<PAGE>
As filed with the Securities and Exchange Commission on September 14, 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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NETZEE, INC.
(Exact name of registrant as specified in its governing instruments)
<TABLE>
<CAPTION>
Georgia 7375 58-2488883
<S> <C> <C>
(State or Other
Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or
Organization) Classification Code Number) Identification Number)
</TABLE>
2410 Paces Ferry Road
150 Paces Summit
Atlanta, Georgia 30339
(770) 805-2100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Glenn W. Sturm, Chief Executive Officer
Netzee, Inc.
2410 Paces Ferry Road
150 Paces Summit
Atlanta, Georgia 30339
(770) 805-2100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Mark D. Kaufman, Esq. M. Hill Jeffries, Esq.
Charles D. Ganz, Esq. Alston & Bird LLP
Sutherland Asbill & Brennan LLP One Atlantic Center
999 Peachtree Street, N.E. 1201 West Peachtree Street, N.E.
Atlanta, Georgia 30309-3996 Atlanta, Georgia 30309-3424
(404) 853-8000 (404) 881-7000
(404) 853-8806 (fax) (404) 881-4777 (fax)
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum
Title of Each Class of Securities Aggregate Amount of
To Be Registered Offering Price(1) Registration Fee
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<S> <C> <C>
Common Stock, no par value................... $55,000,000 $15,290
</TABLE>
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(1) Estimated in accordance with Rule 457(o) solely for purposes of calculating
the registration fee.
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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 which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 14, 1999
P R O S P E C T U S
Shares
Common Stock
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Netzee, Inc. is offering for sale shares of our common stock, and
the selling shareholders are offering for sale an additional shares of
our common stock. This is our initial public offering. Prior to this offering,
no public market has existed for our common stock. We currently expect the
initial public offering price for the shares to be between $ and $ per
share. We have applied to list the common stock on the Nasdaq National Market
under the trading symbol "NETZ."
-----------
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Public offering price.......................................... $ $
Underwriting discounts......................................... $ $
Proceeds to Netzee............................................. $ $
Proceeds to the selling shareholders........................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to
additional shares of common stock to cover over-allotments.
The underwriters are offering the shares on a firm commitment basis subject
to their right to reject orders in whole or in part and subject to other
conditions. The underwriters expect to deliver the shares on or about
, 1999.
-----------
The Robinson-Humphrey Company
J.C. Bradford & Co.
SunTrust Equitable Securities
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
----
<S> <C>
Forward-Looking Statements............................................... i
Summary.................................................................. 1
Risk Factors............................................................. 6
Netzee................................................................... 17
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Unaudited Pro Forma Combined Financial Statements........................ 22
Selected Financial Information........................................... 29
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 31
Business................................................................. 47
Management............................................................... 61
Related Party Transactions............................................... 66
Principal and Selling Shareholders....................................... 69
Description of Capital Stock............................................. 71
Shares Eligible for Future Sale.......................................... 74
Underwriting............................................................. 76
Experts.................................................................. 79
Legal Matters............................................................ 79
Where You Can Find More Information...................................... 79
Index to Financial Statements............................................ F-1
</TABLE>
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with additional or different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information
contained in this prospectus is accurate as of any date other than the date on
the front of this prospectus.
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus represents our expectations or
projections for Netzee. You can generally identify these forward-looking
statements by the use of the words "may," "will," "expects," "intends,"
"plans," "estimates," "anticipates," "believes" or similar language. These
forward-looking statements are made only as of the date of this prospectus and
therefore involve substantial risks and uncertainties. We believe that it is
important to communicate our expectations for the future to our investors, and
we believe the expectations expressed in our forward-looking statements are
reasonable and accurate based on information we currently have. However, our
expectations may not prove to be correct due to future events that we have not
accurately predicted or over which we have no control. Important factors that
could cause actual results to differ from our expectations are disclosed under
"Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and in other parts of this prospectus.
i
<PAGE>
SUMMARY
This section summarizes information contained in other parts of this
prospectus. This summary does not contain all of the information you should
consider before investing in our common stock. You should read the entire
prospectus carefully before deciding to invest in our common stock.
Unless we state otherwise, the information in this prospectus assumes that
the underwriters' over-allotment option is not exercised and the initial public
offering price is $ per share, the midpoint of the range of anticipated
initial public offering prices.
Netzee, Inc.
Our Business
Netzee is a leading provider of integrated Internet banking products and
services and e-commerce solutions to small and mid-sized banks, thrifts and
credit unions, typically with total assets of less than $1 billion. We provide
cost-effective, outsourced, secure and scalable solutions that enable these
community financial institutions to offer to their customers a wide array of
financial products and services over the Internet. These products and services
are branded with the financial institution's own name and contain each
institution's logo, colors and other distinctive branding characteristics. This
branded solution enables community financial institutions to provide their
customers with the convenience of Internet banking without losing the personal
relationship and service normally associated with a community financial
institution. As of September 3, 1999, we had contractual arrangements in place
to provide Internet banking products and services to 288 community financial
institutions.
