Each party may change its designation for notice following written notice to
the other party to this Contract.
Notices by the parties to one another shall be given in writing to the
persons identified above or to such other persons as may be subsequently
identified in a written notice. Such
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notices shall be effective on the date of receipt if sent by U. S.
first-class or restricted delivery mail, postpaid, or by any reputable
overnight delivery service, prepaid.
14. APPROPRIATE USE MESSAGES.
Where appropriate within the website, the Network Manager shall display
an appropriate use message to all Network subscribers on a screen prior to
accessing the affected information. Each subscriber shall be required to
verify compliance with said message terms. Upon subsequent log-ons, such
message shall be displayed, without verification, only if prior verification
is logged in the user file.
The Network Manager shall provide DPEs the opportunity to include
additional wording if determined necessary by the DPE. The appropriate use
message may be approved by the EAB and updated to comply with any amendments
to the law, or as required by the EAB.
15. ACCESS BY DATA PROVIDING ENTITY.
a. DPEs furnishing information for which Network fees are charged
shall have terminal (read) access to the Network's computerized log of
subscribers using that DPE's data and their security status, without access
cost to the DPEs. The DPEs will be responsible for any cost of terminal(s)
and the cost of a dial-up or lease line, or Internet access, whichever is
used.
b. Each respective DPE shall be able to sign on to the Network to
audit the dissemination of its records. On-line audit capability must be
available for the length of time specified by the data owning agencies after
transaction processing. At a minimum, the Network shall retain the following
data: name or username of subscriber, transaction date and time, type of
inquiry and access keys. After the on-line retention period has expired, CCI
shall, as specified between CCI and the DPEs, retain, destroy, or provide the
record information to the DPEs without cost.
c. CCI shall promptly notify affected DPEs and the EAB of unauthorized
attempts to gain access to data which is restricted by the terms of the
Interagency Agreement with the DPE. The notice shall contain detailed
information to aid the affected DPE in examining the matter.
d. Only information that is legally distributable will be included on
the Network. The DPE will remain the legal custodian of any data placed on
the Network. In accessing data on any DPE's host platform, the Network
Manager will comply with the agency's security requirements or work with the
DPE to improve security procedures, if such action is deemed appropriate.
16. MARKETING.
CCI will provide resources to market the network to customers and
potential customers. CCI staff will aid in the development of new network
services and the enhancement of existing network services in an attempt to
meet customer needs. Training sessions will also be offered to customers
where necessary.
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17. HELP DESK.
CCI will provide technical assistance on the use of the network to
customers. Staff will be available during regular office hours through both
a local and toll-free telephone number. Technical staff may be contacted
outside of regular business hours through a telephone page.
City/County shall designate a contact person in each appropriate DPE,
who will be available to answer questions from CCI regarding the Network
content or the interpretation of a record.
18. INSURANCE AND BONDS.
CCI shall provide the EAB written proof of the following provided by a
qualified firm authorized/admitted to do business in Indiana:
a. Proof of a general comprehensive liability insurance policy in the
amount of at least $1,000,000.
b. CCI shall maintain all workers' compensation insurance coverage as
required by law.
c. CCI shall maintain Employers' Liability Insurance - Coverage B, as
required by law.
d. CCI shall maintain a commercial automobile policy in the amount of
at least $1,000,000, if any company vehicles are used.
e. CCI shall maintain a fidelity bond in the amount of at least
$100,000 per employee.
19. TERMINATION OF CONTRACT.
The EAB shall have the right to terminate this Contract for cause,
subject to cure, by providing written notice of termination to CCI. Such
notice shall specify the date and time, the specific provision of this
Contract or "for cause" reason that gives rise to the termination, and shall
specify reasonable appropriate action that can be taken by CCI to avoid
termination of the Contract. The City/County shall provide a period of up to
sixty (60) days, unless otherwise specified in this Contract, for CCI to cure
breaches and deficiencies of its performance obligations under this Contract.
CCI shall have the right to terminate this Contract for cause, subject
to cure, by providing written notice of termination to the EAB and
City/County. Such notice shall specify the time, the specific provision of
this Contract or "for cause" reason that gives rise to the termination, and
shall specify reasonable appropriate action that can be taken by the
City/County to avoid termination of the Contract. CCI shall provide a period
of up to sixty (60) days, unless otherwise specified in this Contract, for
the City/County to cure breaches and deficiencies of its performance
obligations under this Contract.
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The City/County may terminate this Contract at any time, and without
cause, if directed to do so by statute.
20. TERMINATION FOR CAUSE BY EAB OR CITY/COUNTY.
For purposes of this Contract, the phrase "for cause" shall mean, but
not be limited to:
a. Any material breach or evasion by CCI of the terms or conditions of
this Contract and its amendments, if any.
b. Substantial cessation of Network services.
c. Fraud, misappropriation, embezzlement, malfeasance, significant
misfeasance, or illegal conduct by CCI, its officers, directors, or members.
d. Dissolution of CCI or forfeiture of its existence as a legal
entity, unless the duties and responsibilities hereunder have been assigned
to a related entity.
e. Amendment of the EAB's enabling ordinance or an adverse judicial
decision by a court of competent jurisdiction, either of which has the effect
of rendering Network operations no longer feasible.
f. Material unresolved breach of an agreement with any City/County DPE.
g. Intentional disclosure by CCI, or by its officers, employees or
agents, of any information known by CCI to be confidential information.
h. Insolvency of I@I.
i. The EAB or City/County may cancel this Contract to the extent funds
or regulatory or statutory fees are no longer legally available for
expenditures under this Contract.
j. City/County represents, and CCI acknowledges, that City/County is a
governmental agency and that City/County's obligation to provide compensation
under this Agreement is contingent upon the appropriation for City/County of
funds sufficient for such purposes by relevant governmental agencies or
legislative authorities. If sufficient funds to provide such compensation
are not appropriated for City/County, City/County may terminate this
Agreement, and CCI shall be compensated for all services provided up to the
date of termination. City/County agrees: (1) not to effect termination
under this Paragraph 6 for the purpose of replacing the services with
functionally equivalent services supplied by others; and (2) to use its best
efforts to obtain funds to continue to meet its monetary obligations under
this Agreement by taking all appropriate action to request the appropriation
of such funds by the relevant governmental agencies or authorities.
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21. TERMINATION FOR CAUSE BY CCI.
CCI may cancel this Contract, upon notice to City/County and the EAB, in
the event that (a) legislation materially alters the authority or duties of
the EAB to the extent that operation of the Network, as currently envisioned,
cannot be supported, or (b) the financial base upon which CivicNet relies for
solvent network operations does not materialize or is removed in the future,
or (c) any material breach or evasion by the EAB or City/County of the terms
or conditions of this Contract and its amendments, if any.
22. PATENT, COPYRIGHT, TRADEMARK, TRADE SECRET INDEMNITY.
CCI warrants that its proposed operation of the Network does not and
shall not infringe on the United States patent, copyright, trademark or trade
secret right of any person or entity. The EAB shall be provided with prompt
notice of any such claim of infringement and CCI shall have the exclusive
right to defend or settle such claim at CCI's option. The EAB and
City/County shall cooperate with CCI in its defense or settlement of such
claim at no expense and no liability to either the EAB or City/County. CCI
will be responsible for all expenses necessary to hold the City/County, the
EAB, or its members, harmless from any claims arising from the subject of
this section.
23. LIABILITY.
City/County, its agents, and employees shall not be legally responsible
for Network problems due to resources or decisions lying wholly within CCI's
authority under this agreement.
CCI agrees for itself, its agents, employees, and assigns to hold
harmless, indemnify and defend the EAB and City/County, its agents and
employees from any actions arising out of CCI's gross negligence or material
failure to perform under the terms of this Contract.
CCI agrees to indemnify, defend, and hold harmless the City/County and
EAB members, its officers, agents and employees, from and against any claim
or liability arising from any negligent act or omission of CCI, its
employees, agents or subcontractors, during the performance of this Contract.
24. TEMPORARY FUNDS TRANSFER FROM CITY/COUNTY TO CCI
As set forth in the MOU, CCI shall continue to devote its efforts
entirely for at least the first fifteen months following the signing of this
Contract to the development of additional transactions and services for which
a fee will be justified, in order to work as expeditiously as possible toward
establishing CivicNet as a network that is self-supporting financially.
Thereafter, the EAB may authorize CCI to continue to devote its efforts
entirely to additional transactions and services for which a fee is
justified, or it may authorize CCI to begin also developing free-to-view
content as Network resources may allow, in addition to fee transactions and
services.
