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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NFRONT, INC.
(Exact Name of Registrant as Specified in its Charter)
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<TABLE>
<S> <C> <C>
GEORGIA 7375 58-2242756
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
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520 GUTHRIDGE COURT, NW, SUITE 100
NORCROSS, GA 30092
770-209-4460
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
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BRADY L. "TRIPP" RACKLEY III
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
NFRONT, INC.
520 GUTHRIDGE COURT, NW, SUITE 100
NORCROSS, GA 30092
(770) 209-4460
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
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COPIES TO:
<TABLE>
<S> <C>
WARD S. BONDURANT, ESQ. WILLIAM G. ROCHE, ESQ.
VIRGINIA A. JOHNSON, ESQ. WILLIAM R. SPALDING, ESQ.
MORRIS, MANNING & MARTIN, L.L.P. KING & SPALDING
1600 ATLANTA FINANCIAL CENTER 191 PEACHTREE STREET
3343 PEACHTREE ROAD, N.E. ATLANTA, GEORGIA 30303
ATLANTA, GEORGIA 30326 (404) 572-4600
(404) 233-7000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), please 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, 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(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE(1)
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<S> <C> <C>
Common Stock, no par value......................... $49,000,000 $13,622
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457 under the Securities Act.
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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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 23, 1999
PROSPECTUS
SHARES
[COMPANY LOGO]
NFRONT, INC.
COMMON STOCK
This is an initial public offering of common stock by nFront, Inc. Of the
shares of common stock being sold in this offering,
shares are being sold by nFront and shares are
being sold by selling shareholders. nFront 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.
-------------------------
There is no public market for the common stock. We have applied to have the
common stock approved for quotation on the Nasdaq National Market under the
symbol NFNT.
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<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Initial public offering price.............................. $ $
Underwriting discounts and commissions..................... $ $
Proceeds to nFront, before expenses........................ $ $
Proceeds to the selling shareholders....................... $ $
</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.
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INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-------------------------
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
J.C. BRADFORD&CO.
RAYMOND JAMES & ASSOCIATES, INC.
SOUNDVIEW TECHNOLOGY GROUP
, 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Forward-Looking Statements.................................. 23
Use of Proceeds............................................. 24
Dividend Policy............................................. 24
Capitalization.............................................. 25
Dilution.................................................... 26
Selected Financial Data..................................... 28
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 30
Business.................................................... 41
Management.................................................. 55
Certain Transactions........................................ 62
Principal and Selling Shareholders.......................... 63
Description of Capital Stock................................ 65
Shares Eligible for Future Sale............................. 68
Underwriting................................................ 70
Legal Matters............................................... 72
Experts..................................................... 72
Additional Information...................................... 72
Index to Financial Statements............................... F-1
</TABLE>
nFront, nHome and nBusiness are service marks of nFront. We have applied
for federal registration of "nFront," "nHome" and "nBusiness." This prospectus
also refers to other trademarks and trade names of nFront and other companies.
<PAGE> 4
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 the financial statements,
before making an investment decision.
NFRONT
OUR BUSINESS
nFront provides a comprehensive, outsourced solution that enables small to
mid-sized banks to offer their retail and commercial customers banking and
financial services through the Internet. Our solution consists of our Internet
banking products, our Internet banking data center which facilitates use of
these products, implementation and web site design services and marketing and
support services. Our solution enables our client banks to establish "Internet
branches" designed to increase customer retention, acquire new customers,
decrease costs and increase fee income. In addition, our Internet banking
solution permits banks to more easily expand the financial products and services
offered to their customers. By creating Internet branches for our client banks
that offer comprehensive banking services as well as additional financial
products and services, we enable banks to become the destination on the Web for
bank customers who are increasingly using the Web for their financial management
needs.
Through our outsourcing model, our client banks purchase our products as
services, paying us on a monthly basis depending on the level of usage by their
customers. Our Internet banking data center provides the necessary
communications, transaction processing and data storage services to operate the
nFront system. Our outsourced solution tends to have significantly lower up
front costs, lower overhead for the bank, shorter lead times on initial
implementation and upgrades, better access to qualified personnel and higher
quality service and support than the bank would experience on an in-house basis.
Our nHome product provides Internet banking and financial services to a
bank's retail customers, and our nBusiness product provides Internet banking and
financial services to a bank's commercial customers. Both products enable a
bank's customers to use the Internet to:
- open new accounts;
- access account summaries and histories;
- download information to financial management software programs;
- transfer funds;
- pay bills; and
- generate custom reports.
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<PAGE> 5
In addition to these services, our nBusiness product allows a bank's
commercial customers to:
- debit customer accounts;
- issue stop payment orders;
- create multiple user security profiles;
- pay employees;
- issue wire transfers; and
- facilitate direct deposits.
We market our solution to small to mid-sized banks in the United States,
typically with assets of less than $10 billion, through our direct sales force
and through our strategic marketing partnerships with other providers of banking
services, including BISYS and BancTec. We currently generate revenue by charging
client banks an implementation fee for designing their Internet branch web sites
and integrating our system with the banks' core computer systems. We also
receive recurring monthly fees based primarily on the number of bank customers
using our products, as well as other transaction-based fees. As of March 31,
1999, we had 123 client banks, of which 83 had completed implementation and were
operating an Internet branch. We have more than tripled our base of client banks
over the past nine months, from 40 as of June 30, 1998 to 123 as of March 31,
1999.
OUR MARKET OPPORTUNITY
We believe that a significant opportunity exists to provide small to
mid-sized banks with a comprehensive, outsourced solution that enables these
banks to offer Internet banking and financial services to their customers.
According to the Office of the Comptroller of the Currency, as of June 30, 1998,
there were 374 banks offering transactional Internet banking web sites in the
United States. With many larger national or "super-regional" banks currently
offering some form of Internet banking and bank customers increasingly demanding
these services, small to mid-sized banks are being pressured to provide
competitive solutions. As of September 30, 1998, all but 81 of the more than
10,000 banks, savings and loans and thrifts in the United States had assets
below $10 billion. Approximately 175 million, or approximately 52%, of the
deposit accounts with balances less than $100,000 were held by banks in the
small to mid-sized segment.
OUR STRATEGY
Our objective is to be the leading provider of Internet banking products
and services to the small to mid-sized bank market and to create Web-based
financial destinations for the millions of banking customers in that market. To
achieve our objective, we intend to:
- capitalize on exclusive strategic marketing partnerships to expand our
base of client banks;
- assist our client banks in converting their customers to our system;
- build awareness and acceptance of our brands;
- generate incremental revenue by offering additional services through our
system; and
- extend our technology leadership.
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ABOUT NFRONT
nFront was incorporated in Georgia in 1996. Our principal executive office
is located at 520 Guthridge Court, NW, Suite 100, Norcross, Georgia 30092. Our
telephone number is (770) 209-4460. Our web sites are located at www.banking.com
and www.nfront.com. Information contained on our web sites does not constitute a
part of this prospectus.
THE OFFERING
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<S> <C>
Common stock offered by nFront..................... shares
Common stock offered by selling shareholders....... shares
Common stock to be outstanding after the
offering......................................... shares
Use of proceeds.................................... Repayment of debt; expansion of our
business, including sales and
marketing expenditures, product
development and potential future
acquisitions; and for general
corporate purposes, including working
capital.
Proposed Nasdaq National Market
symbol........................................... NFNT
</TABLE>
Unless otherwise noted, all information in this prospectus, including share
and per share information, assumes a 50-for-1 stock split in January 1998; a
3-for-1 stock split in September 1998; the conversion of all outstanding shares
of redeemable convertible preferred stock into 767,655 shares of common stock
immediately prior to completion of this offering; and no exercise of the
underwriters' over-allotment option.
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SUMMARY FINANCIAL DATA
This table summarizes our financial data for the periods indicated. The
unaudited pro forma net loss per share reflects the conversion of our redeemable
convertible preferred stock into common stock. Our balance sheet data is
presented:
- on an actual basis;
- on an unaudited pro forma basis to reflect conversion of our redeemable
convertible preferred stock into common stock; and
- on an unaudited pro forma as adjusted basis to reflect conversion of our
redeemable convertible preferred stock into common stock and our receipt
of the estimated net proceeds from the sale of shares of common
stock offered by nFront at an assumed initial public offering price of
$ , after deducting underwriting discounts and commissions.
<TABLE>
<CAPTION>
PERIOD NINE MONTHS
FROM JUNE 17, FISCAL ENDED MARCH 31,
1996 (INCEPTION) TO YEAR ENDED -------------------------
JUNE 30, 1997 JUNE 30, 1998 1998 1999
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<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Implementation fees............ $ 358,245 $ 722,859 $581,375 $ 1,728,179
Monthly service fees........... 34,263 185,283 102,929 892,816
Other.......................... 458,643 174,287 149,406 214,095
---------- ---------- -------- -----------
Total revenues............ 851,151 1,082,429 833,710 2,835,090
Operating income (loss)........ 70,993 (573,529) 9,105 (1,853,508)
Net income (loss).............. 48,740 (522,996) 9,107 (1,808,147)
Net income (loss) per common
share -- basic and
diluted..................... $ 0.03 $ (0.18) $ 0.00 $ (0.63)
Weighted average shares
outstanding -- basic and
diluted..................... 1,916,667 3,031,405 3,018,902 3,207,111
Unaudited pro forma net loss
per share -- basic and
diluted..................... $ (0.18) $ (0.51)
========== ===========
Unaudited pro forma weighted
average shares outstanding--
basic and diluted........... 3,132,357 3,974,766
========== ===========
OPERATING DATA (AT END OF PERIOD):
Total client banks under
contract....................... 5 40 24 123
Total client banks implemented... 2 19 13 83
Total customers at client banks
using our solution............. 357 5,240 3,149 19,648
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ---------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 1,530,458 $1,530,458
Working capital.................................... 561,185 561,185
Total assets....................................... 3,802,645 3,802,645
Long-term debt, net of current portion............. 427,540 427,540
Redeemable convertible preferred stock............. 2,580,222 --
Total stockholders' equity (deficit)............... (1,572,199) 1,008,023
</TABLE>
6
<PAGE> 8
RISK FACTORS
You should consider carefully 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 adversely affect our business and financial
condition in the future. Any of the following risks could materially adversely
affect our business, operating results and financial condition and could result
in a complete loss of your investment.
WE HAVE A LIMITED OPERATING HISTORY AND MAY FACE DIFFICULTIES ENCOUNTERED BY
EARLY STAGE COMPANIES IN NEW AND RAPIDLY EVOLVING MARKETS
We were incorporated in June 1996. Because we have a limited operating
history, an investor in our common stock must consider the risks and
difficulties frequently encountered by early stage companies in new and rapidly
evolving markets, including the Internet banking and electronic commerce
markets. These risks include our ability to:
- successfully expand our sales and marketing efforts;
- maintain our current, and develop new, strategic marketing relationships;
- promote acceptance of our Internet banking services by customers of our
client banks;
- respond effectively to competitive pressures;
- continue to develop and upgrade our technology; and
- attract, retain and motivate qualified personnel.
We cannot guarantee that we will succeed in achieving these goals, and
there can be no assurance we will ever achieve or sustain profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for detailed information on our limited operating history.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE LOSSES IN THE FUTURE
We have incurred net losses each fiscal quarter ended after September 30,
1997. At March 31, 1999, we had an accumulated deficit of approximately $2.3
million. We expect to incur significant operating losses on a quarterly basis in
the future.
We will need to generate significant revenues to achieve and maintain
profitability, and we cannot assure you that we will be able to do so. Even if
we do achieve profitability, we cannot assure you that we can sustain or
increase profitability on a quarterly or an annual basis in the future. If our
revenues grow more slowly than we anticipate or if our operating expenses exceed
our expectations, our financial performance will likely be adversely affected.
See "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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OUR FINANCIAL RESULTS COULD FLUCTUATE AND MAY ADVERSELY AFFECT OUR STOCK PRICE
Our financial results have varied on a quarterly basis and could fluctuate
substantially in the future, adversely affecting our stock price. These
fluctuations may be caused by several factors described below and elsewhere in
this "Risk Factors" section, many of which are beyond our control. As a result,
we believe that quarter-to-quarter comparisons of our financial results are not
necessarily meaningful, and you should not rely on them as an indication of
future performance. These factors include:
- the addition or loss of client banks or strategic marketing partners;
- variable demand for our Internet banking solutions by our client banks or
their customers;
- the overall level of demand for electronic commerce services,
particularly Internet banking services;
- seasonal trends in purchasing decisions by banks;
- decrease in demand for Internet banking solutions by banks as a result of
their Year 2000 remediation efforts or any unforeseen Year 2000 problems;
- the productivity of our direct sales force and the sales forces of our
strategic marketing partners;
- the amount and timing of increased expenditures for expansion of our
operations, including the hiring of new employees, capital expenditures
and related costs;
- our ability to continue to enhance, maintain and support our technology;
- the introduction of new or enhanced services by us or our strategic
marketing partners, or other companies that compete with us or our
strategic marketing partners;
- price competition or pricing changes in Internet banking services, such
as ours;
- technical difficulties, system downtime, system failures or Internet
brown-outs;
- political or economic events and governmental actions affecting Internet
operations or content; and
- general economic conditions and economic conditions specific to the
Internet.
If one or more of these factors or other factors occur, our business could
suffer.
We plan to significantly increase our sales and marketing, research and
development and general and administrative expenses throughout the remainder of
calendar year 1999. Our expenses are partially based on our expectations
regarding future revenues, and are largely fixed in nature, particularly in the
short term. As a result, if our revenues in a period do not meet our
expectations, our financial results will likely suffer.
8
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WE ARE DEPENDENT ON THE BANKING INDUSTRY
We expect to derive substantially all of our revenues from products and
services provided to banks, the banks' customers and other participants in the
financial services industry. Accordingly, our future success depends
significantly upon the continued demand for our products and services within
this industry. We believe that important factors in our growth will be the
willingness of the banking industry to pursue technological innovation and
customer demand and acceptance of this innovation. If the rate of adoption by
banks of products like ours were to slow, we could experience reduced demand for
our products and services. In addition, changes in economic conditions and
unforeseen events, such as recession, inflation or other adverse occurrences,
may result in a significant decline in the utilization of bank services or
demand for our products and services. Any event that results in decreased
consumer or corporate use of bank services, or increased pressures on banks
toward the in-house development of Internet banking systems, could have a
material adverse effect on our business, financial condition and results of
operations.
THE EXPANDED USE OF THE INTERNET FOR PROVIDING BANKING AND OTHER FINANCIAL
PRODUCTS AND SERVICES IS UNCERTAIN
The market for Internet-based financial services only recently has begun to
develop, and the market demand for our products and services is uncertain.
Critical issues concerning commercial use of the Internet for financial
services, including security, reliability, ease and cost of access and quality
of service, are evolving and may impact the growth of Internet use. We cannot
predict the size of the market for Internet-based financial services or the rate
at which that market will grow. If the market for Internet-based financial
services fails to grow, grows more slowly than anticipated, or becomes saturated
with competitors, our business, financial condition and results of operations
likely would be materially adversely affected. Furthermore, telephone and
personal computer banking systems have been marketed in the past and have not
enjoyed widespread consumer adoption. Accordingly, there can be no assurance
that there will be widespread consumer acceptance of advanced Internet banking
systems such as ours.
We rely on the Internet to provide access to our banking services. Our
business would be adversely affected if Internet use does not continue to grow
or grows more slowly than expected. Internet usage may be inhibited for a number
of reasons, such as inadequate network infrastructure, security concerns,
inconsistent quality of service, and unavailability of cost effective,
high-speed access to the Internet. The occurrence of any of these factors could
inhibit the acceptance and adoption of Internet banking.
WE DERIVE SUBSTANTIALLY ALL OUR REVENUES FROM OUR NHOME AND NBUSINESS PRODUCTS
AND SERVICES
To date, substantially all of our revenue has been attributable to fees
generated from our nHome product. Fees generated from these products and
services and our nBusiness product, which became generally available in March
1999, are expected to account for most of our total revenue for the foreseeable
future. As a result, a decline in demand for, or failure to achieve broad market
acceptance of, nHome or nBusiness would have a material adverse effect on our
business, financial condition
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and results of operations. There can be no assurance that we will continue to be
successful in marketing nHome, nBusiness or any new or enhanced products and
services.
WE MAY EXPERIENCE DELAYS IN DEVELOPING ENHANCEMENTS OF EXISTING PRODUCTS AND
DEVELOPING NEW PRODUCTS; THESE DELAYS MAY AFFECT OUR COMPETITIVENESS
Our future success will depend on our ability to develop, test, sell and
support enhancements of current products and new products on a timely basis in
response to changing bank and bank customer needs, competition, technological
developments and emerging industry standards. The market for our products and
services is characterized by rapidly changing technology, evolving industry
standards, emerging competition and frequent new product and service
introductions. These developments could limit the marketability of our products
and services. There can be no assurance that we can successfully identify new
product opportunities and develop and bring new products and services to market
in a timely manner. Our failure to successfully adapt to this rapidly changing
market could adversely affect our business.
OUR SALES CYCLE VARIES AND MAY CAUSE OUR QUARTERLY RESULTS TO FLUCTUATE
The purchase decision relating to our products is typically made by senior
management of our prospective client banks. Due in part to the nature of our
applications and the associated hardware, software and consulting expenditures,
potential client banks tend to be cautious in making purchase decisions. The
purchase of our products involves a commitment of resources and recurring
expense and the attendant delays frequently associated with approving capital
expenditures and reviewing new technologies that affect key operations. Our
client banks' decision-making processes require us to provide a significant
level of education to prospective customers regarding the use and benefits of
our products. We may expend substantial funds and management resources during
the sales cycle and fail to make the sale. Accordingly, our results of
operations for a particular period may be adversely affected if the sales
forecasted for a particular period are delayed or do not otherwise occur.
The time between the date of initial contact with a potential client bank
and the execution of a contract with the bank typically ranges from six weeks
for smaller agreements to three months or longer for larger agreements. The
sales cycle is subject to significant risks and delays over which we have little
or no control, including:
- the banks' budgetary constraints;
- the banks' internal acceptance reviews;
- the success and continued support of our strategic marketing partners'
sales efforts; and
- the possibility of cancellation or delay of projects by banks.
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IMPLEMENTATION OF OUR SOLUTION AT NEW CLIENT BANKS MAY TAKE LONGER THAN WE
ANTICIPATE AND COULD ADVERSELY AFFECT OUR OPERATING RESULTS
During the course of initial bank implementations, we may experience some
delays in integrating our Internet banking software with the bank's core banking
software, particularly if we do not already have an established interface for
that core banking software. A longer integration period will increase the cost
of the implementation, delay the recognition of revenues associated with the
implementation and result in a loss of service-related customer usage fees.
Changes to existing core banking software systems and custom implementations for
larger client banks could also cause integration delays in future
implementations that could have a material adverse effect on our operating
results for subsequent periods.
WE RELY ON OUR RELATIONSHIPS WITH OUR STRATEGIC MARKETING PARTNERS
We expect that revenues generated from the sale of our products and
services based on leads generated by our network of strategic marketing partners
will continue to account for a significant portion of our revenues for the
foreseeable future. In particular, we expect that a limited number of our
strategic marketing partners, such as BISYS and BancTec, will account for a
substantial portion of our client bank leads and, therefore, revenues over time.
Client banks sold and billed through the BISYS strategic marketing partnership
represented 26% of our revenue for the nine months ended March 31, 1999. The
agreements with our strategic marketing partners are typically five year
exclusive agreements. We pay each strategic marketing partner a commission based
on the revenues generated by our client banks that are also clients of the
strategic marketing partners.
Our strategic marketing partner relationships are in an early stage of
development. If we lose one or more of our major strategic marketing partners,
we may be unable in a timely manner, or at all, to replace the partner with
other partners with comparable customer bases and user demographics.
OUR BUSINESS COULD SUFFER IF CLIENT BANKS TERMINATE THEIR CONTRACTS WITH US
Although we have included financial penalties in most of our contracts with
our client banks for early termination without cause, these financial penalties
would be insufficient to replace the monthly service fee revenues that we would
receive if the bank had continued as a customer. As a result of the mergers and
acquisitions occurring in the banking industry today, there is a potential risk
of some of our existing client banks terminating their agreements with us. An
existing client bank may be acquired by or merged with another bank that
utilizes a different Internet banking system or does not desire to continue the
relationship with us for some other reason, which could result in the new entity
terminating the relationship with us. Our business, financial condition and
results of operations could suffer if client banks terminate their relationships
with us.
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A SIGNIFICANT PORTION OF OUR RECURRING REVENUE IS BASED ON A SMALL NUMBER OF
CLIENT BANKS, AND THE LOSS OF A NUMBER OF THESE CLIENT BANKS COULD ADVERSELY
AFFECT OUR BUSINESS
We have, to date, depended on a limited number of client banks for a
significant part of our recurring revenues. For the nine month period ended
March 31, 1999, no client bank accounted for greater than 10% of total recurring
revenues. However, the loss of a number of our client banks may adversely affect
our business, financial condition and results of operations.
We anticipate that our results of operations in the near future will
continue to depend to a significant extent upon revenues from a small number of
client banks. In addition, we anticipate that these client banks will continue
to vary over time so that the achievement of our long-term goals will require us
to obtain additional client banks on an ongoing basis. Our failure to enter into
a sufficient number of contracts during a particular period could have a
material adverse effect on our business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
WE ARE CURRENTLY EXPERIENCING A PERIOD OF SIGNIFICANT GROWTH THAT IS PLACING A
STRAIN ON OUR RESOURCES
We have experienced significant growth in our operations since the fiscal
year ended June 30, 1998 and anticipate that additional expansion may be
required in order to continue our growth. Any expansion of our business would
place additional demands on our management, operational capacity and financial
resources. Our failure to manage growth effectively could have a material
adverse effect on our business, financial condition and results of operations.
We anticipate that we will need to recruit qualified personnel in all areas of
our operations, including management, sales, marketing, implementation and
software development, to effectively manage and control additional growth. There
can be no assurance that we will be effective in attracting and retaining
additional qualified personnel, expanding our operational capacity or otherwise
managing growth.
We have increased our number of employees from approximately 20 at June 30,
1998 to approximately 70 at March 31, 1999. This expansion has placed, and is
expected to continue to place, a significant strain on our management,
operational and financial resources. Since June 1998, we have added a number of
key managerial, technical and operations personnel, including our President and
Chief Operating Officer, Chief Financial Officer, Senior Vice President of Sales
and Vice President of Marketing, and we expect to add additional key personnel
in the near future. Since December 1, 1998, we have added 12 new sales
representatives, bringing the total to 14 at March 31, 1999.
To manage the expected growth of our operations and personnel, we must
continue improving or replacing existing operational, accounting and information
systems, procedures and controls. Further, we must manage effectively our
relationships with our strategic marketing partners, Internet content providers,
affiliates and other third parties necessary to our business.
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<PAGE> 14
OUR BUSINESS IS DEPENDENT ON OUR KEY EXECUTIVES
Our future success depends to a significant extent on the continued
services of our senior management and other key personnel, particularly Brady L.
"Tripp" Rackley III, our founder and Chief Executive Officer. The loss of the
services of Mr. Rackley or other key employees would likely have a significant
adverse effect on our business. We only have employment agreements with our
Chief Executive Officer and our President. We maintain "key person" life
insurance in the amount of $2,000,000 on our Chief Executive Officer, but this
amount likely would be inadequate to compensate us for the loss of his services.
COMPETITION FOR PERSONNEL IN OUR INDUSTRY IS INTENSE
There is significant competition for qualified employees among Internet
companies today. As a result of our rapid growth and expansion, we have in the
past experienced, and we expect to continue to experience difficulty in hiring
and retaining highly skilled employees with appropriate qualifications. We have
been required to hire a significant number of new employees in a short period of
time. We may be unable to retain our skilled employees or attract, assimilate or
retain other highly qualified employees in the future. Our operating results may
be adversely affected if we experience increased expenses related to attracting
and retaining qualified employees. If we do not succeed in attracting new
personnel or retaining and motivating our current personnel, our business will
be adversely affected.
OUR NETWORKS FACE SECURITY RISKS
Even though we have implemented security measures, our networks may be
vulnerable to unauthorized access, computer viruses and other disruptive
problems. Someone who is able to circumvent security measures could
misappropriate our proprietary information or cause interruptions in our
Internet operations. Internet and on-line service providers have in the past
experienced, and may in the future experience, interruptions in service as a
result of the accidental or intentional actions of Internet users, current and
former employees or others. Unknown security risks may result in liability to us
and also may deter banks from purchasing our products, and deter banks'
customers from using our products. We may need to expend significant capital or
other resources protecting against the threat of security breaches or
alleviating problems caused by breaches. Although we intend to continue to
implement state of the art security measures, persons may be able to circumvent
the measures that we implement in the future. Eliminating computer viruses and
alleviating other security problems may result in interruptions, delays or
cessation of service to users accessing web sites that deliver our services, any
of which could harm our business.
INTERNET SECURITY CONCERNS COULD HINDER INTERNET BANKING AND OTHER ELECTRONIC
COMMERCE SERVICES; WE COULD BE LIABLE FOR MISAPPROPRIATION OF OUR USERS'
PERSONAL INFORMATION
Users of Internet banking and other electronic commerce services are highly
concerned about the security of transmissions over public networks. Concerns
over security and the privacy of users may inhibit the growth of the Internet
and other
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<PAGE> 15
on-line services generally, and the Web in particular, especially as a means of
conducting commercial transactions. Any well-publicized compromise of security
could deter people from using the Internet or using it to conduct transactions
that involve transmitting confidential information. We may incur significant
costs to protect against the threat of security breaches or to alleviate
problems caused by those breaches. We rely on browser-level encryption,
authentication and certificate technologies, all of which are licensed from
third parties, to provide the security and authentication necessary to effect
secure transmission of data. However, we cannot guarantee that advances in
computer capabilities, new discoveries in the field of cryptography or other
events or developments will not result in a compromise or breach of our security
measures. Unauthorized users could possibly circumvent the measures we take to
protect client bank data. To the extent that our activities involve the storage
and transmission of proprietary information, security breaches could damage our
reputation and expose us to a risk of loss or litigation and possible liability.
Any compromise of our security could harm our business. In addition, the Federal
Trade Commission and state agencies have been investigating various Internet
companies regarding their use of personal information. We could incur additional
expenses if new regulations regarding the use of personal information are
introduced or if our privacy practices are investigated.
WE ARE DEPENDENT ON OUR INTERNET BANKING DATA CENTER, AND IT COULD SUFFER
TECHNICAL PROBLEMS AND SERVICE INTERRUPTIONS
All of our communications and network equipment is located at our corporate
headquarters in Norcross, Georgia. Any system failure at this location could
lead to interruptions, delays or cessations in providing our Internet banking
services to our client banks, which could have a material adverse effect on our
business, financial condition and results of operations. Our operations are
dependent upon our ability to protect systems against damage from fires,
hurricanes, earthquakes, power losses, telecommunications failures, break-ins,
computer viruses, hacker attacks and other events beyond our control. We have
contracted to establish a redundant Internet banking data center, but that data
center is not scheduled to be on-line until the end of the second quarter of
1999. We cannot assure that this data center will operate as scheduled. In the
event of a disaster that impacts our Internet banking data center, and depending
on the nature of the disaster, it may take several days for an off-site computer
system to become operational for all of our client banks, and use of an
alternative off-site computer would result in substantial additional cost to us.
In the event of an extended outage, we could potentially lose many of our client
banks, which may have a material adverse effect on our business, financial
condition and results of operations. Although we maintain business interruption
insurance, it may not adequately compensate us for any losses that may occur due
to any failures or interruptions in our systems.
WE RELY ON INTERNALLY-DEVELOPED SOFTWARE AND SYSTEMS AS WELL AS THIRD-PARTY
PRODUCTS
We have developed custom software for our systems. This software may
contain undetected errors, defects or bugs. Although we have not suffered
significant harm from any errors or defects to date, we may discover significant
errors or defects in the future that we may or may not be able to correct. We
must expand and upgrade our technology, transaction-processing systems and
network infrastructure if the
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<PAGE> 16
volume of traffic and transactions on our system increases substantially. We
could experience periodic temporary capacity constraints, which may cause
unanticipated system disruptions, slower response times and lower levels of
customer service. We may be unable to accurately project the rate or timing of
increases, if any, in the use of our services or expand and upgrade our systems
and infrastructure to accommodate these increases in a timely manner. Any
inability to do so could harm our business. Our agreements with our client banks
typically contain provisions designed to limit our exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in our agreements may not be effective under the laws of
all jurisdictions. Although we have not experienced any product liability claims
to date, the sale and support of our products may entail the risk of these
claims. A product liability claim brought against us could have a material
adverse effect on our business, financial condition and results of operations.
Our products involve integration with products and systems developed by
third parties. If any of these third-party products should become unavailable
for any reason, fail under operation with our products or fail to be supported
by their respective vendors, it would be necessary for us to redesign our
products. There can be no assurance that any redesign could be accomplished in a
cost-effective or timely manner. We also could experience difficulties
integrating our products with other hardware and software. Furthermore, should
new releases of products and systems occur before we develop products compatible
with these new releases, any resulting decline in demand for our products could
have a material adverse effect on our business, financial condition and results
of operations.
WE RELY ON THE INTERNET INFRASTRUCTURE
Our success depends, in large part, on other companies maintaining the
Internet infrastructure. In particular, we rely on other companies to maintain a
reliable network that provides adequate speed, data capacity and security and to
develop products that enable reliable Internet access and services. If the
Internet continues to experience significant growth in the number of users,
frequency of use and amount of data transmitted, the Internet infrastructure may
be unable to support the demands placed on it, and the Internet's performance or
reliability may suffer as a result of this continued growth. In addition, the
Internet could lose its viability as a commercial medium due to delays in the
development or adoption of new standards and protocols to process increased
levels of Internet activity. Any such degradation of Internet performance or
reliability could cause users to reduce their Internet usage. If other companies
do not develop the infrastructure or complementary products and services
necessary to establish and maintain the Internet as a viable commercial medium,
our business, financial condition and results of operations could be materially
adversely affected.
OUR BUSINESS IS HIGHLY COMPETITIVE
The market for Internet banking services and financial software
applications is highly competitive, and we expect that competition will
intensify in the future. In addition we could experience competition from our
client banks and potential client banks. From time to time, these potential
client banks develop, implement and maintain their own services and applications
for revenue enhancements, cost
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<PAGE> 17
reductions and/or enhanced customer services, rather than purchasing services
and related products from third parties. There can be no assurance that these
client banks or other potential client banks will perceive sufficient value in
our products and services to justify investing in them. In addition, client
banks or potential client banks could enter into strategic relationships with
one or more of our competitors to develop, market and sell competing services or
products.
We compete with a variety of third parties that employ many different
approaches to providing Internet banking services. We believe that nFront's
ability to compete successfully depends upon a number of factors, including:
- our market presence;
- the capacity, reliability and security of our network infrastructure;
- the comprehensiveness and ease of use of our products;
- our pricing policies and the pricing policies of our competitors and
suppliers;
- the timing of introductions of new products and services by us and our
competitors; and
- our ability to support evolving industry standards.
We expect competition in our markets to increase significantly as new
companies enter our market and current competitors expand their product lines
and services. Many of these potential competitors are likely to enjoy
substantial competitive advantages, including:
- greater resources that can be devoted to the development, promotion and
sale of their services;
- longer operating histories;
- greater financial, technical and marketing resources;
- greater name recognition;
- client banks with larger customer bases; and
- larger base of client banks.
Any pricing pressures, reduced margins or loss of market share resulting
from our failure to compete effectively would materially adversely affect our
business, financial condition and operating results.
INFRINGEMENT OF OUR PROPRIETARY TECHNOLOGY COULD HARM OUR BUSINESS
We rely on a combination of copyright, trademark and trade secret laws and
contractual provisions to establish and protect our proprietary rights. We have
applied for the federal registration of service marks for "nFront," "nHome" and
"nBusiness." We have also registered the domain names "banking.com" and
"nFront.com."
There can be no assurance that the steps we have taken to protect our
proprietary rights will be adequate, that we will be able to secure trademark or
service mark registrations for our marks in the United States or in foreign
countries or that third parties will not infringe upon or misappropriate our
copyrights,
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<PAGE> 18
trademarks, service marks, domain names and similar proprietary rights. In
addition, effective copyright and trademark protection may be unenforceable or
limited in certain foreign countries, and the global nature of the Internet
makes it impossible to control the ultimate destination of our services. It is
possible that our competitors may independently develop technologies that are
substantially equivalent or superior to our technology. Also, our competitors or
others may adopt product or service names similar to ours, thereby impeding our
ability to build brand identity and possibly leading to customer confusion.
Moreover, because domain names derive value from the individual's ability to
remember these names, we cannot guarantee that our domain name will not lose its
value if, for example, users begin to rely on mechanisms other than domain names
to access on-line resources. Our inability to protect our marks adequately could
have a material adverse effect on the acceptance of the nFront brand and on our
business, financial condition and operating results. In the future, litigation
may be necessary to enforce and protect our trade secrets, copyrights and other
intellectual property rights. Litigation would divert management resources, be
expensive and may not effectively protect our intellectual property.
WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY LITIGATION
We may be subject to litigation for claims of infringement of the rights of
others or to determine the scope and validity of the intellectual property
rights of others. If other parties file applications for marks used or
registered by us, we may have to oppose those applications and participate in
administrative proceedings to determine priority of rights to the mark, which
could result in substantial costs to us due to the diversion of management's
attention and the expense of this litigation, even if the eventual outcome is
favorable to us.
Adverse determinations in such litigation could result in the loss of
certain of our proprietary rights, subject us to significant liabilities,
require us to seek licenses from third parties or prevent us from selling our
services. There can be no assurance that we will be able to obtain such licenses
on commercially reasonable terms, if at all. Any of these results could have a
material adverse effect on the acceptance of the nFront brand and on our
business, financial condition and operating results.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL COSTS TO
DOING BUSINESS ON THE INTERNET
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted in the future that address issues such as user privacy, pricing, and the
characteristics and quality of products and services. For example, the
Telecommunications Act sought to prohibit transmitting various types of
information and content over the Internet. Several telecommunications companies
have petitioned the Federal Communications Commission to regulate Internet
service providers and on-line service providers in a manner similar to long
distance telephone carriers and to impose access fees on those companies. This
could increase the cost of transmitting data over the Internet. Moreover, it may
take years to determine the extent to which existing laws relating to issues
such as property ownership, libel and personal privacy apply to the Internet.
Any new laws or
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<PAGE> 19
regulations relating to the Internet or the manner in which existing laws are
applied to the Internet could adversely affect our business.
WE MAY BECOME SUBJECT TO GOVERNMENT REGULATION RELATING TO BANKING AND OUR
CLIENT BANKS MAY BECOME SUBJECT TO MORE STRINGENT ELECTRONIC BANKING REGULATIONS
Our primary customers are banks. The banking industry, including electronic
banking, is regulated heavily, and we expect that this regulation will affect
the relative demand for our products and services. In addition, through their
ability to regulate our bank customers' system requirements, bank regulators can
effectively regulate the required security systems, communication technologies
and other features of our products and services.
There can be no assurance that federal, state or foreign governmental
authorities will not adopt new regulations addressing electronic banking or
banking operations generally that could require us to modify our current or
future products and services. The adoption of laws or regulations affecting our
business or our client banks' business could reduce our growth rate or could
otherwise have a material adverse effect on our business, financial condition
and operating results.
THE INTERNET PRODUCTS AND SERVICES THAT WE AND OUR CLIENT BANKS PROVIDE COULD BE
SUBJECT TO SALES OR OTHER TAXES
The tax treatment of the Internet and electronic commerce is currently
unsettled. A number of proposals at the federal, state and local level and by
certain foreign governments would, if enacted, impose taxes on the sale of goods
and services and certain other Internet activities. A recently enacted law
places a temporary moratorium on certain types of taxation on Internet commerce.
We cannot predict the effect of current attempts to tax or regulate commerce
over the Internet. Any legislation that substantially impairs the growth of
electronic commerce could have a material adverse effect on our business,
financial condition and operating results.
WE MAY REQUIRE ADDITIONAL FUNDING TO EXECUTE OUR STRATEGY
Although we believe that our cash reserves, cash flows from operations and
available financing will be adequate to fund our operations for at least the
next 12 months, these sources may be inadequate. Consequently, we may require
additional funds during or after this period. Additional financing may not be
available on favorable terms or at all. If we raise additional funds by selling
stock, the percentage ownership of our shareholders will be reduced. If we
cannot raise adequate funds to satisfy our capital requirements, we may have to
limit our operations significantly. Our future capital requirements depend upon
many factors, including, but not limited to:
- the rate at which we expand our sales and marketing operations;
- the extent to which we expand our solutions;
- the extent to which we develop and upgrade our technology and data
network infrastructure;
- the occurrence, timing, size and success of acquisitions; and
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<PAGE> 20
- the response of competitors to our service offerings.
OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE
We cannot predict the extent to which investor interest in nFront will lead
to the development of a trading market for our common stock or how liquid that
market might become. The initial public offering price for the common stock has
been determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market. Our common stock price could be subject to wide fluctuations in
response to factors such as the following:
- actual or anticipated variations in quarterly results of operations;
- the addition or loss of client banks, client bank customers or strategic
marketing partners;
- the increase or decrease in the number of customers of our client banks
using our system;
- announcements of technological innovations, new products or services by
us or our competitors;
- changes in financial estimates or recommendations by securities analysts;
- conditions or trends in the Internet and on-line commerce industries;
- changes in the market valuations of other Internet-related companies;
- our announcements of significant acquisitions, strategic marketing
partnerships, joint ventures or capital commitments;
- additions or departures of key personnel;
- sales of our common stock;
- general market conditions; and
- other events or factors, many of which are beyond our control.
In addition, the stock market in general, and the Nasdaq National Market
and the market for Internet and technology companies in particular, have
experienced extreme price and volume volatility that have often been unrelated
or disproportionate to the operating performance of companies trading on those
markets. These broad market and industry factors may materially and adversely
affect our stock price, regardless of our operating performance. The trading
prices of the stocks of many Internet and technology companies are at or near
historical highs and reflect relative valuation levels substantially above
historical levels. These trading prices and relative valuation levels may not be
sustained.
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MANAGEMENT OWNS A LARGE PERCENTAGE OF OUR STOCK
Following this offering, our officers, directors and affiliated persons
will beneficially own approximately % of our common stock ( % if the
underwriters exercise their over-allotment option in full). Brady L. "Tripp"
Rackley III, our Chief Executive Officer, will beneficially own approximately
% of our common stock ( % if the underwriters exercise their
over-allotment option in full) following this offering. As a result, our
officers, directors and affiliated persons will effectively be able to:
- elect, or defeat the election of, our directors;
- amend or prevent amendment of our Articles of Incorporation or Bylaws;
- effect or prevent a merger, sale of assets or other corporate
transaction; and
- control the outcome of any other matter submitted to the shareholders for
vote.
Our public shareholders, for so long as they hold less than 50% of our
common stock, will be unable to control the outcome of these transactions.
Management's stock ownership may discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of nFront, which in turn
could reduce our stock price or prevent our shareholders from realizing a
premium over our stock price.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE
Sales of a substantial number of shares of our common stock in the public
market following this offering could adversely affect the market price of our
common stock. After this offering, shares of our common stock will be
outstanding. All of the shares sold in this offering will be freely tradable
unless held by affiliates of nFront. The remaining shares of common stock
outstanding after this offering will be restricted as a result of securities
laws or lock-up agreements signed by the holder and will be available for sale
in the public market as follows:
- no shares will be eligible for sale as of the date of this prospectus;
- approximately shares will be eligible for sale 180 days after the
date of this prospectus upon the expiration of lock-up agreements with
the underwriters; and
- approximately shares will become eligible for sale thereafter at
various times upon the expiration of their respective holding periods.
Hambrecht & Quist LLC may, in its sole discretion and at any time without
prior notice, release all or any portion of the common stock subject to lock-up
agreements. See "Shares Eligible for Future Sale" for a more detailed
discussion.