In addition to our Internet banking products and services, our e-commerce
product, Banking on Main Street(TM), enables a community financial institution
to place its business customers on the Internet through the creation of
individualized web sites. Links to these web sites are incorporated into the
community financial institution's home page. The community financial
institution's web site, therefore, becomes a central Internet marketplace where
consumers and businesses may conduct banking and e-commerce transactions, where
local businesses may sell their products and services, and where national
vendors may access this entire group of customers, all under the trusted brand
name of the community financial institution.
Complementing our Internet banking system, we offer community financial
institutions custom web site design, implementation and marketing services,
telephone banking products, Internet access services, a help desk and a
24 hours a day, seven days a week emergency support service. Our broad range of
products and services enables community financial institutions to compete
effectively with the services offered by larger financial institutions and the
growing competitive threat of Internet-based financial institutions.
Our primary marketing efforts are focused on building awareness of our
products and services among our target group of community financial
institutions and establishing new strategic alliances. Our sales and marketing
efforts are conducted through both direct and indirect channels. We have also
established exclusive strategic marketing alliances, as a means of business
referral, with bankers' banks located in Georgia, Texas, California,
Pennsylvania and Oklahoma, and with The InterCept Group, Inc. These bankers'
banks, which have relationships with approximately 1,850 financial
institutions, recommend our products exclusively to their customers and member
financial institutions.
Our Industry
The Internet has become a powerful and efficient medium for the delivery of
banking services. These services include Internet banking, bill payment, bill
presentment, cash management, payroll and other related
1
<PAGE>
services. Consumers and small businesses are increasing their demand for
Internet banking as a convenient and cost-effective method to monitor financial
accounts and transact business 24 hours a day, seven days a week. Additionally,
Internet banking provides the flexibility to perform a wide range of
transactions from any personal computer or Internet-enabled device.
International Data Corporation estimates that there were approximately 8
million users banking over the Internet in the United States at the end of
1998, and projects that the number will increase to approximately 40 million by
2003. According to Online Banking Report, over 50% of the 100 largest banks in
the United States offer Internet banking. By contrast, only approximately 5% of
community financial institutions currently offer Internet banking.
Our Business Strategy
We believe that by providing a gateway to the Internet and its potential
e-commerce opportunities our community financial institution customers will be
able to create new banking relationships and enhance relationships with their
existing customers. Our objective is to become the leading provider of Internet
banking and related products and services to small and mid-sized banks, thrifts
and credit unions, with a focus on community financial institutions with total
assets of less than $1 billion. Our strategy to accomplish these goals includes
the following:
. provide flexible Internet banking solutions;
. create electronic marketplaces branded with a community financial
institution's name and logo;
. capitalize on strategic marketing alliances with bankers' banks and
other partners;
. increase recurring revenue from existing customers;
. invest in new products and technologies; and
. develop and enhance the "Netzee" brand.
How to Reach Us
Our principal executive offices are located at 2410 Paces Ferry Road, 150
Paces Summit, Atlanta, Georgia 30339, and our telephone number is (770) 805-
2100. Our web site is located at http://www.netzee.com. Information on our web
site is not, however, part of this prospectus, and you should rely only on the
information contained in this prospectus before deciding to invest in our
common stock.
2
<PAGE>
This Offering
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<CAPTION>
<S> <C>
Common stock we are offering...... shares
Common stock the selling
shareholders are offering........ shares
Common stock to be outstanding
immediately
after this offering.............. shares (1)
Use of proceeds................... Repayment of debt, expansion of sales and
marketing efforts, product development,
and general corporate purposes, including
working capital and potential acquisitions.
Proposed Nasdaq National Market
symbol........................... "NETZ"
</TABLE>
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(1) The number of shares of common stock to be outstanding excludes shares that
we may issue upon the exercise of options already granted or to be granted
after the completion of this offering. See "Management."
3
<PAGE>
Summary Financial Information
You should read the following summary historical and pro forma financial and
operating information in conjunction with "Use of Proceeds," our financial
statements and related notes, including the unaudited interim and pro forma
financial information, and other financial information which appears later in
this prospectus. The historical financial information prior to February 28,
1999 presents the financial information of Direct Access Interactive, Inc., our
predecessor, which we acquired on March 9, 1999. The purchase method of
accounting was used to record the assets and liabilities of Direct Access
Interactive. The financial information of our predecessor on and before
February 28, 1999 is not comparable in all material respects with our financial
information after February 28, 1999.