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As an inducement to I@I to continue work on the Network despite
CivicNet's current insolvency, EAB or City/County will provide a monetary
transfer to I@I in the amount of $9000.00 per month, on the first of each
month or partial month, commencing with the signing of the MOU through August
1, 1998.
25. ASSIGNMENT AND SUBCONTRACTING.
CCI may not assign any of its rights or delegate any of its duties
hereunder unless done pursuant to prior written consent of the City/County.
CCI may subcontract portions of work to be performed by it under this
Contract with the written consent of the City/County. City/County
acknowledges that CCI has used and may in the future use contract programming
consultants for temporary programming assistance. In the event CCI
subcontracts portions of work to be performed by it under this contract, CCI
shall remain responsible for all work performed by its subcontractors.
26. CLAIMS.
This Contract shall be construed according to the laws of Indiana. Any
legal proceedings against the EAB or City/County regarding the EAB, RFI or
any resultant contract shall be brought in Indiana's administrative,
legislative, or judicial forums.
27. CONTINUATION OF OPERATIONS DURING TRANSITION PERIOD.
If, for any reason, this Contract shall be terminated, or upon
expiration of the Contract without extension, or at the end of any extension,
CCI shall, at the option of the City/County, continue to operate under this
Contract as Network Manager in accordance with all terms and conditions of
this Contract, together with any amendments or modifications in existence at
such time, for a period of up to twelve (12) months from the time of
expiration or notification of termination from the City/County to CCI,
whichever occurs earlier. PROVIDED, HOWEVER, that if Network operations are
incurring a net loss at that time, then CCI shall not be obligated to
continue with such operations unless such loss is reimbursed promptly each
month within thirty days of the previous month's end by City/County. The
length of such transition period shall be mutually agreed in advance of its
commencement.
The intent of this provision is to insure continuation of Network
operations while a successor Network Manager is chosen and installed.
28. ENTIRE AGREEMENT.
This Contract, including any documents incorporated by reference,
constitutes the entire agreement of the parties and supersedes all other
prior written or oral contracts between the parties with respect to the
subject matter hereof. This Contract may be amended only by a writing signed
by the parties thereto.
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29. CONFIDENTIALITY.
CCI, and its agents, employees and subcontractors, shall not disclose
any information obtained from the City/County, or any DPE, as a result of
this Contract except as approved the City/County or the appropriate DPE, and
except as is necessary to fulfill the purpose of this contract.
30. SEVERANCE.
All the provisions, agreements and covenants contained herein are
severable, and if any one of the aforementioned shall be held invalid by any
competent court having jurisdiction herein, to the extent that the purpose of
this Contract is not defeated, this Contract shall be interpreted as if such
invalid provisions, agreements, or covenants were not contained therein.
31. NON-COLLUSION CERTIFICATION.
CCI certifies that there has been no collusion between CCI and any
employee, officer, or agent of the City/County in the award of this Contract
and that CCI, prior to the execution of this Contract, has caused an inquiry
to be made of all interested employees, agents and representatives of CCI.
32. FORCE MAJEURE.
Neither City/County nor CCI will be responsible for any failure or delay
in performance due in whole or in part to any act of God or other cause
beyond their reasonable control. In the event that either party is unable to
perform any of its obligations under this Contract, the party shall
immediately give notice to the other party and shall use reasonable efforts
to resume performance.
33. CHANGES IN CITY/COUNTY DATA BASE.
City/County shall notify CCI of planned, material changes in the
City/County's computers, data bases or internal operations affecting CivicNet
operations at least thirty (30) days prior to the implementation of said
planned changes. City/County shall notify CCI as to unplanned or emergency
changes to the City/County data bases as soon as practicable.
City/County shall notify CCI of interruptions of access due to routine,
scheduled maintenance at least forty-eight (48) hours prior to the
interruption
IN WITNESS to the agreement of the City/County and CCI, to all of the
above terms and conditions, the respective governing bodies of the two
organizations have approved the same and have authorized their chief
executive officers and secretaries to affix their signatures below indicating
such to be effective upon the 31st day of December, 1997.
CITY-COUNTY INTERACTIVE, L.L.C.
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/s/ William F. Bradley, Jr. 8/28/98
- --------------------------- -------
William F. Bradley, Jr. Date
President and CEO, Indian@ Interactive, Inc.,
General Manager of City-County Interactive, L.L.C.
ATTEST:
/s/ Kara Wagner 8/28/98
- --------------- -------
Kara Wagner, Director of CivicNet Date
CONSOLIDATED CITY OF INDIANAPOLIS/MARION COUNTY
/s/ William Dowden 8/31/98
- ------------------ -------
William Dowden, Chairman Date
Enhanced Access Board
/s/ Nadeen Biddinger 8/31/98
- -------------------- -------
Nadeen Biddinger, Secretary Date
Enhanced Access Board
Approved:
/s/ Stephen Goldsmith 9/21/98
- --------------------- -------
Stephen Goldsmith Date
Mayor and Chief County Executive
Approved as to form and Legality:
/s/ Robert A. Borgmann 8/31/98
- ---------------------- -------
Robert A. Borgmann Date
Assistant Corporation Counsel
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ADDENDUM TO CONTRACT FOR NETWORK SERVICES
BETWEEN THE CONSOLIDATED CITY OF INDIANAPOLIS AND MARION COUNTY
AND CITY-COUNTY INTERACTIVE, L.L.C.
This Addendum modifies the CONTRACT FOR NETWORK SERVICES BETWEEN THE
CONSOLIDATED CITY OF INDIANAPOLIS AND MARION COUNTY AND CITY-COUNTY
INTERACTIVE, L.L.C., by making the following changes:
1. TEMPORARY FUNDS TRANSFER FROM CITY/COUNTY TO CCI.
The second paragraph of Section 24 TEMPORARY FUNDS TRANSFER FROM
CITY/COUNTY TO CCI is hereby amended to read as follows:
As an inducement to l@l to continue work on the Network despite
CivicNet's current insolvency, EAB or City/County will provide a
monetary transfer to l@l in the amount of $9000.00 per month, on the
first of each month or partial month, commencing with the signing of
the MOU through February 1, 1999. Prior to February 1, 1999, l@l shall
provide to EAB CivcNet revenue and expense information in order for
EAB to determine whether further subsidy should be considered.
2. In all other aspects, the terms and conditions set forth in the
Professional Services Agreement shall remain the same.
CITY-COUNTY INTERACTIVE, L.L.C.
/s/William F. Bradley, Jr. 8-31-98
- ----------------------------------------- --------
William F. Bradley, Jr. , Date
President and CEO, Indian@ Interactive, Inc.,
General Manager of City-County Interactive, L.L.C.
ATTEST.
/s/Kara Wagner 8-31-98
- ----------------------------------------- --------
Kara Wagner, Director of CivicNet Date
CONSOLIDATED CITY OF INDIANAPOLIS/MARION COUNTY
/s/William A. Dowden 8-31-98
- ----------------------------------------- --------
William Dowden, Date
Chairman Enhanced Access Board
/s/Nadeen Biddinger 8-31-98
- ----------------------------------------- --------
Nadeen Biddinger, Date
Secretary Enhanced Access Board
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Approved:
/s/Stephen Goldsmith 8-31-98
- ----------------------------------------- --------
Stephen Goldsmith, Date
Mayor and Chief County Executive
Approved as to form and Legality:
/s/Robert A. Borgmann 8-31-98
- ----------------------------------------- --------
Robert A. Borgmann Date
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EXHIBIT 10.17
---------------------------
AGY NUMBER
---------------------------
STATE OF MAINE
CONTRACT FOR SPECIAL SERVICES
<TABLE>
<S><C>
- --------------------------------------------------------------------------------------------------------------
VENDOR CODE DOC TOTAL FUND AGY ORG SUB ORG APPR ACT ORG SUBORG JOB NO REPT CATG ID
- --------------------------------------------------------------------------------------------------------------
Commencement Date: April 15, 1999 Dollar Amount: $-0- Termination Date: April 14, 2002
--------------------- ---------- ---------------
</TABLE>
THIS AGREEMENT made this 3rd day of March, 1999 is by and between the State of
Maine, hereinafter called "State," and New England Interactive, Inc.,
hereinafter called "Contractor."