YEAR 2000 COMPLIANCE ISSUES COULD ADVERSELY IMPACT OUR BUSINESS
We are in the process of assessing and remediating any Year 2000 issues
associated with our computer systems and software and other property and
equipment. Despite our testing and remediation efforts, our systems and those of
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third parties, including client banks, core processors, other technology
partners, utilities, affiliates, and end users may contain errors or faults with
respect to the Year 2000. Our efforts to address this issue are described in
more detail in "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Impact of Year 2000 Computer Issues." We also face
risks relating to the potential Year 2000 noncompliance of our client banks and
other institutions that support the banks, such as the FedWire system governing
electronic fund transfers and the Federal Reserve system itself. Furthermore, if
a client bank is unable to achieve Year 2000 readiness, the regulators could
suspend that bank's operations, adversely affecting the volume of new bank
customers and transactions generated for us by that bank. Additionally, an
extended disruption in availability of electricity to our facilities resulting
from Year 2000 problems with utility service providers could adversely affect
our business, results of operations and financial condition. Known or unknown
errors or defects that affect the operation of our software and systems and
those of third parties, including content providers, advertisers, affiliates,
and end users could result in delay or loss of revenue, interruption of
services, cancellation of client bank contracts, diversion of development
resources, damage to our reputation, increased service and warranty costs, and
litigation costs, any of which could harm our business.
WE COULD BE LIABLE FOR INFORMATION RETRIEVED FROM OUR WEB SITES
We may be subject to third party claims for defamation, negligence,
copyright or trademark infringement or other theories based on the nature and
content of information supplied on our web sites by us or third parties,
including our content providers or users. These types of claims have been
brought, sometimes successfully, against on-line services in the past. We could
be subject to liability with respect to content that may be accessible on web
sites maintained on our system. Even if these claims do not result in liability
to us, we could incur significant costs in investigating and defending against
these claims and in implementing measures to reduce our exposure to this
liability. Our insurance may not cover potential claims of this type or may not
be adequate to cover all costs incurred in defense of potential claims or to
indemnify us for all liability that we may incur.
WE HAVE BROAD DISCRETION IN SPENDING THE OFFERING PROCEEDS
We expect to use the net proceeds from this offering for repayment of debt;
expansion of our business, including sales, marketing and product development
expenditures; potential future acquisitions; and general corporate purposes,
including working capital. Consequently, our management will have broad
discretion to allocate the net proceeds to uses that shareholders may not deem
desirable. See "Use of Proceeds."
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POTENTIAL ACQUISITIONS INVOLVE RISKS
We may acquire complementary technologies or businesses in the future.
Future acquisitions may involve the issuance of stock that could be potentially
dilutive to our shareholders or may involve additional debt and contingent
liabilities or large one-time write-offs and amortization expenses related to
goodwill and other intangible assets. Any of these factors could adversely
affect our results of operations or stock price. Acquisitions involve numerous
risks, including:
- difficulties in assimilating the operations, products, technology,
information systems and personnel of the acquired company;
- diverting management's attention from other business concerns;
- impairing relationships with our employees, affiliates, strategic
marketing partners and content providers;
- being unable to maintain uniform standards, controls, procedures and
policies;
- entering markets in which we have no direct prior experience; and
- losing key employees of the acquired company.
Some or all of these risks could result in a material adverse effect on our
business, financial condition and results of operations. In addition, we cannot
assure you that we will be able to identify suitable acquisition candidates that
are available for sale at reasonable prices. We may elect to finance future
acquisitions using some or all of the proceeds of this offering. We may also
elect to finance future acquisitions with debt financing, which would increase
our debt service requirements, or through the issuance of additional common or
preferred stock, which could result in dilution to our shareholders. There can
be no assurance that we will be able to arrange adequate financing for any
acquisitions on acceptable terms.
INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE DILUTION
The initial public offering price is expected to be substantially higher
than the pro forma net tangible book value per share of our outstanding common
stock immediately after the offering. Accordingly, purchasers of common stock in
this offering will experience immediate and substantial dilution of
approximately $ in pro forma 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.
CERTAIN PROVISIONS MAY HAVE ANTI-TAKEOVER EFFECTS
Certain provisions of our Second Amended and Restated Articles of
Incorporation, as amended, Amended and Restated Bylaws, other agreements and
Georgia law could make it more difficult for a third party to acquire us, even
if a change in control would be beneficial to our shareholders. For more
information, see "Description of Capital Stock - Antitakeover Effect of Certain
Provisions of Second
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Amended and Restated Articles of Incorporation, Amended and Restated Bylaws and
Georgia Law."
FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in the 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.
Because these forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including our
plans, objectives, expectations and intentions and other factors discussed under
"Risk Factors."
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USE OF PROCEEDS
The net proceeds to nFront from the sale of the shares of
common stock offered by us in this offering, after deducting the underwriting
discount and estimated offering expenses, are estimated to be approximately
$ million. We will not receive any of the proceeds from the sale of
shares by the selling shareholders. The principal purposes of this offering are
to obtain additional capital, to create a public market for our common stock, to
facilitate future access by us to public equity markets and to provide increased
visibility and credibility in a marketplace where many of our current and
potential competitors are or will be publicly-held companies. We expect to use
the net proceeds from the offering to repay the debt described below, to expand
our sales and marketing expenditures, to continue our product development, and
for general corporate purposes. We expect to use $ of the net proceeds
to repay a note outstanding to Silicon Valley Bank which bears interest at the
prime rate plus 1% and matures on August 31, 2001. We used the proceeds derived
from the note for general working capital. As of the date of this prospectus, we
cannot specify with certainty all of the particular uses for the remaining net
proceeds we will have upon completion of the offering. Accordingly, our
management will have broad discretion in the application of the net proceeds.
We may, when the opportunity arises, use an unspecified portion of the net
proceeds to acquire or invest in complementary businesses, products and
technologies. From time to time, in the ordinary course of business, we expect
to evaluate potential acquisitions of such businesses, products or technologies.
However, we have no present understandings, commitments or agreements with
respect to any material acquisition or investment.
Pending use of the net proceeds for the above purposes, we intend to invest
these funds in short-term, interest-bearing, investment-grade securities and use
these funds for general corporate purposes.
DIVIDEND POLICY
nFront has never declared or paid any cash dividends on its capital stock.
We currently intend to retain any future earnings and do not anticipate paying
any cash dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. Our
capitalization is presented:
- on an actual basis;
- on an unaudited pro forma basis to reflect conversion of our redeemable
convertible preferred stock into common stock; and
- on an unaudited pro forma as adjusted basis to reflect conversion of our
redeemable convertible preferred stock into common stock and our receipt
of the estimated net proceeds from the sale of shares of common stock
offered by nFront at an assumed initial public offering price of $ per
share, after deducting underwriting discounts and commissions.
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Long term debt, net of current portion..... $ 427,540 $ 427,540
Redeemable convertible preferred stock, no
par value; 1,000,000 shares authorized;
767,655 shares issued and outstanding at
March 31, 1999; no pro forma and pro
forma as adjusted shares issued or
outstanding.............................. 2,580,222 --
Stockholders' equity (deficit):
Common stock, no par value; 5,000,000
shares authorized; 3,268,628 shares
issued and outstanding at March 31,
1999; 4,036,283 pro forma and pro
forma as adjusted shares issued and
outstanding........................... 710,981 3,291,203
Subscription receivable.................. (777) (777)
Accumulated deficit...................... (2,282,403) (2,282,403)
----------- ----------- --------
Total stockholders' equity (deficit)..... (1,572,199) 1,008,023
----------- ----------- --------
Total capitalization.................. $ 1,435,563 $ 1,435,563
=========== =========== ========
</TABLE>
Upon the closing of the offering, our authorized capital will consist of
70,000,000 shares of common stock and 10,000,000 shares of preferred stock. Upon
the closing of this offering, all of our outstanding preferred stock will
convert into shares of common stock and none of our preferred stock will be
issued or outstanding. We expect there to be shares of common
stock outstanding after the offering, which includes the pro forma adjustments
described above. The outstanding shares exclude shares of common stock
issuable upon the exercise of outstanding stock options at an exercise price of
$3.26 and shares of common stock issuable upon the exercise of outstanding
warrants at an exercise price equal to the initial public offering price.
Read the capitalization table together with the sections of this prospectus
entitled "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
related notes included in this prospectus.
25
<PAGE> 27
DILUTION
As of March 31, 1999, nFront had a pro forma net tangible book value of
approximately $1.0 million, or $0.25 per share of common stock. Pro forma net
tangible book value per share represents the amount of total tangible assets of
nFront reduced by its total liabilities, divided by the number of shares of
common stock outstanding after giving effect to the conversion of all
outstanding shares of preferred stock into shares of common stock upon
completion of this offering. After giving effect to the receipt by nFront of the
estimated net proceeds from the sale of the shares of common
stock offered by nFront hereby, the pro forma as adjusted net tangible book
value of nFront as of March 31, 1999 would have been approximately $
million; or $ per share. This represents an immediate increase in pro
forma 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 initial public offering price per share............. $
Pro forma net tangible book value per share as of March
31, 1999............................................... $0.25
Increase per share attributable to new investors..........
-----
Pro forma as adjusted net tangible book value per share
after this offering.......................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table sets forth on a pro forma basis as of March 31, 1999,
the differences between existing shareholders and new investors with respect to
the number of shares of common stock purchased from nFront, the total
consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.... 4,012,832 % $3,290,426 % $0.82
New investors............
--------- -------- ---------- --------
Total.................. 100.0% $ 100.0%
========= ======== ========== ========
</TABLE>
Other than as noted above, the foregoing computations assume no exercise of
stock options or warrants after March 31, 1999. As of March 31, 1999, options to
purchase 362,182 shares of common stock were outstanding, with an exercise price
of $3.26 per share. Concurrent with this offering, nFront has agreed to issue to
Noro-Moseley Partners IV, L.P. a warrant to purchase a number of shares equal to
$500,000 divided by the initial public offering price per share and exercisable
at that price. Additionally, if CNL Financial Corporation, one of our strategic
marketing partners, achieves specified sales targets, we will be obligated to
issue options to purchase up to 43,392 shares of common stock at an exercise
price of $4.34 per share. To the extent that the outstanding options or warrants
to purchase common stock, or any options or warrants issued in the future, are
exercised, there will be further dilution to new investors.
Sales by the selling shareholders in this offering will reduce the number
of shares of common stock held by existing shareholders to , or
approximately % (approximately %, if the underwriters' over-allotment
26
<PAGE> 28
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."
27
<PAGE> 29
SELECTED FINANCIAL DATA
The following table sets forth our selected financial data and other
operating information. We derived the selected financial data from our financial
statements and related notes included in another part of this prospectus. You
should read the selected financial data together with our financial statements
and related notes and the section of the prospectus entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations." Ernst
& Young LLP, independent auditors, audited our financial statements for the
period from June 17, 1996 (inception) to June 30, 1997, the fiscal year ended
June 30, 1998 and the nine months ended March 31, 1999. The statement of
operations and per share data for the nine months ended March 31, 1998 were
derived from unaudited financial statements which, in the opinion of management,
include all adjustments, consisting of normal recurring accruals, necessary for
a fair presentation of results of operations. You should not rely on interim
results as being indicative of results we expect for the full year.
Additionally, historical results are not necessarily indicative of results to be
expected in the future.
<TABLE>
<CAPTION>
PERIOD FROM FISCAL YEAR NINE MONTHS
JUNE 17, 1996 ENDED ENDED MARCH 31,
(INCEPTION) TO JUNE 30, -----------------------
JUNE 30, 1997 1998 1998 1999
-------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Implementation fees.............................. $ 358,245 $ 722,859 $ 581,375 $ 1,728,179
Monthly service fees............................. 34,263 185,283 102,929 892,816
Other............................................ 458,643 174,287 149,406 214,095
--------- ----------- --------- -----------
Total revenues................................. 851,151 1,082,429 833,710 2,835,090
Operating expenses:
Cost of implementation........................... 246,544 346,054 132,750 697,541
Cost of Internet banking data center............. 61,681 96,732 65,098 213,950
Selling and marketing............................ 194,450 568,928 189,265 1,462,943
Product development.............................. 106,429 170,419 109,164 785,790
General and administrative....................... 157,274 440,099 305,188 1,445,481
Depreciation..................................... 13,780 33,726 23,140 82,893
--------- ----------- --------- -----------
Total operating expenses....................... 780,158 1,655,958 824,605 4,688,598
Operating income (loss)............................ 70,993 (573,529) 9,105 (1,853,508)
Other (income) expense:
Interest income.................................. (3,672) (26,692) (3,916) (63,436)
Interest expense................................. -- 2,084 1,914 18,075
--------- ----------- --------- -----------
Income (loss) before income taxes.................. 74,665 (548,921) 11,107 (1,808,147)
Income tax expense (benefit)....................... 25,925 (25,925) 2,000 --
--------- ----------- --------- -----------
Net income (loss).................................. $ 48,740 $ (522,996) $ 9,107 $(1,808,147)
========= =========== ========= ===========
Net income (loss) per common share -- basic and
diluted.......................................... $ 0.03 $ (0.18) $ 0.00 $ (0.63)
========= =========== ========= ===========
Weighted average shares outstanding -- basic and
diluted.......................................... 1,916,667 3,031,405 3,018,902 3,207,111
========= =========== ========= ===========
Unaudited pro forma net loss per share -- basic and
diluted.......................................... $ (0.18) $ (0.51)
=========== ===========
Unaudited pro forma weighted average shares
outstanding -- basic and diluted................. 3,132,357 3,974,766
=========== ===========
OPERATING DATA (AT END OF PERIOD):
Total client banks under contract.................. 5 40 24 123
Total client banks implemented..................... 2 19 13 83
Total customers at client banks using our
solution......................................... 357 5,240 3,149 19,648
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
AS OF JUNE 30,
---------------------- AS OF MARCH 31,
1997 1998 1999
--------- ---------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 243,525 $2,521,384 $ 1,530,458
Working capital (deficiency).............................. (71,787) 1,957,205 561,185
Total assets.............................................. 402,345 2,998,128 3,802,645
Long-term debt, net of current portion.................... -- -- 427,540
Redeemable convertible preferred stock.................... -- 2,375,561 2,580,222
Total stockholders' equity (deficit)...................... 49,240 (209,391) (1,572,199)
</TABLE>
29
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes included elsewhere in this prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from the results
anticipated in these forward-looking statements as a result of factors
including, but not limited to, those under "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
nFront provides a comprehensive, outsourced solution that enables small to
mid-sized banks to offer their retail and commercial customers banking and
financial services through the Internet. nFront's products and services provide
bank-branded Internet applications to these banks, enabling the banks to offer
products, services and transactions over the Internet in a secure environment.
We were founded and incorporated in June 1996. From June 1996 through May 1997,
our principal activities consisted of developing our nHome product, recruiting
employees and raising capital. Our revenue during this period was generated
primarily through software licensing fees from our nHome product. In June 1997,
in response to the significant demand from small to mid-sized banks, we opened
our Internet banking data center and began focusing on providing our client
banks with a comprehensive outsourced Internet banking solution. In March 1999,
we released our nBusiness product, which is designed to meet the specific needs
of a bank's commercial customers. Our nHome product has been responsible for
generating most of our revenue to date.
We derive revenue from multi-year service contracts under which our client
banks pay us the following fees:
- an up-front implementation fee for developing each client bank's uniquely
branded web site;
- recurring fees based primarily on the number of customers of our client
banks that use our products;
- transaction-based fees; and
- fees for materials and services provided to client banks to support their
customer marketing efforts and to train their staff on how best to manage
customers on the Internet branch.
The implementation fee, which is billable to the client bank when the
contract is executed, is recognized as revenue over the implementation period,
which currently averages approximately three months. We record the unrecognized
portion of billable implementation fees as deferred revenue. Revenue from
monthly user fees and transaction fees are recognized monthly based on the
number of users with accounts on the bank's Internet branch at the end of the
month and the transactions occurring during the month. The service contracts
with the banks are typically five year exclusive agreements. The revenue from
marketing and training support materials and services is recognized at the time
the materials are delivered or the services are provided.
30
<PAGE> 32
We compensate both our sales representatives and strategic marketing
partners with commissions. Sales representatives' commissions are determined
using a fixed commission schedule, which is based on the total asset size of the
applicable client bank sold. Strategic marketing partners' commissions are paid
in accordance with the contractually agreed upon commission schedules in their
respective contracts. These partner commissions vary by partner and are
generally expressed as a percentage of the up-front implementation fee and the
monthly recurring fees.
The agreements with our strategic marketing partners stipulate that either
nFront or the strategic partner is responsible for billing a client bank. In the
event that nFront is responsible for billing the client bank, we recognize the
gross amount of revenue and the sales commission to the strategic partner as a
selling and marketing expense. In the event that the strategic partner is
responsible for billing the client bank, the strategic partner nets its
commission from these billings before remitting the balance of the funds to us.
Accordingly, we recognize the related revenue net of sales commission and no
sales commission expense is recorded.
To date, the majority of our resources have been directed to creating our
nHome and nBusiness Internet banking products, building our Internet banking
data center, forming exclusive strategic marketing partnerships, marketing our
products and building our sales and marketing team. As we have migrated from a
licensing fee structure to a structure based on recurring revenue generation, we
have incurred significant operating losses since September 30, 1997. Our
strategy is to rapidly expand our base of client banks, assist these banks in
promoting the use of the nFront system by their customers and increase the
retail and commercial banking communities' awareness and acceptance of the
nFront solution. As such, we anticipate that our operating expenses will
increase substantially in future quarters as we increase our sales force,
significantly increase our marketing and branding efforts, continue to develop
new distribution channels, fund greater levels of product development and expand
our support staff and facilities to facilitate our anticipated growth.
Accordingly, we expect to incur additional losses in future quarters.
31
<PAGE> 33
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS
JUNE 17, 1996 FISCAL ENDED MARCH 31,
(INCEPTION) TO YEAR ENDED ----------------------
JUNE 30, 1997 JUNE 30, 1998 1998 1999
-------------- -------------- -------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Implementation fees.......... $358,245 $ 722,859 $581,375 $ 1,728,179
Monthly service fees......... 34,263 185,283 102,929 892,816
Other........................ 458,643 174,287 149,406 214,095
-------- ---------- -------- -----------
Total revenues............ 851,151 1,082,429 833,710 2,835,090
Operating expenses:
Cost of implementation....... 246,544 346,054 132,750 697,541
Cost of Internet banking data
center.................... 61,681 96,732 65,098 213,950
Selling and marketing........ 194,450 568,928 189,265 1,462,943
Product development.......... 106,429 170,419 109,164 785,790
General and administrative... 157,274 440,099 305,188 1,445,481
Depreciation................. 13,780 33,726 23,140 82,893
-------- ---------- -------- -----------
Total operating
expenses................ 780,158 1,655,958 824,605 4,688,598
Operating income (loss)........ 70,993 (573,529) 9,105 (1,853,508)
Other (income) expense:
Interest income.............. (3,672) (26,692) (3,916) (63,436)
Interest expense............. -- 2,084 1,914 18,075
-------- ---------- -------- -----------
Income (loss) before income
taxes........................ 74,665 (548,921) 11,107 (1,808,147)
Income tax expense (benefit)... 25,925 (25,925) 2,000 --
-------- ---------- -------- -----------
Net income (loss).............. $ 48,740 $ (522,996) $ 9,107 $(1,808,147)
======== ========== ======== ===========
</TABLE>
NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO NINE MONTHS ENDED MARCH 31, 1998
Revenues
Implementation Fees. Implementation fees represent fees generated from
developing the client banks' uniquely branded web sites. Implementation fees
increased from $581,000 during the 1998 period to $1.7 million in the 1999
period. This increase was attributable to an increase in the number of new banks
purchasing the nFront solution, from 19 banks purchasing our solution during the
1998 period to 83 banks during the 1999 period. The increase in banks purchasing
our Internet banking solution reflects increased client bank acceptance of
Internet banking as well as continued development of our products and services
and an increase in our sales force from one individual at March 31, 1998 to a
team of 14 sales representatives at March 31, 1999. We added 12 new sales
representatives since December 1, 1998. Additionally, we introduced our
nBusiness product in March 1999.
Monthly Service Fees. Monthly service fees consist of the monthly fees
charged to our client banks based primarily on the number of bank customers with
accounts on the system and the volume of transactions such as bill payment, fund
transfers and check imaging. These fees increased from $103,000 in the 1998
period to
32
<PAGE> 34
$893,000 in the 1999 period. This increase is attributable to the increase in
customers at our client banks utilizing the nFront system from approximately
3,000 at March 31, 1998 to approximately 19,500 at March 31, 1999.
Other. Other revenue consists of the fees charged to our client banks for
materials and services to support marketing and training efforts as well as
other non-recurring fees, such as custom web site development. These revenues
increased from $149,000 in the 1998 period to $214,000 in the 1999 period
primarily because of increased sales of our marketing materials.
Expenses
Cost of Implementation. Cost of implementation consists primarily of
salaries and wages and facilities costs directly attributable to the
implementation process. Cost of implementation increased from $133,000 in the
1998 period to $698,000 in the 1999 period. This increase reflects the
significant growth in personnel required to accommodate the increase in new
banks purchasing our solution.
Cost of Internet Banking Data Center. Cost of Internet banking data center
consists primarily of salaries and wages and communications costs required to
operate the Internet banking data center. These costs increased from $65,000 in
the 1998 period to $214,000 in the 1999 period to support the significant growth
in the number of client banks and those banks' customers utilizing the nFront
system.
Selling and Marketing. Selling and marketing expenses consist primarily of
salaries and wages, sales commissions, advertising, travel, public relations and
marketing materials and tradeshow costs. Sales and marketing expenses increased
from $189,000 in the 1998 period to $1.5 million in the 1999 period. The
increase reflects the expansion of our sales force and a substantial increase in
sales commissions paid to our sales representatives and strategic partners due
to our increased sales. We believe that these expenses will increase
significantly in the future as we continue to expand our sales force and
increase our marketing and advertising efforts.
Product Development. Product development expenses consist primarily of
salaries and wages costs. Product development expenses increased from $109,000
in the 1998 period to $786,000 in the 1999 period. This increase reflects the
increase in technical personnel to support the continued development of our
nHome product and the development of our new nBusiness product, which was
released in March 1999.
General and Administrative. General and administrative expenses consist
primarily of salaries and wages and other related costs for operations and
executive employees, professional fees and certain facilities-related expenses.
General and administrative expenses increased from $305,000 in the 1998 period
to $1.4 million in the 1999 period. This increase is attributable to an increase
in personnel and facilities expenses necessary to support our expanded
operations.
Depreciation. Depreciation expense increased from $23,000 in the 1998
period to $83,000 in the 1999 period primarily as a result of depreciation of
new computer equipment associated with the growth of the Internet banking data
center as well as depreciation of our enhanced administrative systems. During
the 1999 period, we added new sales automation, customer support and accounting
systems.
33
<PAGE> 35
Interest Income. Interest income increased from $4,000 in the 1998 period
to $63,000 in the 1999 period as a result of interest earned on cash balances
during the period. We raised approximately $2.8 million in proceeds from private
equity offerings from May 1998 to September 1998.
Interest Expense. Interest expense increased from $2,000 in the 1998
period to $18,000 in the 1999 period as a result of borrowings under our line of
credit facility with Silicon Valley Bank. This line of credit was executed in
August 1998. Outstanding borrowings under the facility totaled $729,000 as of
March 31, 1999.
Income Taxes. As of March 31, 1999, we had approximately $2.0 million of
federal net operating loss carryforwards, which begin expiring in 2013.
Utilization of these net operating loss carryforwards could become subject to
annual limitation due to "change of ownership" provisions of the Internal
Revenue Code and similar state provisions. For financial reporting purposes, a
valuation allowance has been recognized to reduce net deferred tax assets to
zero due to uncertainties with respect to nFront's ability to realize the
benefit of deferred income tax assets.
FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997
Revenues
Implementation Fees. Implementation fees increased from $358,000 in fiscal
1997 to $723,000 in fiscal 1998. This increase was attributable to the fact that
only five new client banks purchased the nFront solution during fiscal 1997
while 35 banks purchased the nFront solution during fiscal 1998. This increase
was partially offset during fiscal 1998 by the modification of our pricing
structure to lower the up-front charges to the client bank and establish
recurring monthly service fees as well as other transaction-based fees.
Monthly Service Fees. Monthly service fees increased from $34,000 in
fiscal 1997 to $185,000 in fiscal 1998 as a result of the increase in the number
of client bank customers using nFront's products from approximately 300 at June
30, 1997 to approximately 5,200 at June 30, 1998.
Other. Other revenue decreased from $459,000 in fiscal 1997 to $174,000 in
fiscal 1998. This decrease is primarily attributable to one-time revenue
generated from a customized project performed for one client bank in fiscal
1997.
Expenses
Cost of Implementation. Cost of implementation increased from $247,000 in
fiscal 1997 to $346,000 in fiscal 1998. This increase is attributable to the
increase in client banks sold from six in fiscal 1997 to 34 in fiscal 1998.
Cost of Internet Banking Data Center. Cost of Internet banking data center
increased from $62,000 in fiscal 1997 to $97,000 in 1998. These costs increased
to support the significant growth in the number of client banks and these banks'
customers utilizing the nFront system.
Selling and Marketing. Selling and marketing expenses increased from
$194,000 in fiscal 1997 to $569,000 in fiscal 1998. This increase was due
primarily to a substantial increase in sales commissions due to our increased
sales.
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<PAGE> 36
Product Development. Product development expenses increased from $106,000
in fiscal 1997 to $170,000 in fiscal 1998. This increase reflects the increase
in technical personnel to support the continued development of our nHome
product.
General and Administrative. General and administrative expenses increased
from $157,000 in fiscal 1997 to $440,000 in fiscal 1998. This increase is
attributable to an increase in personnel and facilities expenses necessary to
support our expanded operations.
Depreciation. Depreciation expense increased from $14,000 in fiscal 1997
to $34,000 in fiscal 1998 primarily as a result of depreciation of new computer
equipment associated with the growth of the Internet banking data center.
Interest Income. Interest income increased from $4,000 in fiscal 1997 to
$27,000 in fiscal 1998 as a result of interest earned on cash balances during
the period. This increase is due primarily to interest earned on the investment
pending use of the private equity offering proceeds received during fiscal 1998.
35
<PAGE> 37
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly financial
information for each of the seven quarters during the fiscal year ended June 30,
1998 and the nine months ended March 31, 1999. In the opinion of management,
this information has been prepared on the same basis as the audited financial
statements and includes all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the unaudited quarterly results set
forth herein. We expect to continue to experience fluctuations in our quarterly
operating results. Our quarterly results have in the past been subject to
fluctuations and, therefore, the operating results for any quarter or quarters
are not necessarily indicative of results for any future period. The quarterly
results should be read in conjunction with our financial statements and related
notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997 1998 1998 1998 1998 1999
------------- ------------ --------- --------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Implementation fees....... $ 217,313 $ 134,500 $ 229,562 $ 141,484 $ 481,677 $ 730,171 $ 516,331
Monthly service fees...... 28,517 28,603 45,809 82,354 132,706 363,243 396,867
Other..................... 39,982 98,325 11,099 24,881 12,014 105,559 96,522
--------- --------- --------- --------- ---------- ---------- -----------
Total revenues.......... 285,812 261,428 286,470 248,719 626,397 1,198,973 1,009,720
Operating expenses:
Cost of implementation.... 31,414 50,635 50,701 213,304 211,823 219,186 266,532
Cost of Internet banking
data center............. 29,587 14,256 21,255 31,634 47,085 94,826 72,039
Selling and marketing..... 29,481 52,191 107,593 379,663 260,471 428,366 774,106
Product development....... 32,786 41,267 35,111 61,255 146,881 226,610 412,299
General and
administrative.......... 82,350 92,242 130,596 134,911 363,640 464,646 617,195
Depreciation.............. 6,642 7,886 8,612 10,586 16,048 25,977 40,868
--------- --------- --------- --------- ---------- ---------- -----------
Total operating
expenses.............. 212,260 258,477 353,868 831,353 1,045,948 1,459,611 2,183,039
Operating income (loss).... 73,552 2,951 (67,398) (582,634) (419,551) (260,638) (1,173,319)
Other (income) expense:
Interest income........... (1,220) (985) (1,711) (22,776) (26,186) (20,126) (17,124)
Interest expense.......... -- 665 1,249 170 518 8,233 9,324
--------- --------- --------- --------- ---------- ---------- -----------
Income (loss) before
income taxes............ 74,772 3,271 (66,936) (560,028) (393,883) (248,745) (1,165,519)
Income tax expense
(benefit)............... 13,459 589 (12,048) (27,925) -- -- --
--------- --------- --------- --------- ---------- ---------- -----------
Net income (loss).......... $ 61,313 $ 2,682 $ (54,888) $(532,103) $ (393,883) $ (248,745) $(1,165,519)
========= ========= ========= ========= ========== ========== ===========
</TABLE>
The fluctuation in implementation fee revenue in the quarters ended
September 30, 1997, December 31, 1997 and March 31, 1998 reflects the
unpredictability of client bank sales in the early stages of our business. The
decrease in implementation fee revenue and the corresponding increase in other
fees during the quarter ended June 30, 1998 reflects our significant decrease in
the standard up-front implementation fee resulting from our migration from a
licensing fee structure to a structure based on recurring revenue generation.
The decrease in implementation fee revenue during the quarter ended March 31,
1999 reflects a decrease in the number of new banks purchasing nFront products
and services in December 1998 and January 1999 as compared to the previous
quarter and the resulting reduction in revenue recognized over the three month
implementation
36
<PAGE> 38
periods. The relatively slower growth in monthly service fees during the same
quarter also reflects a decrease in the number of new banks purchasing nFront
products and services in December 1998 and January 1999. Our sales have
historically decreased in the month of December. Additionally, our focus on
building the sales team contributed to slower sales in the month of January.
The increase in cost of implementation during the quarter ended June 30,
1998 reflects an increase in one-time set up costs to establish our bill payment
interfaces. The increase in selling and marketing expenses during this quarter
reflects a one-time contractually agreed upon fee paid to a client bank.
Our revenues and operating results are likely to vary significantly from
quarter to quarter in the future due to a number of factors, many of which are
outside of our control. These factors include: our ability to sell our products
and services to banks; our client banks' abilities to convert their customers to
Internet banking; services or products introduced by us or by our competitors;
the timing and uncertainty of sales cycles; seasonal declines in sales, which
typically occur in the fourth calendar quarter; 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 client banks' web sites; and general
economic conditions, as well as economic conditions specific to the banking and
financial services industries.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have raised approximately $4.0 million of capital,
consisting of $2.3 million of redeemable convertible preferred stock, $950,000
of common stock and $750,000 of debt. Through March 31, 1999, we have invested
$900,000 in capital expenditures. Beyond our capital expenditures, the funds we
have raised have been applied to support our working capital needs. Our working
capital needs have expanded significantly as our client bank base has grown to
123 banks as of March 31, 1999.
As of March 31, 1999, we had $729,000 of senior debt outstanding with
Silicon Valley Bank, with principal maturing in thirty equal installments
through August 31, 2001. At March 31, 1999, we had cash of $1.5 million.
In April 1999, we entered into a debenture purchase agreement with Noro-
Moseley Partners IV, L.P. Under this agreement, Noro-Moseley agreed to purchase
up to $5.0 million of senior subordinated debentures upon request by us. No
debentures have been issued under this agreement. The obligation of Noro-Moseley
to purchase debentures under the agreement expires upon the occurrence of this
offering. In exchange for its commitment under the agreement, we will issue to
Noro-Moseley a three-year warrant to purchase a number of shares equal to
$500,000 divided by the initial public offering price of our common stock,
exerciseable at the initial public offering price. One of our directors, Mr.
Charles D. Moseley, Jr., is a member of MKFJ-IV, LLC, the general partner of
Noro-Moseley.
In the next twelve months we expect to invest approximately $500,000 in
capital expenditures. We believe that our existing capital resources, together
with the estimated net proceeds from this offering, will be sufficient to fund
our operations
37
<PAGE> 39
for at least the next 12 months. If we expand more rapidly than currently
anticipated, if our working capital needs exceed our current expectations or if
we make acquisitions, we may need to raise additional capital from equity or
debt sources. We cannot be sure that we will be able to obtain the additional
financing necessary to satisfy these expanded cash requirements or to implement
an expanded growth strategy on acceptable terms or at all. If we cannot obtain
this financing on terms acceptable to us, we may be forced to curtail some
planned business expansion and may be unable to fund our ongoing operations.
During the nine month period ended March 31, 1999, we used net cash of $1.7
million for operating activities, as compared to $236,000 for the nine month
period ended March 31, 1998. Operating activities for the nine month period
ended March 31, 1999 consisted primarily of a $1.8 million net loss. Cash used
in operating activities in fiscal 1998 included a net loss of $523,000 and an
increase in accounts receivable of $175,000 partially offset by an increase in
deferred revenue of $522,000. Cash provided by operating activities in fiscal
1997 included net income of $49,000 and an increase in accrued liabilities of
$214,000.
Cash used in investing activities was $716,000 for the nine month period
ended March 31, 1999, as compared to $66,000 for the same period ended March 31,
1998. Investing activities for the 1999 period consisted of capital expenditures
totaling $716,000. These capital expenditures were related primarily to the
expansion of the Internet banking data center as well as the additional
furniture and equipment needed to accommodate our growth. Cash used in investing
activities in fiscal 1998 consisted of capital expenditures of $120,000 related
primarily to equipment purchases for the Internet banking data center. Cash used
in investing activities in fiscal 1997 consisted of capital expenditures of
$47,000 related primarily to purchases of office equipment.
Cash provided by financing activities was $1.4 million for the nine months
ended March 31, 1999, as compared to $300,000 for the 1998 period. Financing
activities included net proceeds from our bank credit facility of $729,000 and
$650,000 from the sale of our common stock. Cash provided by financing
activities in fiscal 1998 included proceeds of $2.3 million from the sale of our
preferred stock and $300,000 from the sale of our common stock. Cash provided by
financing activities in fiscal 1997 consisted of $500 from the sale of our
common stock.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective July 1, 1998, we adopted Statement of Financial Accounting
Standard No. 130, Reporting for Comprehensive Income, or FAS 130. FAS 130
requires disclosures of components of non-stockholder changes in equity in
interim periods and additional disclosures of components of non-stockholder
changes in equity on an annual basis. Adoption of FAS 130 had no impact on our
results of operations or financial position.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, Disclosures about Segments of an
Enterprise and Related Information, or FAS 131. We adopted FAS 131 effective
July 1, 1998. The adoption of this standard did not have a material effect on
our financial statement disclosures.
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In March 1998, the AICPA issued Statement of Position 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use, or SOP
98-1. We will adopt SOP 98-1 effective July 1, 1999. We have not completed our
evaluation of the impact of adopting SOP 98-1 but do not expect its adoption to
have a material effect on our financial position or results of operations.
IMPACT OF YEAR 2000 COMPUTER ISSUES
The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year without specifying the century.
As a result, date-sensitive software may recognize a date of "00" as the year
1900 rather than the Year 2000. This could result in system failures or
miscalculations causing disruptions of nFront's operations, including a
temporary inability to process transactions, send invoices or engage in other
business activities, and, as a result, the operations of the banks and end users
that we serve. Year 2000 issues impact nFront both on an external basis in
connection with the products and services we offer to banks and end users, as
well as on an internal basis as to our own operations and systems. We also face
risks relating to the potential Year 2000 non-compliance with institutions that
provide services to us, merchants processing electronic transfer of funds, the
FedWire system governing electronic funds transfers and the Federal Reserve
system itself. We believe that based on our assessments to date, material Year
2000 issues that we have identified that are within our control can be
corrected. The failure of nFront or third party hardware or software that is
used by nFront or in conjunction with our products to be Year 2000 compliant
could have a material adverse effect on nFront's financial position and results
of operations.
Year 2000 Project Team. We have assembled a Year 2000 Project Team,
composed of nFront employees from our senior management, product management,
development, Internet banking data center, support, implementation, accounting
and facilities management working groups. Our Year 2000 Project Team has
identified software, equipment and systems that are material to our business,
and we have reviewed and tested our nFront products, as well as the software,
equipment and systems supplied to us by third party vendors, to determine their
ability to correctly process date changes from 1999 through 2000. The goals of
the Project Team are to minimize any Year 2000-related impact to our bank
customers and their customers; maintain Year 2000 readiness as a top business
priority; and work closely with our internal and external business partners to
achieve Year 2000 readiness. Management believes the costs related to Year 2000
compliance have not and will not have a material effect on nFront's financial
condition, results of operations and cash flows.
nFront Products. We designed our products to be Year 2000 compliant. Year
2000 remediation efforts to nFront's products were minor due to nFront's
awareness of Year 2000 issues when our products were updated in early 1998.
nFront products require users to enter a four-digit date code for each date, and
each product process stores and displays dates only in a four-digit year format.
We tested our products in test environments intended to emulate a Year 2000
environment. Testing was performed on the century date change as well as other
critical date rollovers such as leap year using significant dates both before
and after January 1, 2000. No significant problems were detected as a result of
this testing.
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Year 2000 External Efforts and Issues. We have substantially completed the
replacement, modification or retirement of hardware or software components for
nFront products and services that were identified by the Year 2000 Project Team
to be vital to our core business processes and at risk for Year 2000 failures.
In addition, we have requested that our customers, vendors, and other business
partners participate in our readiness efforts and update us on their Year 2000
progress. Many of our computer systems and business operations are provided
and/or maintained by outside suppliers. nFront's key vendors and suppliers have
been asked to demonstrate sufficient Year 2000 readiness. Where feasible, we
have tested vendor supplied products that are critical to our operations.
Year 2000 Internal Efforts and Issues. Our Year 2000 Project Team has
completed corporate-wide inventory of nFront's internal application and system
software and of our computers and other equipment, such as our building security
systems, fire alarm systems and HVAC equipment, to determine if this equipment
uses embedded computer chips that may be date sensitive. Based on this analysis,
nFront has upgraded hardware and software deemed vital to our on-going business
by the Year 2000 Project Team to versions or releases identified by their
vendors as Year 2000 ready or compliant; implemented computer code changes for
non-critical issues not affecting Year 2000 compliance; and substantially
completed remediation of identified Year 2000 issues in "mission critical"
systems, or systems that are vital to the successful continuance of core
business activities.
Contingency and Business Continuity Planning. Our Year 2000 Project Team
has designed a corporate business continuity plan specific to Year 2000 issues
to address certain potential disruptions to business identified by the Year 2000
Project Team that may impact our customers, associates and business partners. In
addition, we have developed consolidated readiness plans and schedules for
business areas to enable us to react to such identified potential events that
could impact normal business routines.
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BUSINESS
The following Business section contains forward-looking statements relating
to future events or the future financial performance of nFront, which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
nFront is a leading provider of products and services designed to enable
small to mid-sized banks to provide Internet banking and other financial
services to their retail and commercial customers. Through our outsourcing
model, our client banks purchase our products as services, paying us on a
monthly basis depending on the level of usage by their customers. Our solution
enables our client banks to utilize the Internet to retain current customers,
acquire new customers, offer additional products and services, decrease costs
and increase fee income. By enabling banks to offer comprehensive Internet
banking services, as well as additional financial products and services, the
nFront solution enables our client banks to create a bank-branded web site that
becomes a financial destination for the client bank's customers.
Our solution consists of our Internet banking products, our Internet
banking data center which facilitates use of the products, implementation and
web site design services and marketing support services. Our nHome product
provides Internet banking services targeted at meeting the banking needs of a
bank's retail customers. Our nBusiness product provides banking services
specifically designed to meet the needs of the bank's commercial customers.
Through our Internet banking data center, we provide the necessary
communications, transaction processing and data storage services to operate the
system. We work closely with each of our client banks to design the appearance
of their Internet branches, implement and integrate our system with the banks'
existing computer systems and train the banks' employees to market our products.
As of March 31, 1999 we had 123 client banks.