The pro forma statements of operations, balance sheet and other information
reflect the following, as if the transactions had occurred on June 30, 1999 or
at the beginning of the periods presented:
. the acquisitions in the third quarter of 1999 of Call Me Bill and Dyad
and the remote banking operations of SBS and the Internet banking
divisions of each of TIB The Independent BankersBank (which we refer to
as "TIB" in this prospectus) and The Bankers Bank;
. the acquisition of Direct Access Interactive, Inc. in the first quarter
of 1999;
. the stock subscriptions to management and a director entered into on
July 1, 1999 for 1,555,000 shares;
. the exercise of stock options for 30,000 shares of common stock by a
member of management on August 9, 1999;
. the sale of 128,617 shares of common stock to three bankers' banks on
September 10, 1999;
. the sale of 85,000 shares of common stock on September 3, 1999; and
. the deferred compensation of $11.4 million to be recorded on the options
issued in August and September 1999.
The pro forma financial information does not represent what our results of
operations would have been if these acquisitions had occurred on those dates,
nor does it indicate our future financial position or results of future
operations. The pro forma adjustments are based on currently available
information and certain assumptions that we believe are reasonable. The "Pro
forma as adjusted" column reflects our sale of shares of common
stock pursuant to this offering and the application of the estimated net
proceeds from this offering.
4
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<CAPTION>
Predecessor
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For the For the
period from For the For the period
inception For the year ended six period from from
(October 10, December 31, months January 1, March 1,
1996) to ------------------------- ended 1999 to 1999 to
December 31, Pro forma June 30, February 28, June 30,
1996 1997 1998 1998 1998 1999 1999
------------ ------ ------ --------- -------- ------------ --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues................................. $ 45 $ 642 $ 591 $ 3,061 $ 210 $ 90 $ 250
Operating loss........................... (55) (99) (332) (41,398) (228) (18) (334)
Net loss................................. (55) (99) (352) (43,790) (241) (22) (334)
Basic and diluted net loss per share..... $(0.03) $(0.05) $(0.18) $(0.12) $(0.01) $(0.04)
====== ====== ====== ====== ====== ======
Weighted average common shares
outstanding............................. 2,000 2,000 2,000 2,000 2,000 8,000
====== ====== ====== ====== ====== ======
Pro forma basic and diluted net loss per
share................................... $ (2.84)
=======
Pro forma weighted average common shares
outstanding............................. 15,396
=======
Pro forma Adjusted EBITDA (1) ........... $(3,259)
- --------------------------------------------------
=======
<CAPTION>
Pro forma
for the
six
months
ended
June 30,
1999
----------
<S> <C>
Statements of Operations Data:
Revenues................................. $ 2,093
Operating loss........................... (20,848)
Net loss................................. (22,025)
Basic and diluted net loss per share.....
Weighted average common shares
outstanding.............................
Pro forma basic and diluted net loss per
share................................... $ (1.43)
==========
Pro forma weighted average common shares
outstanding............................. 15,396
==========
Pro forma Adjusted EBITDA (1) ........... $ (1,347)
- --------------------------------------------------
==========
</TABLE>
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<CAPTION>
June 30, 1999
------------------------
Pro
Pro forma as
Actual forma adjusted
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash................... $ -- $ 939
Working capital ....... 25 193
Total assets........... 2,699 103,200
Long-term debt, net of
current maturities.... 750 29,566
Redeemable common
stock................. -- 29,900
Total shareholders'
equity................ 1,833 40,544
</TABLE>
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(1) Pro forma adjusted earnings before interest, taxes, depreciation and
amortization, or Pro forma Adjusted EBITDA, represents the sum of net loss
before income taxes plus interest expense, depreciation and amortization,
adjusted to eliminate stock compensation expense for the periods
presented. Pro forma Adjusted EBITDA is presented here to provide
additional information about our ability to meet our obligations. Pro
forma Adjusted EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered as
an alternative either to net loss as an indicator of our operating
performance, or to cash flow as a measure of our liquidity.
5
<PAGE>
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
carefully consider the following risk factors, as well as the other information
presented in this prospectus, in deciding whether to invest in our common
stock. Each of these factors could adversely affect our operations, the market
price of our common stock and our financial results and could result in a
complete loss of your investment.
Because we have a limited operating history in a rapidly evolving industry, it
is difficult to evaluate our business and prospects and we cannot guarantee we
will become profitable
We were incorporated in August 1999 as the successor to a company which had
operated only since October 1996. We completed five acquisitions in August and
September 1999. See "Netzee." Because key members of our management team came
from different entities, the members of our senior management team have only
worked together for a short time. Therefore, it is difficult to evaluate us and
our prospects. An investor in our common stock must consider the risks we will
face as an early stage company with a new management team in the new and
rapidly evolving Internet banking and e-commerce markets. These risks include
our inability to:
. integrate successfully our recently acquired businesses and the senior
management personnel that joined us from each acquired business;
. expand successfully our sales and marketing efforts;
. maintain our current, and develop new, strategic marketing alliances;
. promote acceptance of our Internet banking services by our community
financial institution customers and their customers;
. respond effectively to competitive pressures; and
. continue to develop and upgrade our technology.