The type of organization of the Contractor is (complete appropriate
statement):
--------
1. An individual doing business as
-------- ----------------------
2. A partnership
-------- ----------------------
X 3. A corporation of the state of Maine
-------- ----------------------
4. Other
-------- ----------------------
The principal office of the Contractor is located at (street, city, state,
zip): _____________________
The Employer Identification Number of the Contractor is: 010522581 (IRS
or Social Security Number) -------------
WITNESSETH, that for and in consideration of the payments and agreements
hereinafter mentioned, to be made and performed by the Department, the
Contractor hereby agrees with the Department to furnish all qualified
personnel, facilities, materials and services and in consultation with the
Department, to perform the services, study or projects described in Rider A.
The following riders are hereby incorporated into this contract by reference.
Rider A --- Specifications of work to be performed
Rider B --- Payment and other provisions
Rider C --- Exceptions to Rider B
IN WITNESS WHEREOF, the Department and the Contractor, by their
representatives duly authorized, have executed this agreement in 4
originals as of the day and year first above written. ------
Number
APPROVED AS TO FORM:
DEPARTMENT:
DATE: Administrative & Financial Services/BIS
- --------------------------- -------------------------------------------
Department Name
BY: BY: /s/ Robert A. Mayer
- --------------------------- -------------------------------------------
Attorney General Authorized Signature
Robert A. Mayer, Chief Information Officer
-------------------------------------------
Typed Name and Title
APPROVED, CONTRACT REVIEW CONTRACTOR
COMMITTEE
DEPARTMENT:
DATE: April 14, 1999 New England Interactive, Inc. (NEI)
- ------------------------------ ------------------------------------------
Contractor Name
BY: /s/ Richard R. Thompson BY: /s/ Tamara D. Dukes
- ------------------------------ ------------------------------------------
Chairperson Authorized Signature
Tamara D. Dukes, President, NEI
------------------------------------------
Typed Name and Title
State of Maine Contract for Special Services Page 1
<PAGE>
MAINE MASTER CONTRACT
RIDER A
SPECIFICATIONS OF WORK TO BE PERFORMED
1. ELEMENTS OF THE CONTRACT
The following documents constitute the State of Maine Contract for Special
Services with New England Interactive, Inc. and are herein incorporated into
the Contract Provisions:
1. State of Maine Contract for Special Services, Page 1;
2. State of Maine Contract for Special Services, Rider C, Exceptions
to Rider B
3. State of Maine Contract for Special Services, Rider 13, Payment
and Other Provisions;
4. State of Maine Contract for Special Services, Rider A,
- Specification of Work to be Performed
- New England Interactive, Inc.'s Service Management Plan
(timeline and deliverables)
5. State of Maine Department of Administrative and Financial
Services' Request for Proposals for InforME Network Manager
Services (incorporated by reference)
6. New England Interactive, Inc.'s Proposal in response to the RFP
identified in 5, above. (incorporated by reference)
ATTACHMENTS
InforME Public Information Access Act, Public Laws of Maine 1997,
Chapter 713
Computer Application Program Accessibility Standard
Year 2000 Certification of Warranty
Escrow Agreement
2. CONTRACT INTERPRETATION - CONTROLLING TERMS
It is mutually understood and agreed that in the event of any conflict among
the provisions for the documents, attachments, and/or exhibits that
constitute the State of Maine Contract for Special Services with New England
Interactive, Inc. listed in Article I above, the conflict shall be resolved
by giving precedence to the documents in the order listed, with Item 1, State
of Maine Contract for Special Services, Page 1, having the highest precedence
and Item 6, New England Interactive, Inc.'s Proposal being subordinate to all
other listed documents.
3. PROJECT TASKS AND DELIVERABLES
OVERVIEW
New England Interactive, Inc. (NEI) will provide network manager services to
the State of Maine in exchange for the opportunity to earn a reasonable
profit from the Network's premium services.
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NEI will develop and operate the InforME Network which will serve in a manner
which is self-supporting and cost-effective to provide electronic
transactions and expanded access to public information in electronic form by
state agencies (data custodians) for individuals, businesses and other
entities by and in part, customized access. Much of the information access
will be provided free to Network users. Premium services (services for which
a fee will be charged) will be developed and made available to Network users.
Free services will be funded from the proceeds of the premium services.
State agencies working with NEI and the InforME Board will determine the
nature and price to users of the information that will be offered through
this gateway.
NEI will have Network policies established and fees regulated by the InforME
Board (see "InforME Board" below), and will invest in technology necessary to
capture public data and make the information available to the public via the
Internet.
The InforME Network will be self-supporting with NEI receiving its
compensation from the net proceeds of premium services. The InforME Board
has agreed that NEI will act as an agent for the InforME Network allowing NEI
to legitimately collect the service fee, pay State agencies fees determined
through SLAs, and disburse funds as detailed in the business plan of the
proposal.
SERVICES RATIO
Within 1 year from the date of the Contract, NEI will provide at least 1 free
service on the InforME Network for each premium service available on the
network. Services may include a Search Engine, etc. Once the InforME
Network is mature, it is estimated that over ninety percent of the InforME
Network information will be provided to the public free of charge.
INFORME BOARD
The duties of the InforME Board are as set forth in the InforME Public
Information Access Act, Public Laws of Maine 1997, Chapter 713, attached.
The terms "InforME Board" and "Board" are used interchangeably throughout
this Contract; both are defined as the "InforME Board."
The InforME Board will set Network policies, regulate fees, and approve the
workplan for activities, schedule and deliverables. Each completed
deliverable must be submitted for approval to the InforME Board.
For the purpose of this Contract, the Contract Administrator is a designee of
the InforME Board.
CONTRACTOR PERSONNEL
The Contractor must commit dedicated, highly skilled personnel to perform the
contracted services. The hiring, recruitment, management, training, and firing
of NEI employees will be the responsibility of NEI. No officer, employee, or
director, of NEI shall receive a salary, except as and for services performed by
such officer, employee, or director, or member for NEI on behalf of InforME.
NEI will be responsible for all required employer costs attributable to its
officers
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and employees, including but not limited to, workers' compensation premiums
and deductible, unemployment compensation tax withholding contributions, tax
withholding contributions, and similar items.
During the course of this Contract, the State reserves the right to require
NEI to reassign or otherwise remove from the project any Contractor or
Subcontractor employees found unacceptable by the State to perform the
services for this Contract. The State will act reasonably and in good faith
in exercising this right. Prior to exercising this right the State will
advise NEI's Manager and establish a 30 day period for cure.
ADMINISTRATIVE
INSURANCE AND BONDS
NEI will provide the following certificates to the Contract Administrator
within ten (10) days of contract signing:
- General comprehensive liability insurance policy in the amount of at
least $1,000,000.00
- Workers' compensation insurance coverage as required by law.
- Liability coverage for damages suffered as a result of inadvertent
release of confidential information, in the form of an errors and
omissions policy.
- Fidelity bond in the amount of at least $ 100,000.00 per employee.
In the event of cancellation of any insurance coverage, NEI will immediately
notify the InforME Board of such cancellation. NEI will be required to
obtain suitable replacement coverage within 14 days of the cancellation. The
Board, at its option, may impose a stop work order on NEI until such
replacement coverage is secured and approved by the Board. If a stop work
order is imposed, the Board shall not be liable for any costs or lost profits
incurred by NEI.
IRREVOCABLE LETTER OF CREDIT
An Irrevocable Standby Letter of Credit (L/C) acceptable to the InforME Board
will be required by the Board to assure NEI's faithful performance to the
specifications and conditions of the contract. NEI will furnish the L/C to
the InforME Board no later than 30 days after Contract award. The L/C will
specifically refer to this Contract and shall bind the parties to all of the
terms and conditions of this Contract, whether or not the particular term or
condition is performed by NEI. The initial amount of the L/C shall be
$100,000.00.
After NEI has successfully completed the first six months of the Service
Management Plan, the L/C shall be reduced to 50% of its original value. When
the Service Management Plan is completed, the L/C shall be reduced to an
amount equal to 3 months operating expenses. This L/C shall remain in effect
throughout the term of the Contract.
The L/C will be procured at the expense of NEI, naming the State of Maine,
InforME Board as the beneficiary.
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PROJECT SCOPE
The InforME Network developed and operated by NEI will meet or exceed the
following requirements. The requirements include, but are not limited to the
following:
ADMINISTRATIVE
- NEI will direct, supervise, and manage the day-to-day operations and
expansion of InforME, including the initial phase of operations
necessary to make InforME operational. NEI will also:
- Attend meetings of the Board.