INDUSTRY BACKGROUND
Growth of the Internet and Electronic Commerce
The Internet has emerged as a significant global communications medium
enabling millions of people to share information and conduct business
electronically. International Data Corporation estimates that the number of Web
users world-wide will grow from approximately 97 million in 1998 to
approximately 320 million by 2002. This growth is being driven by a number of
factors, including an expanding base of personal computers in the home and
workplace; improvements in network infrastructure; easier, faster and cheaper
access to the Internet and commercial on-line services; advances in network and
communication security; increased general awareness of the Internet among
consumer and business users; and the introduction of alternative
Internet-enabled devices, such as televisions and handheld devices.
As access to the Internet expands, businesses are increasingly using the
Web as an effective means of retaining customers, acquiring new customers,
selling additional products and services to their existing customer base and
reducing costs.
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The ease of use, functionality and accessibility of the Internet have made it an
increasingly attractive commercial medium by providing features that
historically had been unavailable through traditional channels of customer
contact. For example, the Internet provides users with convenient access to
large amounts of dynamic data to support their financial management, investment
management and purchasing decisions. Through the Internet, businesses are able
to communicate effectively with customers by providing access to information,
including frequent updates of new products and services, content, pricing and
visual presentations. Additionally, businesses can utilize customer-specific
data obtained through the customer's interaction with the business' web site to
market services and products targeted at the particular customer. International
Data Corporation estimates that goods and services purchased over the Internet
in the U.S. will increase from approximately $26 billion in 1998 to over $269
billion in 2002.
In addition to its use as a general commercial medium, the Internet has
rapidly emerged as a means of providing financial products and services. Many
companies increasingly are offering a variety of financial products and
services, including credit cards, brokerage services, insurance products and
commercial and retail banking services, via the Internet. For example, according
to International Data Corporation, the number of on-line brokerage accounts in
the United States is expected to grow from 3.5 million at the end of 1997 to 24
million at the end of 2002.
Emergence of Internet Banking
Banks have historically used technology to create alternative distribution
channels for their services in order to reduce their customers' dependence on
traditional physical branch locations. Examples include automated teller
machines or ATMs, telephone banking and electronic banking. The primary benefits
sought by banks in their attempts to reduce customers' reliance on traditional
branches were, among others, to reduce costs, increase the breadth and
availability of services and differentiate themselves from their competitors.
Although banks have been successful in directing customers to alternative
distribution channels, these alternatives have historically provided customers
with only limited access to the services available at a traditional branch
location. In seeking cost effective, convenient alternative distribution
channels that will provide customers a full array of services, banks have
recently focused on electronic banking alternatives, such as PC banking and
Internet banking.
Banks originally offered electronic banking by distributing their
proprietary PC-based software to their customers or by developing links between
the bank's computers and PC-based personal finance manager software packages
such as Intuit's Quicken(R) or Microsoft's Money. PC banking provides access to
the customer's accounts and the ability to execute certain banking transactions.
However, limitations of PC banking include:
- customers can only access their bank accounts and related information
from the particular PC on which the PC banking software has been
installed;
- it can be expensive for the bank to provide and support PC banking
because of the significant costs to develop, purchase and maintain the
software and hardware necessary to integrate with the bank's core
operating system and to support the locally-installed copies of software
on the customers' PCs; and
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- PC banking does not enhance the bank's ability to identify and exploit
opportunities to sell other products and services to the customer.
Consequently, only a relatively small number of banks have offered a PC
banking solution.
The proliferation of the Internet has enabled the development and
implementation of Internet banking systems that overcome many of the limitations
of PC banking. Unlike PC banking, Internet banking only requires that a customer
have a secure Web browser for access to the Internet and the bank. Internet
banking does not require the user to have any other specific software and does
not restrict the customer to a particular PC. Instead, customers may access
their bank information through the Internet using any Web-enabled device to
review account activity, transfer funds, pay bills or transact other business.
Account information is stored on a secure server at all times, protected by
technology designed specifically to safeguard this information. According to
Forrester Research, the number of households banking on-line in the United
States is projected to grow from 2.4 million in 1997 to more than 18 million by
2002.
According to the Office of the Comptroller of the Currency, as of June 30,
1998, there were 374 banks offering transactional Internet banking web sites in
the United States. With the rapid growth of the Internet banking market, many
banks are compelled to offer Internet banking as part of their overall services
in order to remain competitive and continue to retain and attract customers.
Challenges to Implementing Internet Banking Systems
Many banks choose between using in-house resources or licensed technology
to implement an Internet banking system. Common challenges for banks trying to
implement Internet banking systems using internally-developed or licensed
technology include:
- substantial initial investments in hardware, software and communications
equipment required to implement these systems and maintain security and
redundancy;
- difficulty in identifying, attracting and retaining qualified personnel
to implement and manage the system;
- limited access to technical resources to integrate an Internet banking
system into the bank's core computer systems, monitor the system for
security and regulatory compliance and train and support the bank's
customers on the use of the system; and
- competitive risks associated with possible delays in implementing,
supporting or upgrading an Internet banking solution in-house.
These challenges are particularly difficult for most small to mid-sized
banks due to their limited capital and internal technical resources. Many larger
national or "super-regional" banks offer some form of Internet banking currently
and bank customers are increasingly demanding these services. Small to mid-sized
banks are being pressured to provide competitive solutions.
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Many banks, particularly small to mid-sized banks, are seeking to outsource
their Internet banking services as a more cost-effective, efficient means of
providing these services to their customers. An outsourced Internet banking
solution can provide to the small to mid-sized bank the resources necessary to
create an Internet banking service competitive with the services offered by the
large banks.
nFront's Market Opportunity
We believe that a significant opportunity exists to provide small to
mid-sized banks with a comprehensive, outsourced solution that enables these
banks to offer Internet banking services to their customers. As of September 30,
1998, there were more than 10,000 banks, savings and loans and thrifts in the
United States and all but 81 of those had assets below $10 billion.
Approximately 175 million, or approximately 52%, of the deposit accounts with
balances less than $100,000 were held by banks in that small to mid-sized bank
segment. Many consumers and small businesses continue to be attracted by the
customer orientation and local community presence offered by small to mid-sized
banks and are beginning to demand the convenience of Internet banking.
Internet banking also permits banks to more easily expand the financial
products and services offered to their customers to include brokerage services,
credit cards, bill presentment, bill payment, insurance, tax return preparation,
full on-line account origination and retail Web-based purchasing.
NFRONT'S SOLUTION
We provide a comprehensive, outsourced solution that enables small to mid-
sized banks to offer their customers complete branch banking services through
the Internet. Our solution consists of our Internet banking products, our
Internet banking data center which facilitates the use of these products,
implementation and web site design services and marketing and support services.
Our nHome product provides Internet banking services targeted at meeting the
needs of a bank's retail customers. Our nBusiness product provides banking
services specifically designed to meet the needs of the bank's commercial
customers. The nFront Internet banking data center provides the web server
computers, communications, data storage, retrieval and security, as well as
support personnel necessary to operate an Internet branch for each bank, that is
integrated with the bank's existing computer systems. Our solution enables banks
to utilize the Internet to compete more effectively in their markets, retain
current customers, acquire new customers, offer additional products and
services, decrease costs and increase fee income.
By creating Internet branches for our client banks, we enable banks to
become the destination on the Web for bank customers who are increasingly using
the Web to research, evaluate and, if desired, purchase a broad array of
financial products and services. Because of the integral role of bank accounts
in all types of financial transactions and the importance of expanded access to
the information relating to those accounts, we believe that banks are
particularly well suited to provide this financial destination on the Web for
their customers. Our products and services enable our client banks' customers to
access their personal account information, perform a variety of financial
transactions and conduct investment research on the banks' web site. We plan to
expand our products and services to enable client banks
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to offer investment portfolio management, insurance and related sales to
strengthen their position as the financial destination on the Web for their
customers.
The key differentiators of our products and services are:
Outsourced Solution. Our outsourced solution has been designed to have
significantly lower up-front costs, lower overhead, shorter lead times on
initial implementation and upgrades and better access to qualified personnel
than the bank would experience on an in-house basis. Finally, by aggregating the
customer bases and assets of our client banks, our outsourced solution enables
us to take advantage of economies of scale and increased buying power in
negotiating agreements with strategic partners to offer additional products and
services to our client banks' customers, resulting in improved economic
arrangements than would otherwise be the case. By outsourcing the system design,
implementation, operation and support, the bank is free to focus on its core
competency, serving its banking customers, rather than managing the growing
complexities of Internet technology.
Fat Server Architecture. Our products are based on a system architecture
that is commonly referred to as a "fat server" design. With "fat server"
architecture, the system utilizes a relational database located on the nFront
system server to receive and store customer data from a bank's core computer
system. This data storage architecture allows the nFront system to store and
organize the client bank customer's account data locally, without a continuous,
direct connection between the customer and the bank's core system. With the
"thin server" model, which connects the customer directly to the bank's core
system, the information available to the customer is limited to data currently
accessible on the bank's core system.
Fat server architecture provides the following functional advantages over
thin server architecture:
- Access to historical financial information. Information stored on the
fat server allows a customer to generate consolidated reports on
financial transactions spanning an extended period of time. nFront's fat
server system currently stores up to two years of customer data, whereas
thin server systems typically provide access to 60 to 90 days of
financial data. We believe access to more historical account data
promotes increased customer loyalty for a bank.
- Analysis of customer information. A fat server solution enhances the
bank's ability to extract and analyze relevant customer account
information and more efficiently cross-sell products.
- Effective consolidation of financial services. The fat server can more
effectively consolidate the customer's financial data from disparate host
systems in one place. These host systems include banking, brokerage and
insurance financial data.
Ease of Integration through Relationships with Core Processors. We have
interfaces with 28 different core processing systems used by banks, enabling us
to offer faster, more cost-effective integration of our Internet banking
products with a bank's existing core processing system. Core processors provide
the software and services required by banks to process their transactions.
Microsoft NT-Based. The nFront solution is designed to take advantage of
the Microsoft NT application environment. We are the only company to have ever
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received the Microsoft Corporation "Best Industry Solution for Internet Banking"
award. The nFront solution utilizes the Microsoft BackOffice suite, which
provides an integrated, scalable system foundation, allowing nFront to focus on
product development instead of third-party application selection and
integration. The integrated suite of NT server applications enables nFront to
efficiently add new bank clients and their customers without interrupting
service to our existing customers.
STRATEGY
Our objective is to be the leading provider of Internet banking products
and services to the small to mid-sized bank market and to create Web-based
financial destinations for the millions of banking customers in that market. To
achieve our objective, we intend to:
Capitalize on Exclusive, Strategic Partnerships to Expand Base of Client
Banks. Primarily through our strategic marketing partnerships with bank core
processors and other related service providers, we plan to increase the number
of banks offering the nFront products and services to their customers. We have
formed exclusive, five year relationships with many of the key core processors
and other providers of supporting technology to our target banking market
segment. We recently expanded our national sales force to pursue additional
sales opportunities with our strategic marketing partners.
Assist Client Banks in Converting their Customers to the nFront System. A
portion of our service fees are based on the conversion of our client banks'
customers to our system, as well as the number of their customers using our
system each month. We offer to client banks our marketing program and other
support services to promote conversion of their customers to our system. We are
currently expanding our marketing team to achieve this objective.
Build Awareness of nFront's Brands. As our client banks develop their
positions as comprehensive financial destinations on the Web, we are positioning
the "nFront" brand to create broad market recognition of nFront as the leading
provider of solutions enabling banks to offer Internet banking, financial
services and financial destination sites. The nFront logo appears on our client
banks' Internet branches, further promoting the nFront name. In addition, we
plan to use our www.banking.com web site and increased advertising to promote
awareness of our products and services.
Generate Incremental Revenue by Offering Additional Financial Products and
Services through the nFront System. We intend to generate incremental revenue
for ourselves and our client banks by providing additional products and services
to the client banks' customers through the nFront system. These additional
services may include, among others, insurance, brokerage and bill presentment
services. In addition to providing incremental revenue, these products and
services should enhance the client banks' positions as financial destinations on
the Web and improve customer retention for the banks.
Extend Our Technology Leadership. We believe our system architecture
serves as the foundation for our current and future position as a technology
leader in the Internet banking market for small to mid-sized banks. We have made
and intend to
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continue to make substantial investments to improve our core technologies to
enhance the functionality and performance of our products and services.
PRODUCTS AND SERVICES
nFront offers a comprehensive suite of products and services designed to
enable banks to offer complete branch banking services over the Internet to
retail and commercial customers. Our nHome product provides Internet banking
services to a bank's retail customers. Our nBusiness product provides these
services to a bank's commercial customers. We work closely with each of our
client banks to design the appearance of their Internet branches to achieve each
bank's particular branding objectives. The nFront Internet banking data center
provides the computers that operate as the web servers for the system, the
communications equipment, the data storage, retrieval and security software and
hardware, as well as the support personnel, necessary to operate each client
bank's Internet branch and connect each Internet branch to the bank's existing
computer systems.
Through our outsourcing model, our client banks purchase our products as
services, paying us on a monthly basis depending on the level of usage by their
customers. Pricing for our nHome and nBusiness products include an up-front
implementation fee payable upon execution of the contract, recurring monthly
fees, transaction fees and fees for additional marketing and support services.
Products
nHome. The nHome product provides a bank's retail customers a wide array
of branch banking services over the Internet. nHome was initially released in
November 1996. As of March 31, 1999, there were 122 agreements with banks to
provide the nHome product to their customers. With the nHome product, a bank's
retail customers can:
- open new accounts;
- access account summaries and histories;
- download account information to personal finance software, such as
Intuit's Quicken or Microsoft's Money;
- receive electronic images of cleared checks;
- transfer funds;
- pay bills;
- manage pending transactions;
- generate custom reports;
- define event notifications;
- receive on-line customer support; and
- view a fully functional Internet banking demonstration.
nHome also includes components used by the client bank to support the
Internet branch. These administrative components include the ability for the
client banks' customers and potential customers to submit account applications
in a secure environment. Also, the client bank can automatically generate email
responses to customer applications, update product interest rates and terms and
receive customer-specific marketing and data analysis.
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nBusiness. The nBusiness product provides to a bank's small business
customers comprehensive commercial banking services over the Internet. nBusiness
was initially released in March 1999 and as of March 31, 1999, there were 37
agreements with banks to provide the nBusiness product to their customers. The
product has been designed to enable the bank to generate additional fee revenue
by offering its commercial customers a broader array of commercial cash
management services than they currently offer. The nBusiness product provides
the bank the same administrative and support functions available in the nHome
product. With the nBusiness product, a bank's commercial customer receives the
functionality of the nHome product, plus, the customer can:
- debit customer accounts;
- issue stop payment orders;
- pay employees;
- create multiple user security profiles;
- issue wire transfers;
- facilitate direct deposit; and
- initiate electronic tax payments.
Services
We provide the implementation services necessary to install our products,
"brand" the bank's Internet branch and integrate the nFront products into the
bank's core processing system. For a typical nHome installation, these
implementation services range from 120 to 150 man-hours. Additionally, we
provide the following marketing and support services to our client banks:
Client Bank Marketing Program. Our client bank marketing program offers
banks marketing campaigns aimed at converting existing bank customers to the
nFront system and acquiring new customers. The program consists of several
separate pre-designed segments from which the bank can choose. Each segment is
complete with "camera ready" collateral marketing material as well as media
campaign strategies. We may print and produce the materials at an additional
cost or the bank may choose a local vendor to print and produce the materials.
Employee Education Program. The Employee Education Program is a training
program designed to help client banks train their employees on the benefits of
the nFront system and Internet banking. nFront typically conducts training at
the client bank. Training covers topics such as connecting to and navigating the
Web, Internet banking, Internet security, email and related topics. nFront can
employ a "train-the-trainer" approach or train the client's front line staff.
The program includes leaders' guides and participants' kits.
Marketing Consulting Services. We also offer customized consulting
services for those banks with specific marketing and training needs. These
services include competitive analyses, performance reporting, product
recommendations and service and support recommendations. Consulting projects are
priced on a time and materials basis.
INTERNET BANKING DATA CENTER
All of our client bank Internet branches are hosted and processed in our
Internet banking data center. The data center contains the computers that
operate as the web servers for the system, the communications equipment, the
data storage,
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retrieval and security software and hardware, as well as the support personnel,
necessary to operate each client bank's Internet branch and connect each
Internet branch to the client bank's existing computer systems. The data center
communicates with a client bank by transferring the data directly from the
client bank's core system to our servers in the data center utilizing direct
data connections and a workstation running at the client bank.
Our data center provides a controlled access environment that includes a
high capacity battery backup system. The battery backup system provides
continuous power to all production systems including servers, monitors,
telecommunications equipment, and employee workstations. In addition, a diesel
power generator provides backup power to our entire facility in the event of an
extended power outage. We have recently entered into an agreement with Exodus
Communications that provides us with a redundant data center, which will allow
us to continue to provide service in the event of a catastrophic loss of our
primary data center. We expect this redundant data center to be operational by
the quarter ending September 30, 1999.
STRATEGIC MARKETING PARTNERSHIPS
When evaluating Internet banking solutions, banks usually focus on the ease
of interface between their existing core banking software and the Internet
banking software. Core banking software is the central software within a bank
that processes information concerning banking transactions such as deposits and
withdrawals. The link between the core banking software and the Internet banking
software allows for the transfer of transactional data between both software
systems. We have formed five year strategic marketing partnerships with vendors
of core banking software and outsourced data processing services who market our
products exclusively to their customer base. In addition, we have developed
interfaces to the software systems of each of these partners. Our core processor
strategic partners include BISYS, BancTec, SPARAK and First Commerce
Technologies.
We also have exclusive marketing partnerships with other banking technology
providers such as BISYS Document Solutions, a bank check imaging company, and
Southern Data Systems, a bank platform automation company.
SALES
nFront utilizes a direct sales force that works closely with the national
sales forces of each of our strategic marketing partners to capitalize on their
existing relationships within the banking community to promote nFront's products
and services. Many of nFront's sales representatives are teamed with and
assigned a strategic marketing partner customer base on which to focus. The
strategic marketing partner sales representatives identify banks that are
interested in purchasing an Internet banking solution, qualify the customer and
then pass the qualified lead to the nFront sales person. The nFront sales person
manages the sale effort, provides a demonstration of the products and negotiates
and closes the sale. The nFront sales representative continues to leverage the
partner relationship throughout the sales process and continues to work jointly
with the strategic partner sales representative. We compensate both our sales
representatives and strategic partners with commissions.
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In addition to sales representatives focused on the strategic partners,
nFront also has sales representatives that focus exclusively on specific
geographic territories as well as a sales representative that contacts nFront
client banks to explore sales of additional and complementary nFront products
and services. Since December 1, 1998, we have added 12 new sales
representatives, to bring the total to 14 at March 31, 1999.
The typical sales cycle for nFront products is approximately 90 days. We
have recently implemented a sales force automation and customer relationship
management software system that will allow our sales force to view the complete
customer prospect listing, track progress in the sales cycle and report to
management sales progress, thereby facilitating a complete customer contact
program.
MARKETING
We have achieved our historical growth with minimal marketing expenditures.
We have utilized or intend to utilize the following programs and promotional
activities to enhance our sales efforts:
Advertising. We employ joint marketing efforts with our strategic partners
nationwide, and we advertise in financial publications, trade magazines and
financial industry directories. In addition, the nFront logo appears on our
client banks' Internet branches further promoting the nFront name.
Public Relations. We proactively pursue public relations opportunities to
build brand awareness for nFront and its products. We target traditional print,
syndicated news services and industry events with our public relations programs.
We participate actively in industry trade shows, both on our own and jointly
with our strategic partners. To date, participation in industry trade shows has
been our primary means of marketing.
Direct Mail. We use direct mail to deliver our message to the key decision
makers at all targeted banks in the United States. Direct mail campaigns will
often be co-branded with our strategic partners.
Telemarketing. To support our direct mail campaigns and advertising, we
utilize telemarketing to target decision makers at community banks. We also use
telemarketing to pre-qualify Internet banking leads as well as to sell
additional products and services to existing nFront clients.
PRODUCT DEVELOPMENT
Our product development efforts focus on enhancing current product
functionality and adding new products to the nFront product line. We will
continue to develop real time interfaces, check imaging, bill payment and bill
presentment interfaces to our strategic marketing partners' systems. New
functionality planned for nHome includes on-line brokerage, deposit imaging,
statement imaging, bill presentment and credit scoring. New functionality
planned for nBusiness includes Internet payroll, managerial graphing capability,
electronic data interchange functionality and other business applications.
Our product development strategy includes clear definition and separation
of responsibilities. We approach each development effort using the same
fundamental
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<PAGE> 52
set of guidelines and standards. The development process also allows for
feedback from nFront's client banks and from internal resources as defined
milestones are reached. nFront uses the rapid application development, or RAD,
technique in order to manage product development cycles to attempt to keep pace
with rapid changes in technology.
CLIENT BANKS
Our target market is the approximately 10,000 small to mid-sized banks in
the United States. As of March 31, 1999, we had 123 client banks, of which 83
had completed implementation and were operating an Internet branch. The average
asset size of our client banks as of that date was $490 million.
For the nine months ended March 31, 1999, no individual client bank
accounted for 10% of our total revenues, although client banks sold and billed
through the BISYS strategic marketing partnership represented 26% of our revenue
for that period. One client bank, First Commerce Bank, accounted for 14% of our
total revenues in the fiscal year ended June 30, 1998 and for 57% of our total
revenues in the fiscal year ended June 30, 1997.
COMPETITION
The Internet technology, financial services and secure network
communication industries all represent dynamic and competitive markets. We
continue to expect competition to intensify in the future, especially with
respect to Internet financial service products. Because of the diverse and
changing competitive marketplace in the financial services industry and for
Internet related products and services, there can be no assurance that we have
identified or considered all possible present and future competitors or that the
discussion set forth below represents a complete coverage of competition.
We believe that we face two basic levels of competition in our market. The
first is competition from companies offering competitive Internet banking
solutions to banks. The second is competition which our client banks face in
providing Internet-based financial products and services to their customer base.
We believe that the principal competitive factors in our market are
industry trust, technical capabilities, operating effectiveness, cost and
scalability, customer service, security, speed to market, and capital. Many of
our competitors have the financial, technical and marketing resources, plus
established industry relationships, to better compete based on these factors.
Competitive pressures we face may have a material adverse effect on our
business, financial condition or operating results.
The market for on-line banking and financial software and services is
competitive, rapidly evolving and subject to technological change. With the
continued development of the Internet as an alternative means of delivering
financial services, we expect competition to intensify. Principal competitors
currently include software companies that provide comprehensive in-house
software and Internet integration tools for on-line banking and brokerage
solutions and outsourcing companies that provide similar product functionality
to different target markets.
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<PAGE> 53
With respect to solution providers in competition with us, while we believe
no other company delivers comprehensive, outsourced Internet products and
services to banks in our target market, there are a number of companies that
have similar products and services such as Digital Insight, Edify, FundsXpress,
Q-UP, First Data Direct Banking and Security First Technologies. However, many
of our current and potential competitors have longer operating histories,
greater name recognition, larger customer bases and significantly greater
financial, technical and marketing resources.
We also believe that the competitive forces facing us include the various
competitive alternative approaches for Internet banking solutions, such as thin
servers; fat clients (personal financial management software) and in-house
development. Each of these alternatives competes with our fat server, outsourced
solution.
In providing Internet banking solutions to their customers, our client
banks face competition not only from other banks, but also from non-bank
financial institutions, such as brokerage firms and on-line service providers
such as E*TRADE, Intuit's Quicken.com and Yahoo! Finance.
GOVERNMENT REGULATION
We are not licensed by the Office of the Comptroller of the Currency, the
Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of
Thrift Supervision, the National Credit Union Association or other Federal or
state agencies that regulate or monitor banks or other types of providers of
financial electronic commerce services. Federal, state or foreign agencies may
attempt to regulate our activities. Congress could enact legislation that would
require us to comply with data, record keeping, processing and other
requirements. We may be subject to additional regulation as the market for our
business continues to evolve. For example, Regulation E, which is promulgated by
the Federal Reserve Board, governs certain electronic funds transfers made by
regulated financial institutions and providers of access devices and electronic
fund transfer services, including many aspects of our services. Under Regulation
E, our client banks are required, among other things, to provide certain
disclosure to retail customers, to comply with certain notification periods
regarding changes in the terms of service provided and to follow certain
procedures for dispute resolutions. The Federal Reserve Board may adopt new
rules and regulations for electronic funds transfers that could lead to
increased operating costs and could also reduce the convenience and
functionality of our services, possibly resulting in reduced market acceptance.
Because of the growth in the electronic commerce market, Congress has held
hearings on whether to regulate providers of services and transactions in the
electronic commerce market, and Federal or state authorities could enact laws,
rules or regulations affecting our business operations. We also may be subject
to Federal, state and foreign money transmitter laws, encryption and security
export laws and regulations and state and foreign sales and use tax laws. If
enacted or deemed applicable to us, these laws, rules or regulations could be
imposed on our activities or our business thereby rendering our business or
operations more costly, burdensome, less efficient or impossible, any of which
could have a material adverse effect on our business, financial condition and
operating results.
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<PAGE> 54
The market we currently target, the financial services industry, is subject
to extensive and complex Federal and state regulation. Our current and
prospective clients, which consist primarily of commercial banks and thrifts,
operate in markets that are subject to extensive and complex Federal and state
regulations and oversight. While we are not directly subject to these
regulations, our services and related products must be designed to work within
the extensive and evolving regulatory constraints in which our clients operate.
These constraints include Federal and state truth-in-lending disclosure rules,
state usury laws, the Equal Credit Opportunity Act, the Electronic Funds
Transfer Act, the Fair Credit Reporting Act, Bank Secrecy Act and the Community
Reinvestment Act. Because many of these regulations were promulgated before the
development of our system, the application of these regulations to our system
must be determined on a case by case basis. We do not make representations to
client banks regarding the applicable regulatory requirements, but instead rely
on each bank making its own assessment of the applicable regulatory provisions
in deciding whether to become a client bank. Furthermore, some consumer groups
have expressed concern regarding the privacy, security and interchange pricing
of financial electronic commerce services. It is possible that one or more
states or the federal government may adopt laws or regulations applicable to the
delivery of financial electronic commerce services in order to address these or
other privacy concerns. It is not possible to predict the impact that any of
these regulations could have on our business.
We currently offer services on the Internet. Due to the increasing
popularity of the Internet, it is possible that laws and regulations may be
enacted with respect to the Internet, covering issues such as user privacy,
pricing, content, characteristics and quality of services and products. The
adoption of any of these laws or regulations may limit the growth of the
Internet, which could affect our ability to utilize the Internet to deliver
banking and other financial electronic commerce services.
INTELLECTUAL PROPERTY
Our success will be heavily dependent upon proprietary technology. We rely
primarily on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary rights. Such laws, procedures and contracts provide only limited
protection. We have applied for the federal registration of service marks for
"nFront," "nHome" and "nBusiness." We have also registered the domain names
"banking.com" and "nFront.com." Despite the precautions that we take, it may be
possible for unauthorized third parties to copy aspects of our current or future
products or to obtain and use information that we regard as proprietary. The
means we employ to protect our proprietary rights may not be adequate.
Additionally, our competitors may independently develop similar or superior
technology. Policing unauthorized use of software is difficult and some foreign
laws do not protect nFront's proprietary rights to the same extent as United
States laws. Litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. Litigation could result
in substantial costs and diversion of our resources and could materially
adversely affect our business, operating results, and financial condition.
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EMPLOYEES
As of March 31, 1999, we had 71 full-time employees, of whom 14 were in
product implementation and support, 21 in sales and marketing, 15 in product
development and 21 in administration. We have never had a work stoppage and none
of our employees are represented under collective bargaining agreements. We
consider our employee relations to be good.
FACILITIES
Our Internet banking data center and administrative, sales, marketing and
development facilities are located in approximately 13,800 square feet of office
space in Norcross, Georgia. In addition, we lease approximately 1,000 square
feet in a facility in Bogart, Georgia, which serves as a location for many of
our graphic designers. We are in the process of expanding our Norcross offices
to a total of approximately 20,000 square feet.
LEGAL PROCEEDINGS
nFront is not a party to any material legal proceeding.
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MANAGEMENT
The following table sets forth certain information about the executive
officers and directors of nFront:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- ------------------------------------
<S> <C> <C>
Brady L. "Tripp" Rackley III........ 28 Chairman of the Board of Directors
and Chief Executive Officer
Robert L. Campbell.................. 48 President, Chief Operating Officer
and Director
Jeffrey W. Hodges................... 32 Chief Financial Officer and
Secretary
Brady L. Rackley.................... 54 Director
Thomas E. Greene III................ 51 Director
Charles D. Moseley, Jr.............. 56 Director (1)(2)
William H. Scott III................ 51 Director (1)
James A. Verbrugge.................. 58 Director (2)
Vincent R. Brennan.................. 36 Senior Vice President -- Sales
Steven S. Neel...................... 29 Senior Vice President -- Operations
W. Derek Porter..................... 27 Vice President -- Research and
Development
Adam M. Naide....................... 32 Vice President -- Marketing
Alan W. Powell...................... 29 Vice President -- Sales
</TABLE>
- -------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Brady L. "Tripp" Rackley III, founder of nFront, has served as Chairman of
the Board and Chief Executive Officer of nFront since its inception in 1996.
Prior to forming nFront, Mr. Rackley served as Chief Operating Officer of
LeapFrog Technologies, Inc., a software development company, from October 1995
until February 1996, and as Vice President -- Development of Systeme Corp., a
software development company, from December 1992 until September 1995. Mr.
Rackley received an Industrial Engineering degree from the Georgia Institute of
Technology and has post-graduate studies in business and human computer
interface from the University of Central Florida. Mr. Rackley is also a member
of the board of the Alexander-Tharpe Foundation, Inc. Mr. Rackley is the son of
Brady L. Rackley.
Robert L. Campbell has served as President and Chief Operating Officer of
nFront since July 1998 and as a Director since September 1998. Prior to joining
nFront, Mr. Campbell worked as an independent consultant for Campbell and
Associates from January to July 1998. Mr. Campbell served as President of
Insight Management, a professional services business, from January 1997 until
November 1997. Mr. Campbell served as President and Chief Executive Officer of
Servantis Systems, Inc., a banking and electronic commerce software and services
firm from July 1993 until the company's acquisition by CheckFree Corp. in March
1996. Mr. Campbell received a Bachelors of Science Degree and a Masters of
Business Administration from the University of Tennessee.
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<PAGE> 57
Jeffrey W. Hodges has served as Chief Financial Officer of nFront since
November 1998 and was elected Secretary in April 1999. Prior to joining nFront,
Mr. Hodges served as Vice President -- Controller of Powertel, Inc., a public
wireless telecommunications provider, from June 1995 until November 1998. From
December 1988 until June 1995, Mr. Hodges served as an auditor at Arthur
Andersen, LLP, an independent accounting firm, serving most recently as Audit
Manager from 1992 to 1995. Mr. Hodges is a graduate of Auburn University with a
degree in accounting and is a Certified Public Accountant.
Brady L. Rackley has served as a Director of nFront since its inception in
1996 and served as Secretary from inception to April 1999. From 1990 until 1995,
Mr. Rackley was the President and Chief Executive Officer of Systeme Corp., a
software development company. Mr. Rackley also has served as the Chairman of the
Board, President and Chief Executive Officer of LeapFrog Technologies, Inc., a
software development Company, since October 1995. Mr. Rackley is the father of
Brady L. "Tripp" Rackley III.
Thomas E. Greene III has served as a Director of nFront since May 1998. Mr.
Greene has served as Chairman of Liberty Street Capital Corporation, an
investment banking company, since May 1995. Prior to joining Liberty Street
Capital Corporation, Mr. Greene served as Vice President of Municipal Finance of
Goldman Sachs & Co. from May 1993 until May 1995.
Charles D. Moseley, Jr. has served as a Director of nFront since May 1998
and as a member of the Audit and Compensation Committees of the Board of
Directors of nFront since November 1998. Mr. Moseley is a member of MKFJ-IV,
LLC, which is the general partner of Noro-Moseley Partners IV, L.P., a venture
capital firm. Mr. Moseley founded Noro-Moseley Partners in 1983, and he is a
director of several private companies. Mr. Moseley received a Bachelors of
Industrial Engineering degree from the Georgia Institute of Technology and a
Masters of Business Administration from Harvard University.
William H. Scott III has served as a Director and a member of the
Compensation Committee of nFront since November 1998. Mr. Scott has served as
the President of ITC Holding Co., a telecommunications service provider, since
December 1991, and has been a director of ITC Holding Co. since May 1989. Mr.
Scott is also an officer and director of several ITC Holding Co. subsidiaries.
In addition, Mr. Scott serves on the Board of Directors of Mindspring
Enterprises, Inc., an Internet service provider; Innotrac Corporation, a
customized, technology-based marketing support services company; ITC Deltacom,
Inc., a full-service telecommunications provider; and Knology Holdings, Inc., a
broadband telecommunications service provider, formerly known as CyberNet
Holdings, Inc. Mr. Scott received a Bachelor of Arts degree from Presbyterian
College and a Masters degree in Business Administration from the University of
Georgia.
James A. Verbrugge has served as a Director and a member of the Audit
Committee of nFront since May 1998. Dr. Verbrugge has served as Professor of
Finance at the University of Georgia since 1968 and currently serves as Chairman
of the University's Department of Banking and Finance. Dr. Verbrugge is also a
member of the Board of Directors of Proactive Technologies Inc., an airport
hospitality services and real estate holding company. Dr. Verbrugge received a
Ph.D. in Economics from the University of Kentucky.
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<PAGE> 58
Vincent R. Brennan has served as Senior Vice President -- Sales of nFront
since March 1998 and is responsible for growing and managing nFront's sales,
marketing and business development units. From September 1998 until March 1999,
Mr. Brennan served as Senior Vice President -- Sales and Marketing of nFront.
Prior to joining nFront, Mr. Brennan was employed by John H. Harland Co. from
June 1986 until September 1998, serving as Senior Vice President -- Sales,
managing the financial markets division from December 1995 until September 1998
and as Vice President from April 1993 until December 1995. Mr. Brennan received
a Bachelor's degree in Business Administration from the University of
Connecticut.
Steven S. Neel has served as Senior Vice President -- Operations of nFront
since July 1996 and is responsible for enhancing customer satisfaction by
implementing and supporting the nFront products and services. Prior to joining
nFront, Mr. Neel served as Vice President -- Implementations of LeapFrog
Technologies, Inc., a software development company, from October 1995 until July
1996. Prior to joining LeapFrog Technologies, Inc., Mr. Neel was a partner from
April 1993 until October 1995 in an Atlanta-based consulting firm where he
obtained experience in the financial services industry. Mr. Neel received a
Bachelor's degree in Management from the Georgia Institute of Technology.
W. Derek Porter has served as Vice President -- Research and Development of
nFront since its inception in 1996 and is responsible for product development
and data center operations. Prior to joining nFront, Mr. Porter worked for
LeapFrog Technologies, Inc., a software development company, as Internet Product
Manager and Director of Product Strategy. Prior to entering the banking software
industry, Mr. Porter worked with IBM Corporation in various technical roles
ranging from technical product support to LAN Applications Specialist. Mr.
Porter received a Bachelor's degree in Management from the Georgia Institute of
Technology.
Adam M. Naide has served as Vice President -- Marketing of nFront since
April 1999 and is responsible for all consumer marketing and product marketing
functions. Prior to joining nFront, Mr. Naide spent ten years in
marketing-management related positions including Director of Marketing with
Primestar Inc., a satellite communications company, from April 1998 until March
1999, Director of Marketing with Cox Communications, a media conglomerate, from
October 1994 until March 1998, and Account Executive with InterServ Services
Corp., a marketing services company, from December 1993 until June 1994. Mr.
Naide consulted independently from July 1994 until September 1994. Mr. Naide
received a Bachelor's degree in Business Administration from Emory University
and a Masters of Business Administration from the University of Georgia.
Alan W. Powell has served as Vice President -- Sales of nFront since August
1997 and is responsible for both partner and non-partner sales and managing and
training the sales department. From May 1997 until August 1997, Mr. Powell was
an Account Executive with nFront. From August 1995 until joining nFront, Mr.
Powell served as a Regional Sales Engineer with Renishaw, Inc., an aerospace
products manufacturer. Prior to joining Renishaw, Mr. Powell worked as an
account engineer with both Sorel Equipment Co. from February 1995 until August
1995 and James Industrial from February 1993 until February 1995. Mr. Powell
received a Bachelor's degree in Industrial Engineering from the Georgia
Institute of Technology.
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<PAGE> 59
TERMS OF DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors is divided into three classes, each of whose members
serve for a staggered three-year term. The Board currently consists of three
Class I directors (Messrs. Brady L. "Tripp" Rackley III, Campbell and Greene),
one Class II director (Mr. Verbrugge) and three Class III directors (Messrs.
Brady L. Rackley, Moseley and Scott). At each annual meeting of shareholders, a
class of directors will be elected for a three-year term to succeed the
directors of the same class whose terms are then expiring. The terms of the
initial Class I directors, Class II directors and Class III directors will
expire upon the election and qualification of successor directors at the 1999,
2000 and 2001 annual meetings of shareholders, respectively. The executive
officers serve at the pleasure of the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The members of the Audit Committee are Charles D. Moseley, Jr. and James A.
Verbrugge. The Audit Committee reviews the scope and timing of our audit
services and any other services our independent auditors are asked to perform,
the auditor's report on our financial statements following completion of their
audit and their policies and procedures with respect to internal accounting and
financial control. In addition, the Audit Committee makes annual recommendations
to the Board of Directors for the appointment of independent auditors for the
following year.
The members of the Compensation Committee are Charles D. Moseley, Jr. and
William H. Scott III. The Compensation Committee reviews and evaluates the
compensation and benefits of all our officers, reviews general policy matters
relating to compensation and benefits of employees of nFront and makes
recommendations concerning these matters to the Board of Directors. The
Compensation Committee also administers our stock option plans.
COMPENSATION OF DIRECTORS
Neither employee nor non-employee directors receive cash compensation for
services performed in their capacity as directors. We reimburse each director
for reasonable out-of-pocket expenses incurred in attending meetings of the
Board of Directors and any of its committees. In addition, directors who are not
nFront employees are eligible to receive options under the nFront Director Stock
Option Plan. Under this plan, eligible directors may receive an option to
purchase shares of nFront common stock upon becoming a director and additional
shares each subsequent year immediately following the annual meeting of
shareholders. After the effective date of this offering, nFront intends to grant
options to purchase shares of nFront common stock to each of our four
non-employee directors pursuant to the Director Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are no Compensation Committee interlocks.
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<PAGE> 60
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the total
compensation paid or accrued by us in 1998 for our Chief Executive Officer, our
only executive officer whose total annual salary and bonuses determined at June
30, 1998 exceeded $100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------- OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Brady L. "Tripp" Rackley III............ 1998 $134,668 $ 0 $25,402(1)
Chairman of the Board and Chief
Executive Officer
</TABLE>
- -------------------------
(1) Includes $13,785 in personal automobile expenses and $10,000 in club dues.
STOCK OPTION AND OTHER COMPENSATION PLANS
nFront, Inc. Stock Incentive Plan. Our Stock Incentive Plan became
effective on September 9, 1998. The aggregate number of shares of nFront common
stock reserved for issuance under the Stock Incentive Plan is 826,000 shares.
The purpose of the Stock Incentive Plan is to provide incentives for key
employees, officers, consultants and directors to promote the success of nFront,
thereby benefiting shareholders and aligning the economic interests of the
participants with those of the shareholders. Awards granted under the Stock
Incentive Plan may be either restricted stock or options intended to qualify as
"incentive stock options" or nonqualified stock options.
As of March 31, 1999, options to purchase 362,182 shares of common stock
were outstanding under the Stock Incentive Plan at a weighted average exercise
price of $3.26 per share. No shares of common stock had been issued upon
exercise of options granted under the Stock Incentive Plan.