We may not succeed in achieving any or all of these goals, and current
evaluations of us and our prospects may prove to be inaccurate. There can be no
assurance that we will ever achieve or sustain profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
We have a history of losses and anticipate losses in the future
We incurred net losses, on a pro forma basis to reflect our recent
acquisitions, of approximately $43.8 million for the year ended December 31,
1998 and approximately $22.0 million for the six months ended June 30, 1999. We
expect to incur significant operating losses in the future.
We will need to generate significant revenues to achieve and maintain
profitability, and we cannot give assurances that we will be able to do so. Our
revenues, on a pro forma basis, for the year ended December 31, 1998 were
approximately $3.1 million, and our operating expenses for the year were
approximately $44.5 million. Our revenues, on a pro forma basis, for the six
months ended June 30, 1999 were approximately $2.1 million, and our operating
expenses for that period were approximately $22.9 million. We plan to increase
significantly our sales and marketing, research and development and general and
administrative expenses throughout the remainder of 1999, for 2000 and for the
foreseeable future. Our expenses are partially based on our expectations
regarding future revenues and are largely fixed in nature, particularly in the
short term. If our revenues grow more slowly than we anticipate or if we cannot
control our operating expenses, our financial performance will be adversely
affected. See "Selected Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
6
<PAGE>
We are currently experiencing a period of significant growth that may place a
strain on our resources
We have experienced significant growth in our operations through recent
acquisitions, and we expect to continue to grow rapidly. Expansion of our
business will place additional demands on our management, operational capacity
and financial resources. Our current management, sales, technical and
accounting resources may not be adequate to support our recent expansion and
anticipated future growth. To manage our expected growth, we will be required
to devote significant resources to improving or replacing existing operational,
accounting and information systems, procedures and controls. Our future
operating results will substantially depend on the ability of our management to
handle changing business conditions and to implement and improve our systems.
To manage our growth effectively, we must:
. predict accurately the growth in the demand for our Internet banking
products and related services and our capacity to address that demand;
. attract, train, motivate, manage and retain key employees;
. continue to expand and improve our operating and financial systems,
procedures and controls;
. acquire and install new equipment and facilities;
. integrate our new management team;
. integrate successfully the operations and personnel of any other
businesses we acquire; and
. respond quickly and effectively to unanticipated changes in the
industry.
We depend upon end users accepting and using our Internet banking products and
services
We expect to earn most of our future revenue from monthly charges based upon
the number of customers who actually use the Internet banking products and
services that we provide to community financial institutions. We expect to earn
only a small percentage of our future revenues simply because a community
financial institution decides to implement our Internet banking products and
services. Thus, unless a significant number of customers of community financial
institutions utilize our Internet banking products and services, our business
will suffer significantly.
A decline in demand for our products and services or in the use of the Internet
could adversely affect our business, financial condition and results of
operations
We expect to derive substantially all of our revenues from products and
services provided to community financial institutions, their customers and
other participants in the financial services industry. Substantially all of our
revenues are derived from our Internet and telephone banking products and
services. Our future success depends significantly upon the willingness of
community financial institutions to offer technological innovations such as
Internet and telephone banking and upon their customers' demand for and
acceptance of these technological innovations. If community financial
institutions and their customers do not readily accept these technological
innovations as reflected in our products and services, we will experience
reduced demand for our products and services.
There can be no assurance that we will continue to be successful in
marketing these products and services or other integrated products and
services. In addition, changes in economic conditions and unforeseen events,
including recession, inflation or other adverse occurrences, may result in a
significant decline in the utilization of community financial institution
services or demand for our products and services. Any event that results in
decreased consumer or corporate use of community financial institution
services, or increased pressures on community financial institutions toward the
in-house development of Internet banking systems, could have a material adverse
effect on our business, financial condition and results of operations.
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, including inadequate network infrastructure, security
concerns, inconsistent quality of service, and unavailability of cost
effective, high-speed access to the Internet. If the market for
7
<PAGE>
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.
We may experience delays in developing enhancements of existing products and
services and developing new products and services, and these delays may
adversely affect our competitiveness
The electronic banking and financial services industry is characterized by
rapidly changing technology, evolving industry standards, emerging competition
and frequent new product and service introductions. Our future success will
depend on our ability to develop, test, sell and support new and integrated
products and services that will keep pace with technological advances and
industry standards and satisfy the evolving needs of both financial
institutions and their customers. Our inability to develop and introduce new
and integrated products and services in a timely manner could limit the
marketability of our products and services and could render them obsolete,
which would adversely affect our business. Further, we cannot predict the time
required and costs involved in developing new and integrated products and
services. Actual development costs could substantially exceed budgeted amounts,
and estimated product development schedules could require extensions. In these
cases, our operating results and business could be seriously harmed.