- Deposit and disburse funds as agreed between NEI, the InforME Board
and any Service Level Agreements.
- Keep a record of all operations of InforME and maintain and be a
custodian of all financial and operation records, documents and papers
filed with InforME. The records of InforME are the property of the
Board, not NEI. NEI is entitled to make and keep copies of all
records.
- Seek advice from other states, the general public, subscribers,
professional associations, academic groups and institutions and
individuals with knowledge of and interest in areas of networking,
electronic mail, public information access, gateway services, add-on
services and electronic filing of information as appropriate.
- Take reasonable precautions that confidential information is not
disclosed without the express written authorization of the data
custodian.
- NEI will employ staff sufficient to: a) manage the Network, b)
provide and document necessary systems and programming services
necessary to supply data and process electronic transactions for
subscribers, c) bill, collect and issue payments and exercise all
other fiscal activities necessary to operate a financially sound
Network, and d) prepare marketing, training and other documents to the
extent permitted by the Network finances.
- Payments by NEI to itself shall be made in accordance with procedures
approved by the InforME Board.
- Reimbursements for InforME Board expenses shall be made monthly.
Distribution of revenues collected on behalf of data custodians shall
be made in accordance with procedures approved by the InforME Board
and affected agency.
- NEI will request approval from the Board if/when seeking grants or
supplemental funding acting as an agent for the State of Maine.
TECHNICAL
NEI will:
- License software and other intellectual property developed by NEI for
use only by the InforME Board as detailed under section "Software
Licensing" in this Rider.
- Transmit or provide access to public information via the Internet in
compliance with accessibility standards and policies adopted by the
Information Services Policy Board (attachment labeled "State of Maine
Computer Application Program Accessibility Standard).
- Provide reasonable safeguards to protect information confidentiality
to the level required by law.
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- Provide notices and disclaimers that include at least the following:
- How to address concerns if the public information appears to be
inaccurate; and
- That neither the InforME Board nor NEI assumes any role for
monitoring the information content to determine if it is
accurate, complete or current.
- If NEI provides public information that is stored, gathered or
generated by the Legislative branch, NEI shall include the following
disclaimer:
"This data was compiled from information made public by the
legislative branch."
The disclaimer may not be required if the information is prepared
pursuant to a contract between NEI and the Legislative Council.
- Provide technical support to assist subscribers in the use of Network
services.
- Procure, develop or adapt Network software which will provide a user
interface that is consistent across services, easy to use and is
accessible via popular browsers such as Explorer and Netscape.
- Provide hardware/software etc. adequate for establishing the InforME
Network.
- Consult with hardware and software vendors to identify and correct
problems.
- Schedule preventative maintenance to minimally impact Network users.
- Provide a back-up system that will supply reasonable levels of
redundancy for critical system in the event the InforME NEI provided
network hardware or software can not be restored to an operational
mode within a reasonable period of time.
- NEI will alert the InforME Board of any material system failures.
- Take reasonable and prudent measures to ensure that the data is
protected from unauthorized alteration while in the InforME Network's
possession.
HARDWARE AND SOFTWARE
NEI will provide hardware, and provide or develop software as specified in
NEI's Proposal and such other software as may be necessary to design, develop
and operate the InforME information Network.
SOFTWARE LICENSING
NEI will provide a for-use-only license to the State of Maine to execute the
software and other intellectual property developed or provided for the
operation of the InforME network through the term of the contract. The
for-use-only license will apply to the following:
- a complete copy of the latest version of Network software and other
intellectual property, (except third party software) and,
- documentation as used for the InforME Network.
ESCROW
Source code and documentation for non-third party programming and software
utilized in operating the Network (whether originally developed by NEI, or
one of its Sister Network Companies) shall be escrowed with an escrow
agent, and conditions (such as business
5
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failures or disaster recovery) shall be specified in the escrow
agreement (attached) for its release. Updates to such source code and
documentation shall be escrowed quarterly during the life of the
Contract.
On April 14, 2002 the Board shall be entitled to a perpetual for-use-only
license with the right to modify, along with application software
documentation and source code, for no additional compensation to NEI. Prior
to April 14, 2002 the Board reserves the right to negotiate terms for
licensure of software, which may include perpetual for-use-only license with
a right to modify software application documentation and source code.
NEI will extend the perpetual, for-use-only license to cover all software
used by or developed by NEI for InforME during any contract extension, on the
same terms as the license.
Note: The license is perpetual and survives the Contract.
HARDWARE, SOFTWARE, AND FIXTURES
Listed are recommended initial hardware, software, and fixtures NEI believes
are necessary to run a successful Network of a size estimated in the
proposal. NEI may add or delete equipment and software in order to take
advantage of new technology which can increase the effectiveness and
performance of the Network, or as needed if the economics of the Network are
not as assumed in the proposal. NEI will request approval from the Board for
any significant technology platform changes it wishes to make and will submit
notifications to the Board of normal additions and deletions of approved
platform hardware and software only if changes alter or affect the provision
of services.
PRIMARY COMMUNICATIONS/WEB SERVER:
1 Sun Enterprise 2 Model 2300
- Dual 300 MHz processors, 512MB of RAM
1 Cleo 3780 Plus
1 Courier 56K Modem
DATABASE SERVER:
1 Sun Enterprise 2 Model 2300
- Dual 300 MHz processors, 512MB of RAM
1 Informix Dynamic Server
1 ProIndex Textual Database Search/Index Engine
DEVELOPMENT SERVER:
1 Sun Enterprise 2 Model 2300
- Dual 300 MHz processors, 512MB of RAM
1 Informix Dynamic Server
1 ProIndex Textual Database Search/Index Engine
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DATA STORAGE SYSTEM:
1 14GB 8mm Tape Drive
1 5GB 4mm Tape Drive
1 200 GB DLT Tape Drive System
1 Overland 6250bpi 9-Track Tape Drive
1 Artecon Lynx Array
6 18GB UW SCSI Drives with Artecon Sled/Holster
1 Artecon RAID Controller
1 HP SureStore Internal CD-ReWriter 7200i
FIREWALL SERVER:
2 Dell Dimensions V, 333NIHz Celeron Processor
- 64MB RAM, 4GB Drive, 15" Monitor
2 4-Port Fast Ethernet Card 2 Firewall -1 Software
DEVELOPMENT WORKSTATIONS
3 Sun Ultra model 200,21 " Monitors
128MB RAM, 2GB HD
SUPPORT STAFF WORKSTATIONS:
2 Dell Optiplex GXIP 450 MHz Pentium II
- 256 MB RAM, 10 GB Drive, 21" Monitor
PORTABLE WORKSTATIONS:
3 DELL Inspiron 7000 300 MHz Pentium II,
128MB RAM, 8.0 GB Drive
MODEMS, TERMINAL SERVER AND NETWORKING:
I Livingston Portmaster PM2E-20
1 US Robotics MP/ 16 I-Modem
2 3Com SuperStack II Switch
1 3640 Cisco Router
UPS:
2 American Power Smart UPS 3000
w/ PowerChute Plus
PRINTERS/SCANNERS:
1 HP Lasedet 4000 TN
1 HP ScanJet 6200 Cse
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1 Canon CLBP 360 PS Color Printer
TELEPHONE EQUIPMENT:
1 Lucent Technologies Partner ACS System
12 Phones & 1 Console
OTHER RELATED EQUIPMENT:
2 60" Artecon Racks w/ Power Supply an Fans
1 Ricoh Aficio 401 Copier
MAINTENANCE
NEI will provide all network and system maintenance and upgrades for the
InforME Network throughout the life of the Contract. Unless absolutely
necessary all maintenance that might impact services will be scheduled during
non-peak hours.
BACK-UP, DISASTER RECOVERY, AND SECURITY
The InforME Network will provide 24 hours per day, 7 days per week online
service. NEI will provide at least 2 levels of redundancy for all mission
critical systems (processing servers), and 3 levels of redundancy for the
gateway computer systems (communications between the Internet and data
provider agencies). Backup power is provided for 4 hours and all systems are
monitored continuously.
NEI will follow the Service Management narrative in the Proposal for
specifics regarding the length of downtime to be tolerated prior to the
switch to the back-up system and the detailed service level response time
strategy which outlines NEI's service restoration procedures.
BACKUP
Backups will be performed as described in NEI's proposal.
DISASTER RECOVERY
Disaster Recovery will be implemented as detailed in NEI's proposal.