Incentive Compensation Plan. We adopted a cash incentive compensation plan
for our 1999 fiscal year. The plan is administered by the Compensation Committee
of the Board of Directors, which determines eligible participants, performance
goals, measurement criteria, performance ratings and amount and timing of
payments. Awards under the plan are determined annually on the basis of our
performance over the year in relation to certain pre-determined financial and
operating goals. All awards are paid in full, in cash, following the year of
performance. Awards are granted under the plan at the sole discretion of the
Compensation Committee.
nFront Director Stock Option Plan. The nFront Director Stock Option Plan
became effective in April 1999. As of April 23, 1999, the Board of Directors had
not yet determined the aggregate number of shares reserved for issuance and no
options to purchase shares of common stock were outstanding under the Director
Stock Option Plan. After the effective date of this offering, nFront intends to
grant options to purchase shares of nFront common stock at a price equal to the
initial public offering price to each of our four non-employee directors
pursuant to the Director Stock Option Plan.
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<PAGE> 61
EMPLOYMENT AGREEMENTS
Brady L. "Tripp" Rackley III and Robert L. Campbell have entered into
employment agreements and non-disclosure, non-solicitation and non-competition
agreements with nFront. Under the employment agreements, Mr. Rackley is entitled
to receive an annual base salary of $175,000 and Mr. Campbell is entitled to an
annual base salary of $135,000. Both are entitled to bonuses as determined by
the Board of Directors. In addition, both are eligible to participate in
nFront's Stock Incentive Plan. Under the terms of the non-disclosure,
non-solicitation and non-competition agreements, Messrs. Rackley and Campbell
have assigned to nFront all of their copyrights, trade secrets and patent rights
that relate to the business of nFront. Additionally, they have agreed not to
compete with nFront during the term of their employment and for one year
afterward. They have also agreed not to solicit customers and employees of
nFront for a period of one year following termination of their employment with
nFront. If nFront terminates their employment other than for cause or they
terminate their employment for good reason, they will be entitled to receive
severance payments equal to the amount of their then-current base salary and
benefits for a twelve month period following termination.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our Second Amended and Restated Articles of Incorporation provide that the
liability of our directors for monetary damages shall be eliminated to the
fullest extent permissible under Georgia law and that we may indemnify our
officers, employees and agents to the fullest extent permitted under Georgia
law.
Our Amended and Restated Bylaws provide that we must indemnify our
directors against all liabilities to the fullest extent permitted under Georgia
law and that we must advance all reasonable expenses incurred in a proceeding
where the director was either a party or a witness because he or she was a
director.
We have entered into agreements to indemnify our directors and certain of
our officers to the full extent permitted under Georgia law. In addition, we
have agreed to defend, hold harmless and indemnify our directors and certain of
our officers against any obligation to pay a judgment, penalty, fine, expenses
and settlement amounts in connection with any action, suit or proceeding brought
by reason of the fact that he or she is a director or officer, as the case may
be, of nFront or is serving, at the request of nFront, as a director, officer,
employee, agent or consultant of another entity. No indemnification will be
provided for any misappropriation of any nFront business opportunity, any act or
omission involving intentional misconduct or a knowing violation of law, any
transaction from which an improper personal benefit was received and other types
of liability under Georgia law. Further, nFront will pay expenses incurred by
directors and officers in defending any covered action, suit or proceeding in
advance of the final disposition of such action, suit or proceeding. We believe
that these agreements, as well as the provisions contained in our articles and
bylaws described above, are necessary to attract and retain qualified persons as
directors and officers.
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<PAGE> 62
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors of nFront pursuant to the provisions of our
charter documents, Georgia law or the agreements described above, nFront 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.
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CERTAIN TRANSACTIONS
In January 1997, LeapFrog Technologies, Inc., a Georgia corporation of
which Brady L. Rackley is Chairman of the Board, exchanged office furniture
having a fair market value of $83,986 for programming services furnished by
nFront having the same value. In October 1997, we loaned Mr. Rackley $20,000,
and he repaid $20,875 in February 1998, constituting payment in full. The loan
was unsecured and had an interest rate of 10.5% per year. In addition, nFront
has retained Mr. Rackley to provide marketing and sales consulting services to
nFront for $70,000 per year. Mr. Rackley is a Director, Secretary and principal
shareholder of nFront.
During the period from October 1997 through January 1998, we borrowed a
total of $90,000 from Brady L. "Tripp" Rackley III, our Chief Executive Officer.
The loans were unsecured, had an interest rate of 10.5% per year and were repaid
in February 1998.
In May 1998, we issued to Noro-Moseley Partners IV, L.P. 767,655 shares of
redeemable convertible preferred stock at a per share price of $3.26. These
shares will be automatically converted into an equal number of shares of common
stock upon the completion of this offering. One of our directors, Mr. Charles D.
Moseley, Jr., is a member of MKFJ-IV, LLC, the general partner of Noro-Moseley.
In May 1998, we paid a $125,000 fee to Liberty Street Capital, an
investment banking company controlled by Mr. Thomas E. Greene III, one of our
directors. The fee was payment for services provided by Liberty Street Capital
to us in connection with the investment in nFront by Noro-Moseley.
In April 1999, we entered into a debenture purchase agreement with Noro-
Moseley Partners IV, L.P. Under this agreement, Noro-Moseley agreed to purchase
up to $5.0 million of senior subordinated debentures upon request by us. No
debentures have been issued under this agreement. The obligation of Noro-Moseley
to purchase debentures under the agreement expires upon the occurrence of this
offering. In exchange for its commitment under the agreement, we will issue to
Noro-Moseley a three-year warrant to purchase a number of shares of common stock
equal to $500,000 divided by the initial public offering price of our common
stock and exerciseable at that price.
Our Chief Executive Officer, Mr. Rackley, and our President, Mr. Campbell,
have employment agreements described in "Management -- Employment Agreements".
Our Board of Directors has adopted a resolution whereby all future
transactions with related parties, including any loans from us to our officers,
directors, principal shareholders or affiliates, must be approved by a majority
of the Board of Directors, including a majority of the independent and
disinterested members of the Board of Directors or a majority of the
disinterested shareholders and must be on terms no less favorable to us than
could be obtained from unaffiliated third parties.
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<PAGE> 64
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of the date of this prospectus and
as adjusted to reflect the sale by nFront of the common stock being offered
hereby with respect to:
- each of our directors;
- each of the selling shareholders;
- each shareholder known by us to be the beneficial owner of more than 5%
of the outstanding shares of common stock; and
- all of our executive officer and directors as a group.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(2) NUMBER OF AFTER THE OFFERING
---------------------- SHARES BEING ----------------------
NAME OF BENEFICIAL OWNER(1) SHARES PERCENTAGE OFFERED SHARES PERCENTAGE
- --------------------------- --------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Brady L. "Tripp" Rackley
III...................... 1,243,590 30.8%
Brady L. Rackley........... 1,197,528 29.7%
Noro-Moseley Partners IV,
L.P.(3).................. 936,537 23.2%
W. Derek Porter............ 225,000 5.6%
William H. Scott III....... 76,766 1.9%
James A. Verbrugge......... 45,000 1.1%
Thomas E. Greene III....... 45,000 1.1%
Robert L. Campbell......... 30,705 *
Charles D. Moseley,
Jr.(4)................... 936,537 23.2%
All directors and executive
officers as a group (13
persons)................. 3,885,813 96.4%
</TABLE>
- ---------------
* Less than 1% of the outstanding common stock.
(1) Except as set forth herein, the business address of the named beneficial
owner is c/o nFront, Inc., 520 Guthridge Court, NW, Suite 100, Norcross,
Georgia 30092.
(2) For purposes of calculating the percentage beneficially owned, the number of
shares of common stock deemed outstanding prior to and after the offering
consists of: (i) 3,268,628 shares outstanding as of March 31, 1999, plus
(ii) 767,655 shares issued upon automatic conversion of the redeemable
convertible preferred stock as a result of this offering. No person in the
above table holds options that may be exercised within 60 days following the
date of this prospectus. The number of shares of common stock deemed
outstanding after this offering includes an additional shares that
are being offered for sale by nFront in this offering. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange
Commission that deem shares to be beneficially owned by any person or group
who has or shares voting and investment power with respect to these shares.
(3) Includes 767,655 shares of common stock issued upon automatic conversion of
all shares of preferred stock and shares of common stock
issuable upon exercise of currently exercisable warrants. The address of
Noro-Moseley Partners IV, L.P. is 9 North Parkway Square, 4200 Northside
Parkway, Atlanta, Georgia 30327.
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<PAGE> 65
(4) Consists of the 936,537 shares owned by Noro-Moseley Partners IV, L.P. Mr.
Moseley is a member of MKFJ-IV, LLC, which is the general partner of
Noro-Moseley Partners IV, L.P. Mr. Moseley disclaims beneficial ownership of
the shares owned by Noro-Moseley Partners IV, L.P. Mr. Moseley's address is
9 North Parkway Square, 4200 Northside Parkway, Atlanta, Georgia 30327.
64
<PAGE> 66
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of nFront consists of 70,000,000 shares of
common stock, no par value per share, and 10,000,000 shares of preferred stock,
no par value per share. The following summary of certain provisions of the
common stock and preferred stock does not purport to be complete and is subject
to, and qualified in its entirety by reference to, the provisions of nFront's
Second Amended and Restated Articles of Incorporation, which is included as an
exhibit to the Registration Statement of which this prospectus is a part, and by
the provisions of applicable law.
COMMON STOCK
As of March 31, 1999, there were 3,268,628 shares of nFront common stock
outstanding held of record by 12 shareholders. There will be shares of
common stock outstanding (assuming no exercise of outstanding options or
warrants after March 31, 1999) after giving effect to the sale of common stock
offered to the public in this offering and conversion of the redeemable
convertible preferred stock. The holders of common stock are entitled to one
vote for each share held of record on all matters submitted to a vote of
shareholders. There are no cumulative voting rights. Subject to preferences that
may be applicable to any outstanding shares of preferred stock, the holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available for the
payment of dividends. In the event of a liquidation, dissolution or winding up
of nFront, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities and liquidation preferences of any
outstanding shares of preferred stock. Holders of common stock have no
preemptive rights or rights to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
nonassessable, and the shares of common stock to be issued upon completion of
this offering will be fully paid and nonassessable.
PREFERRED STOCK
Upon completion of the offering, all outstanding shares of redeemable
convertible preferred stock will be converted on a one-to-one basis into 767,655
shares of common stock. Pursuant to nFront's Second Amended and Restated
Articles of Incorporation, the Board of Directors has the authority, without
further action by the shareholders, to issue up to 10,000,000 shares of
preferred stock in one or more series and to fix the designations, powers,
preferences, privileges and relative, participating, optional or special rights
and the qualifications, limitations or restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the common
stock.
The Board of Directors, without shareholder approval, can issue preferred
stock with voting, conversion or other rights that could adversely affect the
voting power and other rights of the holders of common stock. Preferred stock
could thus be
65
<PAGE> 67
issued quickly with terms calculated to delay or prevent a change of control of
nFront or make removal of management more difficult. Additionally, the issuance
of preferred stock may have the effect of decreasing the market price of the
common stock and may adversely affect the voting and other rights of the holders
of common stock. The Company has no plans to issue any preferred stock.
WARRANTS
Concurrent with completion of this offering, nFront will issue to
Noro-Moseley Partners IV, LLC a warrant to purchase a number of shares of common
stock equal to $500,000 divided by the initial public offering price in this
offering. This warrant, which expires on the third anniversary of the date of
issuance, has an exercise price equal to the price per share of the shares sold
in this offering. The warrant was issued in connection with the debenture
purchase agreement by Noro-Moseley described in "Certain Transactions" above.
ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION, AMENDED AND RESTATED BYLAWS AND GEORGIA LAW
Preferred Stock. As noted above, nFront's Board of Directors, without
shareholder approval, has the authority under nFront's Second Amended and
Restated Articles of Incorporation to issue preferred stock with rights superior
to the rights of the holders of common stock. As a result, preferred stock could
be issued quickly and easily, could adversely affect the rights of holders of
common stock and could be issued with terms calculated to delay or prevent a
change of control of nFront or make removal of management more difficult.
Shareholder Meetings. Under nFront's Amended and Restated Bylaws, the
shareholders may call a special meeting only upon the request of holders of at
least 35% of votes entitled to be cast on each issue proposed to be considered
at the special meeting. Additionally, the Board of Directors, the Chairman of
the Board, the Chief Executive Officer or the President of nFront may call
special meetings of shareholders.
Requirements for Advance Notification of Shareholder Proposals and Director
Nominations. nFront's Amended and Restated Bylaws establish advance notice
procedures with respect to shareholder proposals and the nomination of
candidates for election as directors, other than nominations made by or at the
direction of the Board of Directors or a committee thereof.
Classified Board and Removal of Directors. nFront's Second Amended and
Restated Articles of Incorporation provide for a seven member board of directors
to be elected, initially, to staggered one, two and three year terms and,
thereafter, for successive three year terms. Also, the directors may only be
removed from office for cause by the majority vote of the shareholders at a
meeting for which notice of the removal action has been properly given.
Georgia Business Combination Statute. nFront has elected in its Amended
and Restated Bylaws to be subject to provisions of Georgia law prohibiting
various business combinations involving shareholders that have an economic
interest in the transaction for a period of five years after the shareholder
becomes an interested shareholder of nFront. A "business combination" includes,
among other things, a
66
<PAGE> 68
merger or consolidation involving nFront and the interested shareholder and the
sale of 10% or more of nFront's assets. In general, the Georgia Business
Combination Statute defines an "interested shareholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of nFront and
any entity or person affiliated with or controlling or controlled by such entity
or person.
Georgia Fair Price Statute. The Company has elected in its Amended and
Restated Bylaws to be subject to the "Fair Price" provisions under Georgia law.
These provisions require that a "business combination" with an "interested
shareholder" must be approved by directors of nFront who will continue to be
directors following the business combination and shareholders other than the
interested shareholders. The Fair Price provisions do not restrict a business
combination if the cash, stock or other property received by nFront's
shareholders meet various fair value criteria described in the statute.
These charter provisions and provisions of Georgia law may have the effect
of delaying, deterring or preventing a change of control of nFront.
REGISTRATION RIGHTS
Pursuant to a Shareholder Agreement with nFront, dated as of May 13, 1998,
and the Stock Purchase Warrant between nFront and Noro-Moseley, investors
holding an aggregate of shares of common stock are entitled to certain
rights with respect to the registration of these shares under the Securities
Act. At any time, following a public offering of nFront's common stock, any such
investor may request that nFront file a registration statement that covers the
sale of at least 40% of the shares of common stock held by the investor. An
investor may require that nFront register its common stock for resale only one
time, other than as described below. In addition, if nFront proposes to register
any of its securities under the Securities Act, either for its own account or
for the account of other security holders, the investors are entitled to notice
of the registration and to include shares of common stock in the registration at
nFront's expense. All of these registration rights are subject to certain
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares included in the registration.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
NASDAQ NATIONAL MARKET LISTING
nFront has applied to have its common stock approved for listing on the
Nasdaq National Market under the symbol NFNT.
67
<PAGE> 69
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for nFront's common
stock, and there can be no assurance that a significant public market for the
common stock will be developed or be sustained after this offering. Sales of
substantial amounts of common stock in the public market after this offering, or
the possibility of these sales occurring, could adversely affect prevailing
market prices for the common stock or the future ability of nFront to raise
capital through an offering of equity securities.
After this offering, nFront will have outstanding an aggregate of
shares of common stock. Of these shares, the shares offered hereby
will be freely tradeable in the public market without restriction under the
Securities Act, unless these shares are held by "affiliates" of nFront, as that
term is defined in Rule 144 under the Securities Act. The remaining shares
of common stock outstanding upon completion of this offering will be "restricted
securities," as that term is defined in Rule 144 under the Securities Act. The
restricted securities were issued and sold by nFront in private transactions in
reliance upon exemptions from registration under the Securities Act. Restricted
securities may be sold in the public market only if they are registered or if
they qualify for an exemption from registration, such as Rules 144 or 701 under
the Securities Act, which are summarized below.
Pursuant to certain "lock-up" agreements, all the executive officers,
directors and certain shareholders and employees of nFront, who collectively
hold an aggregate of restricted shares of nFront, have entered into an
agreement with Hambrecht & Quist LLC in which they have agreed not to offer,
sell, contract to sell, grant any option to purchase or otherwise dispose of any
of these shares for a period of 180 days from the date of this prospectus.
Hambrecht & Quist LLC may, in its sole discretion and at any time without prior
notice, release all or any portion of the common stock subject to these lock-up
agreements. Hambrecht & Quist LLC currently has no plans to release any portion
of the securities subject to these lock-up agreements. When determining whether
or not to release shares from the lock-up agreements, Hambrecht & Quist LLC will
consider, among other factors, market conditions at the time, the number of
shares proposed to be released or for which the release is being requested and a
shareholder's reasons for requesting the release. We have also entered into an
agreement with Hambrecht & Quist LLC that nFront will not offer, sell or
otherwise dispose of common stock for a period of 180 days from the date of this
prospectus.
Taking into account the lock-up agreements, the number of shares that will
be available for sale in the public market under the provisions of Rules 144,
144(k) and 701 will be as follows:
- no shares will be eligible for sale as of the date of this prospectus;
- approximately shares will be eligible for sale 180 days after the
date of this prospectus upon the expiration of lock-up agreements with
the underwriters; and
- approximately shares will become eligible for sale
thereafter at various times upon the expiration of their respective
holding periods.
68
<PAGE> 70
Following the expiration of the lock-up periods and subject to applicable
vesting periods, certain shares issued upon exercise of options granted by
nFront prior to the date of this prospectus will also be available for sale in
the public market pursuant to Rule 701 under the Securities Act. Rule 701
permits resales of these shares in reliance upon Rule 144 but without compliance
with certain restrictions, including the holding period requirement, imposed
under Rule 144. In general, under Rule 144 as in effect at the closing of this
offering, beginning 90 days after the date of this prospectus, a person (or
persons whose shares of nFront are aggregated) who has beneficially owned
restricted shares for at least one year (including the holding period of any
prior owner who is not an affiliate of nFront) would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of
(i) one percent of the then outstanding shares of common stock (approximately
shares immediately after this offering) or (ii) the average weekly trading
volume of the common stock during the four calendar weeks preceding the filing
of a Form 144 with respect to the sale. Sales under Rule 144 are also subject to
certain manner of sale and notice requirements and to the availability of
current public information about nFront. Under Rule 144(k), a person who is not
deemed to have been an affiliate of nFront at any time during the 90 days
preceding a sale and who has beneficially owned the shares proposed to be sold
for at least two years (including the holding period of any prior owner who is
not an affiliate of nFront) is entitled to sell the shares without complying
with the manner of sale, public information, volume limitation or notice
provisions of Rule 144.
nFront intends to file after the effective date of this offering a
registration statement on Form S-8 to register approximately shares of
common stock issuable upon the exercise of outstanding stock options or reserved
for issuance under the nFront Stock Incentive Plan and the nFront Director Stock
Option Plan. This registration statement will become effective automatically
upon filing. Shares issued under the foregoing plans, after the filing of a
registration statement on Form S-8, may be sold in the open market, subject, in
the case of certain holders, to the Rule 144 limitations applicable to
affiliates, the above-referenced lock-up agreements and vesting restrictions
imposed by nFront.
Following this offering, the holders of an aggregate of shares of
outstanding common stock and up to shares of common stock issuable upon
exercise of warrants will, under certain circumstances, have rights to require
nFront to register their shares for future sale. See "Description of Capital
Stock -- Registration Rights."
69
<PAGE> 71
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, for whom Hambrecht & Quist LLC, J.C. Bradford & Co.,
Raymond James & Associates, Inc. and SoundView Technology Group, Inc. are acting
as representatives, have severally agreed to purchase from nFront the following
respective number of shares of common stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Hambrecht & Quist LLC.......................................
J.C. Bradford & Co..........................................
Raymond James & Associates, Inc.............................
SoundView Technology Group, Inc.............................
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 nFront's business and the receipt of certain
certificates, opinions and letters from nFront, its counsel and independent
auditors. The nature of the underwriters' obligation is such that they are
committed to purchase all shares of common stock offered hereby if any of the
shares are purchased.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by us and the selling
shareholders in connection with this offering. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares of common stock.
<TABLE>
<CAPTION>
PAID BY SELLING
PAID BY US SHAREHOLDERS
--------------------------- ---------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Per share......................
Total..........................
</TABLE>
We will pay the offering expenses, estimated to be $ million.
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 that price less a concession not in
excess of $ per share. The underwriters may allow and these 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 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
70
<PAGE> 72
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 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 by us.
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 common stock offered by us.
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to 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.
nFront has 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 of those
liabilities.
nFront, the selling shareholders, and other shareholders of nFront,
including executive officers and directors, who will own in the aggregate
shares of common stock after the offering, have agreed that they will
not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or
otherwise dispose of any shares of common stock, options or warrants 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. nFront has agreed that it will not, without the prior written
consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares
of common stock, options or warrants to acquire shares of common stock or
securities exchangeable for or convertible into shares of common stock during
the 180 days following the date of this prospectus, except that nFront may issue
shares upon the exercise of options granted prior to the date hereof and may
grant additional options under its stock option plans, provided that, without
the prior written consent of Hambrecht & Quist LLC, these additional options
shall not be exercisable during this period. Sales of these shares in the future
could adversely affect the market price of the common stock.
Certain persons participating in this offering may over-allot or effect
transactions that stabilize, maintain or otherwise affect the market price of
the common stock at levels above those that 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 this
offering when shares of common stock sold by the syndicate member are purchased
in syndicate covering transactions. These 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.
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<PAGE> 73
Prior to the offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be determined
by negotiations among nFront and the underwriters. Among the factors to be
considered in determining the initial public offering price will be prevailing
market and economic conditions, revenues and results of operations of nFront,
market valuations of other companies engaged in activities similar to nFront's
activities, estimates of the business potential and prospects of nFront, the
present state of nFront's business operations, nFront's management and other
factors deemed relevant. The estimated initial public offering price range shown
on the cover of this preliminary prospectus is subject to change as a result of
changes in these factors.
At the request of nFront, the underwriters have reserved for sale, at the
initial public offering price, not more than five percent of the shares of
common stock offered hereby (not including shares subject to the underwriters'
over-allotment option) for certain parties, including certain officers and
directors of nFront, who have expressed an interest in purchasing shares in this
offering. The number of shares of common stock available for sale to the general
public will be reduced to the extent that these persons purchase these reserved
shares. Any reserved shares that are not so purchased will be offered by the
underwriters to the general public on the same basis as other shares offered
hereby.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the securities
being offered hereby will be passed on for nFront by Morris, Manning & Martin,
L.L.P., Atlanta, Georgia. Certain legal matters in connection with this offering
will be passed on for the underwriters by King & Spalding, Atlanta, Georgia.
EXPERTS
The financial statements of nFront as of and for the period from June 17,
1996 (inception) to June 30 1997, as of and for the fiscal year ended June 30
1998, and as of and for the nine months ended March 31, 1999, appearing in this
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon this report given the authority of
that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered hereby. This prospectus is only a part of the registration
statement and does not contain all of the information included in the
registration statement. Further information with respect to nFront and the
common stock offered hereby can be found in the registration statement.
Statements made in this prospectus as to the contents of any contract, agreement
or other document are not necessarily complete. Documents filed as an exhibit to
the registration statement, and all descriptions in this prospectus are
qualified in all respects by reference to
72
<PAGE> 74
the registration statement. The registration statement and the exhibits and
schedules thereto may be inspected without charge at the public reference room
maintained by the Commission in Room 1024, 450 Fifth Street, N. W., Washington,
D.C. 20549, and at the following regional offices of the Commission: Seven World
Trade Center, Room 1400, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the public reference section of the
Commission at 450 Fifth Street, N. W., Washington, D.C. 20549, Room 1024, at
prescribed rates. The public may obtain information on the operation of the
Commission's public reference room by calling the Commission at 1-800-SEC-0330.
In addition, nFront is required to file electronic versions of these documents
with the Commission through the Commission's Electronic Data Gathering,
Analysis, and Retrieval (EDGAR) system. The Commission maintains an Internet
site at http://www.sec.gov, which contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. Information concerning nFront is also available for
inspection at the offices of the Nasdaq National Market, Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934, as
amended, and, in accordance therewith, will file periodic reports, proxy
statements and other information with the Commission. Such periodic reports,
proxy statements and other information will be available for inspection and
copying at the Commission's public reference rooms and the Commission's web
site, which is described above.
73
<PAGE> 75
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS:
Report of Independent Auditors.............................. F-2
Balance Sheets as of June 30, 1997 and 1998 and March 31,
1999...................................................... F-3
Statements of Operations for the Period from June 17, 1996
(inception) through June 30, 1997, the Fiscal Year Ended
June 30, 1998, and the Nine Months Ended March 31, 1998
(unaudited) and 1999...................................... F-4
Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit) for the Period from June
17, 1996 (inception) through June 30, 1997, Fiscal Year
Ended June 30, 1998, and Nine Months Ended March 31,
1999...................................................... F-5
Statements of Cash Flows for the Period from June 17, 1996
(inception) through June 30, 1997, the Fiscal Year Ended
June 30, 1998, and the Nine Months Ended March 31, 1998
(unaudited) and 1999...................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 76
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
nFront, Inc.
We have audited the accompanying balance sheets of nFront, Inc. (the
"Company") as of June 30, 1997 and 1998 and March 31, 1999 and the related
statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit) and cash flows for the period from June 17, 1996
(inception) through June 30, 1997, the fiscal year ended June 30, 1998 and the
nine months ended March 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of nFront, Inc. at June 30,
1997 and 1998 and March 31, 1999 and the results of its operations and its cash
flows, for the period from June 17, 1996 (inception) through June 30, 1997, the
fiscal year ended June 30, 1998, and the nine months ended March 31, 1999 in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Atlanta, Georgia
April 22, 1999
F-2
<PAGE> 77
NFRONT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, JUNE 30, MARCH 31, MARCH 31,
1997 1998 1999 1999
-------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $243,525 $2,521,384 $1,530,458
Accounts receivable........................... 37,793 116,919 530,035
Unbilled accounts receivable.................. -- 96,199 781,501
Prepaid expenses and other assets............. -- 2,811 34,423
Refundable income taxes....................... -- 51,850 51,850
-------- ---------- ----------
Total current assets................... 281,318 2,789,163 2,928,267
Property and equipment:
Leasehold improvements........................ -- -- 31,742
Software...................................... -- -- 178,505
Furniture and fixtures........................ 106,352 197,541 216,006
Equipment..................................... 25,050 54,199 541,589
-------- ---------- ----------
131,402 251,740 967,842
Less accumulated depreciation................. (13,780) (47,506) (130,399)
-------- ---------- ----------
117,622 204,234 837,443
Other assets.................................... 3,405 4,731 36,935
-------- ---------- ----------
Total assets........................... $402,345 $2,998,128 $3,802,645
======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt............. $ -- $ -- $ 301,793
Accounts payable.............................. 6,791 86,446 211,305
Accrued liabilities........................... 213,900 191,195 773,763
Deferred revenue.............................. 32,404 554,317 1,080,221
Account payable to related party.............. 74,085 -- --
Income taxes payable.......................... 25,925 -- --
-------- ---------- ----------
Total current liabilities.............. 353,105 831,958 2,367,082
Long-term debt, net of current portion.......... -- -- 427,540
Redeemable convertible preferred stock, no par
value; 1,000,000 shares authorized; issuable
in series:
Series A -- 767,655 shares authorized, issued
and outstanding at June 30, 1998 and March
31, 1999; liquidation preference of
$2,782,873 at March 31, 1999; no pro forma
shares issued or outstanding................ -- 2,375,561 2,580,222 $ --
Stockholders' equity (deficit):
Common stock, no par value; 5,000,000 shares
authorized; 3,000,000, 3,069,054 and
3,268,628 shares issued and outstanding at
June 30, 1997 and 1998 and March 31, 1999,
respectively; 4,036,283 pro forma shares
issued and outstanding...................... 1,375 265,642 710,981 3,291,203
Subscription receivable....................... (875) (777) (777) (777)
Retained earnings (deficit)................... 48,740 (474,256) (2,282,403) (2,282,403)
-------- ---------- ---------- ----------
Total stockholders' equity (deficit)... 49,240 (209,391) (1,572,199) 1,008,023
-------- ---------- ---------- ----------
Total liabilities and stockholders'
equity (deficit)..................... $402,345 $2,998,128 $3,802,645 $3,802,645
======== ========== ========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 78
NFRONT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 17, 1996 FISCAL NINE MONTHS ENDED
(INCEPTION) YEAR ENDED MARCH 31,
THROUGH JUNE 30, -------------------------
JUNE 30, 1997 1998 1998 1999
------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Implementation fees.......... $ 358,245 $ 722,859 $ 581,375 $ 1,728,179
Monthly service fees......... 34,263 185,283 102,929 892,816
Other........................ 458,643 174,287 149,406 214,095
---------- ----------- ---------- -----------
Total revenues............... 851,151 1,082,429 833,710 2,835,090
Operating expenses:
Cost of implementation....... 246,544 346,054 132,750 697,541
Cost of Internet banking data
center.................... 61,681 96,732 65,098 213,950
Selling and marketing........ 194,450 568,928 189,265 1,462,943
Product development.......... 106,429 170,419 109,164 785,790
General and administrative... 157,274 440,099 305,188 1,445,481
Depreciation................. 13,780 33,726 23,140 82,893
---------- ----------- ---------- -----------
Total operating expenses....... 780,158 1,655,958 824,605 4,688,598
---------- ----------- ---------- -----------
Operating income (loss)........ 70,993 (573,529) 9,105 (1,853,508)
Other (income) expense:
Interest income.............. (3,672) (26,692) (3,916) (63,436)
Interest expense............. -- 2,084 1,914 18,075
---------- ----------- ---------- -----------
(3,672) (24,608) (2,002) (45,361)
---------- ----------- ---------- -----------
Income (loss) before income
taxes........................ 74,665 (548,921) 11,107 (1,808,147)
Income tax expense (benefit)... 25,925 (25,925) 2,000 --
---------- ----------- ---------- -----------
Net income (loss).............. $ 48,740 $ (522,996) $ 9,107 $(1,808,147)
========== =========== ========== ===========
Net income (loss) per common
share -- basic and diluted... $ 0.03 $ (0.18) $ 0.00 $ (0.63)
========== =========== ========== ===========
Weighted average shares
outstanding -- basic and
diluted...................... 1,916,667 3,031,405 3,018,902 3,207,111
========== =========== ========== ===========
Unaudited pro forma net loss
per share -- basic and
diluted...................... $ (0.18) $ (0.51)
=========== ===========
Unaudited pro forma weighted
average shares outstanding --
basic and diluted............ 3,132,357 3,974,766
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 79
NFRONT, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM JUNE 17, 1996 (INCEPTION) THROUGH JUNE 30, 1997,
FISCAL YEAR ENDED JUNE 30, 1998 AND NINE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE TOTAL
PREFERRED STOCK COMMON STOCK RETAINED STOCKHOLDERS'
-------------------- --------------------- SUBSCRIPTION EARNINGS EQUITY
SHARES AMOUNT SHARES AMOUNT RECEIVABLE (DEFICIT) (DEFICIT)
------- ---------- --------- --------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 17,
1996 (inception).... -- $ -- -- $ -- $ -- $ -- $ --
Proceeds from
issuance of common
stock............. -- -- 3,000,000 1,375 (1,375) -- --
Payment of stock
subscription
receivable........ -- -- -- -- 500 -- 500
Net income............ -- -- -- -- -- 48,740 48,740
------- ---------- --------- --------- ------- ----------- -----------
Balance at June 30,
1997................ -- -- 3,000,000 1,375 (875) 48,740 49,240
Proceeds from
issuance of common
stock............. -- -- 69,054 300,000 -- -- 300,000
Proceeds from the
issuance of
redeemable
convertible
preferred stock,
net of issuance
costs of
$160,172.......... 767,655 2,339,828 -- -- -- -- --
Accretion on
redeemable
convertible
preferred stock... -- 35,733 -- (35,733) -- -- (35,733)
Payment of stock
subscription
receivable........ -- -- -- -- 98 -- 98
Net loss............ -- -- -- -- -- (522,996) (522,996)
------- ---------- --------- --------- ------- ----------- -----------
Balance at June 30,
1998................ 767,655 2,375,561 3,069,054 265,642 (777) (474,256) (209,391)
Proceeds from
issuance of common
stock............. -- -- 199,574 650,000 -- -- 650,000
Accretion on
redeemable
convertible
preferred stock... -- 204,661 -- (204,661) -- -- (204,661)
Net loss.............. -- -- -- -- -- (1,808,147) (1,808,147)
------- ---------- --------- --------- ------- ----------- -----------
Balance at March 31,
1999................ 767,655 $2,580,222 3,268,628 $ 710,981 $ (777) $(2,282,403) $(1,572,199)
======= ========== ========= ========= ======= =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 80
NFRONT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 17, 1996 NINE MONTHS ENDED
(INCEPTION) FISCAL MARCH 31,
THROUGH YEAR ENDED -------------------------
JUNE 30, 1997 JUNE 30, 1998 1998 1999
------------- ------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................... $ 48,740 $ (522,996) $ 9,107 $(1,808,147)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation........................ 13,780 33,726 23,140 82,893
Changes in operating assets and
liabilities:
Accounts receivable............... (37,793) (175,325) (30,948) (1,098,418)
Prepaid expenses and other
assets.......................... (3,405) (4,137) (7,113) (63,816)
Income taxes...................... 25,925 (51,850) (11,591) --
Accounts payable.................. (3,110) (20,355) (21,065) 124,859
Accrued liabilities............... 213,900 (22,705) (204,162) 582,568
Deferred revenue.................. 32,404 521,913 6,929 525,904
-------- ---------- --------- -----------
Net cash provided by (used in)
operating activities................ 290,441 (241,729) (235,703) (1,654,157)
INVESTING ACTIVITIES
Purchase of property and equipment.... (47,416) (120,338) (66,074) (716,102)
-------- ---------- --------- -----------
Net cash used in investing
activities.......................... (47,416) (120,338) (66,074) (716,102)
FINANCING ACTIVITIES
Proceeds from stockholder loan........ -- 90,000 -- --
Repayment of stockholder loan......... -- (90,000) -- --
Proceeds from bank credit facility.... -- -- -- 750,000
Repayment of bank credit facility..... -- -- -- (20,667)
Proceeds from issuance of preferred
stock............................... -- 2,339,828 -- --
Proceeds from issuance of common
stock............................... 500 300,098 300,098 650,000
-------- ---------- --------- -----------
Net cash provided by financing
activities.......................... 500 2,639,926 300,098 1,379,333
-------- ---------- --------- -----------
Net increase (decrease) in cash and
cash equivalents.................... 243,525 2,277,859 (1,679) (990,926)
Cash and cash equivalents at the
beginning of the period............. -- 243,525 243,525 2,521,384
-------- ---------- --------- -----------
Cash and cash equivalents at the end
of the period....................... $243,525 $2,521,384 $ 241,846 $ 1,530,458
======== ========== ========= ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITY
Assets acquired in exchange for
programming services................ $ 83,986 $ -- $ -- $ --
======== ========== ========= ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest................ $ -- $ -- $ -- $ 19,164
======== ========== ========= ===========
Cash paid for income taxes............ $ -- $ 51,850 $ -- $ --
======== ========== ========= ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 81
NFRONT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
nFront, Inc. (the "Company") was incorporated on June 17, 1996 (date of
inception). As the Company had minimal activity between the date of inception
and June 30, 1996, the statements of operations, stockholders' equity and cash
flows for the period ended June 30, 1997 include the period June 17, 1996 to
June 30, 1996. The Company's normal operating cycle is twelve months.
DESCRIPTION OF BUSINESS
The Company provides full-service Internet banking solutions to small to
mid-sized banks. The solutions provided by the Company include development and
implementation services, web site design, maintenance and hosting, customer
service training and support, and marketing consulting.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles required management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and such differences may be
material to the financial statements.
CASH AND CASH EQUIVALENTS
The Company considers unrestricted, highly liquid investments with initial
maturities of less than three months to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of assets ranging from
three to seven years. Repairs and maintenance are charged to expense as
incurred.
PRODUCT DEVELOPMENT COSTS
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,"
requires the capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based upon the Company's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by the Company between completion
of a working model and the point at which the product is ready for general
release have been insignificant.
F-7
<PAGE> 82
NFRONT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
The Company earns revenue from implementation fees, monthly user and
transaction fees and marketing and training support materials and services.
The implementation fee, which is billable to the client bank when the
contract is executed, is recognized as revenue over the implementation period,
which currently averages approximately three months. The Company records the
unrecognized portion of billable implementation fees as deferred revenue.
Revenue from monthly user fees and transaction fees are recognized monthly based
on the number of users with accounts on the bank's Internet branch at the end of
the month and the transactions occurring during the month. The service contracts
with the banks are typically five year exclusive agreements. The revenue from
marketing and training support materials and services is recognized at the time
the materials are delivered or the services are provided.
ADVERTISING
The Company expenses the cost of advertising as incurred. Advertising
expense was $5,116, $59,710 and $215,345 for the period from June 17, 1996
(inception) through June 30, 1997, the fiscal year ended June 30, 1998 and the
nine months ended March 31, 1999, respectively.
STOCK BASED COMPENSATION
SFAS No. 123, Accounting for Stock Based Compensation ("SFAS 123"), sets
forth accounting and reporting standards for stock based employee compensation
plans. As permitted by SFAS 123, the Company accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations ("APB 25"). Under APB 25, no compensation expense is
recognized for stock options granted to employees at fair market value.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. The carrying amounts reported in the balance sheet for cash
and cash equivalents and accounts receivable approximate their fair values.
CONCENTRATION OF CREDIT RISK
The Company's revenues are primarily derived from companies located in the
United States. The Company performs periodic credit evaluations of its
customers' financial condition and does not require collateral. The Company
provides for estimated credit losses at the time of sale.
F-8
<PAGE> 83
NFRONT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company's largest customers comprised the following percentages of
total revenues:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 17, 1996 FISCAL NINE MONTHS
(INCEPTION) THROUGH YEAR ENDED ENDED
JUNE 30, 1997 JUNE 30, 1998 MARCH 31, 1999
------------------- ------------- --------------
<S> <C> <C> <C>
Client bank....................... 57% 14% --
Strategic marketing partner....... -- -- 26%
</TABLE>
Accounts receivable as of June 30, 1997 was substantially from one client
bank. Accounts receivable from three other client banks totaled approximately
$110,000 as of June 30, 1998. Accounts receivable from a strategic marketing
partner totaled approximately $297,000 as of March 31, 1999.
RECLASSIFICATIONS
Certain amounts in the financial statements for the period from June 17,
1996 (inception) through June 30, 1997 and for the fiscal year ended June 30,
1998 have been reclassified to conform to the presentation for the nine months
ended March 31, 1999.
NEW ACCOUNTING PRONOUNCEMENTS
Effective July 1, 1998, the Company adopted SFAS No. 130, "Reporting for
Comprehensive Income," ("SFAS 130"). SFAS 130 requires disclosures of components
of non-stockholder changes in equity in interim periods and additional
disclosures of components of non-stockholder changes in equity on an annual
basis. Adoption of SFAS 130 had no impact on the Company's results of operations
or financial position.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," ("SFAS
131"). The Company adopted SFAS 131 effective July 1, 1998. The adoption of this
standard did not have a material effect on the Company's financial statement
disclosures.
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use," ("SOP
98-1.") The Company will adopt SOP 98-1 effective July 1, 1999. The Company has
not completed its evaluation of the impact of adopting SOP 98-1 but does not
expect the adoption to have a material effect on its financial position or
results of operations.
UNAUDITED FINANCIAL STATEMENTS
According to management, the accompanying unaudited financial statements
for the nine months ended March 31, 1998 have been prepared on substantially the
same
F-9
<PAGE> 84
NFRONT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
basis as the audited financial statements and include all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation of the financial information set forth therein.