Potential acquisitions involve risks
We intend to continue to evaluate potential acquisition candidates within
our industry, and we may acquire complementary technologies or businesses in
the future. Due to consolidation trends within the on-line services industry,
failure to adopt and to implement successfully a long-term acquisition strategy
could damage our competitive position. Future acquisitions may involve 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:
. assimilating effectively the operations, products and services,
technology, information systems and personnel of the acquired company
into our operations;
. diverting our management's attention from other business concerns;
. impairing relationships with our employees, affiliates, strategic
marketing alliances and content providers;
. failing 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.
Our financial results could fluctuate substantially, and our stock price is
likely to be highly volatile
Our financial results and the price of our common stock may fluctuate
substantially in the future. These fluctuations may be caused by several
factors, including pricing competition for our products and services and our
ability to make sales. Other factors which may cause your common stock
investment to be adversely affected and which may cause significant
fluctuations in our stock price include:
. our actual or anticipated operating results;
8
<PAGE>
. our actual or anticipated growth rates, as they may change from time to
time;
. changes in analysts' estimates;
. competitors' announcements;
. regulatory actions;
. industry conditions;
. general economic conditions; and
. a variety of other factors that we have discussed elsewhere in "Risk
Factors."
Further, the market for Internet and technology companies has experienced
extreme price and volume volatility that have often been unrelated or
disproportionate to the operating performance of those companies. 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
and may not be applicable to our common stock.
Community financial institutions are generally slow to adopt new technology,
which may delay our sales efforts
Due in part to the nature of our applications and the associated hardware,
software and consulting expenditures, community financial institutions tend to
be cautious in making purchase decisions regarding new technologies. This
requires us to provide a significant level of education to prospective
customers regarding the use and benefits of our products and services prior to
the purchase of our products and services. Further, community financial
institutions are frequently slow to approve capital expenditures and to review
new technologies that affect key operations. All of this could have the affect
of significantly lengthening our sales cycle thereby delaying revenue growth
and adversely affecting operating results.
Implementation of our solution at our community financial institution customers
may take longer than we anticipate and could adversely affect our operating
results
During the course of an initial implementation of our products and services,
we must integrate our Internet banking software with a community financial
institution's core processing software. This involves the installation of an
interface to permit communication between our products and services and the
community financial institution's core processing software. We may, from time
to time, experience some delays in the integration process, particularly if we
do not already have an established interface for a particular core processing
software. It takes us an average of 60 days to implement our Internet banking
services. A longer integration period will increase our costs associated with
the implementation and delay the recognition of revenues. Changes to existing
core software systems by existing customers and custom implementations for
future client financial institutions may 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 strategic marketing alliances to generate customers and revenue,
and the loss of a significant strategic marketing partner would adversely
affect our revenue
We expect that revenues generated from the sale of our products and services
based on leads generated through our strategic marketing alliances will account
for a significant portion of our revenues for the foreseeable future. In
particular, we expect that, over time, a limited number of our strategic
marketing relationships will account for a substantial portion of our community
financial institution leads and, therefore, revenues. Our arrangements with
these strategic partners are relatively new and have not yet generated material
revenues. Further, if we lose one or more of our major strategic marketing
alliances, we may be unable to replace the strategic marketing relationships
with other alliances that have comparable customer bases and user
9
<PAGE>
demographics. The loss of some or all of our strategic marketing alliances
would adversely affect our business, financial condition and results of
operations.
We are dependent upon our data center to provide all of our Internet products
and services
All of our communications and network equipment is located at our data
center in Birmingham, Alabama. Although we have a backup facility to provide
Internet services if our data center fails to function, a natural disaster,
such as a fire, tornado or flood, or other unanticipated problem at our data
center, including an extended power loss, telecommunications failure, break-in,
computer virus, hacker attack or other events beyond our control, could
nevertheless result in failures or interruptions in providing our products and
services to our customers. The occurrence of any of these events could have a
material adverse effect on our business, financial condition and results of
operations.
Potential year 2000 problems may cause us to lose customers and subject us to
significant liabilities and costs
The risks posed by year 2000 issues could adversely affect our business in a
number of significant ways. The year 2000 issue refers to problems that may
occur when computers attempt to make calculations involving dates on and after
January 1, 2000. We note in particular that:
. our and our customers' critical systems, as well as the systems of
suppliers upon whom we rely, may not be year 2000 ready;
. our costs and liabilities related to year 2000 issues may be
significant;
. we may become involved in litigation related to year 2000 issues; and
. community financial institutions may delay purchasing our products and
services because of fear of year 2000 issues.
If year 2000 problems cause the failure of any of our systems, the systems
of our suppliers or the servers or other internal systems of our customers, we
could lose customers and revenue, incur significant disruption in our business
and incur substantial liabilities and expenses.
In addition, the Internet could face serious disruptions arising from year
2000 issues, which generally may have an adverse impact on traffic and commerce
on the Internet.