In the event of the complete destruction of the InforME office, many
applications could be brought back online within 24 hours at another location
or from another NIC Affiliate location if necessary. Complete restoration
could be implemented within two weeks if the telecommunications vendor can
meet that schedule.
SECURITY
Security will be implemented as detailed in NEI's proposal.
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TECHNICAL SUPPORT
NEI will provide a customer service focused Help Desk function. The mission
of the Help Desk will be to answer questions, address concerns and
frustrations of users to ensure that future interactions with InforME will be
more successful. A Help Desk ICON will be part of NEI's standard footer and
navigation bar on the website, to assist with general questions and
difficulties. The InforME Help Desk telephone number will be prominently
displayed online and in the contact section of the web site.
SERVICE MANAGEMENT PLAN
NEI has provided a proposed Service Management Plan (attached and labeled
NEI's Service Management Plan Timeline and Deliverables in this Rider A) for
implementation and transition activities including: a detailed work plan and
schedule of activities and deliverables that establish the baseline schedule
for completing the project.
UPDATED SERVICE MANAGEMENT PLAN
NEI will deliver an updated Service Management Plan (schedule and
deliverables) within 30 days of Contract signing indicating changes (if any)
to the original Service Management Plan submitted in the Proposal. The
updated Service Management Plan will be submitted to the InforME Board for
review and approval. Any changes to the approved updated plan and/or
deliverables must be approved by the InforME Board or designee.
Note: It may be necessary to update the Service Management Plan (schedule
and deliverables) due to delays beyond the control of NEI such as third party
providers and/or reaching agreements with State agencies which could include
changes in the services to be provided and/or the order in which the
deliverables are performed.
PERFORMANCE
NEI's performance will be measured against the updated original and
subsequent modifications of the Service Management Plan schedule and
deliverables.
Project status will be reported to the InforME Board each month. NEI will
closely monitor the schedule and report any anticipated delays to the InforME
Board at least 2 weeks prior to the scheduled completion of applications
expecting to be delayed and all other task delays as soon as they are
suspected regardless of the status of the monthly report.
SERVICE LEVEL AGREEMENTS (SLA)
NEI will create Service Level Agreements (SLA) with each Executive agency who
provides information to NEI for the InforME Network. Agencies of the
Judicial and Legislative branches may sign Service Level Agreements with NEI
without approval of the Board. These agreements will be signed by the
agencies' authorized representative(s) and will be approved by the InforME
Board. Only information that is legally and ethically distributable, as
determined by the state
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agency, which is the legal custodian of the respective data, will be included
on the Network. The SLA will detail what information will be accessed, how
it will be accessed and provided to the public, any service fees, and what,
if any special requirements must be satisfied by the individual customers to
qualify for access to the information. The agency and NEI will agree on a
schedule for collection and payment of any statutory fee required. Once an
agreement has been reached, the public information application will be
developed according to the agency's SLA.
Since NEI's software developer creating the application may see some
confidential information while working with the agency representative in
determining which data fields are required, NEI's employees must satisfy any
privacy and confidentiality requirements that the agency may require prior to
beginning work.
PRIVACY AND CONFIDENTIALITY
Only information that is legally and ethically distributable, as determined
by the data custodian, state, and federal law will be included on the
Network. All public information applications that NEI provides will require
that a Service Level Agreement be executed with the data custodial agency.
The InforME Board must approve such agreements.
For applications where data is delivered to NEI by an agency, all nonpublic
data will be removed or masked either by the agency or NEI prior to the data
being made available on the Network. Additionally, NEI will employ firewall
technology that is designed to prevent any InforME user from accessing any
system or account that they have no legitimate right to access.
PREMIUM SERVICES
NEI will propose premium services to subscribers for approval by the InforME
Board, and the timetable to deploy them via the Network. For the purposes of
this contract, premium services are any services for which there is a fee
attached. Premium services provided to subscribers must be sufficient to
maintain, develop, operate and expand InforME on a continuing basis.
Some premium services will be subscription only services. Other premium
services will be one-time activities, such as renewing a professional license
online. These customers will be using their credit card (as determined in
the related SLA) to perform this single activity and therefore will not need
to become a subscriber.
SUBSCRIPTIONS
Subscribers will be required to enter into an agreement for services. The
form of all agreements with subscribers and all SLA's with agencies will be
subject to approval and continued monitoring of the Board.
Customers will apply for subscriptions and receive from NEI a user name and
password in order to access the services they desire. Once a subscriber has
been authorized and is given an account, they will choose a billing method
for payment.
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FEES
All fees and charges for services shall be negotiated and determined by a
Service Level Agreement between the data custodian (state agency) and NEI,
which amount shall be subject to approval by the InforME Board. NEI, the
State of Maine through its agencies, and the InforME Board will work in
conjunction in determining all fees and charges for services to provide
adequate revenue for the Network.
Note: The Board may choose to establish fee schedules that include
no charge for designated services for one or more specified classes of
users.
BILLING
All billing related to the InforME Network is the responsibility of NEI.
Billing processes are detailed in NEI's proposal.
CHANGES IN INFORMATION NETWORK
Network development and operations will be in accordance with this Contract.
NEI will provide to the Board at least thirty (30) days prior written notice
of a Planned Material Change in Network Operations.
A Planned Material Change in Network operations cannot be made by NEI without
the prior written consent of the Board. A "material change" includes, but is
not limited to, a change which is substantial and which increases response
time to inquiries, adds to the complexity of Network use, diminishes services
provided to users, or results in a comparable impact on operations noticeable
by users.
REPORTING REQUIREMENTS
NEI will report activities to the InforME Board as follows:
- Draft the annual report to the Legislature for InforME Board review
and submission by January first of each year. The report will include
a complete list of services offered through the InforME network, the
fees associated with premium services, analysis of the feasibility of
offering premium services at no charge to depository or other
libraries, and the criteria used to determine which services are
offered as premium services.
- Within 120 days after the close of InforME's fiscal year, NEI will
annually submit to the Commissioner of Administrative and Financial
Services InforME's annual financial report and audit. These reports
must be certified by an independent certified public accountant
(selected by NEI) who may be the accountant or a member of the firm of
accountants who regularly audit the books and accounts of NEI. The
submitted audit information must include, but is not limited to, the
audited financial statements, auditor opinions, reports on internal
control, findings and recommendations and management
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letters. In addition, InforME is subject to any further audit and
review determined necessary by the Governor or the Legislative
Council after furnishing reasonable notice to NEI.
- Develop and regularly update, in cooperation with the data custodians,
a draft InforME strategic plan for presentation to the Board. The
draft must include proposed measurable performance criteria regarding
growth in customer services.
- Report to the Board on a periodic basis concerning potential new data
and services and related issues. NEI will strive to improve access to,
and the utility of the public information and transactions available
through InforME by exploring and recommending ways to:
A. Expand the amount and kind of public information available
free of charge;
B. Increase the utility of the public information provided and
the form in which it is provided;
C. Expand the base of users who access the public information;
and
D. Improve individual and business access to public information
through implementing improvements in technology;
E. Make recommendations for Board actions to increase the
effectiveness of InforME.
- Detailed online and printed network management, usage, hits, access,
transactions and response time reports shall be submitted to the Board
as requested.
- NEI will measure Customer Satisfaction and report results to the
InforME Board on an annual basis, and,
- NEI will measure and report to the Board on growth trends and usage of
the Network.
NETWORK MANAGER REMUNERATION
Within the framework of the fee setting procedure addressed in NEI's proposal
the disbursement of funds received by NEI as a result of operations under this
Contract will be as follows unless otherwise mutually agreed to between NEI and
the Board in writing:
- payment of all Network operating expenses and costs of sale,
- transfer of funds to data custodians or the state treasurer for
payment of statutory fees in accordance with Service Level Agreements
between NEI and respective data custodians,
- payment of reasonable and necessary expenses of the Board as agreed by
the Board and NEI and stated in the Board's budget plan,
- all remaining funds will be retained by NEI.
FINANCES AND RECORDS
NEI will collect and disburse all revenue from Network operations. NEI will
establish one or more accounts in financial institutions which are federally
insured for deposit of revenue from
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Network operations and shall furnish the Board with the names of the
institutions, the account numbers, and the names of those persons having
signatory authority.
All documents and records pertaining to operation of the Network will be
available for inspection, auditing, and copying by the Board, or other
authorized representatives designated by the Board, at any reasonable time.
NEI corporate records remain property of the corporation and are not subject
to public or the Board's inspection. Monthly income statements and balance
sheets for the Network will be provided to the Board by NEI.