UNAUDITED PRO FORMA INFORMATION
If the offering contemplated by this prospectus is consummated, the Series
A Redeemable Convertible Preferred Stock outstanding as of the closing date will
be converted into shares of the Company's common stock. The pro forma
stockholders' equity as of March 31, 1999 reflects conversion of the outstanding
preferred stock into 767,655 shares of common stock. Pro forma net loss per
share is computed as if outstanding preferred stock had been converted into
common stock on the date of issuance.
2. LEASE COMMITMENTS
The Company leases office facilities and certain equipment under separate
operating lease agreements which expire at various dates through 2003. The
Company has the option to renew the office facilities lease for an additional
five years through 2008. Rental expense under these operating leases was
$25,097, $52,361 and $163,019 for the period from June 17, 1996 (inception)
through June 30, 1997, the fiscal year ended June 30, 1998 and the nine months
ended March 31, 1999, respectively. Future commitments under noncancelable
operating leases outstanding as of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASE
PAYMENTS
---------
<S> <C>
2000........................................................ $231,640
2001........................................................ 229,286
2002........................................................ 217,145
2003........................................................ 221,602
2004........................................................ 93,480
Thereafter.................................................. --
--------
$993,153
========
</TABLE>
F-10
<PAGE> 85
NFRONT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG TERM DEBT
In August 1998, the Company entered into a loan agreement with a bank under
which it may borrow up to $750,000. Amounts borrowed under this agreement are
due in thirty monthly installments plus interest at the bank's prime rate plus
1% per annum (8.75% as of March 31, 1999), and are secured by substantially all
of the assets of the Company. As of March 31, 1999, the outstanding borrowings
under this facility were $729,333 which are due as follows:
<TABLE>
<S> <C>
2000........................................................ $301,793
2001........................................................ 301,793
2002........................................................ 125,747
--------
$729,333
========
</TABLE>
4. COMMON STOCK
On January 14, 1998, the Company declared a fifty-for-one stock split of
the Company's common stock. On September 16, 1998, the Company declared a three-
for-one stock split of the Company's common and preferred stock. All common and
preferred stock information has been retroactively restated to reflect these
stock splits.
As of March 31, 1999, the Company has reserved 1,193,655 shares of common
stock for future issuance upon the conversion of Series A Redeemable Convertible
Preferred Stock into common stock and upon the exercise of options to purchase
common stock.
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In May, 1998, the Company entered into an agreement to sell 767,655 shares
of Series A Redeemable Convertible Preferred Stock (Series A) for $3.26 per
share. The holders of Series A have the right to convert all or part of the
shares of Series A into common stock on a one-for-one basis subject to certain
conversion ratio adjustments should the price of the common stock for any
transaction subsequent to the agreement be lower than $3.26 per share or
automatically if the Company completes an initial public offering at a specified
price per share of common stock which results in aggregate gross proceeds of not
less than $15.0 million. The holders of Series A vote together with the holders
of common stock as a single class on all actions to be taken by the stockholders
of the Company.
At any time after June 1, 2005, any holder of Series A can require the
Company to redeem the outstanding Series A at the redemption price. The
redemption price is equal to the original issuance price of the Series A plus a
10% compound annual rate of return. The carrying amount of Series A is being
increased by periodic accretions so that its carrying amount will equal the
redemption amount at the redemption date.
F-11
<PAGE> 86
NFRONT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The agreement provides for preferences upon liquidation. In general, Series
A has a preference at liquidation equal to the greater of the purchase price
plus a 10% compound annual rate of return or the fair value of the Series A. The
remaining assets, if any, would be distributed ratably to the common
stockholders.
In connection with the sale of Series A, the Company paid a fee of $125,000
to an investment banking company controlled by one of the Company's directors.
This fee was recorded as an issuance cost.
6. STOCK INCENTIVE PLAN
In January 1998, the Company's Board of Directors approved a stock
incentive plan whereby 426,000 shares of the Company's common stock were
reserved for grants to various personnel of the Company as well as outside
directors. At March 31, 1999, there were 63,818 shares available for grant under
the stock incentive plan. Options granted under the plan generally vest over a
four year period and expire 10 years from the date of grant.
A summary of the Company's stock options granted to employees, and related
information for the nine months ended March 31, 1999 follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
OPTIONS PER SHARE
--------- --------------
<S> <C> <C>
Outstanding at June 30, 1998........................... -- $ --
Granted.............................................. 363,032 3.26
Canceled............................................. (850) 3.26
-------
Outstanding at March 31, 1999.......................... 362,182 3.26
======= =====
Exercisable at March 31, 1999.......................... -- $ --
======= =====
</TABLE>
All stock options were granted at an exercise price of $3.26 per share. The
weighted average remaining contractual life is 9.5 years.
Pro forma information regarding net income (loss) per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value of these
options was estimated at the date of grant using the Minimum Value option
pricing model with the following weighted-average assumptions for the nine
months ended March 31, 1999: risk-free interest rates of 5.38%; no dividend
yields; and a weighted-average expected life of an option of 5 years.
The Minimum Value option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value
F-12
<PAGE> 87
NFRONT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options and warrants granted to employees are amortized to expense over the
vesting period. The weighted average fair value per option granted in the nine
months ended March 31, 1999 was $0.77. The Company's pro forma information
follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31, 1999
--------------
<S> <C>
SFAS 123 pro forma net loss................................. $(2,049,322)
SFAS 123 pro forma loss per share........................... $ (0.64)
</TABLE>
7. WARRANTS
During January 1998, the Company entered into a transaction with a reseller
of the Company's services to purchase 69,054 shares of the Company's common
stock at $4.34 per share in cash. In connection with this transaction, the
Company agreed to issue warrants to purchase shares of common stock based on the
number of customer contracts the reseller is able to enter into prior to
September 30, 1998 and January 1, 2000. The reseller did not enter into the
required number of contracts at the September 30, 1998 target date. If the
reseller enters into a certain number of contracts prior to January 1, 2000,
then the reseller will receive up to 43,392 warrants to purchase common stock at
$4.34 per share. Any issued and unexercised warrants will expire on September
30, 2001. The value of the warrants will be determined when it is probable that
the reseller will enter into the target number of contracts.
8. INCOME TAXES
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM NINE
JUNE 17, 1996 MONTHS
(INCEPTION) FISCAL YEAR ENDED
THROUGH ENDED MARCH 31,
JUNE 30, 1997 JUNE 30, 1998 1999
------------- ------------- -----------
<S> <C> <C> <C>
Current
Federal................................. $19,448 $(19,448) $--
State................................... 6,477 (6,477) --
------- -------- ---
$25,925 $(25,925) $--
======= ======== ===
</TABLE>
F-13
<PAGE> 88
NFRONT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the provision for income taxes (benefit) to the federal
statutory rate is as follows:
<TABLE>
<CAPTION>
PERIOD FROM NINE
JUNE 17, 1996 MONTHS
(INCEPTION) ENDED
THROUGH YEAR ENDED MARCH 31,
JUNE 30, 1997 JUNE 30, 1998 1999
------------- ------------- -----------
<S> <C> <C> <C>
Tax at statutory rate..................... $18,146 $(208,479) $(687,096)
Permanent differences..................... 7,779 5,089 5,470
Other..................................... -- 8,800 (14,189)
Valuation allowance....................... -- 168,665 695,815
------- --------- ---------
$25,925 $ (25,925) $ --
======= ========= =========
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------- MARCH 31,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss........................... $ -- $ 173,858 $ 780,515
Accrued compensation......................... -- -- 115,349
Other........................................ -- -- 955
--------- --------- ---------
Total deferred tax assets...................... -- 173,858 896,819
Deferred tax liabilities:
Depreciation................................. -- (5,193) (32,339)
--------- --------- ---------
Total deferred tax liabilities................. -- (5,193) (32,339)
--------- --------- ---------
Valuation allowance............................ -- (168,665) (864,480)
--------- --------- ---------
Net deferred taxes............................. $ -- $ -- $ --
========= ========= =========
</TABLE>
For federal income tax purposes at March 31, 1999, the Company has net
operating loss carryforwards of approximately $2.0 million which begin expiring
in 2013. Utilization of the Company's net operating loss carryforwards could
become subject to annual limitation due to the "change of ownership" provisions
of the Internal Revenue Code and similar state provisions. For financial
reporting purposes, a valuation allowance has been recognized to reduce net
deferred tax assets to zero due to uncertainties with respect to the Company's
ability to realize the benefit of deferred income tax assets.
9. 401(K) PLAN
In April, 1998, the Company adopted the nFront, Inc. Retirement Plan (the
"Plan"), which qualifies under Section 401(k) of the Internal Revenue Code.
F-14
<PAGE> 89
NFRONT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Employees are eligible to participate in the plan after three months of service.
Participants may contribute a percentage of their base salaries up to the
maximum allowable under Section 401(k). Contributions made to the Plan by the
Company are discretionary. No employer contributions to the Plan have been made
through March 31, 1999.
10. RELATED PARTY TRANSACTIONS
In January 1997, the Company entered into an agreement with a company owned
by certain principal shareholders of the Company whereby the Company would
obtain certain furniture and equipment in exchange for programming services. The
parties valued these assets at $83,986 and the obligation was satisfied upon the
provision of $9,901 and $74,085 of programming services in the period from June
17, 1996 (inception) through June 30, 1997 and year ended June 30, 1998.
In October 1997, the Company loaned a stockholder $20,000 which was repaid
in February 1998. The loan was unsecured and bore interest at 10.5% per annum.
During the period from October 1997 through January 1998, the Company
borrowed $90,000 from its Chief Executive Officer. The loans were unsecured and
bore interest at 10.5% per annum, and were repaid in February 1998.
One of the Company's shareholders is a reseller of the Company's services.
During the year ended June 30, 1998 this reseller accounted for $136,872 of the
Company's revenues. There were no revenues from this reseller during the nine
months ended March 31, 1999.
11. NET INCOME (LOSS) PER SHARE
Net income (loss) per share has been computed in accordance with SFAS 128
which requires disclosure of basic and diluted earnings per share. Basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share includes the impact of
potentially dilutive securities. The Company's potentially dilutive securities
were antidilutive and therefore were not included in the computation of weighted
average shares used in computing diluted loss per share. There were no
potentially dilutive securities outstanding during the period from June 17, 1996
(inception) through June 30, 1997 and for the nine months ended March 31, 1998.
F-15
<PAGE> 90
NFRONT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the reconciliation of the numerators of the
basic and diluted income (loss) per share:
<TABLE>
<CAPTION>
PERIOD FROM FISCAL NINE NINE
JUNE 17, 1996 YEAR MONTHS MONTHS
(INCEPTION) ENDED ENDED ENDED
THROUGH JUNE 30, MARCH 31, MARCH 31,
JUNE 30, 1997 1998 1998 1999
------------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss).............. $ 48,740 $ (522,996) $ 9,107 $(1,808,147)
Accretion on redeemable
convertible preferred
stock........................ -- (35,733) -- (204,661)
---------- ---------- ---------- -----------
Net income (loss) attributable
to common stock.............. $ 48,740 $ (558,729) $ 9,107 $(2,012,808)
========== ========== ========== ===========
Net income (loss) per common
share -- basic and diluted... $ 0.03 $ (0.18) $ 0.00 $ (0.63)
========== ========== ========== ===========
Weighted average shares
outstanding -- basic and
diluted...................... 1,916,667 3,031,405 3,018,902 3,207,111
========== ========== ========== ===========
</TABLE>
Potentially dilutive options to purchase 362,182 shares of common stock
with an exercise price of $3.26 per share outstanding at March 31, 1999 and
767,655 common shares issuable upon conversion of the redeemable convertible
preferred stock were not included in the computation of diluted loss per share
for the periods outstanding because the Company reported a loss and, therefore,
the effect would be anti-dilutive.
12. SUBSEQUENT EVENTS
On April 22, 1999, the Company executed a senior subordinated debenture
agreement with a stockholder under which the Company may borrow up to $5,000,000
through the earlier of April 22, 2000 or the closing of an underwritten public
offering of the Company's common stock. Unanimous approval of the Company's
Board of Directors is required to borrow in excess of $3 million under the
agreement. Interest on any borrowings under the senior subordinated debenture
accrues at the prime rate plus 3% per annum, payable at maturity. In
consideration of the stockholder's commitment to make the loan, the Company
agreed to issue warrants exercisable for three years for i) common shares equal
to $500,000 divided by the initial public offering price and at a purchase price
per share equal to the initial public offering price per share if the offering
is declared effective prior to September 1, 1999 or ii) 21,008 common shares at
a purchase price of $23.80 per share.
On April 21, 1999, the Company's Board of Director's approved the nFront,
Inc. Director Stock Option Plan (the "Director Plan"). The aggregate number of
shares
F-16
<PAGE> 91
NFRONT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of common stock reserved for issuance under the Director Plan has not yet been
determined by the Board of Directors.
On April 21, 1999, the Company's Board of Directors increased the number of
authorized capital stock to 70,000,000 shares of common stock and 10,000,000
shares of preferred stock, pending stockholder approval.
On April 21, 1999, the Company's Board of Directors increased the number of
shares of the Company's common stock reserved for grants under the stock
incentive plan to 826,000 shares.
F-17
<PAGE> 92
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[COMPANY LOGO]
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
HAMBRECHT & QUIST
J.C. BRADFORD&CO.
RAYMOND JAMES & ASSOCIATES, INC.
SOUNDVIEW TECHNOLOGY GROUP
-----------------------
, 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 requirement is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 93
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $13,622
National Association of Securities Dealers, Inc. fee........ $ 5,400
Nasdaq National Market listing fee.......................... $ *
Accountants' fees and expenses.............................. $ *
Legal fees and expenses..................................... $ *
Blue Sky fees and expenses.................................. $ *
Transfer Agent's fees and expenses.......................... $ *
Printing and engraving expenses............................. $ *
Miscellaneous............................................... $ *
Total Expenses.............................................. $ *
</TABLE>
- -------------------------
* To be completed by amendment.
All fees other than the SEC registration fee, the NASD fee and the Nasdaq
National Market listing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
nFront's Second Amended and Restated Articles of Incorporation provide that
the liability of the directors for monetary damages shall be eliminated to the
fullest extent permissible under the Georgia Business Corporation Code (the
"GBCC") and that we may indemnify our officers, employees and agents to the
fullest extent permitted under the GBCC.
nFront's Amended and Restated Bylaws provide that nFront must indemnify its
directors against all liabilities to the fullest extent permitted under the GBCC
and that nFront must advance all reasonable expenses incurred in a proceeding in
which the director was either a party or a witness because he or she was a
director. The Company has entered into indemnification agreements with its
directors and certain of its officers that provide indemnification similar to
that provided in the Amended and Restated Bylaws.
The GBCC provides that, in general, a corporation may indemnify an
individual who is or was a party to any proceeding (other than action by, or in
the right of, such corporation) by reason of the fact that he or she is or was a
director of the corporation, against liability incurred in connection with such
proceeding, including any appeal thereof, provided certain standards are met,
including that such officer or director acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the corporation, and provided further that, with respect to any criminal action
or proceeding, the officer or director had no reasonable cause to believe his or
her conduct was unlawful. In the case of proceedings by or in the right of the
corporation, the GBCC provides that, in general, a company may indemnify an
individual who was or is a party to any such proceeding by reason of the fact
that he or she is or was a director of the corporation against reasonable
expenses incurred in connection with such proceeding, if it is determined that
the director has met the relevant standard of conduct. To the extent that any
directors are successful on the merits or otherwise
II-1
<PAGE> 94
in the defense of any of the proceedings described above, the GBCC provides that
a corporation is required to indemnify such officers or directors against
reasonable expenses incurred in connection therewith. The GBCC further provides,
in general, for the advancement of reasonable expenses incurred by a director
who is a party to a proceeding if the director furnishes the corporation (1) a
written affirmation of his good faith belief that he or she has met the standard
of conduct under the GBCC or that the proceeding involves conduct for which
liability has been eliminated under the corporation's articles of incorporation;
and (2) a written undertaking to repay any advances if it is ultimately
determined that he or she is not entitled to indemnification. In addition, the
GBCC provides for the indemnification of officers, employees and agents in
certain circumstances.
The Underwriting Agreement filed as Exhibit 1.1 hereto also contains
certain provisions pursuant to which certain officers, directors and controlling
persons of nFront may be entitled to be indemnified by the underwriters named
therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, nFront has issued the following securities
that were not registered under the Securities Act of 1933:
(1) On June 17, 1996, in connection with its organization, nFront issued an
aggregate of 10,000 shares of its common stock to Brady L. "Tripp" Rackley III
and Brady L. Rackley for an aggregate cash consideration of $1,000.
(2) On March 15, 1997, nFront issued an aggregate of 860,000 shares of its
common stock to Brady L. "Tripp" Rackley III and Brady L. Rackley for a nominal
consideration.
(3) On March 15, 1997, nFront issued an aggregate of 2,600 shares of its
common stock to Thomas E. Greene III, James A. Verbrugge, Steven S. Neel and W.
Derek Porter for an aggregate cash consideration of $97.50.
(4) On January 15, 1998, nFront issued 23,018 shares of its common stock,
on a post January 21, 1998, 50-for-1 stock split basis, to CNL Financial
Corporation for an aggregate cash consideration of $300,001.
(5) On January 21, 1998, nFront reclassified and converted each share of
its common stock issued and outstanding into fifty (50) validly issued, fully
paid and nonassessable shares of common stock.
(6) On May 13, 1998, nFront issued 255,855 shares of redeemable convertible
preferred stock to Noro-Moseley Partners IV, L.P. for an aggregate cash
consideration of $2.5 million.
(7) On August 25, 1998, nFront issued 10,235 shares of its common stock to
Robert L. Campbell for an aggregate cash consideration of $100,000.
(8) On September 9, 1998, nFront declared a 3-for-1 stock split in the form
of a dividend of its common stock to each shareholder of record as of September
16, 1998.
(9) On September 16, 1998, nFront issued to certain employees of nFront
stock options to purchase an aggregate of 320,332 shares of common stock at a
weighted
II-2
<PAGE> 95
average exercise price of $3.26 per share. No shares of common stock have been
issued pursuant to the exercise of such options.
(10) On September 21, 1998, nFront issued an aggregate of 51,176 shares of
its common stock to William H. Scott III and Campbell B. Lanier III for an
aggregate cash consideration of $500,000.
(11) On September 21, 1998, nFront issued 10,235 shares of its common stock
to Robert L. Campbell for an aggregate cash consideration of $250,000.
(12) On October 28, 1998, nFront issued 15,337 shares of its common stock
to Jeffrey W. Hodges for an aggregate cash consideration of $50,000.
(13) On November 30, 1998, nFront issued to Jeffrey W. Hodges stock options
to purchase an aggregate of 42,600 shares of common stock at an exercise price
of $3.26 per share. No shares of common stock have been issued pursuant to the
exercise of such options.
The issuance of the securities in the transactions described above were
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act and Rules 505 and 506 of Regulation D
promulgated thereunder as transactions by an issuer not involving any public
offering.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement.
3.1* -- Second Amended and Restated Articles of Incorporation of the
Registrant.
3.2* -- Amended and Restated Bylaws of the Registrant.
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Second
Amended and Restated Articles of Incorporation and Amended
and Restated Bylaws of the Registrant defining rights of the
holders of common stock of the Registrant.
4.2* -- Specimen Stock Certificate.
4.3* -- Form of Shareholders Agreement, dated as of May 13, 1998, as
amended.
5.1* -- Opinion of Morris, Manning & Martin, L.L.P., counsel to the
Registrant, as to the legality of the shares being
registered.
10.1 -- Employment Agreement, dated July 14, 1998, between nFront,
Inc. and Robert L. Campbell.
10.2* -- Employment Agreement, dated April 21, 1999, between nFront,
Inc. and Brady L. "Tripp" Rackley III.
10.3*+ -- Marketing Agreement, dated January 19, 1999, between nFront,
Inc. and BancTec USA, Inc.
</TABLE>
II-3
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.4*+ -- Marketing Agreement, dated March 1, 1999, between nFront,
Inc. and BancTec USA, Inc.
10.5*+ -- Marketing Agreement, dated July 22, 1997, between nFront,
Inc. and CNL Financial Corporation.
10.6 -- Stock Purchase and Stock Option Agreement, dated January 15,
1998, between nFront, Inc. and CNL Financial Corporation.
10.7*+ -- Marketing Agreement, dated April 10, 1998, between nFront,
Inc. and BISYS, Inc.
10.8*+ -- nBusiness Addendum to nFront Marketing Agreement, dated
January 5, 1999, between nFront, Inc. and BISYS, Inc.
10.9*+ -- Marketing Agreement, dated July 22, 1997, between nFront,
Inc. and SPARAK Financial Systems, Inc.
10.10*+ -- nBusiness Addendum to nFront Marketing Agreement, dated
February 15, 1999, between nFront, Inc. and SPARAK Financial
Systems, Inc.
10.11*+ -- Service Agreement, dated July 31, 1998, between nFront, Inc.
and First Commerce Bank.
10.12* -- Home Banking Bill Payment Processing and Funds Transfer
Services, dated July 25, 1997 by and between nFront, Inc.
and Moneyline Express, Inc. Agreement.
10.13 -- Lease, dated July 9, 1998, between Schneider Atlanta, L.P.,
a Georgia limited partnership, and nFront, Inc.
10.14 -- Form of Indemnification Agreement with directors of the
Registrant.
10.15 -- Form of Indemnification Agreement with certain officers of
the Registrant.
10.16 -- nFront, Inc. Stock Incentive Plan.
10.17 -- Amendment No. 1 to the nFront, Inc. Stock Incentive Plan.
10.18* -- nFront, Inc. Director Stock Option Plan.
10.19* -- Internet Data Center Services Agreement, dated March 31,
1999, by and between Exodus Communications, Inc. and nFront,
Inc.
10.20* -- Debenture Purchase Agreement, dated April 21, 1999, between
nFront, Inc. and Noro-Moseley Partners IV, L.P.
10.21* -- Form of Senior Subordinated Debenture, between nFront, Inc.
and Noro-Moseley Partners IV, L.P.
10.22* -- Form of Stock Purchase Warrant between nFront, Inc. and
Noro-Moseley Partners IV, L.P.
10.23* -- Form of nFront, Inc. Incentive Stock Option Grant
Certificate.
10.24* -- Consulting Agreement by and between nFront, Inc. and Brady
L. Rackley.
</TABLE>
II-4
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.26* -- Description of Incentive Compensation Plan of the
Registrant.
23.1 -- Consent of Morris, Manning & Martin, L.L.P. (included in
Exhibit 5.1).
23.2 -- Consent of Ernst & Young LLP.
24.1 -- Powers of Attorney (included on signature page).
27.1 -- Financial Data Schedule (for SEC use only).
</TABLE>
- -------------------------
* To be filed by amendment.
+ We intend to request confidential treatment of certain portions of this
exhibit pursuant to Rule 406 of the Securities Act of 1933. The entire
agreement will be filed separately with the Securities and Exchange
Commission.
ITEM 17. UNDERTAKINGS
(a) The undersigned 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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, 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.
(c) The Registrant hereby undertakes that:
(i) For purposes of determining 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 the
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 the
Registration Statement as of the time it was declared effective.
(ii) For purposes 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-5
<PAGE> 98
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 Atlanta, State of Georgia
on the 23rd day of April 1999.
nFront, Inc.
By: /s/ BRADY L. "TRIPP" RACKLEY III
----------------------------------------
Brady L. "Tripp" Rackley III,
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brady L. "Tripp" Rackley III and Robert L.
Campbell, and each of them, 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 any
subsequent registration statements pursuant to Rule 462 of the Securities Act
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 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 each of said
attorney-in-fact or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act, 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>
/s/ BRADY L. "TRIPP" RACKLEY III Chairman of the Board April 23, 1999
- --------------------------------------------------- and Chief Executive
Brady L. "Tripp" Rackley III Officer
/s/ ROBERT L. CAMPBELL President, Chief April 23, 1999
- --------------------------------------------------- Operating Officer and
Robert L. Campbell Director
/s/ JEFFREY W. HODGES Chief Financial Officer April 23, 1999
- --------------------------------------------------- (Principal Financial
Jeffrey W. Hodges and Accounting
Officer)
</TABLE>
II-6
<PAGE> 99
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BRADY L. RACKLEY Director April 23, 1999
- ---------------------------------------------------
Brady L. Rackley
/s/ THOMAS E. GREENE III Director April 23, 1999
- ---------------------------------------------------
Thomas E. Greene III
/s/ CHARLES D. MOSELEY, JR. Director April 23, 1999
- ---------------------------------------------------
Charles D. Moseley, Jr.
/s/ WILLIAM H. SCOTT III Director April 23, 1999
- ---------------------------------------------------
William H. Scott III
/s/ JAMES A. VERBRUGGE Director April 23, 1999
- ---------------------------------------------------
James A. Verbrugge
</TABLE>
II-7
<PAGE> 1
EXHIBIT 10.1
NFRONT
EMPLOYMENT AGREEMENT
In consideration of the promises hereinafter contained, nFront, Inc., a
Georgia corporation ("we", "our" and "us") and Robert L. Campbell ("you") hereby
agree as of this 14th day of July to the following:
1. Employment. We hereby employ you and you hereby accept employment on
the terms and conditions set forth in the Employment Agreement ("Agreement").
Your duties and compensation are set forth on Exhibit A attached hereto. nFront,
Inc. shall pay employee's salary at a monthly rate of not less than his current
salary, payable bi-weekly.
2. Term. Your employment shall commence on the date of this Agreement
and continue until terminated in the manner provided in Paragraph 8.
3. Location. The principal location of Employee's employment shall be
set forth in Exhibit A attached hereto or any other location within a 50-mile
radius thereof designated by nFront, Inc. although Employee understands and
agrees that he may be required to travel from time to time for business reasons.
4. Vacation. You shall be entitled to four weeks vacation during each
full calendar year of employment. Unused vacation days do not vest or carry over
to subsequent years. The vacation policy is subject to change. See our Employee
Handbook for additional information.
5. Disability. After six months of employment, we agree to continue
paying your normal compensation for up to 180 days during any period of twelve
consecutive months during which you are unable by reason of illness or
incapacity to fulfill your employment obligations. Our obligation terminates
after having once paid for 180 days of disability, although you may qualify for
long term disability pending adjudication by our disability insurance carrier.
The disability policy is subject to change. See Employee Handbook for
pre-existing conditions.
6. Extent of Services. During the period of employment hereunder
Employee agrees to devote substantially all of Employee's business time,
services and business efforts exclusively to the affairs of and for the benefit
of nFront, Inc. in the capacity set forth in Exhibit A or in such other
executive and managerial capacities within the corporation as may reasonably be
assigned from time to time by the President or Board of Directors of nFront,
Inc. with due regard to the general overall executive duties performed by the
Employee in the past. You also agree to not engage in any other business
activity that conflicts with our business or which reduces your effectiveness in
performing your duties under this Agreement unless you have obtained prior
written consent. In addition, you agree to be bound by the provisions of our
Nondisclosure and Noncompete Agreement.
7. Research and Development. You acknowledge that your duties may
include participation in, access to, or receipt of information about research
and development of products, equipment, computer programs, mathematical
applications or administrative systems. You acknowledge and agree that it is our
intent to obtain from you the full and complete benefit of your services as an
employee. In furtherance thereof, and to protect and secure to us our goodwill,
know-how, trade secrets and customer relationships,
<PAGE> 2
you hereby irrevocably assign, transfer and grant to us all of your rights and
interest in and to any and all inventions, materials, developments, know-how,
trade secrets, customer relationships, improvements, discoveries, processes,
formulae or methods and other information that is made, developed, conceived,
prepared or discovered by you in the course of performing services hereunder.
Rights assigned by you include but are not limited to all trademarks,
tradenames, copyright, patent and other proprietary rights in and to such
materials. These trademarks, etc., are agreed to be our property and all right
and title and interest therein shall be deemed to be made in the course of
services rendered by you as an employee. You agree to assist us in all respects
in obtaining, maintaining, perfecting and securing any trademark, tradename,
patent, copyright or other protection as we may request and you hereby
irrevocably assign to us all rights and interest in and to such protection. You
agree to execute and deliver such documents as we deem necessary, useful or
appropriate to document and perfect our ownership.
8. Right to Change Duties and title to Transfer Employee. Subject to
Sections 3 and 9(f) hereof, we reserve the right to change the nature and scope
of your duties and your title.
9. Termination.
(a) In the event of death of the employee, nFront, Inc. shall
(i) pay to the Employee's estate, Employee's salary for a period of one year or
the proceeds of a previously acquired life insurance policy in the same amount,
and (ii) pay Cobra premiums for related health insurance benefits to Employee's
surviving family for 12 months. The Employment Agreement will automatically
terminate in the event of employee's death, except for Sections 7 and 9(a)
hereof.
(b) Both Employee and nFront, Inc. shall have the right upon
giving one month written notice to terminate, with or without cause, Employee's
employment by nFront, Inc. However, if one party gives notice, the other may
elect to effect the separation immediately. Employee recognizes that Employee's
employment is "at will" and that nFront, Inc. may choose to terminate Employee's
employment at any time without cause or notice.
(c) (i) If Employee has voluntarily terminated Employee's
employment, Employee will receive no severance pay, if nFront, Inc. elects to
effect the separation immediately, as provided for in Section 9(b) above.
Voluntary termination, for purposes of this subsection, shall not include a
termination by Employee due to "Hardship", as defined in Section 9(f). In the
event termination is by Employee due to "Hardship", then Employee shall receive
twelve months' severance pay, at Employee's base salary rate prior to any salary
reduction if applicable.
(ii) If, after the probationary period, Employee's
employment has been terminated by nFront, Inc. other than "For Cause", as
defined in Section 9(e), Employee will receive twelve months' severance pay. If
employee is terminated "For Cause", Employee will receive no severance pay.
(d) (i) Employee's severance pay will be paid at the same
level of compensation as in effect on the date Employee's employment is
terminated, except as discussed in Section 9(c)(i).
(ii) If, after the probationary period, Employee's
employment has been terminated by nFront, Inc. other than "For Cause", in
addition to continued receipt by Employee's salary, during the period employee
receives the severance pay, Employee will also be entitled to the benefits
described below or, as to Items A and B, reimbursement for the cost of any
individual policy or benefit if participation in the nFront, Inc. plan is not
permitted.
-2-
<PAGE> 3
A. any executive officer's life insurance policy,
medical, dental, and vision plans that nFront, Inc. provides to its other
executive officers or to its employees generally in accordance with the
provisions of such plans (except that Employee shall be deemed to be an employee
of nFront, Inc., and not to have been terminated, for purposes of such plans if
permitted);
B. continue to enjoy the use of a company car, if
Employee was entitled to use one at the time Employee's employment was
terminated;
C. in lieu of participation in nFront, Inc.'s
tax-qualified pension and profit sharing plans, if any (other than the 401(k)
plan), nFront, Inc. shall pay Employee an amount equal to the contributions that
nFront, Inc. would have made on Employee's behalf.
D. In addition to Employee's severance pay and
benefits, nFront, Inc. will pay the reasonable cost of "outplacement" services,
to be provided by a third party, chosen and mutually agreed to by nFront, Inc.
and Employee. The outplacement service provided shall be experienced in
providing such services to executives. Employee will be entitled to receive such
services for a period of six months beginning at separation date. Employee's
rights to receive outplacement services will terminate if Employee accepts
full-time employment.
(e) Termination "For Cause" shall mean a termination of the
Employee's employment by nFront, Inc. due to (a) Employee's knowing and willful
misconduct with respect to the business and affairs of nFront, Inc. or any
subsidiary or affiliate thereof, including a violation by the Employee of any
material written policy of nFront, Inc. relating to the ethical business conduct
or practices or fiduciary duties of a senior executive of nFront, Inc., (b)
Employee's knowing and willful neglect of duties or knowing failure to act
(where action would reasonably be required and where such failure to act is not
the result of the reasonable and prudent exercise of business judgment by the
Employee) which materially adversely affects business and affairs of nFront,
Inc. or any subsidiary or affiliate thereof, (c) the knowing and willful
material breach by the Employee of any of the provisions of this Agreement,
which breach (if it is, in the reasonable time specified by the Board
remediable) has not been remedied by Employee within a reasonable time specified
by the Board in written notice to Employee, (d) commission by Employee of a
felony or an illegal act involving moral turpitude or fraud or Employee's
dishonesty which might reasonably be expected to have a material adverse effect
on the operations, prospects or reputation of nFront, Inc., or (e) any attempt
to obtain a not insignificant personal profit from any transaction in which
Employee has an interest adverse to nFront, Inc. unless (i) such adverse
interest and the potential profit is disclosed in writing to the Board of
Directors in advance of the transaction, or (ii) the material facts as to such
matters are known to the Board of Directors.
(f) The term "Hardship" shall mean the imposition by the
Company after the probationary period of a requirement that Employee's office be
relocated to a location outside a 50-mile radius of the location set forth in
Exhibit A, the cumulative reduction in Employee's base salary by more than 10%
(excluding, for this purpose, performance bonuses or commissions), or a
substantial decrease in overall job responsibility.
10. Employee's Representation. You warrant that entering into this
Agreement and the performance by you of your obligations hereunder do not and
will not constitute a breach of any agreement between you and any other person,
nor will you violate any other person's proprietary rights in performing
services under this Agreement.
-3-
<PAGE> 4
11. Oral Modification Not Binding. This Agreement may not be changed or
terminated orally and no change, termination or attempted waiver of the
provisions hereof shall be binding unless in writing and signed by the parties
against whom the same is sought to be enforced; provided, however, that the
compensation paid to you hereunder may be changed at any time by us without in
any way affecting any other term or condition of this Agreement which in all
other respect shall remain in full force and effect.
12. Governing Law. This Agreement shall be governed by the laws of the
State of Georgia.
IN WITNESS WHEREOF, this Agreement has been duly executed on the day
and year first above written.
nFront, Inc. EMPLOYEE:
By: /s/ Tripp Rackley /s/ Robert L. Campbell
-------------------------------- -----------------------------
Its: Chairman/CEO Signature
-------------------------------
4665 Outer Bank Dr.
-----------------------------
Norcross, GA 30092
-----------------------------
-----------------------------
Address
-4-
<PAGE> 5
EXHIBIT A
Duties: President & COO
Compensation: 135,000.00/Annual Salary Plus Bonus
Location: 520 Guthridge Court
Norcross, GA 30092
<PAGE> 6
EXHIBIT B
NON-DISCLOSURE, NON-SOLICITATION AND
NON-COMPETITION AGREEMENT FOR EMPLOYEES
THIS AGREEMENT (the "Agreement"), is entered into as of the last date
indicated below, between nFront, Inc., a Georgia corporation (the
"Corporation"), and ROBERT L. CAMPBELL ("Employee") under the following
circumstances:
RECITALS:
Employee desires to become and/or remain in the employ of the
Corporation and hereby participate in the compensation and benefits available to
the Employee in that capacity.
Employee recognizes that, as an employee of the Corporation, Employee
may, either alone or jointly with others, have access to and/or develop
sensitive, confidential, and/or proprietary information of the Corporation.
Employee also recognizes that the improper use or release of any such
information could cause the Corporation to lose competitive advantages, market
share, customers, employees, servicing rights, potential business, or otherwise
have a detrimental impact on its continuing operations.
NOW, THEREFORE, in consideration of Employee's employment with the
Corporation, and intending to be bound hereby, the parties agree as follows:
1. RECITALS. The Corporation and Employee acknowledge and agree that
the foregoing recitals are true and are made a part hereof.
2. DEFINITIONS.
(a) The term "Trade Secret Information" as used herein shall
mean all information regarding the Corporation learned by Employee in the course
of his or her employment by the Corporation, whether or not in writing,
including, but not limited to, technical and non-technical data regarding the
Corporation, a list of actual or potential customers and other identifying
information about actual or potential customers, formulae, patterns,
compilations, programs, devices, methods, techniques, drawings, processes,
financial data, financial plans, product plans, procedures, know-how, products,
services, advertising material, inventions, improvements, innovations, employee
identification, pricing policies and similar tangible and intangible items,
which such information is known only to the Corporation and those of its
employees and third parties in whom such information must be confided in order
to apply such information to its intended use and that derives value from not
being generally known to others.
(b) The term "Confidential Information" as used herein shall
mean all information regarding the Corporation learned by Employee in the course
of his or her employment by the Corporation and not generally known to others
that does not fall within the definition of "Trade Secret Information" as
defined in subparagraph (a) above.
(c) The terms "Customer" and "Prospective Customer" mean any
person or entity with whom the Corporation has engaged in business or has
actively solicited for business within one year prior to the date of termination
of Employee's employment and with whom Employee had contact during the one year
prior to the termination of Employee's employment with the Corporation.
(d) The term "Competing Business" shall mean a business
engaged in the development, sale and servicing of computer software and hardware
for the banking industry, which competes with the business of nFront within the
Territory.
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<PAGE> 7
(e) The term "Territory" shall have the meaning set forth in
Exhibit "1" attached hereto.
3. AGREEMENT NOT TO DISCLOSE.
(a) Employee agrees for all time to hold in confidence, and
not to disclose to others, nor use, copy, disseminate or in any manner publish
for any purposes other than in the proper course of performing services as an
employee of the Corporation, any Trade Secret Information.
(b) Employee covenants and agrees that, for so long as
Employee is employed by the Corporation and for a period of one year after the
termination of his or her employment, Employee shall treat as confidential and
shall not, without the prior written consent of the Corporation, disclose to
others, nor use, copy, disseminate or in any manner publish for any purposes
other than in the proper course of performing services as an employee of the
Corporation, any Confidential Information.
4. ACKNOWLEDGMENT OF RIGHTS. Employee acknowledges that all Trade
Secret Information and Confidential Information, whether developed by Employee
alone or jointly with others, or whether developed by others, shall be and
remain the exclusive property of the Corporation. Employee shall assign, and
does hereby assign, to the Corporation, any and all right, title, or interest
Employee and Employee's successors shall or may have in all Trade Secret
Information and Confidential Information, shall not assert any claim or right
thereto, and shall promptly and fully disclose to the Corporation in writing all
Trade Secret Information and Confidential Information in Employee's possession
or under Employee's control. Employee shall execute and deliver to the
Corporation all documents and instruments, and shall perform all other acts,
which shall be reasonably requested by the Corporation to vest and confirm in
the Corporation all right, title, and interest to all Trade Secret Information
and Confidential Information. Employee hereby designates any and all officers of
the Corporation, from time to time, as Employee's attorney-in-fact, and in
Employee's name, place, and stead, to execute such documents. Employee
acknowledges and agrees that this power of attorney is coupled with an interest
and is irrevocable.
5. AGREEMENT NOT TO SOLICIT. Employee agrees that he or she shall
not, except in the proper course of performing services as an employee of the
Corporation, during his or her employment by the Corporation and for a period of
one year after termination thereof:
(a) Solicit or assist any third person or entity to solicit,
the services, as an employee, consultant, independent contractor, or in any
similar capacity, of any person who is an employee of the Corporation during the
last year of Employee's employment("Other Employee") for a period of one year
following Employee's termination of employment with the Corporation.
(b) Solicit business from a Customer or Prospective Customer
of the Corporation for a Competing Business.
Employee recognizes and understands that the foregoing provisions of
this Section 5 have been specifically tailored to balance the protectable
business interests of Employee and the Corporation and are reasonable in all
respects.
6. AGREEMENT NOT TO COMPETE. Employee agrees that, for so long as
he or she is employed by the Corporation and for a period of one year following
termination thereof, Employee shall not perform the services performed for the
Corporation, namely
- Marketing, Product Direction, Sales Strategy
- Customer Base Knowledge
- Accounting, Financial information
- Futures and Research
- Implementation Strategies, Conversion Techniques, Training
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<PAGE> 8
- Internet Development, Internet Strategies, Internet Software,
Internet Design, Internet Engineering.
for any Competing Business.
7. EMPLOYMENT TERMS. The other terms and conditions of Employee's
employment with the Corporation (e.g., wage rate, fringe benefits, etc.) are
specified elsewhere. This Agreement does not grant Employee employment with the
Corporation for any definite or certain duration.