Even if year 2000 problems do not cause any of these failures or
disruptions, our suppliers, current or prospective customers or others could
expect that these failures or disruptions will occur. This could:
. reduce the growth of the Internet and e-commerce;
. hamper existing Internet activity and electronic commerce; and
. reduce the demand for our products and services.
Further, year 2000 problems incurred by our suppliers or customers or by
others could materially and adversely affect our business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Our business could suffer if our community financial institution customers
terminate their contracts with us as a result of business combinations or for
other reasons
Significant consolidation is occurring in the financial services industry,
and our community financial institution customers that are involved in mergers
and acquisitions may terminate their agreements with us or fail to renew them
when they expire. An existing community financial institution customer may be
acquired by or merged with another financial institution that utilizes a
different Internet banking system or does not desire
10
<PAGE>
to continue the relationship with us for some other reason. This could result
in the new entity terminating the relationship with us. This risk is
particularly relevant to us because we target small to mid-sized community
financial institutions as customers, which are more likely to be potential
acquisition candidates. Our business, financial condition and results of
operations would suffer if community financial institution customers terminate
their relationships with us.
The loss of our chief executive officer and other key executive personnel could
significantly harm our business
Our future success depends to a significant extent on the continued services
of our senior management and other key personnel, particularly Glenn W. Sturm,
our Chief Executive Officer. The loss of the services of Mr. Sturm or other key
employees would likely have a significant adverse effect on our business. We do
not maintain "key person" life insurance insuring Mr. Sturm or any of our other
senior officers or key employees.
We may experience difficulty in hiring and retaining qualified personnel
There is significant competition for qualified employees, and high employee
turnover exists among Internet and other technology companies today. As a
result, we may experience difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. Our operating results may be
adversely affected if we experience increased expenses related to attracting,
training and retaining qualified employees. Our failure to succeed in
attracting new personnel or retaining and motivating our current personnel
could adversely affect our business, financial condition and results of
operations.
Network security problems could hinder the growth of the Internet and cause us
to lose customers
To the extent that our activities involve the storage and transmission of
proprietary information, security breaches could expose us to possible
liability and damage our reputation. Any compromise of our security could harm
our business and could deter people from using the Internet to conduct
transactions that involve transmitting confidential information. We rely on
standard Internet security systems, all of which are licensed from third
parties, to provide the security and authentication necessary to effect secure
transmission of data. Nevertheless, compromises or breaches of our security
measures may occur.
Our networks may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Someone who is able to circumvent our 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 we may in the future experience,
interruptions in service as a result of the accidental or intentional actions
of Internet users, including current and former employees or others. Concerns
regarding security risks may deter community financial institutions from
purchasing our products and services and deter their customers from using our
products and services. We may need to expend significant capital or other
resources to protect against the threat of security breaches or to alleviate
problems caused by breaches. These breaches may also require us to pay money
damages to others who were harmed by them. Eliminating computer viruses and
alleviating other security problems may result in interruptions, delays or
termination of service to users accessing web sites that deliver our services,
any of which could harm our business, financial condition and results of
operations.
Our software products or software designed by third parties that we use in our
products may have errors or defects or may be unable to sustain a high volume
of traffic
The software used by our systems and products and services 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 have not
experienced any product liability claims to date, but the sale and support of
our products and services may entail the risk of
11
<PAGE>
these claims. A product liability claim brought against us could have a
material adverse effect on our business, financial condition and results of
operations.
Furthermore, if the 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 project
accurately the rate or timing of increases, if any, in the use of our services
or expand and upgrade our systems and infrastructure in a timely manner to
accommodate these increases. Any inability to do so could harm our business.
Our business is highly competitive
The market for our products and services is highly competitive. We compete
with a variety of third parties, including other providers of Internet banking
systems, as well as systems developed internally by financial institutions. We
also expect competition in our markets to increase significantly as new
companies enter our market and current competitors expand their product lines
and services. These new competitors may include non-bank financial
institutions, such as brokerage firms and on-line service providers, among
others. In many instances, these entities are dominant competitors and may
enjoy substantial competitive advantages, including:
. greater name recognition;
. greater financial, technical and marketing resources to devote to the
development, promotion and sale of their services;
. longer operating histories; and
. a larger base of client financial institutions.
Any pricing pressures, reduced margins or loss of market share resulting from
our failure to compete effectively would materially and adversely affect our
business, financial condition and operating results.
Infringement of our proprietary technology could harm our business
Our inability to protect our proprietary rights adequately could have a
material adverse effect on the acceptance of our brand names and on our
business, financial condition and operating results. We rely on a combination
of copyright, trademark and trade secret laws and contractual provisions to
establish and protect our proprietary rights.