NEI also agrees to make other changes requested by the Board to comply with
recommendations which are agreed to by NEI and the Board, resulting from any
audit. Any such audit will be performed by a competent and reputable
licensed CPA.
To the extent an audit report discloses any discrepancies in NEI charges,
billings, or financial records, and following a period of review and
verification of the amount by NEI, NEI will adjust the monthly bill within 90
days. NEI will cooperate to assure that verification is completed in a
timely manner.
The Network accounting system is to include a numbered chart of accounts,
books of original entry of all transactions, appropriate subsidiary ledgers,
a general ledger which includes to date postings and an audit trail through
financial statements. Such books may either be maintained on paper or on
computer with appropriate backup. NEI will adopt the calendar year January 1
through December 31 for reporting purposes.
TERM OF CONTRACT
This Contract shall be for a term of three (3) years, commencing April 15,
1999 and expiring at 11:59 p.m., April 14, 2002 unless earlier terminated by
the Board for cause.
This Contract may be renewed, or amended and renewed as follows:
- By June 30, 2001 the Board will inform NEI of the decision on whether
or not to extend the contract period through April 14, 2004.
- By June 30, 2003 the Board will inform NEI of the decision on whether
or not to extend the contract period through April 14, 2006.
CONTINUATION OF OPERATIONS DURING TRANSITION PERIOD
If for any reason this Contract is terminated or upon expiration of the
Contract without extension, or at the end of any extension, NEI will, at the
option of the Board, continue to operate under this Contract as Network
Manager in accordance with all terms and conditions of this Contract,
together with any amendments or modifications in existence at such time, for
a period of up to twelve (12) months from the time of expiration or
notification of termination from the Board to NEI. The intent of this
provision is to insure continuation of information Network operations while a
successor Network Manager is chosen and a Network installed. The Board will
notify
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<PAGE>
NEI at the earliest possible opportunity that it will continue operations,
but in no event, later than the date of notification of termination, or the
notification dates set forth under "Term of Contract" above.
All fees earned by NEI during the course of the Contract and the Transition
Period will be disbursed as described in the proposal to NEI after all
related expenses have been paid.
NOTICES
After contract award, all notices under this contract shall be deemed duly
given: 1) upon delivery, if delivered by hand against receipt, or 2) three
days after posting if sent by registered or certified mail, return receipt
requested and shall be addressed as follows:
State of Maine:
Robert A. Mayer, CIO
State of Maine
Bureau of Information Services
26 Edison Drive
Augusta, Maine 04333
NEI:
Tamara D. Dukes, President
New England Interactive, Inc.
P.O. Box 947
Augusta, Maine 04332-0947
Either party may change its address for notification purposes by giving
written notice of the change and setting forth the new address and an
effective date.
DISPUTE RESOLUTION
In the event of any dispute arising during the term of the Contract
concerning performance of the Contract, either party shall serve notice of
such dispute on the other party. If the dispute is not informally resolved
by the Network Manager and the Contract Administrator, the dispute shall be
decided by the InforME Board who shall reduce its decision to writing and
serve a copy on the Contractor. The InforME Board's decision in the event of
any written notice of dispute shall be subject to the Contractor's right to
relief under applicable law.
ADA
NEI certifies that the IT products and software used and/or developed for the
InforME Network users comply with the "State of Maine's Computer Application
Program Accessibility Standard" attached, and signed for compliance by NEI's
President.
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<PAGE>
COST
NEI WILL BE RESPONSIBLE FOR ALL COSTS ASSOCIATED WITH THE CREATION,
DEVELOPMENT, AND OPERATION OF THE INFORME NETWORK INCLUDING ALL COSTS RELATED
TO CONNECTIVITY BETWEEN NEI AND STATE AGENCIES AND INFORME BOARD EXPENSES AS
DETAILED BELOW.
NEI has submitted a Financial/Business Plan as part of its proposal to
administer the financial requirements related to the InforME Network and
Board. The InforME Network will be self-supporting with NEI receiving its
compensation from the net proceeds of premium services. The InforME Board
has agreed that NEI will act as an agent for the InforME Network allowing NEI
to legitimately collect the service fee, pay State agencies fees determined
through SLAs, and disburse funds as detailed in the business plan of the
proposal.
INFORME BOARD EXPENSES
The InforME Board will meet at least quarterly.
NEI will pay the agreed upon reasonable InforME Board expenses from Network
revenue including the following:
- travel for non-state employee members at the current federal rate,
- lodging for non-state employee members in the performance of their
duties,
- miscellaneous expenses for non-state employee members in the
performance of their duties,
- meeting refreshments,
- meeting room rent,
- mailing, and,
- other expenses (such as video conferencing) related to meeting
expenses to be mutually agreed to by the InforME Board and NEI.
NEI may elect to pay for other expenses of InforME Board member(s) in the
performance of their duties (e.g. a conference on electronic commerce), if
NEI so chooses.
15
<PAGE>
RIDER A (CONTINUED
NEW ENGLAND INTERACTIVE, INC.'S
SERVICE MANAGEMENT PLAN
(TIMELINE AND DELIVERABLES)
16
<PAGE>
RIDER B
METHOD OF PAYMENT AND OTHER PROVISIONS
1. CONTRACT AMOUNT: $- 0 -
2. INVOICES AND PAYMENTS: The department will pay the provider as follows:
Payments are subject to the Contractor's compliance with all items set forth
in this Contract and -subject to the availability of funds. The Department
will process approved payments within 30 days.
3. BENEFITS AND DEDUCTIONS: If the Contractor is an individual, the
Contractor understands and agrees that he/she is an independent contractor
for whom no Federal or State Income Tax will be deducted by the Department,
and for whom no retirement benefits, survivor benefit insurance, group life
insurance, vacation and sick leave, and similar benefits available to State
employees will accrue. The Contractor further understands that annual
information returns, as required by the Internal Revenue Code or State of
Maine Income Tax Law, will be filed by the State Controller with the Internal
Revenue Service and the State of Maine Bureau of Revenue Services, copies of
which will be furnished to the Contractor for his/her Income Tax records.
4. INDEPENDENT CAPACITY: In the performance of this Contract, the parties
hereto agree that the Contractor, and any agents and employees of the
Contractor shall act in the capacity of an independent contractor and not as
officers or employees or agents of the State.
5. DEPARTMENT'S REPRESENTATIVE: The Contract Administrator shall be the
Department's representative during the period of this Contract. He/she has
authority to curtail services if necessary to ensure proper execution.
He/she shall certify to the Department when payments under the Contract are
due and the amounts to be paid. He/she shall make decisions on all claims of
the Contractor, subject to the approval of the Commissioner of the Department.
6. CONTRACT ADMINISTRATOR: All progress reports, correspondence and
related submissions from the Contractor shall be submitted to:
Robert A. Mayer, CIO
State of Maine
Bureau of Information Services
26 Edison Drive
Augusta, ME - 04330
who is designated as the Contract Administrator on behalf of the Department
for this Contract, except where specified otherwise in this Contract.
17
<PAGE>
7. CHANGES IN THE WORK: The Department may order changes in the work, the
Contract amount being adjusted accordingly. Any monetary adjustment or any
substantive change in the work shall be in the form of an amendment, signed
by both parties and approved by the State Purchases Review Committee. Said
amendment must be effective prior to execution of the work.
8. SUB-CONTRACTS: Unless provided for in this Contract, no Contract shall
be made by the Contractor with any other party for furnishing any of the
services herein contracted for without the consent and approval of the
Contract Administrator. Any sub-contract hereunder entered into subsequent
to the execution of this Contract must be annotated "approved" by the
Contract Administrator before it is reimbursable hereunder. This provision
will not be taken as requiring the approval of contracts of employment
between the Contractor and its employees assigned for services thereunder.
9. SUBLETTING, ASSIGNMENT OR TRANSFER: The Contractor shall not sublet,
sell, transfer, assign or otherwise dispose of this Contract or any portion
thereof, or of its right, title or interest therein, without written request
to and written consent of the Contract Administrator. No subcontracts or
transfer of agreement shall in any case release the Contractor of its
liability under this Contract.
10. EQUAL EMPLOYMENT OPPORTUNITY: During the performance of this Contract,
the Contractor agrees as follows:
a. The Contractor shall not discriminate against any employee or
applicant for employment relating to this Contract because of race,
color, religious creed, sex, national origin, ancestry, age, physical
or mental disability, unless related to a bona fide occupational
qualification. The Contractor shall take affirmative action to ensure
that applicants are employed and employees are treated during
employment, without regard to their race, color, religion, sex, age,
national origin, or physical or mental disability.