8. SPECIFIC PERFORMANCE. With respect to the respective covenants and
agreements of Employee set forth in Sections 3, 5 and 6 of this Agreement, the
parties agree that a violation of any of such covenants and agreements by
Employee will cause irreparable injury to the Corporation and that damages
arising out of such breach may be difficult to ascertain. The Corporation and
Employee agree that the Corporation shall be entitled, in addition to any other
rights and remedies it may have, at law or in equity, to apply to a court of
competent jurisdiction for both a temporary and permanent injunction to restrain
Employee from violating, or continuing to violate, such covenants and
agreements, without the necessity of posting a bond or other security.
9. GOVERNING LAW; JURISDICTION. This Agreement is to be governed by and
construed and enforced in accordance with the laws of the State of Georgia,
without giving effect to the principles of conflicts of law thereof. Each party
hereto agrees to submit to the personal jurisdiction and venue of the state and
federal courts in and for Clarke County, Georgia for a resolution of all
disputes arising in connection with the interpretation, construction, and/or
enforcement of this Agreement.
10. SUCCESSORS AND ASSIGNS. Each of the covenants of Employee contained
herein shall also be for the benefit of the successors and assigns of the
Corporation.
11. SEVERABILITY. Each section, subsection, and lesser section of this
Agreement constitutes a separate and distinct undertaking, covenant, or
provision hereof. In the event that any provision of this Agreement shall
finally be determined to be invalid or unenforceable, such provision shall be
deemed limited by construction in scope and effect to the minimum extent
necessary to render the same valid and enforceable, and, if such a limiting
construction is impossible, such unlawful provision shall be deemed severed from
this Agreement, but every other provision of this Agreement shall remain in full
force and effect.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements, understandings,
inducements, and conditions, express or implied, written or oral, between the
parties with respect thereto. The express terms hereof control and supersede any
inconsistent course of performance.
13. COST OF ENFORCEMENT. In the event the Corporation brings or defends
an action, at law, in equity, or in arbitration, to enforce or preserve the
covenants of Employee contained herein and, if the Corporation prevails in such
action or defense, all the costs of such action, including without limitation,
reasonable attorneys' fees and court costs, shall be recovered by the
Corporation from Employee.
14. AMENDMENT AND WAIVERS. Any term of this Agreement may be amended,
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively) only by a
writing signed by both parties hereto. The waiver by a party of any default
hereunder shall not be deemed to constitute a waiver of any other default. The
failure of a party to enforce any provision hereof shall not constitute a waiver
of the right of such party thereafter to enforce such provision.
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<PAGE> 9
IN WITNESS WHEREOF, the undersigned have hereunto set their hands.
NFRONT, INC. EMPLOYEE:
Name: Tripp Rackley Name: Robert L. Campbell
Title: Chairman & CEO Title: President & COO
Signature: /s/ Tripp Rackley Signature: /s/ Robert L. Campbell
------------------- ------------------------
Dated: 7/14/98 Dated: 7/14/98
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<PAGE> 10
EXHIBIT "1"
Territory of Restrictions
For Purposes of Section 6
The United States of America
-1-
<PAGE> 1
EXHIBIT 10.6
STOCK PURCHASE AND STOCK OPTION AGREEMENT
THIS AGREEMENT is made and entered into as of this 15th day of January, 1998,
between nFront, Inc. ("nFront" or "Company") and CNL Financial Corporation and
Subsidiaries ("CNL"), both Georgia corporations.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations and agreements herein contained, it is hereby
covenanted and agreed between the parties that they shall carry out and
consummate the following Stock Purchase and Stock Option Agreement
("Agreement"):
STOCK PURCHASE
nFront, in reliance on the representations, warranties and covenants of CNL
contained herein and subject to the terms and conditions of this Agreement,
shall issue and sell 23,018 shares of the common stock of nFront, Inc. ("Stock")
for the purchase price of $13.0333 per share. CNL, in reliance on the
representations, warranties and covenants of the Company contained herein and
subject to the terms and conditions of this Agreement, shall purchase 23,018
shares of the Stock (representing 2.25% of the outstanding stock at the date of
signing) for the purchase price of $13.0333 per share, the aggregate purchase
price of which will be paid by CNL at the Closing in cash.
STOCK OPTION
In consideration of the performance described below and in addition to the Stock
Purchase Stock, nFront hereby agrees to grant to CNL Performance Options
("Options") to purchase Stock on the terms set forth below:
TERMS
1. If 25 contracts are obtained on or prior to September 30, 1998, then
nFront will issue Options to CNL for the purchase of 14,464 shares. If,
during this period, contracts are obtained with less than 25 but
greater than 16 banks, then the number of share Options to be issued
will be prorated equally from 17 to 25 banks. The strike price for all
shares shall be $13.0333 per share. The exercise of the Options shall
expire on September 30, 2001.
2. If 75 contracts are obtained on or prior to January 1, 2000, then
nFront will issue Options to CNL for the purchase of 14,464 shares. If
contracts are obtained with less than 75, but greater than 50 Banks,
then the number of share Options to be issued will be prorated equally
from 51 to 75 Banks. The strike price for all shall be $13.0333 per
share. The exercise of the Options shall expire on September 30, 2001.
<PAGE> 2
"Contract" shall be defined as a signed agreement between nFront and a licensed
banking institution in which the banking institution agrees to purchase nFront's
NHOMETM product (or a similar internet banking product) where CNL acts as
Reseller.
EXERCISE
The Options will be exercisable by notice in writing sent to the Company by
certified or registered mail not later than 30 days prior to the expiration date
of the Options. Any Options not exercised will terminate.
MUTUAL PROVISIONS RESPECTING THE STOCK PURCHASE
AND STOCK OPTION
1. CLOSING. The Stock Purchase and Stock Option Closings (herein the
"Closing") shall take place at the offices of nFront on January 15,
1998 or at such other time and place as shall be mutually agreed upon
by CNL and nFront.
At the Closing, nFront shall deliver, free and clear of all liens,
encumbrances, claims and other charges thereon of every kind, the
certificates for the shares of the Stock duly endorsed with appropriate
stock transfer powers attached to CNL upon delivery by CNL to nFront of
the cash payment.
2. DAMAGES. Each of the parties hereto shall be liable to each other party
for a material breach of its representations, warranties and covenants
which results in a failure to perform, but then only to the extent of
the expenses incurred by the other party in connection with the
transactions contemplated by this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. The Company
represents and warrants to CNL as follows:
3.1 ORGANIZATION, STANDING, QUALIFICATION AND CAPITALIZATION. The Company
is a corporation duly organized validly existing and in good standing
under the laws of Georgia and has the corporate power to perform its
business as presently conducted. A complete and correct copy of the
Articles of Incorporation and all amendments thereto of the Company and
a complete and correct copy of its By-Laws and all amendments thereto,
will be delivered to CNL within 10 days from the date hereof. The
Company is duly qualified to do business and is in good standing in
Georgia and the conduct of its business or the ownership of its
property does not require such qualification in any other jurisdiction.
The total authorized capital stock of the Company consists of 5,000,000
shares of Common Stock, no par value, of which 1,000,000 shares are
presently validly issued and outstanding, fully paid and
non-assessable.
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<PAGE> 3
The present shareholders of the Company and their respective shares are
as follows:
<TABLE>
<CAPTION>
NUMBER OF
NAME: SHARES:
<S> <C>
Tripp Rackley 435,000
Brady L. Rackley 435,000
Derek Porter 75,000
Steven Neel 25,000
James A. Verbrugge 15,000
Tom E. Greene 15,000
TOTAL 1,000,000
</TABLE>
3.2 STOCK OWNERSHIP. The Company has full legal power and all authorization
required by law to transfer and deliver said stock in accordance with
this Agreement.
3.3 LITIGATION. There is no litigation, proceeding or governmental
investigation pending or to the knowledge of the Company threatened,
against or related to the Company, or its properties or business, the
Company is not in default with respect to any order, writ, injunction
or decree of any court or federal, state, municipal or governmental
department, commission, board, bureau, agency or instrumentality.
3.4 ABSENCE OF DEFAULT. The Company is not in default in the performance,
observance or fulfillment of any material obligation, covenant or
condition contained in any debenture or note, or contained in any
conditional sale, or loan or other borrowing agreement to which the
Company is a party.
3.5 COMPLIANCE WITH LAWS. The Company has complied with and is not in
default under, or in violation of, any laws, ordinances, rules,
regulations or orders (including, without limitation, any safety,
health or trade laws, ordinances, rules, regulations or orders)
applicable to the operations, businesses or properties of the Company
which materially and adversely affect or, so far as the Company can now
foresee, may in the future materially and adversely affect, the
combined businesses, operations, prospects, properties, assets or
condition, financial or otherwise, of the Company.
3.6 DISCLOSURE. No representation or warranty by the Company in this
Agreement contains any untrue statement of material facts or omits to
state any material fact necessary to make any statement herein not
misleading.
3.7 DILUTION. Notwithstanding the above, if there should be a sale of the
Company's Stock to a third party prior to September 30, 1998 at a price
below $13.0333 per share, then the strike price of any Options, the
rights to which are obtained on or prior to September 30, 1998,
pursuant to this Agreement, shall be adjusted to 110% of the price at
which the new Stock is sold; however, such strike price shall not be
below $11.00 per share or above $13.0333 per share. The provisions of
this paragraph are intended to apply to sales of
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<PAGE> 4
stock to outside parties and shall not apply in the case of a sale of a
majority of the stock or assets of the Company or a sale or other
distribution of stock to employees, directors or advisors of the
Company.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. CNL represents and warrants to
the Company that:
4.1 ORGANIZATION, GOOD STANDING AND AUTHORITY. CNL is a corporation duly
organized, validly existing and in good standing under the laws of
Georgia, and has full corporate power and authority to own its
properties and assets and to carry on its business as it has been and
is now conducted. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby are within the
corporate power of CNL and have been duly authorized by all necessary
corporate and other action. This Agreement constitutes the valid
obligation of CNL legally binding upon it in accordance with its
respective terms.
4.2 VALIDITY OF CONTEMPLATED TRANSACTIONS. Neither the execution and
delivery of this Agreement nor the consummation of the transactions
provided herein will violate any agreement to which CNL is a party or
by which it is bound or any law, order or decree or any provision of
the Certificate of Incorporation or By-Laws of CNL.
4.3 INVESTMENT REPRESENTATIONS. The Stock being delivered pursuant to the
provisions of this Agreement will be held by CNL for its own account
and not with a view to, or for resale in connection with, the
distribution thereof. Further, CNL has such knowledge and experience in
financial and business matters that it is capable of evaluating the
merits and risks of an investment in the Stock; further, CNL
understands that the Stock (including any Options purchased hereunder)
may not be sold, transferred, or otherwise disposed of without
registration under the Securities Acts or an exemption therefrom, and
that in the absence of an effective registration statement covering
such Stock or an available exemption from registration under the
Securities Acts the shares of such stock must be held indefinitely,
except pursuant to the Shareholders' Agreement attached as Appendix B
herein.
4.4 LITIGATION.
(a) There is no litigation, proceeding or governmental
investigation pending, or to the knowledge of the officers and
directors of CNL, against or relating to CNL, or its
Properties or business, except in the normal course of
business, other than those described in CNL's 1996 Annual
Report and listed in Appendix A attached hereto; and
(b) CNL is not knowingly in default with respect to any order,
writ, injunction or decree of any court or federal, state,
municipal or governmental department, commission, board,
bureau, agency or instrumentality.
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<PAGE> 5
5. CONDUCT OF BUSINESS PENDING CLOSING. The Company represents, warrants
and agrees that, pending the Closing:
5.1 ACCESS. The Company was heretofore made available to the Purchaser the
most recent business plan of the Company. CNL and its officers,
attorneys, accountants and representatives shall be permitted to
examine the property, books and records of the Company and such
officers, attorneys, accountants and representatives shall be afforded
access to such property, books, records and titles, and the Company
will upon request furnish CNL with any information reasonably required
in respect to the Company's property, assets and business after
providing reasonable notice and during normal business hours.
5.2 AUDIT AND TERMINATION. Within 90 days following each Company Fiscal
Year, the Company shall deliver to CNL a balance sheet of the Company
and a statement of operations of the Company for the year ended
prepared in accordance with generally accepted accounting principles,
applied on a consistent basis.
6. CONDITIONS PRECEDENT TO CNL'S OBLIGATIONS. All obligations of CNL under
this Agreement are subject to the fulfillment, prior to or at the
Closing, of each of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The Company's representations and
warranties contained in this Agreement or in any list, certificate or
document delivered pursuant to the provisions hereof shall be true at
and as of the time of Closing as though such representations and
warranties were made at and as of such time.
6.2 COMPLIANCE WITH AGREEMENTS. The Company shall have performed or
complied with all agreements and conditions required by this Agreement
to be performed or complied with by them prior to or at the Closing.
7.0 CONDITIONS PRECEDENT TO COMPANY'S OBLIGATIONS. All obligations of the
Company under this Agreement are subject to the fulfillment, prior to
or at the Closing, of each of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES. CNL's representations and warranties
contained in this Agreement or in any certificate or document delivered
pursuant to the provisions hereof or in connection with the
transactions contemplated hereby shall be true at and as of the time of
Closing as though such representations and warranties were made at and
as of such time.
7.2 COMPLIANCE WITH AGREEMENTS. CNL shall have performed and complied with
all agreements and conditions required by this Agreement to be
performed or complied with prior to or at the Closing.
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<PAGE> 6
8. BROKER FEES. nFront represents and warrants to CNL that they have not
engaged or dealt with any broker fee or commission in respect of the
execution of this Agreement or the consummation of the transactions
contemplated hereby, except for Tom E. Greene whose fees shall be paid
by the Company. CNL represents and warrants to the Company that neither
it nor any corporate affiliate has engaged or dealt with any broker or
other person who may be entitled to any brokerage fee or commission in
respect of the execution of this Agreement or the consummation of the
transactions contemplated hereby. Each of the parties hereto shall
indemnify and hold the other harmless against any and all claims,
losses, liabilities or expenses which may be asserted against such
other party as a result of such first mentioned party's dealings,
arrangements or agreements with any such broker or person.
9. EXPENSES. The Company shall bear its expenses and CNL shall bear its
expenses in connection with the Agreement and the transactions
contemplated thereby.
10. ANNOUNCEMENTS. CNL and the Company will consult and cooperate with each
other as to the timing and content of any announcements of the
transactions contemplated hereby to the general public or to employees
or customers.
11. FURTHER ACTIONS AND ASSURANCES. CNL and the Company will execute and
deliver any and all documents, and will cause any and all other action
to be taken, either before or after Closing, which may be necessary or
proper to effect or evidence the provisions of this Agreement and the
transactions contemplated hereby.
12. CONTENTS OF AGREEMENTS; PARTIES IN INTEREST. This Agreement sets forth
the entire understanding of the parties. Any previous agreements or
understandings between the parties regarding the subject matter hereof
are merged into and superseded by this Agreement. All representations,
warranties, covenants, terms, conditions and provisions of this
Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors of the Company and CNL.
13. GEORGIA LAW TO GOVERN. This Agreement is being delivered and is
intended to be performed in the State of Georgia and shall be construed
and enforced in accordance with the laws thereof.
14. SECTION HEADINGS AND GENDER. The Section headings herein have been
inserted for convenience of reference only and shall in no way modify
or restrict any of the terms or provisions hereof.
15. NOTICES. All notices, requests and other communications which are
required or permitted hereunder shall be sufficient if given in writing
and delivered personally or by registered or certified mail, postage
prepaid, to the business address of the recipient.
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<PAGE> 7
16. CONFIDENTIAL INFORMATION. Notwithstanding any termination of this
Agreement, CNL and its corporate affiliates and its representatives
agree to hold in confidence any information not generally available to
the public or the trade received by them from the Company pursuant to
the terms of this Agreement. If this Agreement is terminated for any
reason, CNL, its corporate affiliates and its representatives will
continue to hold such information in confidence and will, to the extent
requested by the Company, promptly return to the Company all written
material furnished to CNL, its corporate affiliates or its
representatives pursuant hereto.
Similarly, Company and its representatives agree to hold in confidence
any information not generally available to the public or the trade
received by them from CNL pursuant to the terms of this Agreement. If
this Agreement is terminated for any reason, the Company, its corporate
affiliates and its representatives will continue to hold such
information in confidence and will, to the extent requested by CNL,
promptly return to CNL all written material furnished to the Company,
its corporate affiliates or its representatives pursuant hereto.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
NFRONT, INC. CNL FINANCIAL CORPORATION
By: /s/ Tripp Rackley By: /s/ Steve Smith, EVP/CFO
------------------------- ---------------------------------
Date: 1/15/98 Date: 1/15/98
------------------------- ---------------------------------
-7-
<PAGE> 1
EXHIBIT 10.13
STATE OF GEORGIA
COUNTY OF GWINNETT
LEASE
THIS LEASE, made this 9th day of July, 1998, between SCHNEIDER ATLANTA,
L.P., a Georgia limited partnership, (hereinafter called "Lessor"), and nFRONT,
INC., a Georgia Corporation, (hereinafter called "Lessee");
WITNESSETH: THAT,
WHEREAS, Lessor is the owner of that certain building situated at 520
Guthridge Court, Norcross, Gwinnett County, Georgia (hereinafter called the
"Building") and located on the property (hereinafter called the "Land"; the Land
and the Building are herein collectively called the "Property") described on
EXHIBIT "A", attached hereto and by this reference incorporated herein; and
WHEREAS, Lessee wishes to lease from Lessor approximately 13,747
rentable square feet of the Building, which area is outlined in red on the
diagram marked EXHIBIT "B", attached hereto and by this reference incorporated
herein and made a part hereof (hereinafter called the "Premises");
NOW, THEREFORE, in consideration of the payment of the rent and the
keeping and performance of the covenants and agreements by Lessee as hereinafter
set forth, Lessor does hereby lease to Lessee, and Lessee does hereby lease from
Lessor, the Premises. Lessee hereby accepts the Premises in their condition
existing as of the date hereof (except as outlined in Section 10.1 hereof) and
hereby acknowledges that Lessor has not made any representation or warranty as
to the suitability of the Premises for the conduct of Lessee's business. No
easement for light or air is included in the Premises.
FOR AND IN CONSIDERATION of the leasing of the Premises as aforesaid,
the parties hereby covenant and agree as follows:
1. TERM. Subject to Section 22 hereof, the term (hereinafter called the
"Lease Term") of this Lease shall commence on the sooner of August 1, 1998 or
upon completion of improvements (hereinafter called the "Commencement Date")
and, unless sooner terminated pursuant to the provisions hereof, shall expire at
11:59 p.m. on the day before the date which is five (5) years after the
Commencement Date.
2. RENT.
2.1 The annual base rental (hereinafter called "Annual Base
Rental") for the Premises shall be as per the following schedule. The Annual
Base Rental shall be payable in monthly installments per the schedule below
(hereinafter called "Monthly Base Rent") in advance on the first day of each and
every calendar month during the lease term. The Monthly Base Rent shall be
prorated at the rate of 1/30th of the Monthly Base Rent per day for any partial
month.
<PAGE> 2
<TABLE>
<CAPTION>
YEAR ANNUAL RENT PER/SF TOTAL ANNUAL RENT MONTHLY BASE RENT
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $14.50 $199,331.50 $16,610.95
-------------------------------------------------------------------------------------------------
2 $14.93 $205,242.71 $17,103.55
-------------------------------------------------------------------------------------------------
3 $15.38 $211,428.86 $17,619.07
-------------------------------------------------------------------------------------------------
4 $15.84 $217,752.48 $18,146.04
-------------------------------------------------------------------------------------------------
5 $16.32 $224,351.04 $18,695.92
-------------------------------------------------------------------------------------------------
</TABLE>
2.2 Lessee shall pay the rent and all other sums, amounts,
liabilities, and obligations which Lessee herein assumes or agrees to pay
(whether designated Base Rent, additional rent, costs, expenses, damages,
losses, or otherwise) (all of which are hereinafter called "Amount Due") as
herein provided promptly at the times and in the manner herein specified without
deduction, setoff, abatement, counterclaim, or defense. If any Amount Due is not
received by Lessor within ten (10) days following the date on which it is due,
Lessee shall pay Lessor a late charge equal to five percent (5%) of the amount
of such past due payment, notwithstanding the date on which such payment is
actually paid to Lessor. If such Amount Due is not paid within thirty (30) days
of the date on which it was originally due, then, in addition to such late
charge, Lessee shall pay Lessor interest on such Amount Due from the date on
which it was originally due until the date it is actually paid at a rate per
annum equal to the lesser of (i) the prime rate of interest announced by
Wachovia Bank of Georgia, N.A., or its successors, from time to time for 90-day
unsecured loans to its best commercial customers plus five percent (5%) or (ii)
the maximum rate permitted by applicable law. Any such late charge and interest
shall be due and payable at the time of actual payment of the Amount Due. Any
Amount Due payable to Lessor by Lessee shall be paid in cash or by check at the
office of Lessor, c/o Technology Park/Atlanta, Inc., Suite 150, 11555 Medlock
Bridge Road, Duluth, Georgia 30155, or at such other place or places as Lessor
may from time to time designate in writing.
3. INTENTIONALLY DELETED.
4. SECURITY DEPOSIT. Contemporaneously with the execution of this
Lease, Lessee shall pay Lessor a security deposit in the amount of TWENTY-FIVE
THOUSAND AND 00/100 DOLLARS ($25,000.00) (hereinafter called the "Security
Deposit") to be held by Lessor without interest for the performance by Lessee of
Lessee's covenants and obligations under this Lease. If Lessee is then in full
compliance with this Lease, and Lessor has not previously applied any portion of
such Security Deposit to cure any default of Lessee, then within thirty (30)
days after the date which is twelve (12) months after the Commencement Date,
Lessor shall return a portion of said Security Deposit, being the amount of
$8,389.05, to Tenant. If Lessee shall at any time fail to pay any Amount Due,
and such failure shall continue beyond the expiration of any applicable grace or
cure period, Lessor may, but shall not be obligated to, from time to time and
without prejudice to any other remedy, apply all or any portion of the Security
Deposit to the extent necessary toward the payment of any such Amount Due. In
the event Lessor applies the Security Deposit or a portion thereof as provided
in this Section 4, Lessee shall immediately upon notice from Lessor of such
application pay the amount so applied to Lessor, it being the intent of the
parties that the Security Deposit held by Lessor always be in the amount stated
above. It is expressly understood and agreed, however, that the Security Deposit
shall not be considered an advance payment of rent or a measure of Lessor's
damages in the event of any default by Lessee. If, at the expiration or other
termination of this Lease, Lessee is not in default of any of its covenants, the
Security Deposit shall be returned by Lessor to Lessee without interest.
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<PAGE> 3
5. USE.
5.1 Lessee (and its permitted assignees and subtenants) shall
use the Premises only for general business, administrative and sales and related
purposes, not in violation of the restrictive covenants hereinafter referred to,
and for no other purpose without the prior written consent of Lessor. Lessee
shall operate its business in the Premises during the entire Lease Term and in a
reputable manner in compliance with all applicable laws, ordinances,
regulations, covenants, restrictions, and other matters shown on the public
records, now in force or hereafter enacted. Lessee will not permit, create, or
maintain any disorderly conduct, trespass, noise, or nuisance whatsoever about
the Premises which has a tendency to annoy or disturb any persons occupying
adjacent premises either within or without the Building.
5.2 Lessee shall not place or maintain machines, equipment, or
other apparatus which causes vibrations or noise that may be transmitted to the
Building structure or to any space to such a degree as to be reasonably
objectionable to Lessor or to any tenant, occupant, or other person in the
Building. Neither Lessee nor any of Lessee's employees, agents or invitees shall
place or maintain within the Premises any stoves, ovens or space heaters, except
that Lessee may maintain one (1) microwave oven within the Premises so long as
such microwave oven uses standard 110V electrical service. Lessee shall not make
or permit any odor that is objectionable to the public or to other occupants of
the Building, to emanate from the Premises, and shall not create, permit, or
maintain a nuisance thereon, and shall not do any act tending to injure the
reputation of the Building.
5.3 Lessee shall cause all loading and unloading of any goods
or materials delivered to or sent from the Premises to be done only in the
loading dock area of the Premises or, if no loading dock area is located at the
Premises, then at the loading dock area of the Building or such other dock area
as Lessor may designate. Under no circumstances shall Lessee allow any goods or
materials delivered to or sent from the Premises to be stored on, accumulate on
or obstruct the loading dock area, dumpster pad, sidewalks, driveways, parking
areas, entrances or other public areas or spaces of the Building or the
Property. Lessee acknowledges that violations of this Paragraph 5.3 shall
constitute a material breach of this Lease.
5.4 Lessee shall not perform or permit any work, including,
but not limited to, assembly, construction, mechanical work, painting, drying,
layout, cleaning, or repair of goods or materials, to be done on the loading
dock, sidewalks, driveways, parking areas, landscaped areas of the Building or
the Property.
5.5 Lessee shall not use, handle, store, deal in, discharge,
or fabricate any environmentally hazardous wastes, substances or materials as
the same are now or hereafter may be defined or classified by any local, state,
or federal environmental protection legislation or regulation issued pursuant
thereto.
5.6 Lessee shall not abandon or vacate the Premises at any
time during the Lease Term. Notwithstanding anything to the contrary contained
in this Lease, if Lessee deserts or vacates the Premises, Lessor's sole remedy
for such default shall be to terminate this Lease without further liability on
the part of the Lessor or Lessee. The preceding sentence is not intended and
shall not be deemed to waive or limit any of Lessor's rights or remedies in
connection with or based on any default other than vacation or desertion.
6. UTILITIES AND SERVICE.
6.1 Except to the extent directly contracted for by Lessee,
Lessor shall furnish or cause to be furnished to the Premises between 7:00 a.m.
and 6:00 p.m. Monday through Friday and between 8:00 a.m. and 1:00 p.m. on
Saturdays, exclusive of all holidays, subject to any rules and regulations of
the Building, water and sewer services suitable for Lessee's intended use of the
Premises, electricity as set forth in Paragraph 6.2 hereof, and heat and air
conditioning required in Lessor's reasonable judgment for the comfortable use
and
-3-
<PAGE> 4
occupation of the Premises. As used in this Paragraph 6.1, the term "holiday"
shall mean New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Should Lessee desire either heating or air
conditioning at other times, Lessor agrees to provide same upon reasonable
advance request by Lessee, but at Lessee's expense, at such hourly rates as
reasonably may be determined from time to time by Lessor, which charge Lessee
shall pay within thirty (30) days after being billed therefor. Lessor shall
provide lighting facilities for the common entries, hallways, stairways, and
restroom facilities in the Building. Lessee will install and pay for its own
telephone service.
6.2 Lessor, at Lessor's sole cost and expense, shall cause to
be furnished to the Premises sufficient power for building standard fluorescent
lighting, personal computers, normal office copying machines, typewriters, voice
writers, calculating machines, and other normal office machines of similar low
electrical consumption; but not including electricity required for electronic
data processing equipment, special lighting, or any other item of electrical
equipment which singly consumes more than 0.25 kilowatts at rated capacity or
requires a voltage other than 120 volts single phase except as expressly
provided in this Lease. Lessor shall provide Lessee an electrical allowance with
up to $1.60/ft. per year ($21,995.20) for electricity, and any cost of
electrical consumption in excess of such allowance shall be the expense of
Lessee. Lessee shall pay any excess electrical charges to Lessor at the end of
the first year of occupancy by Lessee. In years 2 - 5 of the Lease Term, Lessee
shall pay to Lessor on a monthly basis an estimate of the excess electrical
costs, which shall be based on the previous year's actual cost with appropriate
adjustments based upon any increases in electrical rates by the provider of such
utility. At the end of each Lease year, Lessor shall provide Lessee with an
accounting of the electrical usage and reconcile with Lessee on actual versus
budgeted. If there is money due Lessee in any year, Lessor shall within thirty
(30) days provide Lessee with the difference. As well if monies are owed to
Lessor in any year then Lessee shall within thirty (30) days provide Lessor with
the amount of the shortfall. It is understood by Lessee that Lessor currently
sub meters the entire first floor and that for purposes of calculating Lessee's
power consumption the electrical consumption costs for all other tenants on the
floor will b calculated at $1.60 p.s.f. per year throughout their lease terms
and assuming no coverage by such other tenants on the floor. Lessee shall not
install or use any equipment using electric power other than that described in
this paragraph without the prior written consent of Lessor which consent shall
not be unreasonably withheld or delayed, and, if Lessor gives written consent,
then Lessee shall pay the cost of the power to operate the equipment, as
determined by Lessor, and if the installation of such electrical equipment
requires additional air conditioning capacity above that provided by the
building standard system, then the additional air conditioning installation and
operating costs will be the obligation of Lessee.
6.3 Lessor shall not be held liable for any damage or injury
suffered by Lessee or by any of Lessee's invitees, licensees, agents, servants,
employees, contractors, or subcontractors or any other person or entity engaged,
invited, or allowed to come onto the Premises by Lessee (hereinafter
collectively referred to as "Lessee Parties"), resulting directly, indirectly,
proximately, or remotely from the installation, use, or interruption of any
utility service to the Premises or Building, including, but not limited to,
temporary failure to supply any heating, air conditioning, electrical, water, or
sewer services, or any of them. No temporary failure to provide services shall
relieve Lessee from fulfillment of any covenant of this Lease, including,
without limitation, the covenant to pay any Amount Due in the manner and
amounts, and promptly at the times set forth herein.
6.4 Lessor shall furnish Lessee janitorial service five (5)
days per week, exclusive of holidays, in a manner that Lessor reasonably deems
to be consistent with the first-class standard of the Building.
-4-
<PAGE> 5
7. MAINTENANCE.
7.1 Except for damage arising from the negligence of Lessee or
the Lessee Parties, Lessor shall keep the roof, foundation, exterior walls,
common areas, and all sewer and utility lines of the Building, including all
sewer connections, plumbing, heating appliances, wiring, and glass, in good
order and repair, shall furnish Lessee all Building standard fluorescent bulb
replacement in all areas and all incandescent bulb replacement in the common
areas and service areas within the Building. Notwithstanding anything to the
contrary contained herein and except as otherwise provided in the preceding
sentence, Lessor shall have no obligation to maintain, replace, or repair any
other improvements located within the Premises, the maintenance of which is and
shall be the responsibility of Lessee.
7.2 Lessor shall have no obligation to make any repairs unless
and until Lessee notifies Lessor in writing of the necessity thereof, in which
event Lessor shall have reasonable time in which to make such repairs; however,
Lessee may notify Lessor verbally of any minor, routine or day-to-day repairs
which need to be made.
7.3 Subject to Lessor's obligation to provide janitorial
services, Lessee shall keep the Premises free from all litter, dirt, debris, and
obstructions and in a clean and sanitary condition. Except as otherwise provided
in the first sentence of paragraph 7.1 hereof, Lessee shall maintain, replace,
and repair all improvements located within the Premises, including, but not
limited to, finishes, wall coverings, carpets, floor coverings, utility lines,
sewer connections, plumbing, wiring and glass, which are or were installed for
Lessee. At the expiration or other termination of this Lease, Lessee shall
surrender the Premises (and keys thereto) in as good condition as when received,
loss by fire or other casualty not the result of any act or omission by Lessee
or ordinary wear and tear excepted only.
8. FORCE MAJEURE. In the event that either party hereto shall be
delayed or hindered in or prevented from the performance of any act required
hereunder by reason of strikes, lockouts, labor troubles, inability to procure
materials, failure of power, restrictive government laws or regulations, riots,
insurrection, war, or other reason of a like nature other than finance not the
fault of the party delayed in performing work or doing acts required under the
terms of this Lease, then performance of such act shall be excused for the
period of the delay and the period for the performance of any such act shall be
extended for a period equivalent to the period of the delay. The provisions of
this Section 8 shall not cancel, postpone, or delay the due date of any payment
to be made by Lessee hereunder, nor operate to excuse Lessee from prompt payment
of any Amount Due required by the terms of this Lease.
9. PROPERTY AND LIABILITY INSURANCE.
9.1 Throughout the Lease Term, Lessor will insure for full
replacement value, the Building (excluding foundations and excavations), the
Building standard leasehold improvements, and the machinery, boilers, and
equipment contained therein owned by Lessor (excluding any property Lessee is
obliged to insure pursuant to Paragraph 9.3 below) against damage by fire and
the perils insured in the standard extended coverage endorsement. Lessor shall
also, throughout the Lease Term, carry public liability insurance in an amount
not less than $1,000,000 for any one occurrence with respect to the ownership
and operation of the Building.
9.2 Lessee shall comply with all insurance regulations so the
lowest fire, extended coverage, and liability insurance rates available for use
of the Building as normal office space may be obtained by Lessor and will not
use or keep any substance or material in or about the Premises which may vitiate
or endanger the validity of insurance on the Building, increase the hazard or
the risk beyond that for a normal office building, or result in an increase in
premium on the insurance on the Building. If any insurance policy upon the
-5-
<PAGE> 6
Premises or the Building or any part thereof shall be canceled or shall be
threatened by the insurer to be canceled, the coverage thereunder reduced or
threatened to be reduced, or the premium therefor increased or threatened to be
increased in any way by the insurer by reason of the use and occupation of the
Premises by Lessee or by any assignee or subtenant of Lessee and if Lessee fails
to remedy the condition giving rise to the cancellation, reduction, or premium
increase or threat thereof within twenty-four (24) hours after notice thereof by
Lessor, Lessor may, at its option, do any one of the following:
9.2.1 Declare a default by Lessee, and thereupon the
provisions of Section 12 shall apply; or
9.2.2 Enter upon the Premises and remedy the condition
giving rise to the cancellation, reduction, or premium increase or threat
thereof, and in such event, Lessee shall forthwith pay the cost thereof to
Lessor as additional rent; and if Lessee fails to pay such cost, Lessor may
declare a default by Lessee and thereupon the provisions of Section 12 shall
apply (Lessor shall not be liable for any damage or injury caused to any
property of Lessee or of others located on the Premises as a result of the
re-entry); or
9.2.3 If the sole action taken by the insurer is to
raise the premium or other monetary cost of the insurance, demand payment from
Lessee of the premium or other cost as additional rent hereunder, and if Lessee
fails to pay the increase to Lessor within ten (10) days of demand by Lessor,
Lessor may declare a default by Lessee and thereupon the provisions of Section
12 shall apply. Lessee acknowledges that it has no right to receive any proceeds
from any insurance policies carried by Lessor and that such insurance will be
for the sole benefit of Lessor with no coverage for Lessee for any risk insured
against.
9.3 Lessee shall, during its occupancy of the Premises and
during the entire Lease Term, at its sole cost and expense, obtain, maintain,
and keep in full force and effect, and with Lessee, Lessor, and Lessor's
mortgagees named as additional insured therein as their respective interests may
appear, the following types and kinds of insurance:
9.3.1 Upon property of every description and kind owned
by Lessee and located in the Building or for which Lessee is legally liable or
which was installed by or on behalf of Lessee, including, without limitation,
furniture, fittings, installations, alterations, additions, partitions, and
fixtures (excluding, however, those improvements, if any, installed by Lessor in
accordance with paragraph 10.1 hereof), against all risk of loss in an amount
not less than one hundred percent (100%) of the full replacement cost thereof;
9.3.2 Public liability insurance in an amount not less
than $1,000,000.00 for any one occurrence or such higher limits as Lessor may
reasonably require from time to time; the insurance shall include coverage
against liability for bodily injuries or property damage arising out of the use
by or on behalf of Lessee of owned, non-owned, or hired automobiles and other
vehicles for a limit not less than that specified above; and shall also include
coverage for "Fire Legal" liability with respect to the Premises in an amount
not less than $100,000 or such higher limits as Lessor may reasonably require
from time to time.
9.3.3 Workers' compensation insurance in the amount
required by law to protect Lessee's employees; and
9.3.4 Any other form or forms of insurance that Lessor
may reasonably require from time to time, in form, in amounts, and for insurance
risks against which a prudent tenant would protect itself.
9.4 All insurance policies shall be taken out with companies
acceptable to Lessor licensed and registered to operate in the State of Georgia
and in form reasonably satisfactory to Lessor. The insurance may be by blanket
insurance policy or policies. Lessee shall deliver certificates evidencing the
insurance
-6-
<PAGE> 7
policies and any endorsement, rider, or renewal thereof, to Lessor. Certificates
evidencing renewals shall be delivered to Lessor no later than fifteen (15) days
after each renewal, as often as renewal occurs, and in no event less than
fifteen (15) days prior to the date on which the policy would otherwise expire.
All insurance policies shall require the insurer to notify Lessor and Lessor's
mortgagees in writing thirty (30) days prior to any material change,
cancellation, or termination thereof.
9.5 Lessor and Lessee hereby release the other from any and
all liability or responsibility to the other or to anyone claiming through or
under them by way of subrogation or otherwise for any loss or damage to property
caused by fire or any other perils insured or insurable (whether or not such
insurance is obtained) in policies of fire and extended coverage insurance
covering such property even if such loss or damage shall have been caused by the
fault or negligence of the other party, or any one for whom such party may be
responsible (other than acts, such as intentional wrongdoing or criminal
conduct, that are not waived in the standard waiver of subrogation provision in
commercial property insurance at the time of the loss or damage).
10. ALTERATIONS AND IMPROVEMENTS.
10.1 Lessor shall improve the Premises in accordance with
working drawings to be approved by Lessee and Lessor prior to commencement of
construction. The Premises will be prepared generally in accordance with the
plans shown on EXHIBIT "C", attached hereto and by this reference made a part
hereof. Notwithstanding the above Lessor shall provide Lessee a tenant
improvement allowance equal to $9.00 per square foot or $123,723. These monies
are to be used toward the improvement of the Premises subject to Lessor's
reasonable approval and the above allowance shall also be applied toward the
costs associated with architectural design, engineering, and construction
supervision (5%) to complete the tenant improvement work. Any cost to improve
the Premises in excess of the allowance provided for herein will be at the
expense of Lessee.
10.2 Lessee shall not make any alterations, additions, or
improvements in or to the Premises, nor install or attach fixtures in or to the
Premises, without the prior written consent of Lessor, which consent Lessor
shall not unreasonably withhold, delay or condition. If Lessor does not respond
in writing to Lessee's request for consent within ten (10) business days of
receipt of Lessee's request therefor, Lessee shall be deemed to have given
consent. All alterations, additions, or improvements made, installed in, or
attached to the Premises by Lessee, upon the consent specified above, shall be
made at Lessee's expense in a good and workmanlike manner, strictly in
accordance with the plans and specifications approved by Lessor, all applicable
laws, ordinances, regulations, and other requirements of any appropriate
governmental authority, and any applicable covenants or other restrictions.
Prior to the commencement of any such work, Lessee shall deliver to Lessor
certificates issued by insurance companies licensed and registered to operate in
the State of Georgia evidencing that workers' compensation insurance and public
liability insurance, all in amounts satisfactory to Lessor, are in force and
effect and maintained by all contractors and subcontractors engaged by Lessee to
perform the work.
10.3 Lessee shall keep the Premises free from all liens,
preliminary notices of liens, right to liens, or claims of liens of contractors,
subcontractors, mechanics, or material men for work done or materials furnished
to the Property at the request of Lessee. Whenever and so often as any such lien
shall attach or claims or notices thereof shall be filed against the Property or
any part thereof as a result of work done or materials furnished to the Property
at the request of Lessee, Lessee shall, within ten (10) days after Lessee has
notice of the claim or notice of lien, cause it to be discharged of record,
which discharge may be accomplished by deposit or bonding proceedings. If Lessee
shall fail to cause the lien, or such claim or notice thereof, to be discharged
within the ten-day period, then, in addition to any other right or remedy,
Lessor may, but shall not be obligated to, discharge it either by paying the
amount claimed to be due or by procuring the discharge of the
-7-
<PAGE> 8
lien, or claim or notice thereof, by deposit or bonding proceedings. Any amount
so paid by Lessor and all costs and expenses, including, without limitation,
attorneys' fees, incurred by Lessor in connection therewith, shall constitute
additional rent payable by Lessee under this Lease and shall be paid by Lessee
in full on demand of Lessor together with interest thereon at the rate set forth
in paragraph 2.2 hereof from the date it was paid by Lessor. Lessee shall not
have the authority to subject the interest or estate of Lessor to any liens,
rights to liens, or claims of liens for services, materials, supplies, or
equipment furnished to Lessee, and all persons contracting with Lessee are
hereby charged with notice that they must look to Lessee and to Lessee's
interest only to secure payment.