There can be no assurance that the steps we have taken, and will take in the
future, to protect our proprietary rights will be adequate or that third
parties will not infringe upon or misappropriate our copyrights, trademarks,
service marks, domain names and similar proprietary rights. In addition,
effective copyright and trademark protection may be unenforceable or limited in
foreign countries, and the global nature of the Internet makes it impossible to
control the ultimate destination of our services. 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 Internet domain names derive value from the individual's ability to
remember these names, we cannot guarantee that our Internet domain names will
maintain their value if, for example, users begin to rely on mechanisms other
than Internet domain names to access on-line resources.
Furthermore, we may become involved in litigation or other proceedings
regarding our trade secrets, copyrights and other intellectual property rights.
An adverse determination in intellectual property litigation could result in
the loss of 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 would be able to obtain licenses, if
necessary, on commercially reasonable terms, if at all. In addition, litigation
would divert
12
<PAGE>
management resources and be expensive. Any of these results could have a
material adverse effect on the acceptance of our brand names and on our
business, financial condition and operating results.
Government regulation and legal uncertainties could add additional costs to
doing business on the Internet, which could affect our growth
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, including 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 issues apply to
the Internet. Any new laws or regulations relating to the Internet or the
manner in which existing laws are applied to the Internet could adversely
affect our business.
Our primary customers are community financial institutions, which are
heavily regulated. In addition, financial institution regulators can
effectively control and mandate the standards for 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 financial
institution operations that could require us to modify our current or future
products and services. For example, the U.S. Congress is currently considering
financial services reform legislation that may include limitations on the
ability of financial institutions to disclose to nonaffiliated third parties
nonpublic consumer financial information. The adoption of laws or regulations
affecting our business or our community financial institution customers'
businesses could reduce our growth rate or could otherwise have a material
adverse effect on our business, financial condition and operating results. See
"Business--Government Regulation."
The Internet products and services that we and our client financial
institutions provide could be subject to sales or other taxes, which could
affect our pricing policies and reduce demand for our products and services
Any legislation that substantially impairs the growth of e-commerce could
have a material adverse effect on our business, financial condition and
operating results. The tax treatment of the Internet and e-commerce is
currently unsettled. A number of proposals at the federal, state and local
levels in the United States and before foreign governments would, if enacted,
impose taxes on the sale of goods and services and other Internet activities. A
recently enacted law places a temporary moratorium on some forms of taxation on
Internet commerce. We cannot predict the effect of current attempts to tax or
regulate commerce over the Internet.
To execute our strategy we may require additional funding that may not be
available on favorable terms or at all
Although we believe that our existing capital resources and available
financing will be adequate to fund our operations for the foreseeable future,
these resources may be inadequate. We do not have sustained earnings or
positive cash flow, and initially our business strategy will require us to
incur significant expenses to operate competitively and to grow our business.
We do not currently, and will not for the foreseeable future, have adequate
cash flow from operations to fund these expenses. Consequently, we may require
additional funds during or after this period to operate our business and to
execute our strategy successfully. Additional financing may not be available on
favorable terms or at all. If we cannot raise adequate funds to satisfy our
13
<PAGE>
operating and capital requirements, we may have to limit our operations
significantly. Our future operating and capital requirements depend upon many
factors, including:
. the rate at which we expand our sales and marketing operations;
. the response of competitors to our product and service offerings;
. the extent to which we expand our products and services;
. the extent to which we develop and upgrade our technology and data
network infrastructure; and
. the occurrence, timing, size and successful integration of acquisitions.
Disruptions or reductions in Internet capacity could jeopardize our ability to
offer Internet access service
Our ability to offer Internet access service depends upon the size, ease of
expansion, reliability and security of our network infrastructure, including
the transmission capabilities we lease from the ISPs that connect us and our
customers to the Internet. A disruption or reduction in Internet capacity by
these suppliers could prevent us from maintaining our service and cause us to
lose customers. In addition, we may experience disruptions or capacity
constraints in the local telecommunications lines and leased long-distance
lines that connect us to our customers. Finally, the growth of the market for
our products and services depends on improvements being made to the entire
Internet infrastructure to alleviate congestion and to maintain reliability.
There has been no prior market for our common stock
Prior to this offering, there has been no public market for our common
stock. Accordingly, we cannot predict the extent to which investor interest in
Netzee 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 our
common stock will be 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. See "Underwriting" for a description of the
factors that we and the underwriters will consider in determining the initial
public offering price.
We intend to apply to have our common stock included for quotation on the
Nasdaq National Market. If we are approved for quotation on the Nasdaq National
Market, we would be subject to financial and market-related tests established
by Nasdaq to maintain our listing. We may not be able to maintain these listing
criteria in the future, and our inability to do so could ultimately hinder the
liquidity of our common stock and your ability to buy or sell it.