Such action shall include but not be limited to the following:
employment, upgrading, demotions, or transfers; recruitment or
recruitment advertising; layoffs or terminations; rates of pay or
other forms of compensation; and selection for training including
apprenticeship. The Contractor agrees to post in conspicuous places
available to employees and applicants for employment notices setting
forth the provisions of this nondiscrimination clause.
b. The Contractor shall, in all solicitations or advertising for
employees placed by or on behalf of the Contractor relating to this
Contract, state that all qualified applicants shall receive
consideration for employment without regard to race, color, religious
creed, sex, national origin, ancestry, age, physical or mental
disability.
c. The Contractor shall send to each labor union or representative of the
workers with which it has a collective bargaining agreement, or other
agreement or understanding, whereby it
18
<PAGE>
is furnished with labor for the performance of this Contract a
notice to be provided by the contracting agency, advising the said
labor union or workers' representative of the Contractor's
commitment under this section and shall post copies of the notice
in conspicuous places available to employees and applicants for
employment.
d. The Contractor shall inform the contracting Department's Equal
Employment Opportunity Coordinator of any discrimination complaints
brought to an external regulatory body (Maine Human Rights Commission,
EEOC, Office of Civil Rights) against their agency by any individual
as well as any lawsuit regarding alleged discriminatory practice.
e. The Contractor shall comply with all aspects of the Americans with
Disabilities Act (ADA) in employment and in the provision of service
to include accessibility and reasonable accommodations for employees
and clients.
f. Contractors and subcontractors with contracts faith affirmative action
programs in excess of $50,000 shall also pursue in good faith
affirmative action programs.
g. The Contractor shall cause the foregoing provisions to be inserted in
any subcontract for any work covered by this Contract so that such
provisions shall be binding upon each subcontractor, provided that the
foregoing provisions shall not apply to contracts or subcontracts for
standard commercial supplies or raw materials.
11. EMPLOYMENT AND PERSONNEL: The Contractor shall not engage any person in
the employ of any State Department or Agency in a position that would
constitute a violation of 5 MRSA Section 18 or 17 MRSA Section 3104. The
Contractor shall not engage on a full-time, part-time or other basis during
the period of this Contract, any other personnel who are or have been at any
time during the period of this Contract in the employ of any State Department
or Agency, except regularly retired employees, without the written consent of
the State Purchases Review Committee. Further, the Contractor shall not
engage on this project on a full-time, part-time or other basis during the
period of this Contract any retired employee of the Department who has not
been retired for at least one year, without the written consent of the State
Purchases Review Committee. The Contractor shall cause the foregoing
provisions to be inserted in any subcontract for any work covered by this
Contract so that such provisions shall binding upon each subcontractor,
provided that the foregoing provisions shall not apply to contracts or
subcontracts for standard commercial supplies or raw materials.
12. STATE EMPLOYEES NOT TO BENEFIT: No individual employed by the State at the
time this Contract is executed or any time thereafter shall be admitted to any
share or part of this Contract or to any benefit that might arise therefrom
directly or indirectly that would constitute a violation of 5 MRSA Section 18 or
17 MRSA Section 3104. No other individual employed by the State at the time
this Contract is executed or any time thereafter shall be admitted to any share
or part of this Contract or to any benefit that might arise therefrom directly
or indirectly due to his employment by or financial interest in the Contractor
or any affiliate of the Contractor, without the written consent of the State
Purchases Review Committee. The Contractor shall
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<PAGE>
cause the foregoing provisions to be inserted in any subcontract for any work
covered by this Contract so that such provisions shall be binding upon each
subcontractor, provided that the foregoing provisions shall not apply to
contracts or subcontracts for standard commercial supplies or raw materials.
13. WARRANTY: The Contractor warrants that it has not employed or
contracted with any company or person, other than for assistance with the
normal study and preparation of a proposal, to solicit or secure this
Contract and that it has not paid, or agreed to pay, any company or person,
other than a bona fide employee working solely for the Contractor, any fee,
commission, percentage, brokerage fee, gifts, or any other-consideration,
contingent upon, or resulting from the award for making this Contract. For
breach or violation of this warranty, the Department shall have the right to
annul this Contract without liability or, in its discretion to otherwise
recover the full amount of such fee, commission, percentage, brokerage fee,
gift, or contingent fee.
14. ACCESS TO RECORDS: The Contractor shall maintain all books, documents,
payrolls, papers, accounting records and other evidence pertaining to this
Contract and make such materials available at its offices at all reasonable
times during the period of this Contract and for such subsequent period as
specified under Maine Uniform Accounting and Auditing Practices for Community
Agencies (MAAP) rules. The Contractor shall allow inspection of pertinent
documents by the Department or any authorized representative of the State of
Maine or Federal Government, and shall furnish copies thereof, if requested.
15. TERMINATION: The performance of work under the Contract may be
terminated by the Department in whole, or in part, whenever for any reason
the Contract Administrator shall determine that such termination is in the
best interest of the Department. Any such termination shall be effected by
delivery to the Contractor of a Notice of Termination specifying the extent
to which performance of the work under the Contract is terminated and the
date on which such termination becomes effective. The Contract shall be
equitably adjusted to compensate for such termination, and modified
accordingly.
16. GOVERNMENTAL REQUIREMENTS: The Contractor warrants and represents that
it will comply with all governmental ordinances, laws and regulations.
17. GOVERNING LAW: This Contract shall be governed in all respects by the
laws, statutes, and regulations of the United States of America and of the
State of Maine. Any legal proceeding against the State regarding this
Contract shall be brought in State of Maine administrative or judicial
forums. The Contractor consents to personal jurisdiction in the State of
Maine.
20
<PAGE>
18. STATE HELD HARMLESS: The Contractor agrees to indemnify, defend and
save harmless the State, its officers, agents and employees from any and all
claims, costs, expenses, injuries, liabilities, losses and damages of every
kind and description (hereinafter in this paragraph referred to as "claims")
resulting from or arising out of the performance of this Contract by the
Contractor, its employees, agents, or subcontractors. Claims to which this
indemnification applies include, but without limitation, the following: (i)
claims suffered or incurred by any contractor, subcontractor, materialman,
laborer and any other person, firm, corporation or other legal entity
(hereinafter in this paragraph referred to as "person") providing work,
services, materials, equipment or supplies in connection with the performance
of this Contract; (ii) claims arising out of a violation or infringement of
any proprietary right, copyright, trademark, right of privacy or other right
arising out of publication, translation, development, reproduction, delivery,
use, or disposition of any data, information or other matter furnished or
used in connection with this Contract; (iii) claims arising out of a libelous
or other unlawful matter used or developed in connection with this Contract;
(iv) claims suffered or incurred by any person who may be otherwise injured
or damaged in the performance of this Contract; and (v) all legal costs and
other expenses of defense against any asserted claims to which this
indemnification applies. This indemnification does not extend to a claim that
results solely and directly from (i) the Department's negligence or unlawful
act, or (ii) action by the Contractor taken in reasonable reliance upon an
instruction or direction given by an authorized person acting on behalf of
the Department in accordance with this Contract.
19. NOTICE OF CLAIMS: The Contractor shall give the Contract Administrator
immediate notice in writing of any legal action or suit filed related in any
way to the Contract or which may affect the performance of duties under the
Contract, and prompt notice of any claim made against the Contractor by any
subcontractor which may result in litigation related in any way to the
Contract or which may affect the performance of duties under the Contract.
20. APPROVAL: This Contract must have the approval of the State Controller
and the State Purchases Review Committee before it can be considered a valid,
enforceable document.
21. LIABILITY INSURANCE: The Contractor shall keep in force a liability
policy issued by a company fully licensed or designated as an eligible
surplus line insurer to do business in this State by the Maine Department of
Professional & Financial Regulation, Bureau of Insurance, which policy
includes the activity to be covered by this Contract with adequate liability
coverage to protect itself and the Department from suits. Providers insured
through a "risk retention group" insurer prior to July 1, 1991 may continue
under that arrangement. Prior to or upon execution of this Contract, the
Contractor shall furnish the Department with written or photocopied
verification of the existence of such liability insurance policy.