10.4 All alterations, additions, or improvements, including,
but not limited to, fixtures, partitions, counters, and window and floor
coverings, which may be made or installed by either of the parties hereto upon
the Premises, irrespective of the manner of annexation, and irrespective of
which party may have paid the cost thereof, excepting only movable office
furniture and shop equipment put in at the expenses of Lessee, shall be the
property of Lessor, and shall remain upon and be surrendered with the Premises
as a part thereof at the expiration or other termination of this Lease, without
disturbance, molestation, or injury. Notwithstanding the foregoing, however,
Lessor may elect that any or all installations made or installed by or on behalf
of Lessee be removed at the end of the Lease Term, and, if Lessor so elects, it
shall be Lessee's obligation to restore the Premises to the condition they were
prior to the alterations, additions, or improvements on or before the expiration
or other termination of this Lease; provided, however, that Lessor shall make
such election to require Lessee to remove installations at the time Lessor gives
its consent to allow Lessee to install same. Such removal and restoration shall
be at the sole expense of Lessee. Further, notwithstanding anything contained
herein to the contrary except as otherwise provided in paragraph 9.3.1 hereof,
Lessor shall be under no obligation to insure the alterations, additions, or
improvements or anything in the nature of a leasehold improvement made or
installed by or on behalf of Lessee, the Lessee Parties, or any other person,
and such improvements shall be on the Premises at the risk of Lessee only.
10.5 In the event Lessor makes any capital investment, major
structural repairs or improvements in or to the Premises or Building which are
required due to any willful act or omission of Lessee or any of the Lessee
Parties, any and all cost and expenses incurred by Lessor in making the capital
investment, major structural repairs, or improvements shall constitute
additional rent payable by Lessee under this Lease and shall be paid by Lessee
in full on demand of Lessor, together with interest thereon from the date of the
demand at the rate set forth in paragraph 2.2 hereof.
11. ASSIGNMENT OR SUBLETTING.
11.1 Lessee shall not assign this Lease, or any interest
herein, or sublet or allow any other person, firm, or corporation to use or
occupy the Premises, or any part thereof, without the prior written consent of
Lessor, which consent will not be unreasonably withheld or delayed. If Lessor
does not respond in writing to Lessee's request for consent within ten (10)
business days of receipt of Lessee's request therefor, Lessor shall be deemed to
have given consent. Lessor shall have the right to make such investigations as
it deems reasonable and necessary in determining the acceptability of the
proposed assignee or subtenant. Such investigations may include inquiries into
the financial background, business history, capability of the proposed assignee
or subtenant in its line of business, and the quality of its operations. Under
no circumstances shall Lessor be obligated to consent to the assignment of this
Lease or the subletting of the Premises to any entity whose operations violate
the restrictive covenants described in Section 26 hereof. Lessee shall provide
to Lessor such information as Lessor may reasonably require to enable it to
determine the acceptability of the proposed assignee or subtenant, including
information concerning all of the foregoing matters, and Lessor shall have no
obligation to consent to any assignment or subletting unless it has received
from Lessee (at no cost or expense to Lessor) the most recent audited financial
statements of the proposed assignee or subtenant and such other information as
Lessor reasonably requires. For purposes of this Section 11, an assignment of
-8-
<PAGE> 9
stock or other ownership interest in Lessee shall be deemed an assignment within
the meaning of and be governed by this Paragraph. No assignment or subletting
(with or without the consent of Lessor) shall release Lessee from its
obligations under this Lease nor shall Lessee permit this Lease or any interest
herein or in the tenancy hereby created to become vested in or owned by any
other person, firm, or corporation by operation of law or otherwise. The power
of Lessor to give or withhold its consent to any assignment or subletting shall
not be exhausted by the exercise thereof on one or more occasions, but shall be
a continuing right and power with respect to any type of transfer, assignment or
subletting.
11.2 If Lessee shall assign this Lease or sublet the Premises
in any way not authorized by the terms hereof, the acceptance by Lessor of any
Amount Due from any person claiming as assignee, sublease, or otherwise shall
not be construed as a recognition of or consent to the assignment or subletting
or as a waiver of the right of Lessor thereafter to collect any rent from
Lessee, it being agreed that Lessor may at any time accept any Amount Due under
this Lease from any person offering to pay it without thereby acknowledging the
person so paying as a lessee in place of Lessee herein named, and without
releasing Lessee from the obligations of this Lease, and without recognizing the
claims under which such person offers to pay any Amount Due, but it shall be
taken to be a payment on account by Lessee.
11.3 Notwithstanding the provisions of Paragraph 11 of this
Lease, Lessee shall have the right, without the prior consent of Lessor but
subject to Lessor's rights to notice and prohibitions contained herein, to
assign this Lease or sublet the whole or any part of the Premises to a
corporation or entity which: (1) is Lessee's parent corporation; or (2) is a
wholly-owned subsidiary of Lessee or Lessee's parent corporation; or (3) is a
corporation of which Lessee or Lessee's parent corporation owns in excess fifty
percent (50%) of the outstanding capital stock; or (4) is a result of
consolidation or merger with Lessee and/or Lessee's parent corporation; or (5)
is a corporation to which substantially all of Lessee's assets have been
transferred. Any transfer pursuant to 1, 2, 3, 4 or 5 above, shall be subject to
the following conditions: (a) Lessee shall remain fully liable during the
unexpired term of this Lease; and (b) any such assignment, sublease or transfer
shall be subject to all of the terms, covenants and conditions of this Lease,
and such assignee, sublessee or transferee shall expressly assume the
obligations of Lessee under this Lease by a document reasonably satisfactory to
Lessor. Lessee shall have the obligation to give Lessor prior written notice of
its intent of any such arrangement, and if Lessor reasonably determines that the
proposed assignee or sublessee is engaged in a business which would materially
interfere with the operation of the Property or that permitting the assignment
or subletting would cause a violation by Lessor of its obligations under any
lease covering a portion of the property, Lessor shall have the right to
prohibit such arrangement based upon the issue of the business of the proposed
assignee or sublessee or the compatability of the proposed assignee or sublessee
with the businesses in the Building.
12. DEFAULTS.
12.1 In the event that (i) Lessee shall fail to pay the Base
Rent or any other Amount Due for more than ten (10) days after its due date, or
(ii) Lessee shall fail to comply with any of the terms, covenants, conditions,
or agreements herein contained or any of the rules and regulations now or
hereafter established for the government of the Building and such failure to
comply continues for thirty (30) days after Lessor's written notice to Lessee
thereof, or (iii) Lessee shall fail for more than thirty (30) days after written
notice thereof from Lessor to Lessee to comply (or fail to diligently pursue
within thirty (30) days compliance which cannot reasonably be completed with
such thirty (30) day period and within sixty (60) days comply with) with any
term, provision, condition or covenant of any other agreement between Lessor and
Lessee; then Lessor shall have the option, but not the obligation, to do any one
or more of the following in addition to, and not in limitation of, any other
remedy permitted by law, in equity or by this Lease:
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12.1.1 Terminate this Lease, in which event Lessee shall
surrender the Premises to Lessor immediately upon expiration of ten (10) days
from the date of the service upon Lessee of written notice to that effect,
without any further notice or demand. In the event Lessor shall become entitled
to the possession of the Premises by any termination of this Lease herein
provided, and Lessee shall refuse to surrender or deliver up possession of the
Premises after the service of such notice, then Lessor may, without further
notice or demand, enter into and upon the Premises, or any part thereof, and
take possession of and repossess the Premises as Lessor's former estate, and
expel, remove, and put out of possession Lessee and its effects, using such
help, assistance and force in so doing as may be needful and proper, without
being liable for prosecution or damages therefor, and without prejudice to any
remedy allowed by law available in such cases. Lessee shall indemnify Lessor for
all loss, cost, expense, and damage which Lessor may suffer by reason of the
termination, whether through inability to relet the Premises, or through
decrease in rent or otherwise. In the event of such termination, Lessor may, at
its option, recover forthwith as damages a sum of money equal to the total of
(a) the cost of recovering the Premises (including, without limitation,
attorneys' fees and cost of suit), (b) the unpaid rent earned at the time of
termination, plus late charges and interest thereon at the rate specified in
paragraph 2.2 hereof, (c) the present value (discounted at the rate of 8% per
annum) of the balance of the rent for the remainder of the Lease Term less the
present value (discounted at the same rate) of the fair market rental value of
the Premises for said period, and (d) any other sum of money and damages owed by
Lessee to Lessor.
12.1.2 Without terminating this Lease, retake possession
of the Premises and rent the Premises, or any part thereof, for such term or
terms and for such rent and upon such conditions as Lessor may, in its sole
discretion, think best, making such changes, improvements, alterations, and
repairs to the Premises as may be required. All rent received by Lessor from any
reletting shall be applied first to the payment of any indebtedness other than
rent due hereunder from Lessee; second, to the payment of any costs and expenses
of the reletting, including but not limited to brokerage fees, attorneys' fees
and costs of such changes, improvements, alterations, and repairs; third, to the
payment of rent due and unpaid hereunder; and the residue, if any, shall be held
by Lessor and applied in payment of future rent or damage as they may become due
and payable hereunder. If the rent received from the reletting during the Lease
Term is at any time insufficient to cover the costs, expenses, and payments
enumerated above, Lessee shall pay any deficiency to Lessor, as often as it
shall arise, on demand.
12.1.3 Correct or cure the default and recover any amount
expended in so doing, together with interest thereon until paid.
12.1.4 Recover any and all costs incurred by Lessor
resulting directly, indirectly, proximately, or remotely from the default,
including but not limited to reasonable attorneys' fees.
12.2 In addition to any other rights which Lessor may have,
Lessor, in person or by agent, may enter upon the Premises and take possession
of all or any part of Lessee's property in the Premises, and may sell all or any
part of such property at a public or private sale, in one or successive sales,
with or without notice, to the highest bidder for cash, and, on behalf of
Lessee, sell and convey all or part of the property to the highest bidder,
delivering to the highest bidder all of Lessee's title and interest in the
property sold to him. The proceeds of the sale of the property shall be applied
by Lessor toward the reasonable costs and expenses of the sale, including,
without limitation, attorneys' fees, and then toward the payment of all sums
then due by Lessee to Lessor under the terms of this Lease. Any excess remaining
shall be paid to Lessee or any other person entitled thereto by law. Such sale
shall bar Lessee's right of redemption.
12.3 In the event of a default or threatened default under
this Lease by Lessee, Lessor shall be entitled to all equitable remedies,
including, without limitation, injunction and specific performance.
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12.4 Pursuit of any of the remedies herein provided shall not
preclude the pursuit of any other remedies herein provided or any other remedies
provided at law or in equity. Failure by Lessor to enforce one or more of the
remedies herein provided shall not be deemed or construed to constitute a waiver
of any default, or any violation or breach of any of the terms, provisions, or
covenants herein contained.
13. BANKRUPTCY. The filing or preparation for filing by or against
Lessee of any petition in bankruptcy, insolvency, or for reorganization under
the Federal Bankruptcy Code, any other federal or state law now or hereafter
relating to insolvency, bankruptcy, or debtor relief, or an adjudication that
Lessee is insolvent, bankrupt, or an issuance of an order for relief with
respect to Lessee under the Federal Bankruptcy Code, any other federal or state
law now or hereafter relating to insolvency, bankruptcy, or debtor relief, or
the execution by Lessee of a voluntary assignment for the benefit of, or a
transfer in fraud of, its general creditors, or the failure of Lessee to pay its
debts as they mature, or the levying on under execution of the interest of
Lessee under this Lease, or the filing or preparation for filing by Lessee of
any petition for a reorganization under the Federal Bankruptcy Code, or for the
appointment of a receiver or trustee for a substantial part of Lessee's assets
or to take charge of Lessee's business, or of any other petition or application
seeking relief under any other federal or state laws now or hereafter relating
to insolvency, bankruptcy, or debtor relief, or the appointment of a receiver or
trustee for a substantial part of Lessee's assets or to take charge of Lessee's
business, shall automatically constitute a default in this Lease by Lessee for
which Lessor may, at any time or times thereafter, at its option, exercise any
of the remedies and options provided to Lessor in Section 12 hereof; provided,
however, that if such petition be filed by a third party against Lessee, and
Lessee desires in good faith to defend against the petition and is not in any
way in default of any obligation hereunder at the time of filing the petition,
and Lessee within ninety (90) days thereafter procures a final adjudication that
it is solvent and a judgment dismissing the petition, then this Lease shall be
fully reinstated as though the petition had never been filed. In the event
Lessor elects to terminate this Lease as provided for in this Section, Lessee
shall pay forthwith to Lessor as liquidated damages, the difference between the
unpaid rent reserved in this Lease at the time of such termination and the then
reasonable rental value of the Premises for the balance of the Lease Term, and
Lessee acknowledges that said sum is reasonable and shall not be construed as a
penalty.
14. DAMAGE AND CONDEMNATION.
14.1 In the event during the Lease Term the Premises are
damaged by fire or other casualty, but not to such an extent that repairs and
rebuilding cannot reasonably be completed within one hundred twenty (120) days
of the date of the event causing the damage, Lessor may, at Lessor's option,
repair and rebuild the Premises. If Lessor elects to repair and rebuild the
Premises, this Lease shall remain in full force and effect, but Lessor may
require Lessee temporarily to vacate the Premises while they are being repaired
and, subject to the provisions of this Paragraph 14.1, rent shall abate during
this period to the extent that the Premises are untenantable; provided, however,
that Lessor shall not be liable to Lessee for any damage or expense which
temporarily vacating the Premises may cause Lessee. If the Premises are not
repaired, rebuilt, or otherwise made suitable for occupancy by Lessee within the
aforesaid one hundred twenty (120) day period, Lessee shall have the right, by
written notice to Lessor, to terminate this Lease, in which event rent shall be
abated for the unexpired Lease Term, effective as of the date of the written
notification, but the other terms and conditions of this Lease shall continue
and remain in full force and effect until Lessee shall have vacated the
Premises, removed all Lessee's personal property therefrom and delivered
peaceable possession thereof to Lessor. If Lessor elects not to repair and
rebuild the Premises or if the Building or any part thereof be so damaged that
repairs and rebuilding cannot reasonably be completed within one hundred twenty
(120) days of the date of the event causing the damage, Lessor may by written
notice to Lessee terminate this Lease in which event rent shall be abated for
the unexpired Lease Term, effective as of the date of the written notification,
but the other terms and conditions of this Lease shall continue and remain in
full force and effect until Lessee shall have vacated the Premises, removed all
Lessee's personal property therefrom and delivered peaceable possession thereof
to Lessor. Failure by Lessee to comply with any provision of this Paragraph 14.1
shall
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subject Lessee to such costs, expenses, damages, and losses as Lessor may incur
by reason of Lessee's breach hereof. Notwithstanding any provision of this Lease
to the contrary, if the Premises, the Building, or any part thereof are damaged
by fire or other casualty caused by or materially contributed to by the
negligence or misconduct of Lessee or any of the Lessee Parties, Lessee shall be
fully responsible, to the extent not covered by insurance, for repairing,
restoring, or paying for the damage as Lessor shall direct and this Lease shall
remain in full force and effect without reduction or abatement of rent.
14.2 In the event the Building shall be taken, in whole or in
part, by condemnation or the exercise of the right of eminent domain, or if in
lieu of any formal condemnation proceedings or actions, if any, Lessor shall
sell and convey the Premises, or any portion thereof, to the governmental or
other public authority, agency, body, or public utility, seeking to take the
Premises, the Property or any portion thereof, then Lessor, at its option, may
terminate this Lease upon ten (10) days' prior written notice to Lessee and
prepaid rent shall be proportionately refunded from the date of possession by
the condemning authority. All damages awarded for the taking, or paid as the
purchase price for the sale and conveyance in lieu of formal condemnation
proceedings, whether for the fee or the leasehold interest, shall belong to and
be the property of Lessor; provided, however, Lessee shall have the sole right
to reclaim and recover from the condemning authority, but not from Lessor, such
compensation as may be separately awarded or recoverable by Lessee in Lessee's
own right on account of any and all costs or loss (including loss of business)
to which Lessee might be put in removing Lessee's merchandise, furniture,
fixtures, leasehold improvements, and equipment to a new location. Lessee shall
execute and deliver any instruments, at the expense of Lessor, that Lessor
reasonably may deem necessary to expedite any condemnation proceedings, to
effectuate a proper transfer of title to such governmental or other public
authority, agency, body or public utility seeking to take or acquire the lands
and Premises, or any portion thereof. Lessee shall vacate the Premises, remove
all Lessee's personal property therefrom and deliver up peaceable possession
thereof to Lessor or to such other party designated by Lessor in the
aforementioned notice. Failure by Lessee to comply with any provisions of this
Paragraph 14.2 shall subject Lessee to such costs, expenses, damages, and losses
as Lessor reasonably may incur by reason of Lessee's breach hereof. If Lessor
chooses not to terminate this Lease, then to the extent and availability of
condemnation proceeds received by Lessor and subject to the rights of any
mortgagee thereto, Lessor shall, at the sole cost and expense of Lessor and with
due diligence and in a good and workmanlike manner, restore and reconstruct the
Premises within one hundred twenty (120) days after the date of the physical
taking, and such restoration and reconstruction shall make the Premises
reasonably tenantable and suitable for the general use being made by Lessee
prior to the taking and shall restore the Premises to its condition immediately
prior to the taking, reasonable wear and tear expected; provided, however, that
Lessor shall have no obligation to restore and reconstruct Lessee's leasehold
improvements unless and to the extent that Lessor receives an award of
condemnation proceeds specifically designated as compensation for such
improvements. Notwithstanding the foregoing, if Lessor has not completed the
restoration and reconstruction within one hundred twenty (120) days after the
date of physical taking, Lessee, in addition to any other rights and remedies
Lessee may have, shall have the right to cancel this Lease. If this Lease
continues in effect after the physical taking, the rent payable hereunder shall
be equitably adjusted in proportion to the percentage of the Premises taken or
rendered unusable as a result of such taking, both during the period of
restoration and reconstruction and during the unexpired portion of the Lease
Term.
14.3 In the event Lessor, during the Lease Term, shall be
required by any governmental authority or the order or decree of any court, to
repair, alter, remove, reconstruct, or improve (hereinafter collectively called
"Repairs") any part of the Premises, then the Repairs may be made by and at the
expense of Lessor and shall not in any way affect the obligations or covenants
of Lessee herein contained, and Lessee hereby waives all claims for damages or
abatement of rent because of the Repairs. If the Repairs shall render the
Premises untenantable and if the Repairs are not completed within one hundred
twenty (120) days after the date of the notice, requirement, order, or decree,
either party hereto upon written notice to the other party given not later than
one hundred thirty (130) days after the date of the notice, requirement, order,
or decree, may
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terminate this Lease, in which case rent shall be apportioned and paid to the
date the Premises were rendered untenantable; provided however that where the
requirement by a governmental authority having jurisdiction to repair, alter,
remove, reconstruct, or improve any part of the Premises arises out of any act
or omission by Lessee, then the Repairs shall be effected promptly at the sole
cost and expense of Lessee and there shall not, in any event, be any abatement
of rent nor any right in Lessee to terminate this Lease whether or not the
completion of the Repairs takes more than one hundred twenty (120) days.
15. TAXES. Lessor shall pay all taxes, assessments, and other
governmental charges, general or special, ordinary or extraordinary, foreseen or
unforeseen, including any installments thereof, levied, assessed, or otherwise
imposed by any lawful authority or payable with respect to the Property or the
Building.
16. LIABILITY OF LESSOR.
16.1 Subject to paragraph 9.5 hereof, Lessee shall indemnify,
defend, and hold harmless Lessor, at Lessee's expense, against (a) any default
by Lessee or any permitted assignee or subtenant hereunder; (b) any act or
negligence of Lessee, Lessee's licensees, agents, servants, employees,
contractors or subcontractors; (c) any act or negligence of the Lessee's
invitees or any other person or entity invited or allowed to come onto the
Premises by Lessee, occurring within the Premises; and (d) all claims for
damages to persons or property by reason of Lessee's use or occupancy of the
Premises. Lessee shall not be liable to Lessor, or Lessor's agents, servants,
employees, contractors, customers or invitees for any damage to person or
property caused by any act, omission or neglect of Lessor, its agents, servants
or employees. Moreover, Lessor shall not be liable for any damage, injury,
destruction, or theft to or of the Premises, the personal property of Lessee or
any of the Lessee Parties, Lessee, or any of the Lessee Parties arising from any
use or condition of the Premises, or any sidewalks, entrance ways, or parking
areas serving the Premises, or the act or neglect of co-tenants or any other
person, or the malfunction of any equipment or apparatus serving the Premises,
or any loss thereof by mysterious disappearance or otherwise, except for such
resulting from the negligence or willful act of Lessor. Any and all claims
against Lessor for any damage referred to, but not excepted, in this Section 16
are hereby waived and released by Lessee.
16.2 Lessee expressly agrees to look solely to Lessor's
interest in the Property for the recovery of any judgment against Lessor, it
being agreed that Lessor (and its partners and shareholders) shall never be
personally liable for any such judgment. The provision contained in the
foregoing sentence is not intended to, and shall not, limit any right that
Lessee might otherwise have to obtain injunctive relief against Lessor or
Lessor's successors-in-interest.
17. RIGHT OF ENTRY.
17.1 Lessor reserves the right, for itself, its mortgagees, or
their respective agents and duly authorized representatives, following
reasonable notice to Lessee except in the case of emergency in which case no
notice should be required, to enter and be upon the Premises at any time and
from time to time to inspect the Premises and to repair, maintain, alter,
improve, and remodel, but Lessor shall not materially interfere with Lessee's
normal operation except in case of an emergency. Lessee shall not be entitled to
any compensation, damages, or abatement or reduction in rent on account of any
such repairs, maintenance, alterations, improvements or remodeling. Except as
otherwise provided in this Lease, nothing contained in this Paragraph 17.1 shall
imply any duty on the part of Lessor to repair, maintain, alter, improve, or
remodel.
17.2 After notice to Lessee, Lessee shall permit Lessor or
Lessor's agents at any reasonable hour of the day to enter into or upon and go
through and view the Premises and to exhibit the Premises to prospective
purchasers or tenants.
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18. BUILDING RULES AND REGULATIONS. Lessor reserves the right to
establish commercially reasonable rules and regulations pertaining to the use
and occupancy of the Building, which rules and regulations may be changed by
Lessor from time to time. Lessee shall comply with any rules and regulations
established by Lessor pursuant to this Section 18. Building Rules and
Regulations are stated on EXHIBIT "F", attached hereto and by this reference
made a part hereof.
19. PROPERTY LEFT ON THE PREMISES. Upon the expiration of this
Lease, or if the Premises should be abandoned by Lessee, or if this Lease should
terminate for any cause, or if Lessee should be dispossessed after default, if
at the time of any such expiration, abandonment, termination or dispossession,
Lessee or its assignees, subtenants, agents, servants, employees, contractors,
or any other person controlled by Lessee or claiming under Lessee should leave
any property of any kind or character in or upon the Premises, if such property
remains in the Premises for ten (10) days after Lessor has given notice to
Lessee pursuant to Paragraph 34 herein, such property shall be the property of
Lessor and the fact of such leaving of property in or upon the Premises shall be
conclusive evidence of the intent by Lessee or such person to abandon such
property so left in or upon the Premises, and such leaving shall constitute
abandonment of the property. It is understood and acknowledged by the parties
hereto that none of Lessor's servants, agents, or employees, have or shall have
the actual or apparent authority to waive any portion of this Section 19, and
neither Lessee nor any other person designated above shall have any right to
leave any such property upon the Premises beyond the time set forth herein
without the written consent of Lessor. Lessor, its agents or attorneys, shall
have the right and authority, if such property remains in the Premises for ten
(10) days after Lessor has given notice to Lessee pursuant to Paragraph 34
herein, to remove and destroy, store, sell or otherwise dispose of, such
property, or any part thereof, without being in any way liable to Lessee or
anyone else therefor. Lessee shall be liable to Lessor for all reasonable and
necessary expenses incurred in such removal and destruction, storage, sale or
other disposition of such property. The said property removed or the proceeds
from the sale or other disposition thereof shall belong to the Lessor as
compensation for the removal and disposition of said property.
20. OTHER INTERESTS.
20.1 This Lease and Lessee's interest hereunder shall at all
times be subject and subordinate to the lien and security title of any deeds to
secure debt, deeds of trust, mortgages, or other interests heretofore or
hereafter granted by Lessor or which otherwise encumber or affect the Premises
and to any and all advances to be made thereunder and to all renewals,
modifications, consolidations, replacements, substitutions, and extensions
thereof (all of which are hereinafter called the "Mortgage"). Except as
expressly set forth in Section 20.3 to the contrary, this clause shall be
self-operative and no further instrument of subordination need be required by
any holder of any Mortgage. In confirmation of such subordination, however,
Lessee shall, within ten (10) business days after Lessor's request, promptly
execute, acknowledge, and deliver any instrument which may be required to
evidence subordination to any Mortgage and, to the holder thereof, and, in the
event of a failure so to do, Lessor may, in addition to any other remedies for
breach of covenant hereunder, execute, acknowledge, and deliver the instrument
as the agent or attorney-in-fact of Lessee, and Lessee hereby irrevocably
constitutes Lessor its attorney-in-fact for such purpose, Lessee acknowledging
that the appointment is coupled with an interest and is irrevocable. Lessee
hereby waives and releases any claim it might have against Lessor or any other
party for any actions lawfully taken by the holder of any Mortgage. At the
option of any holder of a Mortgage or any purchaser at a purchase sale of any
Mortgage, Lessee shall attorn to and recognize such holder or purchaser as the
Lessor under this Lease for the remainder of the term hereof, provided that such
holder or purchaser recognizes Lessee as the Lessee of the Premises for the
remainder of the term hereof in accordance with the provisions of this Lease;
provided however, that such holder or purchaser shall not be subject to any
offsets or defenses which Lessee might have against any prior Lessor and shall
not be liable for any act or omission of any prior Lessor. Lessee shall, at the
option of such holder or purchaser and within ten (10) business days after
request is made therefor, execute, acknowledge and deliver any instrument which
reasonably may be required to evidence such attornment on the foregoing terms.
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20.2 In the event of a sale or conveyance by Lessor of
Lessor's interest in the Premises other than a transfer for security purposes
only, Lessor shall be relieved, from and after the date of transfer, of all
obligations and liabilities accruing thereafter on the part of Lessor, provided
that any funds in the hands of Lessor at the time of transfer in which Lessee
has an interest shall be delivered to the successor of Lessor. This Lease shall
not be affected by any such sale and Lessee shall attorn to the purchaser or
assignee.
20.3 Notwithstanding paragraph 20.1, with respect to Mortgages
entered into by Lessor after the execution of this Lease, Lessee's subordination
of this Lease shall be subject to receiving a commercially reasonable
non-disturbance agreement (a "NON-DISTURBANCE AGREEMENT") from the holder of
such Mortgage, which Non-Disturbance Agreement provides that Lessee's possession
of the Premises, and this Lease, including any options to extend the term
hereof, will not be disturbed so long as Lessee is not in breach hereof and
attorns to the record owner of the Premises, at its option as provided in
paragraph 20.1. Further, within sixty (60) days after the execution of this
Lease, Lessor shall use its commercially reasonable efforts to obtain a
Non-Disturbance Agreement from the holder of any pre-existing Mortgage which is
secured by the Premises. In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at
Lessee's option, directly contact Lessor's lender and attempt to negotiate for
the execution and delivery of a Non-Disturbance Agreement.
21. INTENTIONALLY OMITTED.
22. DELAYED POSSESSION. If Lessor shall fail to deliver to Lessee
actual possession of the Premises by August 1, 1998, rent shall abate until
possession is given, but Lessor shall not be liable to Lessee for such failure,
and the Commencement Date shall become the date on which possession is given.
23. HOLDING OVER. There shall be no renewal, extension, or
reinstatement of this Lease by operation of law. In the event of holding over by
Lessee after the expiration or sooner termination of this Lease, with Lessor's
acquiescence and without any express agreement of the parties, Lessee shall be a
tenant at sufferance and all of the terms, covenants, and conditions of this
Lease shall be applicable during that period, except that Lessee shall pay
Lessor as Base Rent for the period of the hold over an amount equal to one and
one-half times the Base Rent which would have been payable by Lessee under
Paragraph 2.1 hereof, as adjusted in accordance with paragraph 3.1 hereof, had
the hold-over period been part of the original Lease Term, together with all
additional rent due hereunder and together with any other Amount Due under this
Lease. The rent payable by Lessee during the hold-over period shall be payable
to Lessor on demand. If Lessee holds over as a tenant at sufferance, Lessee
shall vacate and deliver the Premises to Lessor upon demand. In the event Lessee
fails to surrender the Premises to Lessor upon expiration or other termination
of this Lease or of such tenancy at sufferance, then Lessee shall indemnify
Lessor against any and all loss or liability resulting from any delay of Lessee
in surrendering the Premises, including, but not limited to, any amounts
required to be paid to third parties who were to have occupied the Premises and
any reasonable attorneys' fees related thereto.
24. NO WAIVER. Lessee understands and acknowledges that no assent,
express or implied, by Lessor to any breach of any one or more of the terms,
covenants or conditions hereof shall be deemed or taken to be a waiver of any
succeeding or other breach, whether of the same or any other term, covenant or
condition hereof.
25. BINDING EFFECT. All terms and provisions of this Lease shall be
binding upon and apply to the successors, permitted assigns, and legal
representatives of Lessor and Lessee or any person claiming by, through, or
under either of them or their agents or attorneys, subject always, as to Lessee,
to the restrictions contained in Section 11 hereof.
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26. COMPLIANCE WITH PROTECTIVE COVENANTS. In addition to and without in
any way limiting any of the other provisions of this Lease, Lessee shall comply
with any protective covenants now or hereafter of record against the Building or
the Property and with any changes to the covenants duly adopted. It is expressly
acknowledged that all uses of the Building and Premises are subject to the
covenants, conditions and restrictions of Technology Park/Atlanta, Inc. filed at
Deed Book 389, Page 636, Gwinnett County, Georgia, records, as amended and
extended.
27. SIGNS. Lessee shall not install, paint, display, inscribe, place,
or affix any sign, picture, advertisement, notice, lettering, or direction
(hereinafter collectively called "Signs") on the exterior of the Premises, the
common areas of the Building, the interior surface of glass and any other
location which could be visible from outside of the Premises without first
securing written consent from Lessor therefor, which consent shall not be
unreasonably withheld as to Signs in the Premises visible from outside or on its
exterior. Any Sign permitted by Lessor shall at all times conform with all
municipal ordinances or other laws, regulations, deed restrictions, and
protective covenants applicable thereto. Lessee shall remove all Signs at the
expiration or other termination of this Lease, at Lessee's sole risk and
expense, and shall in a good and workmanlike manner properly repair any damage
caused by the installation, existence, or removal of Lessee's Signs.
28. DIRECTORY BOARD. Lessee shall be entitled to have its name shown
upon the Directory Board of the Building. Lessor shall designate the style of
the Directory Board as well as the amount of space to be allocated to Lessee,
which Board shall be located in an area designated by Lessor in the main lobby
of the Building. As well Lessee may have its name placed upon the monument sign
subject to TPA's Design Control Committee, and that of Lessor.
29. ESTOPPEL CERTIFICATE. Lessee shall, at any time and from time to
time, upon not less than ten (10) business days' prior written notice from
Lessor, execute, acknowledge, and deliver to Lessor a statement in writing
certifying that this Lease is unmodified and in full force and effect (or if
modified, stating the nature of the modification and certifying that this Lease,
as so modified, is in full force and effect) and the dates to which the rent and
other charges are paid, and acknowledging that Lessee is paying rent on a
current basis with no offsets or claims, and that there are not, to Lessee's
knowledge, any uncured defaults on the part of Lessor hereunder (or specifying
the offsets, claims, or defaults, if any are claimed), and such other
information (including, but not limited to most recent, financial statements)
reasonably required by Lessor. It is expressly understood and acknowledged that
any such statement may be relied upon by any prospective purchaser or
encumbrancer of all or any portion of the Property or by any other person to
whom it is delivered.
30. SEVERABILITY. The terms, conditions, covenants, and provisions of
this Lease shall be deemed to be severable. If any clause or provision herein
contained shall be adjudged to be invalid or unenforceable by a court of
competent jurisdiction or by operation of any applicable law, it shall not
affect the validity of any other clause or provision herein, but the other
clauses or provisions shall remain in full force and effect.
31. ENTIRE AGREEMENT. Lessee acknowledges that there are no covenants,
representations, warranties, or conditions, express or implied, collateral or
otherwise, forming part of or in any way affecting or relating to this Lease
save as expressly set out in this Lease and that this Lease together with the
Exhibits attached hereto constitutes the entire agreement between the parties
hereto and may not be modified except as herein explicitly provided or except by
subsequent agreement in writing of equal formality hereto executed by Lessor and
Lessee.
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<PAGE> 17
32. CUMULATIVE REMEDIES. In the event of any default, breach, or
threatened breach by Lessee of any of the covenants or provisions hereto, Lessor
shall, in addition to all other remedies as provided by this Lease, have the
right of injunction and/or damages and the right to invoke any remedy allowed at
law or in equity, and may have any one or more of the remedies
contemporaneously. The various rights, remedies, powers, options, and elections
of Lessor reserved, expressed, or contained in this Lease are cumulative and no
one of them shall be deemed to be exclusive of the others, or of such other
rights, remedies, powers, options, or elections as are now, or may hereafter, be
conferred upon Lessor by law.
33. PARKING AREAS AND COMMON AREA CONTROL.
33.1 Lessee acknowledges and agrees that the common areas of
the Building including, without limiting the generality of the foregoing, lawns,
gardens, parking areas, sidewalks, driveways, foyers, hallways, washrooms, and
stairwells not within the Premises shall at all times be subject to the
exclusive control and management of Lessor. Lessor shall provide Lessee, at no
charge to Lessee, parking at a ratio of four (4) parking spaces per 1,000
rentable square feet (Lessee's "Proportionate Share") on a non-reserved,
non-exclusive basis for the Lease Term including any extension thereof. Lessor
shall have the right to change the area, level, location, and arrangement of all
common areas so long as in so doing Lessor does not materially and adversely
affect ingress to and egress from the Building or the Premises.
33.2 Lessee and the Lessee Parties shall not use more than
Lessee's proportionate share of the parking spaces in the parking areas made
available to the Building by Lessor. Lessee covenants and agrees to fully
cooperate with Lessor in the enforcement of any program of rules and regulations
designed for the orderly control and operation of parking areas.
34. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given when delivered in person three
(3) days after being deposited in the United States mail, return receipt
requested or the next business day after being placed in a nationally recognized
overnight courier (i.e., Federal Express) for next business day morning
delivery, addressed to the parties at the respective addresses set out below:
If to Lessee: nFRONT, Inc.
520 Guthridge Court
Norcross, GA 30092
Attn: President
If to Lessor: Schneider Atlanta, L.P.
c/o Lambert Smith Hampton
3520 Piedmont Road
Suite 410
Atlanta, Georgia 30305
With copy to: Schneider Atlanta, L.P.
c/o Technology Park/Atlanta, Inc.
Suite 150
11555 Medlock Bridge Road
Duluth, Georgia 30097
Attention: President
or to such other addresses as the parties may direct from time to time by thirty
(30) days' written notice. However, the time period in which a response to any
notice, demand, or request must be given, if any, shall
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<PAGE> 18
commence to run from the date of receipt of the notice, demand, or request by
the addressee thereof. Rejection or other refusal to accept or the inability to
deliver because of changed address of which no notice was given shall be deemed
to be receipt of the notice, demand, or request sent.
35. RECORDING. Neither this Lease nor any portion hereof shall be
recorded unless both parties hereto agree to the recording.
36. ATTORNEYS' FEES. Lessee agrees to pay Lessor's reasonable
attorneys' fees, collection costs and other costs and expenses which Lessor
incurs in enforcing any of the obligations of Lessee under this Lease, if Lessor
prevails in such proceedings.
37. HOMESTEAD. Lessee waives all homestead rights and exemptions which
it may have under any law as against any obligations owing under this Lease.
Lessee hereby assigns to Lessor its homestead right and exemption.
38. TIME OF ESSENCE. Time is of the essence of this Lease.
39. NO ESTATE IN LAND. This Lease shall create the relationship of
landlord and tenant between Lessor and Lessee, and nothing contained herein
shall be deemed or construed by the parties hereto, or by any third party, as
creating the relationship of principal and agent, or of partnership, or of joint
venture, or of any relationship other than landlord and tenant, between the
parties hereto. No estate shall pass out of Lessor and Lessee has only a
usufruct not subject to levy and sale.
40. ACCORD AND SATISFACTION. No payment by Lessee or receipt by Lessor
of a lesser amount than the Base Rent, additional rent, or any other Amount Due
herein stipulated shall be deemed to be other than on account of the earliest of
such amount then due, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Lessor may accept the check or payment without prejudice to
Lessor's right to recover the balance of the rent or pursue any other remedy
provided in this Lease.
41. BROKERS' FEES. With the exception of Technology Park/Atlanta, Inc.,
broker representing Lessor and William Leonard Company, broker representing
Lessee; Lessor and Lessee warrant and represent, each to the other, that it has
had no dealings with any broker or agent in connection with this Lease, and
Lessor and Lessee hereby indemnify each other against, and agree to hold each
other harmless from, any liability or claim (and all expenses, including
attorneys' fees, incurred in defending any such claim or in enforcing this
indemnity) for a real estate brokerage commission or similar fee or compensation
arising out of or in any way connected with any claimed dealings with the
indemnitor and relating to this Lease or the negotiation thereof. Lessor
acknowledges that Lessor shall be responsible for any and all commissions
payable to Technology Park/Atlanta, Inc. and William Leonard & Company, which
will be paid commissions pursuant to separate agreements in accordance with the
terms thereof, on account of the transaction contemplated by this Lease.
42. MISCELLANEOUS.
42.1 Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural unless the context otherwise requires.
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<PAGE> 19
42.2 The captions are inserted in this Lease for convenience
only, and in no way define, limit, or describe the scope or intent of this
Lease, or of any provision hereof, nor in any way affect the interpretation of
this Lease.
42.3 This Lease is made and delivered in the State of Georgia
and shall be governed by and construed in accordance with the laws of the State
of Georgia.
For additional terms and stipulations of this Lease, if any,
see EXHIBIT "D", attached hereto and by this reference incorporated herein.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals the day and year first above written.
LESSOR:
SCHNEIDER ATLANTA, L.P.
a Georgia limited partnership
By: S. A. Management, Inc.
a Georgia corporation, sole general partner
By: /s/ Robert M. Day
-----------------
Name: Robert M. Day
Title: VP
[Corporate Seal]
LESSEE:
NFront, Inc.
a Georgia corporation
By: /s/ Tripp Rackley
-----------------
Name: Tripp Rackley
Title: CEO
[Corporate Seal]
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<PAGE> 1
EXHIBIT 10.14
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, effective as of ________, 1999, between
NFRONT, INC., a Georgia corporation ("nFront") and _______________
("Indemnitee").
W I T N E S S E T H:
WHEREAS, Indemnitee is a member of the Board of Directors of nFront and
in such capacity performs a valuable service for nFront;
WHEREAS, nFront's Bylaws authorize nFront to indemnify its directors in
accordance with Section 14-2-851 of the Official Code of Georgia Annotated (the
"Statute");
WHEREAS, the Statute contemplates that contracts may be entered into
between nFront and each of the members of its Board of Directors with respect to
indemnification; and
WHEREAS, in order to encourage Indemnitee to continue to serve as a
member of the Board of Directors and to perform other designated services for
nFront at its request, nFront has determined and agreed to enter into this
Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as a
director of nFront and the performance of such other services as requested by
nFront, the parties hereby agree as follows:
1. INDEMNITY OF INDEMNITEE. nFront shall defend, hold harmless
and indemnify Indemnitee to the full extent permitted by the provisions of the
Statute, as currently in effect or as it may hereafter be amended, or by the
provisions of any other statute authorizing or permitting such indemnification,
whether currently in effect or hereafter adopted.
2. ADDITIONAL INDEMNITY. Subject to the provisions of Section 3
hereof, nFront shall defend, hold harmless and indemnify Indemnitee in the event
Indemnitee was, is or is threatened to be made a named defendant or respondent
in any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative and whether formal or informal
(including any such action, suit or proceeding brought by or in the right of
nFront), by reason of the fact that he is or was a director of nFront, or is or
was serving at the request of nFront as a director, officer, employee, agent or
consultant of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against any obligation to pay a judgment,
settlement, penalty, fine (including an excise tax assessed with respect to an
employment benefit plan), expenses (including attorneys' fees) and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding. For purposes of this Section 2, Indemnitee shall be
considered to be serving under an employee benefit plan at the request of nFront
if his duties to nFront also impose duties on, or otherwise involve services by,
him to the plan or to participants in or beneficiaries of the plan.
3. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 2 hereof shall be paid by nFront to the extent of any liabilities
incurred in a proceeding in which Indemnitee is adjudged liable to nFront or is
subjected to injunctive relief in favor of nFront:
(1) for any appropriation in violation of his duties, of any
business opportunity of nFront;
<PAGE> 2
(2) for acts or omissions which involve intentional misconduct or
a knowing violation of law;
(3) for the types of liability set forth in O.C.G.A. ss.14-2-832;
or
(4) for any transaction from which Indemnitee received any
improper personal benefit.
4. NOTIFICATION AND DEFENSE OF CLAIM.
(a) Promptly after receipt by Indemnitee of notice of the
commencement of any action, suit or proceeding, Indemnitee
will, if a claim in respect thereto is to be made against
nFront under this Agreement, notify nFront of the commencement
thereof, but the failure to so notify nFront will not relieve
it from any liability which it may have to Indemnitee
otherwise under this Agreement. With respect to any such
action, suit or proceeding as to which Indemnitee so notifies
nFront:
(i) nFront will be entitled to participate
therein at its own expense; and
(ii) except as otherwise provided below, to the
extent that it may desire, nFront may assume
the defense thereof.
(b) After notice from nFront to Indemnitee of its election to
assume the defense thereof, nFront will not be liable to
Indemnitee under this Agreement for any legal or other
expenses subsequently incurred by Indemnitee in connection
with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. Indemnitee shall
have the right to employ counsel of his choosing in such
action, suit or proceeding but the fees and expenses of such
counsel incurred after notice from nFront of its assumption of
the defense thereof shall be at the expense of Indemnitee
unless (i) the employment of counsel by Indemnitee has been
authorized in writing by nFront, (ii) nFront and Indemnitee
shall reasonably conclude that there may be a conflict of
interest between nFront and Indemnitee in the conduct of the
defense of such action, or (iii) nFront shall not in fact have
employed counsel to assume the defense of such action, in each
of which case the reasonable fees and expenses of Indemnitee's
counsel shall be paid by nFront.
(c) nFront shall not be liable to Indemnitee under this Agreement
for any amounts paid in settlement of any threatened or
pending action, suit or proceeding without its prior written
consent. nFront shall not settle any such action, suit or
proceeding in any manner which would impose any penalty or
limitation on Indemnitee without Indemnitee's prior written
consent. Neither nFront nor Indemnitee will unreasonably
withhold its or his consent to any proposed settlement.
5. PREPAYMENT OF EXPENSES. Unless Indemnitee otherwise elects,
expenses incurred in defending any civil or criminal action, suit or proceeding
shall be paid by nFront in advance of the final disposition of such action, suit
or proceeding upon receipt by nFront of a written affirmation of Indemnitee's
good faith belief that his conduct does not constitute behavior of the kind
described in Section 3 of this Agreement and Indemnitee furnishes nFront a
written undertaking, executed personally or on his behalf, to repay any advances
if it is ultimately determined that he is not entitled to be indemnified by
nFront under this Agreement.
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<PAGE> 3
6. CONTINUATION OF INDEMNITY. All agreements and obligations of
nFront contained in this Agreement shall continue during the period in which
Indemnitee is a member of the Board of Directors of nFront and shall continue
thereafter so long as Indemnitee shall be subject to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, and whether formal or informal, by reason of the fact that
Indemnitee was a director of nFront or is or was serving at the request of
nFront as a director, officer, employee, agent or consultant of another
corporation, partnership, joint venture, trust or other enterprise.
7. RELIANCE. nFront has entered into this Agreement in order to
induce Indemnitee to continue as a member of the Board of Directors of nFront
and acknowledges that Indemnitee is relying upon this Agreement in continuing in
such capacity.
8. SEVERABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
9. GENERAL.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
(b) Neither this Agreement nor any rights or obligations hereunder
shall be assigned or transferred by Indemnitee.
(c) This Agreement shall be binding upon Indemnitee and upon
nFront, its successors and assigns, including successors by
merger or consolidation, and shall inure to the benefit of
Indemnitee, his heirs, personal representatives and permitted
assigns and to the benefit of nFront, its successors and
assigns.
(d) No amendment, modification or termination of this Agreement
shall be effective unless in writing signed by both parties
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
INDEMNITEE: NFRONT, INC.
By: By:
-------------------------------- --------------------------------
Name: Robert L. Campbell, President
------------------------------
Date: Date:
------------------------------ ------------------------------
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<PAGE> 1
EXHIBIT 10.15
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, effective as of _____ __, 1999, between
NFRONT, INC., a Georgia corporation ("nFront") and _________________
("Indemnitee").
W I T N E S S E T H:
WHEREAS, Indemnitee is an officer of nFront and in such capacity
performs a valuable service for nFront;
WHEREAS, Section 14-2-857 of the Official Code of Georgia Annotated
(the "Statute") authorizes nFront to indemnify officers of nFront, subject to
certain limitations, if approved by the Board of Directors;
WHEREAS, the Statute contemplates that contracts may be entered into
between nFront and officers of nFront with respect to indemnification; and
WHEREAS, in order to encourage Indemnitee to continue to serve as an
officer of nFront and to perform other designated services for nFront at its
request, nFront has determined and agreed to enter into this Agreement with
Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as
an officer of nFront and the performance of such other services as requested by
nFront, the parties hereby agree as follows:
1. INDEMNITY OF INDEMNITEE. nFront shall defend, hold harmless
and indemnify Indemnitee to the full extent permitted by the provisions of the
Statute, as currently in effect or as it may hereafter be amended, or by the
provisions of any other statute authorizing or permitting such indemnification,
whether currently in effect or hereafter adopted.
2. ADDITIONAL INDEMNITY. Subject to the provisions of Section 3
hereof, nFront shall defend, hold harmless and indemnify Indemnitee in the event
Indemnitee was, is, or is threatened to be made a named defendant or respondent,
in any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative and whether formal or informal
(including any such action, suit or proceeding brought by or in the right of
nFront), by reason of the fact that he is or was an officer of nFront, or is or
was serving at the request of nFront as a director, officer, employee, agent or
consultant of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against any obligation to pay a judgment,
settlement, penalty, fine (including an excise tax assessed with respect to an
employment benefit plan), expenses (including attorneys' fees), and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding. For purposes of this Section 2, Indemnitee shall be
considered to be serving an employee benefit plan at the request of nFront if
his duties to nFront also impose duties on, or otherwise involve services by,
him to the plan or to participants in or beneficiaries of the plan.
3. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 2 hereof shall be paid by nFront to the extent of any liabilities
incurred in a proceeding in which Indemnitee is adjudged liable to nFront or is
subjected to injunctive relief in favor of nFront:
(1) for any appropriation in violation of his duties, of
any business opportunity of nFront;
<PAGE> 2
(2) for acts or omissions which involve intentional
misconduct or a knowing violation of law;
(3) for the types of liability set forth in O.C.G.A.
ss.14-2-832; or
(4) for any transaction from which Indemnitee received
any improper personal benefit.
4. NOTIFICATION AND DEFENSE OF CLAIM.
(a) Promptly after receipt by Indemnitee of notice of the
commencement of any action, suit or proceeding, Indemnitee will, if a claim in
respect thereto is to be made against nFront under this Agreement, notify nFront
of the commencement thereof, but the failure to so notify nFront will not
relieve it from any liability which it may have to Indemnitee otherwise under
this Agreement. With respect to any such action, suit or proceeding as to which
Indemnitee so notifies nFront:
(i) nFront will be entitled to participate
therein at its own expense; and
(ii) except as otherwise provided below, to the
extent that it may desire, nFront may assume the defense thereof.
(b) After notice from nFront to Indemnitee of its
election to assume the defense thereof, nFront will not be liable to Indemnitee
under this Agreement for any legal or other expenses subsequently incurred by
Indemnitee in connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. Indemnitee shall have the right to
employ counsel of his choosing in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from nFront of its assumption
of the defense thereof shall be at the expense of Indemnitee unless (i) the
employment of counsel by Indemnitee has been authorized in writing by nFront,
(ii) nFront and Indemnitee shall reasonably conclude that there may be a
conflict of interest between nFront and Indemnitee in the conduct of the defense
of such action, or (iii) nFront shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the reasonable fees
and expenses of Indemnitee's counsel shall be paid by nFront.
(c) nFront shall not be liable to Indemnitee under this
Agreement for any amounts paid in settlement of any threatened or pending
action, suit or proceeding without its prior written consent. nFront shall not
settle any such action, suit or proceeding in any manner which would impose any
penalty or limitation on Indemnitee without Indemnitee's prior written consent.
Neither nFront nor Indemnitee will unreasonably withhold his or its consent to
any proposed settlement.
5. PREPAYMENT OF EXPENSES. Unless Indemnitee otherwise elects,
expenses incurred in defending any civil or criminal action, suit or proceeding
shall be paid by nFront in advance of the final disposition of such action, suit
or proceeding upon receipt by nFront of a written affirmation of Indemnitee's
good faith belief that his conduct does not constitute behavior of the kind
described in Section 3 of this Agreement and Indemnitee furnishes nFront a
written undertaking, executed personally or on his behalf, to repay any advances
if it is ultimately determined that he is not entitled to be indemnified by
nFront under this Agreement.
6. CONTINUATION OF INDEMNITY. All agreements and obligations of
nFront contained in this Agreement shall continue during the period Indemnitee
is an officer of nFront and shall
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<PAGE> 3
continue thereafter so long as Indemnitee shall be subject to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, and whether formal or informal, by reason of
the fact that Indemnitee was an officer of nFront, or is or was serving at the
request of nFront as a director, officer, employee, agent or consultant of
another corporation, partnership, joint venture, trust or other enterprise.
7. RELIANCE. nFront has entered into this Agreement in order to
induce Indemnitee to continue as an officer of nFront and acknowledges that
Indemnitee is relying upon this Agreement in continuing in such capacity.
8. SEVERABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
9. GENERAL.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
(b) Neither this Agreement nor any rights or obligations
hereunder shall be assigned or transferred by Indemnitee.
(c) This Agreement shall be binding upon Indemnitee and
upon nFront, its successors and assigns, including successors by merger or
consolidation, and shall inure to the benefit of Indemnitee, his heirs, personal
representatives and permitted assigns and to the benefit of nFront, its
successors and assigns.
(d) No amendment, modification or termination of this
Agreement shall be effective unless in writing signed by both parties hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
INDEMNITEE: NFRONT, INC.
By: By:
------------------------------- -------------------------------
Name: Brady L. Rackley III
----------------------------- Chief Executive Officer
Date: Date:
----------------------------- -----------------------------
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<PAGE> 1
EXHIBIT 10.16
NFRONT, INC.
STOCK INCENTIVE PLAN
SECTION 1.
PURPOSE
The purpose of this Plan is to promote the interests of the Company by
providing the opportunity to purchase Shares or to receive compensation which is
based upon appreciation in the value of Shares to Employees and Key Persons in
order to attract and retain Employees and Key Persons by providing an incentive
to work to increase the value of Shares and a stake in the future of the Company
which corresponds to the stake of each of the Company's shareholders. The Plan
provides for the grant of Incentive Stock Options, Non-Qualified Stock Options,
Restricted Stock Awards and Stock Appreciation Rights to aid the Company in
obtaining these goals.
SECTION 2.
DEFINITIONS
Each term set forth in this Section shall have the meaning set forth
opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall include
the singular, and reference to one gender shall include the other gender.
2.1 BOARD means the Board of Directors of the Company.
2.2 CODE means the Internal Revenue Code of 1986, as amended.
2.3 COMMITTEE means the Compensation Committee of the Board.
2.4 COMMON STOCK means the no par value common stock of the
Company.
2.5 COMPANY means nFront, Inc., a Georgia corporation, and any
successor to such organization.
2.6 EMPLOYEE means an employee of the Company, a Subsidiary or a
Parent.
2.7 EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
2.8 EXERCISE PRICE means the price which shall be paid to purchase
one (1) Share upon the exercise of an Option granted under this Plan.
2.9 FAIR MARKET VALUE means the price at which the Committee,
acting in good faith, determines through any reasonable valuation method that a
Share might change hands between a willing buyer and a willing seller, neither
being under any compulsion to buy or to sell and both having reasonable
knowledge of the relevant facts.
2.10 ISO means an option granted under this Plan to purchase Shares
which is intended by the Company to satisfy the requirements of Code Section 422
as an incentive stock option.
2.11 KEY PERSON means (i) a member of the Board who is not an
Employee, (ii) a consultant, distributor or other person who has rendered
valuable services to the Company, a Subsidiary or a Parent, (iii) a
<PAGE> 2
person who has incurred, or is willing to incur, financial risk in the form of
guaranteeing or acting as co-obligor with respect to debts or other obligations
of the Company, or (iv) a person who has extended credit to the Company. Key
Persons are not limited to individuals and, subject to the preceding definition,
may include corporations, partnerships, associations and other entities.
2.12 NON-ISO means an option granted under this Plan to purchase
Shares which is not intended by the Company to satisfy the requirements of Code
Section 422.
2.13 OPTION means an ISO or a Non-ISO.
2.14 PARENT means any corporation which is a parent of the Company
(within the meaning of Code Section 424).
2.15 PARTICIPANT means an individual who receives a Stock Incentive
hereunder.
2.16 PLAN means the nFront, Inc. Stock Incentive Plan, as amended
from time to time.
2.17 SHARE means a share of the Common Stock of the Company.
2.18 STOCK INCENTIVE means an ISO, a Non-ISO, a Restricted Stock
Award or a Stock Appreciation Right.
2.19 STOCK INCENTIVE AGREEMENT means an agreement between the
Company and a Participant evidencing an award of a Stock Incentive.
2.20 SUBSIDIARY means any corporation which is a subsidiary of the
Company (within the meaning of Code Section 424(f)).
2.21 SURRENDERED SHARES means the Shares described in Section 8.2
which (in lieu of being purchased) are surrendered for cash or Shares, or for a
combination of cash and Shares, in accordance with Section 8.
2.22 TEN PERCENT SHAREHOLDER means a person who owns (after taking
into account the attribution rules of Code Section 424(d)) more than ten percent
(10%) of the total combined voting power of all classes of shares of either the
Company, a Subsidiary or a Parent.
SECTION 3.
SHARES SUBJECT TO STOCK INCENTIVES
The total number of Shares that may be issued pursuant to Stock
Incentives under this Plan is set forth in the minutes of the Shareholders
Meeting at which the Plan was adopted and may be increased subject to
Shareholder approval and adjusted pursuant to Section 11. Such Shares shall be
reserved, to the extent that the Company deems appropriate, from authorized but
unissued Shares, and from Shares which have been reacquired by the Company.
Furthermore, any Shares subject to a Stock Incentive which remain after the
cancellation, expiration or exchange of such Stock Incentive thereafter shall
again become available for use under this Plan, but any Surrendered Shares which
remain after the surrender of an ISO or a Non-ISO under Section 8 shall not
again become available for use under this Plan.
-2-
<PAGE> 3
SECTION 4.
EFFECTIVE DATE
The effective date of this Plan shall be the date it is adopted by the
Board, provided the shareholders of the Company approve this Plan within twelve
(12) months after such effective date. If such effective date comes before such
shareholder approval, any Stock Incentives granted under this Plan before the
date of such approval automatically shall be granted subject to such approval.
SECTION 5.
ADMINISTRATION
This Plan shall be administered by the Board. The Board, acting in its
absolute discretion, shall exercise such powers and take such action as
expressly called for under this Plan. The Board shall have the power to
interpret this Plan and, subject to Section 13 to take such other action in the
administration and operation of the Plan as it deems equitable under the
circumstances. The Board's actions shall be binding on the Company, on each
affected Employee or Key Person, and on each other person directly or indirectly
affected by such actions.
The Board may delegate its authority under the Plan, in whole or in
part, to a Committee appointed by the Board consisting of not less than two (2)
directors The Committee (if appointed) shall act according to the policies and
procedures set forth in the Plan and to those policies and procedures
established by the Board, and the Committee shall have such powers and
responsibilities as are set forth by the Board. Reference to the Board in this
Plan shall specifically include reference to the Committee where the Board has
delegated it authority to the Committee, and any action by the Committee
pursuant to a delegation of authority by the Board shall be deemed an action by
the Board under the Plan. Notwithstanding the above, the Board may assume the
powers and responsibilities granted to the Committee at any time, in whole or in
part.
SECTION 6.
ELIGIBILITY
Except as provided below, only Employees shall be eligible for the
grant of Stock Incentives under this Plan, but no Employee shall have the right
to be granted a Stock Incentive under this Plan merely as a result of his or her
status as an Employee. Key Persons may be eligible, subject to written approval
by the Board, for the grant of Stock Incentives under this Plan, but only if the
Key Person has provided valuable services to the Company, a Subsidiary or a
Parent, and only if the Stock Incentive is not an ISO.
SECTION 7
TERMS OF STOCK INCENTIVES
7.1 TERMS AND CONDITIONS OF ALL STOCK INCENTIVES.
(a) The Committee, in its absolute discretion, shall
grant Stock Incentives under this Plan from time to time and shall have the
right to grant new Stock Incentives in exchange for outstanding Stock
Incentives. Stock Incentives shall be granted to Employees or Key Persons
selected by the Committee, and the Committee shall be under no obligation
whatsoever to grant Stock Incentives to all Employees or Key Persons, or to
grant all Stock Incentives subject to the same terms and conditions. Each grant
of a Stock Incentive shall be evidenced by a Stock Incentive Agreement:
-3-
<PAGE> 4
(b) The number of Shares as to which a Stock Incentive
shall be granted shall be determined by the Committee in its sole discretion,
subject to the provisions of Section 3 as to the total number of shares
available for grants under the Plan.
(c) Each Stock Incentive shall be evidenced by a Stock
Incentive Agreement executed by the Company and the Participant, which shall be
in such form and contain such terms and conditions as the Committee in its
discretion may, subject to the provisions of the Plan, from time to time
determine.
(d) The date a Stock Incentive is granted shall be the
date on which the Committee has approved the terms and conditions of the Stock
Incentive Agreement and has determined the recipient of the Stock Incentive and
the number of Shares covered by the Stock Incentive and has taken all such other
action necessary to complete the grant of the Stock Incentive.
7.2 TERMS AND CONDITIONS OF OPTIONS. Each grant of an Option shall
be evidenced by a Stock Incentive Agreement which shall:
(I) specify whether the Option is an ISO or Non-ISO; and
(II) incorporate such other terms and conditions as the
Committee, acting in its absolute discretion, deems consistent with the terms of
this Plan, including (without limitation) a restriction on the number of Shares
subject to the Option which first become exercisable or subject to surrender
during any calendar year.
In determining Employee(s) or Key Person(s) to whom an Option
shall be granted and the number of Shares to be covered by such Option, the
Committee may take into account the recommendations of the President of the
Company and its other officers, the duties of the Employee or Key Person, the
present and potential contributions of the Employee or Key Person to the success
of the Company, the anticipated number of years of service remaining before the
attainment by the Employee of retirement age, and other factors deemed relevant
by the Committee, in its sole discretion, in connection with accomplishing the
purpose of this Plan. An Employee or Key Person who has been granted an Option
to purchase Shares, whether under this Plan or otherwise, may be granted one or
more additional Options.
If the Committee grants an ISO and a Non-ISO to an Employee on
the same date, the right of the Employee to exercise or surrender one such
Option shall not be conditioned on his or her failure to exercise or surrender
the other such Option.
(a) Exercise Price. Subject to adjustment in accordance
with Section 11 and the other provisions of this Section, the Exercise Price
shall be as set forth in the applicable Stock Incentive Agreement. With respect
to each grant of an ISO to a Participant who is not a Ten Percent Shareholder,
the Exercise Price shall not be less than the Fair Market Value on the date the
ISO is granted. With respect to each grant of an ISO to a Participant who is a
Ten Percent Shareholder, a Ten Percent Shareholder shall not be less than one
hundred ten percent (110%) of the Fair Market Value on the date the ISO is
granted. If a Stock Incentive is a Non-ISO, the Exercise Price for each Share
shall be no less than the minimum price required by applicable state law, or by
the Company's governing instrument, or $0.01, whichever price is greater.
(b) Option Term. Each Option granted under this Plan
shall be exercisable in whole or in part at such time or times as set forth in
the related Stock Incentive Agreement, but no Stock Incentive Agreement shall:
-4-
<PAGE> 5
(i) make an Option exercisable before the date
such Option is granted; or
(ii) make an Option exercisable after the earlier
of the:
(A) the date such Option is exercised in
full, or
(B) the date which is the tenth (10th)
anniversary of the date such Option is granted, if such Option is a Non-ISO or
an ISO granted to a non-Ten Percent Shareholder, or the date which is the fifth
(5th) anniversary of the date such Option is granted, if such Option is an ISO
granted to a Ten Percent Shareholder.
A Stock Incentive Agreement may provide for the exercise of an
Option after the employment of an Employee has terminated for any reason
whatsoever, including death or disability.
(c) Payment. Payment for all shares of Stock purchased
pursuant to exercise of an Option shall be made in cash or, if the Stock
Incentive Agreement provides, by delivery to the Company of a number of Shares
which have been owned by the holder for at least six (6) months prior to the
date of exercise having an aggregate Fair Market Value of not less than the
product of the Exercise Price multiplied by the number of Shares the Participant
intends to purchase upon exercise of the Option on the date of delivery. In
addition, the Stock Incentive Agreement may provide for cashless exercise
through a brokerage transaction following registration of the Company's equity
securities under Section 12 of the Securities Exchange Act of 1934. Except as
provided in subparagraph (f) below, payment shall be made at the time that the
Option or any part thereof is exercised, and no Shares shall be issued or
delivered upon exercise of an Option until full payment has been made by the
Participant. The holder of an Option, as such, shall have none of the rights of
a stockholder.
Notwithstanding the above, and in the sole discretion of the
Committee, an Option may be exercised as to a portion or all (as determined by
the Committee) of the number of Shares specified in the Stock Incentive
Agreement by delivery to the Company of a promissory note, such promissory note
to be executed by the Participant and which shall include, with such other terms
and conditions as the Committee shall determine, provisions in a form approved
by the Committee under which: (i) the balance of the aggregate purchase price
shall be payable in equal installments over such period and shall bear interest
at such rate (which shall not be less than the prime bank loan rate as
determined by the Committee) as the Committee shall approve, and (ii) the
Participant shall be personally liable for payment of the unpaid principal
balance and all accrued but unpaid interest.
(d) Conditions to Exercise of an Option. Each Option
granted under the Plan shall be exercisable at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the Committee shall
specify in the Stock Incentive Agreement; provided, however, that subsequent to
the grant of an Option, the Committee, at any time before complete termination
of such Option, may accelerate the time or times at which such Option may be
exercised in whole or in part.
(e) Special Provisions for Certain Substitute Options.
Notwithstanding anything to the contrary in this Section, any Option in
substitution for a stock option previously issued by another entity, which
substitution occurs in connection with a transaction to which Code Section
424(a) is applicable, may provide for an exercise price computed in accordance
with such Code Section and the regulations thereunder and may contain such other
terms and conditions as the Committee may prescribe to cause such substitute
Option to contain as nearly as possible the same terms and conditions (including
the applicable vesting and termination provisions) as those contained in the
previously issued stock option being replaced thereby.
-5-
<PAGE> 6
7.3 TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. A Stock
Appreciation Right may be granted in connection with all or any portion of a
previously or contemporaneously granted Option or not in connection with an
Option. A Stock Appreciation Right shall entitle the Participant to receive upon
exercise or payment the excess of: (I) the Fair Market Value of a specified
number of Shares at the time of exercise, over (II) a specified price which
shall be not less than the Exercise Price for that number of Shares in the case
of a Stock Appreciation Right granted in connection with a previously or
contemporaneously granted Option, or in the case of any other Stock Appreciation
Right not less than one hundred percent (100%) of the Fair Market Value of that
number of Shares at the time the Stock Appreciation Right was granted. A Stock
Appreciation Right granted in connection with an Option may only be exercised to
the extent that the related Option has not been exercised. The exercise of a
Stock Appreciation Right shall result in a pro rata surrender of the related
Option to the extent the Stock Appreciation Right has been exercised.
(a) Payment. Upon exercise or payment of a Stock
Appreciation Right, the Company shall pay to the Participant the appreciation in
cash or Shares (at the aggregate Fair Market Value on the date of payment or
exercise) as provided in the Stock Incentive Agreement or, in the absence of
such provision, as the Committee may determine.
(b) Conditions to Exercise. Each Stock Appreciation Right
granted under the Plan shall be exercisable at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the Committee shall
specify in the Stock Incentive Agreement; provided, however, that subsequent to
the grant of a Stock Appreciation Right, the Committee, at any time before
complete termination of such Stock Appreciation Right, may accelerate the time
or times at which such Stock Appreciation Right may be exercised in whole or in
part.
(c) Nontransferability of Stock Appreciation Right. A
Stock Appreciation Right shall not be transferable or assignable except by will
or by the laws of descent and distribution and shall be exercisable, during the
Participant's lifetime, only by the Participant, or in the event of the
disability of the Participant, by the legal representative of the Participant.
7.4 TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS. Shares
awarded pursuant to Restricted Stock Awards shall be subject to restrictions for
periods determined by the Committee. The Committee shall have the power to
permit, in its discretion, an acceleration of the expiration of the applicable
restriction period with respect to any part or all of the Shares awarded to a
Participant. The Committee may require a cash payment from the Participant in an
amount no greater than the aggregate Fair Market Value of the Shares awarded
determined at the date of grant in exchange for the grant of a Restricted Stock
Award or may grant a Restricted Stock Award without the requirement of a cash
payment.
SECTION 8.
SURRENDER OF OPTIONS
8.1 GENERAL RULE. The Committee, acting in its absolute
discretion, may incorporate a provision in a Stock Incentive Agreement to allow
an Employee or Key Person to surrender his or Option in whole or in part in lieu
of the exercise in whole or in part of that Option on any date that:
(a) the Fair Market Value of the Shares subject to such
Option exceeds Exercise Price for such Shares, and
(b) the Option to purchase such Shares is otherwise
exercisable.
-6-
<PAGE> 7
8.2 PROCEDURE. The surrender of an Option in whole or in part
shall be effected by the delivery of the Stock Incentive Agreement to the
Committee, together with a statement signed by the Participant which specifies
the number of Shares ("Surrendered Shares") as to which the Participant
surrenders his or her Option and how he or she desires payment be made for such
Surrendered Shares.
8.3 PAYMENT. A Participant in exchange for his or her Surrendered
Shares shall receive a payment in cash or in Shares, or in a combination of cash
and Shares, equal in amount on the date such surrender is effected to the excess
of the Fair Market Value of the Surrendered Shares on such date over the
Exercise Price for the Surrendered Shares. The Committee, acting in its absolute
discretion, can approve or disapprove a Participant's request for payment in
whole or in part in cash and can make that payment in cash or in such
combination of cash and Shares as the Committee deems appropriate. A request for
payment only in Shares shall be approved and made in Shares to the extent
payment can be made in whole shares of Shares and (at the Committee's
discretion) in cash in lieu of any fractional Shares.
8.4 RESTRICTIONS. Any Stock Incentive Agreement which incorporates
a provision to allow a Participant to surrender his or her Option in whole or in
part also shall incorporate such additional restrictions on the exercise or
surrender of such Option as the Committee deems necessary to satisfy the
conditions to the exemption under Rule 16b-3 (or any successor exemption) to
Section 16(b) of the Exchange Act.
SECTION 9.
SECURITIES REGULATION
Each Stock Incentive Agreement may provide that, upon the receipt of
Shares as a result of the surrender or exercise of a Stock Incentive, the
Participant shall, if so requested by the Company, hold such Shares for
investment and not with a view of resale or distribution to the public and, if
so requested by the Company, shall deliver to the Company a written statement
satisfactory to the Company to that effect. Each Stock Incentive Agreement may
also provide that, if so requested by the Company, the Participant shall make a
written representation to the Company that he or she will not sell or offer to
sell any of such Shares unless a registration statement shall be in effect with
respect to such Shares under the Securities Act of 1933, as amended ("1933
Act"), and any applicable state securities law or, unless he or she shall have
furnished to the Company an opinion, in form and substance satisfactory to the
Company, of legal counsel acceptable to the Company, that such registration is
not required. Certificates representing the Shares transferred upon the exercise
or surrender of a Stock Incentive granted under this Plan may at the discretion
of the Company bear a legend to the effect that such Shares have not been
registered under the 1933 Act or any applicable state securities law and that
such Shares may not be sold or offered for sale in the absence of an effective
registration statement as to such Shares under the 1933 Act and any applicable
state securities law or an opinion, in form and substance satisfactory to the
Company, of legal counsel acceptable to the Company, that such registration is
not required.
SECTION 10.
LIFE OF PLAN
No Stock Incentive shall be granted under this Plan on or after the
earlier of:
(a) the tenth (10th) anniversary of the effective date of this
Plan (as determined under Section 4 of this Plan), in which event this Plan
otherwise thereafter shall continue in effect until all outstanding Stock
Incentives have been surrendered or exercised in full or no longer are
exercisable, or
(b) the date on which all of the Shares reserved under Section 3
of this Plan have (as a result of the surrender or exercise of Stock Incentives
granted under this Plan) been issued or no longer are available for use under
this Plan, in which event this Plan also shall terminate on such date.
-7-
<PAGE> 8
SECTION 11.
ADJUSTMENT
The number of Shares reserved under Section 3 of this Plan, and the
number of Shares subject to Stock Incentives granted under this Plan, and the
Exercise Price of any Options, shall be adjusted by the Committee in an
equitable manner to reflect any change in the capitalization of the Company,
including, but not limited to, such changes as stock dividends or stock splits.
Furthermore, the Committee shall have the right to adjust (in a manner which
satisfies the requirements of Code Section 424(a)) the number of Shares reserved
under Section 3, and the number of Shares subject to Stock Incentives granted
under this Plan, and the Exercise Price of any Options in the event of any
corporate transaction described in Code Section 424(a) which provides for the
substitution or assumption of such Stock Incentives. If any adjustment under
this Section creates a fractional Share or a right to acquire a fractional
Share, such fractional Share shall be disregarded, and the number of Shares
reserved under this Plan and the number subject to any Stock Incentives granted
under this Plan shall be the next lower number of Shares, rounding all fractions
downward. An adjustment made under this Section by the Committee shall be
conclusive and binding on all affected persons and, further, shall not
constitute an increase in the number of Shares reserved under Section 3.
SECTION 12.
SALE OR MERGER OF THE COMPANY
If the Company (i) agrees to sell or transfer eighty percent (80%) or
more of the total value all of its assets and assign its customer agreements for
cash or property, or for a combination of cash and property, or (ii) agrees to
any merger, consolidation, reorganization, division or other transaction in
which eighty percent (80%) or more of the issued and outstanding Shares are
converted into another security or into the right to receive securities or
property and such agreement does not provide for the assumption or substitution
of the Stock Incentives granted under this Plan, each Stock Incentive at the
direction and discretion of the Committee, or as is otherwise provided in the
Stock Incentive Agreements, may be canceled unilaterally by the Company in
exchange for the whole Shares (or, subject to satisfying the conditions to the
exemption under Rule 16b-3 or any successor exemption to Section 16(b) of the
Exchange Act, for the whole Shares and the cash in lieu of a fractional Share)
which each Participant otherwise would receive if he or she had the right to
surrender or exercise his or her outstanding Stock Incentive in full and he or
she exercised that right exclusively for Shares on a date fixed by the Committee
which comes before such sale or other corporate transaction.
SECTION 13.
AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent
that the Board deems necessary or appropriate; provided, however, no such
amendment shall be made absent the approval of the shareholders of the Company:
(a) to increase the number of Shares reserved under Section 3, except as set
forth in Section 11, (b) to extend the maximum life of the Plan under Section 10
or the maximum exercise period under Section 7, (c) to decrease the minimum
Exercise Price under Section 7, or (d) to change the designation of Employees or
Key Persons eligible for Stock Incentives under Section 6. The Board also may
suspend the granting of Stock Incentives under this Plan at any time and may
terminate this Plan at any time; provided, however, the Company shall not have
the right to modify, amend or cancel any Stock Incentive granted before such
suspension or termination unless: (I) the Participant consents in writing to
such modification, amendment or cancellation, or (II) there is a dissolution or
liquidation of the Company or a transaction described in Section 11 or Section
12.
-8-
<PAGE> 9
SECTION 14.
MISCELLANEOUS
14.1 SHAREHOLDER RIGHTS. No Participant shall have any rights as a
shareholder of the Company as a result of the grant of a Stock Incentive to him
or to her under this Plan or his or her exercise or surrender of such Stock
Incentive pending the actual delivery of Shares subject to such Stock Incentive
to such Participant.
14.2 NO GUARANTEE OF CONTINUED RELATIONSHIP. The grant of a Stock
Incentive to a Participant under this Plan shall not constitute a contract of
employment and shall not confer on a Participant any rights upon his or her
termination of employment or relationship with the Company in addition to those
rights, if any, expressly set forth in the Stock Incentive Agreement which
evidences his or her Stock Incentive.
14.3 WITHHOLDING. The exercise or surrender of any Stock Incentive
granted under this Plan shall constitute a Participant's full and complete
consent to whatever action the Committee directs to satisfy the federal and
state tax withholding requirements, if any, which the Committee in its
discretion deems applicable to such exercise or surrender.
14.4 TRANSFER. The transfer of an Employee between or among the
Company, a Subsidiary or a Parent shall not be treated as a termination of his
or her employment under this Plan.
14.5 CONSTRUCTION. This Plan shall be construed under the laws of
the State of Georgia.
-9-
<PAGE> 1
EXHIBIT 10.17
AMENDMENT NO. 1 TO NFRONT, INC.
STOCK INCENTIVE PLAN
THIS AMENDMENT NO. 1 TO nFRONT, INC. STOCK INCENTIVE PLAN (this
"Amendment") is made effective as of the 21st day of April, 1999 (the "Effective
Date"), by NFRONT, INC., a corporation organized and doing business under the
laws of the State of Georgia (the "Company"). All capitalized terms in this
Amendment have the meaning ascribed to such terms in the nFront, Inc. Stock
Incentive Plan (the "Plan"), unless otherwise stated herein.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company desires to amend the
Plan to add certain provisions to insure compliance with the safe harbor
provisions of Section 162(m) of the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder;
NOW, THEREFORE, in consideration of the premises and mutual promises
contained herein, the Plan is hereby amended as follows:
1. Section 3 of the Plan is hereby amended by deleting
Section 3 in its entirety and substituting in lieu thereof the following:
The total number of Shares that may be issued
pursuant to Stock Incentives under this Plan is Eight Hundred
Twenty Sixty Thousand (826,000); provided, however, the
maximum number of Shares with respect to Stock Incentives may
be granted to any individual grantee in any calendar year
shall be 500,000 shares (adjusted for any stock split, stock
dividend or other recapitalization of the Company after the
date hereof). The number of Shares reserved pursuant to this
Section 3 may be increased subject to Shareholder approval and
adjusted pursuant to Section 11. Such Shares shall be
reserved, to the extent that the Company deems appropriate,
from authorized but unissued Shares, and from Shares which
have been reacquired by the Company. Furthermore, any Shares
subject to a Stock Incentive which remain after the
cancellation, expiration or exchange of such Stock Incentive
thereafter shall again become available for use under this
Plan, but any Surrendered Shares which remain after the
surrender of an ISO or a Non-ISO under Section 8 shall not
again become available for use under this Plan.
2. Section 5 of the Plan is hereby amended by deleting
the second paragraph of Section 5 in its entirety and substituting in lieu
thereof the following:
The Board may delegate its authority under the Plan,
in whole or in part, to a Committee appointed by the Board
consisting of not less than two (2) directors appointed by the
Board, each of whom is an "outside director" within the
meaning of Section 162(m) of the Code and is not
<PAGE> 2
while a member of the Committee, or was not during the one (1)
year prior to serving as a member of the Committee, eligible
to receive equity securities of the Company or any affiliate
of the Company, pursuant to this Plan or any other plan of the
Company or any affiliate of the Company, except as may be
permitted under Section 16(b)(3) of the Exchange Act. The
Committee (if appointed) shall act according to the policies
and procedures set forth in the Plan and to those policies and
procedures established by the Board, and the Committee shall
have such powers and responsibilities as are set forth by the
Board. Reference to the Board in this Plan shall specifically
include reference to the Committee where the Board has
delegated it authority to the Committee, and any action by the
Committee pursuant to a delegation of authority by the Board
shall be deemed an action by the Board under the Plan.
Notwithstanding the above, the Board may assume the powers and
responsibilities granted to the Committee at any time, in
whole or in part.
3. Except as specifically amended by this Amendment
No. 1, the Plan shall remain in full force and effect as prior to this Amendment
No. 1.
IN WITNESS WHEREOF, the Company has caused this AMENDMENT NO. 1 TO
NFRONT, INC. STOCK INCENTIVE PLAN to be executed as of the Effective Date.
NFRONT, INC.
By: /s/ Tripp Rackley
---------------------------------
Brady L. "Tripp" Rackley
Chief Executive Officer
ATTEST:
By: /s/ Brady L. Rackley
---------------------------------
Brady L. Rackley, Secretary
-2-
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated April 22, 1999, in the
Registration Statement (Form S-1) and related Prospectus of nFront, Inc. dated
April 23, 1999.
/s/ Ernst & Young LLP
Atlanta, Georgia
April 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF nFRONT, INC. FOR THE NINE MONTHS ENDED MARCH 31, 1999
AND FOR THE FISCAL YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> MAR-31-1999 JUN-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 1,530,458 2,521,384
<SECURITIES> 0 0
<RECEIVABLES> 1,311,536 213,118
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,928,267 2,789,163
<PP&E> 967,842 251,740
<DEPRECIATION> 130,399 47,506
<TOTAL-ASSETS> 3,802,645 2,998,128
<CURRENT-LIABILITIES> 2,367,082 831,958
<BONDS> 0 0
2,580,222 2,375,561
0 0
<COMMON> 710,981 265,642
<OTHER-SE> (2,283,180) (475,033)
<TOTAL-LIABILITY-AND-EQUITY> 3,802,645 2,998,128
<SALES> 0 0
<TOTAL-REVENUES> 2,835,090 1,082,429
<CGS> 0 0
<TOTAL-COSTS> 4,688,598 1,655,958
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 18,075 2,084
<INCOME-PRETAX> (1,808,147) (548,921)
<INCOME-TAX> 0 (25,925)
<INCOME-CONTINUING> (1,808,147) (522,996)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,808,147) (522,996)
<EPS-PRIMARY> (0.63) (0.18)
<EPS-DILUTED> (0.63) (0.18)
</TABLE>