22. NON-APPROPRIATION: Notwithstanding any other provision of this
Contract, if the State does not receive sufficient funds to fund this
Contract and other obligations of the State, if funds are de-appropriated, or
if the State does not receive legal authority to expend funds from
21
<PAGE>
the Maine State Legislature or Maine courts, then the State is not obligated
to make payment under this Contract.
23. SEVERABILITY: The invalidity or unenforceability of any particular
provision or part thereof of this Contract shall not affect the remainder of
said provision or any other provisions, and this Contract shall be construed
in all respects as if such invalid or unenforceable provision or part thereof
had been omitted.
24. INTEGRATION: All terms of this Contract are to be interpreted in such a
way as to be consistent at all times with the terms of Rider B (except for
expressed exceptions to Rider B included in Rider C), followed in precedence
by Rider A, and any remaining Riders in alphabetical order.
25. FORCE MAJEURE: The Department may, at its discretion, excuse the
performance of an obligation by a party under this Contract in the event that
performance of that obligation by that party is prevented by an act of God,
act of war, riot, fire, explosion, flood or other catastrophe, sabotage,
severe shortage of fuel, power or raw materials, change in law, court order,
national defense requirement, or strike or labor dispute, provided that any
such event and the delay caused thereby is beyond the control of, and could
not reasonably be avoided by, that party. The Department may, at its
discretion, extend the time period for performance of the obligation excused
under this section by the period of the excused delay together with a
reasonable period to reinstate compliance with the terms of this Contract.
26. SET-OFF RIGHTS: The State shall have all of its common law, equitable
and statutory rights of set-off. These rights shall include, but not be
limited to, the State's option to withhold for the purposes of set-off any
monies due to the Contractor under this Contract up to any amounts due and
owing to the State with regard to this Contract, any other Contract, any
other Contract with any State department or agency, including any Contract
for a term commencing prior to the term of this Contract, plus any amounts
due and owing to the State for any other reason including, without
limitation, tax delinquencies, fee delinquencies or monetary penalties
relative thereto. The State shall exercise its set-off rights in accordance
with normal State practices including, in cases of set-off pursuant to an
audit, the finalization of such audit by the State agency, its
representatives, or the State Controller.
27. CHANGES IN THE WORK: This document contains the entire agreement of the
parties, and neither party shall be bound by any statement or representation
not contained herein. No waiver shall be deemed to have been made by any of
the parties unless expressed in writing and signed by the waiving party. The
parties expressly agree that they shall not assert in any action relating to
the Contract that any implied waiver occurred between the parties which is
not expressed in writing. The failure of any party to insist in any one or
more instances upon strict performance of any of the terms or provisions of
the Contract, or to exercise an option or election under the Contract, shall
not be construed as a waiver or relinquishment for the future of such
22
<PAGE>
terms, provisions, option or election, but the same shall continue in full
force and effect, and no waiver by any party of any one or more of its rights
or remedies under the Contract shall be deemed to be a waiver of any prior or
subsequent rights or remedy under the Contract or at law.
23
<PAGE>
RIDER C
EXCEPTIONS TO RIDER B
Notwithstanding any other provisions of this contract, exceptions to Rider B
of this State of Maine Contract for Special Services will be as follows:
1. All references pertaining to the word "Department" shall mean the "State"
of Maine.
2. For the purpose of this Contract, the Contract Administrator is a designee
of the InforME Board.
3. RIDER B, PARAGRAPH #2: INVOICES AND PAYMENTS WILL BE REPLACED IN ITS
ENTIRETY WITH THE FOLLOWING LANGUAGE.
The InforME Network model will be self-supporting with the NEI receiving
its compensation from net proceeds subject to the availability of funds.
4. PARAGRAPH #7 CHANGES IN THE WORK WILL BE REPLACED IN ITS ENTIRETY WITH THE
FOLLOWING LANGUAGE.
CHANGES IN SCOPE OF WORK
Any changes in scope of work will be processed as detailed in Section 5.4
Changes in Scope and Contract Amendments of the Request for Proposal for
InforME Network Manager Services. No modification or change of any provision
of the contract shall be made, or be construed to have been made, unless such
modification is mutually agreed to in writing by the Contractor and the
State. The contract modification will be incorporated as a WRITTEN AMENDMENT
to the contract. Memoranda of understanding and correspondence shall NOT be
construed as amendments to the contract.
5. PARAGRAPH #14 ACCESS TO RECORDS SHALL PERTAIN ONLY TO THE INFORME NETWORK
RECORDS.
6. PARAGRAPH #15 TERMINATION WILL BE REPLACED IN ITS ENTIRETY WITH THE
FOLLOWING LANGUAGE:
TERMINATION OF CONTRACT
TERMINATION OF CONTRACT
The InforME Board shall have the right to terminate the contract for cause,
subject to cure, by providing written notice of termination to the NEI. Such
notice shall specify the time, the specific provision of the contract or "for
cause" reason that gives rise to the termination, and shall specify
reasonable appropriate action that can be taken by the NEI to avoid
termination of the contract. The Board shall provide a period of not less
than thirty (30) days, unless otherwise specified in the contract, for the
NEI to cure breaches and deficiencies of its performance obligations under
this Contract.
24
<PAGE>
If directed to do so by statute, the Board will terminate the contract
without incurring financial/business liability.
TERMINATION FOR CAUSE
For purposes of the contract, the phrase "for cause" shall mean, but not be
limited to:
a. Any material breach or evasion by NEI of the terms or conditions of
the contract, its amendments, and Service Level Agreements if any;
b. Substantial cessation of information network services by the NEI shall
be cause for immediate termination of this contract;
c. Fraud, misappropriation, embezzlement, malfeasance, significant
misfeasance, or illegal conduct by NEI, its officers or directors;
d. Dissolution of NEI or forfeiture of its corporate existence;
e. Amendment of the InforME Board's enabling statute or an adverse
judicial decision by a court of competent jurisdiction, which has the
effect of rendering information Network operations no longer feasible;
f. Insolvency of NEI;
g. Material breach of an agreement with any state agency; and
h. Intentional or gross neglectful disclosure of any confidential
information.
TERMINATION FOR CAUSE BY NEI
NEI may cancel. this Contract upon 30 days notice to the State and the
InforME Board in the event that:
a Legislation materially alters the authority or duties of NEI to the
extent that operation of the Network as currently envisioned, cannot
be supported;
b. the financial base upon which NEI relies for solvent network
operations does not materialize or is removed in the future; and
c. any material breach or evasion, subject to 30 days cure, by the State
or InforME Board of the terms and conditions of this Contract and its
amendments, if any.
7. PARAGRAPH #18 STATE HELD HARMLESS: THE FOLLOWING LANGUAGE WILL BE ADDED TO
THE STATE HELD HARMLESS PARAGRAPH AS FOLLOWS:
Notwithstanding the requirements of Paragraph 18 State Held Harmless, the
contractor is not responsible in any way for the content of links outside the
InforME site or for the content of data furnished by federal, state, or local
governments.
25
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
1. Kansas Information Consortium, Inc. Kansas, U.S.
2. Indian@ Interactive, Inc. Indiana, U.S.
2a. City-County Interactive, LLC Indiana, U.S.
3. National Information Consortium, U.S.A., Inc. Kansas, U.S.
4. Arkansas Information Consortium, Inc. Arkansas, U.S.
5. Nebrask@ Interactive, Inc. Nebraska, U.S.
6. Virginia Interactive, LLC Virginia, U.S.
7. Iowa Interactive, Inc. Iowa, U.S.
8. New England Interactive, Inc. Maine, U.S.
9. Utah Interactive, Inc. Utah, U.S.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
of our reports dated May 6, 1999, relating to the financial statements of
National Information Consortium, Inc., Indian@ Interactive, Inc., Kansas
Information Consortium, Inc., Nebrask@ Interactive, Inc. and Arkansas
Information Consortium, Inc., which appear in such Registration Statement. We
also consent to the references to us under the heading "Experts" in such
Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
Kansas City, Missouri
May 6, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,115,136
<SECURITIES> 0
<RECEIVABLES> 3,694,625
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,168,591
<PP&E> 1,684,850
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,633,489
<CURRENT-LIABILITIES> 6,244,717
<BONDS> 0
0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 16,633,489
<SALES> 11,455,065
<TOTAL-REVENUES> 11,455,065
<CGS> 8,603,698
<TOTAL-COSTS> 8,603,698
<OTHER-EXPENSES> 4,721,185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,995
<INCOME-PRETAX> (1,890,248)
<INCOME-TAX> 11,545
<INCOME-CONTINUING> (1,901,793)
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