Our management and affiliates will control more than % of our common stock,
and no corporate actions requiring shareholder approval can be taken without
their approval
Following this offering, our officers, directors and affiliated persons will
beneficially own approximately % of our common stock. 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 a majority of
the outstanding shares of our common stock, will be unable to control the
outcome of any shareholder vote. Management's stock ownership may discourage a
potential acquiror from offering to purchase or otherwise attempting to obtain
control of Netzee, which in turn could reduce our stock price or prevent our
shareholders from realizing a premium over our stock price.
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<PAGE>
Our relationship with InterCept may present potential conflicts of interest
Upon the completion of this offering, InterCept will own approximately %
of our common stock. InterCept is involved in a wide range of activities,
including e-commerce, electronic fund transfer, data communications management,
software and other processing solutions, all marketed primarily to financial
institutions in the United States. Our Chairman and some of our other directors
are directors, officers or shareholders of InterCept.
When the interests of InterCept diverge from our interests, InterCept may
exercise its influence in its own best interests and not in the best interests
of you or our other shareholders. Some decisions concerning our operations or
finances may present conflicts of interest between us and InterCept or its
affiliates. There is no mechanism in place to resolve these conflicts of
interest, except that it is our policy that transactions with affiliated
parties be approved by a majority, but not fewer than two, of our disinterested
directors and that these transactions must be on terms no less favorable to us
than could have been obtained from unaffiliated third parties on an arm's
length basis. Georgia law may also prohibit a shareholder from successfully
challenging a transaction with InterCept if the transaction received the
affirmative vote of a majority, but not less than two, of our disinterested
directors, who received full disclosure of the existence and nature of the
conflict.
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, including sales by InterCept or by our officers
and directors, or the perception by the market that these sales may occur,
could lower the market price of our common stock and make it more difficult for
us to raise funds through future offerings. After this offering, shares
of our common stock will be outstanding. All of the shares sold in this
offering will generally be freely tradable. 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 substantially all of our
shareholders. These restricted shares will be available for sale in the public
market as follows:
. no restricted shares will be eligible for sale as of the date of this
prospectus or within 180 days after the date of this prospectus when the
lock-up agreements with the underwriters expire; and
. approximately restricted shares will become eligible for sale
at various times upon the expiration of their respective holding periods
and if otherwise sold in accordance with the provisions of Rule 144 of
the Securities and Exchange Commission.
We have initially reserved a total of 3,500,000 shares of our common stock
for issuance under our stock option plan. The plan provides that this amount
will be automatically increased on January 1 of each year to an amount equal to
20% of the fully diluted shares of our common stock on the preceding
December 31, provided, however, that the number of shares available for
issuance shall not be less than 3,500,000. We have also issued options to
purchase a total of 1,876,500 shares of common stock under this plan and
pursuant to other stock option agreements. We intend to register all of the
shares issuable under this plan and these option agreements for sale in the
public market. In addition, we have also agreed to register up to 5,940,131
shares of common stock that we issued in connection with some of our
acquisitions, subject to the terms and conditions of applicable registration
rights agreements. See "Shares Eligible for Future Sale."
Our management has broad discretion as to the use of the proceeds from this
offering
Our management will have broad discretion in how we use the net proceeds of
this offering. We currently expect to use the net proceeds from this offering
for repayment of debt, expansion of our business, including sales, marketing
and product development expenditures, and general corporate purposes, including
working capital. Investors will be relying on the judgment of our management
regarding the application of the proceeds from this offering.
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<PAGE>
A significant reduction in the size of this offering would preclude us from
repaying our substantial indebtedness, and we could remain highly leveraged
We have now a significant amount of indebtedness and plan to use a
significant portion of the net proceeds of this offering to repay our
outstanding indebtedness. If the size of this offering is reduced
significantly, we will continue to have a significant amount of indebtedness,
which could adversely affect our business, financial condition and operating
results. For example, it could:
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;
. limit our ability to borrow additional funds;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate; and
. increase our vulnerability to general adverse economic and industry
conditions.
For further information regarding our currently outstanding debt and our plans
to repay it with a portion of the net proceeds of this offering, see "Use of
Proceeds."
We have a significant amount of intangible assets
On a pro forma basis, as of June 30, 1999, approximately $96.9 million, or
93.9%, of our total assets were intangible assets. These intangible assets
primarily represent amounts attributable to the issuance of stock in
acquisitions accounted for as purchases. We will likely record additional
intangible assets in the future if we acquire complementary businesses.
Additionally, we currently amortize intangible assets over a useful life that
management believes is reasonable and is allowable under generally accepted
accounting principles, or GAAP. GAAP can change in the future and affect the
amortization period and therefore our future results. Additionally, any
impairment in the value of these intangible assets could have a material
adverse effect on our business, financial condition and operating results.
Investors in this offering will suffer immediate and substantial dilution
The initial public offering price is 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
offering price of $ per share. Investors will incur additional dilution
upon the exercise of outstanding stock options.
Our articles of incorporation and bylaws, as well as Georgia corporate law, may
prevent or delay a future takeover of Netzee
Our articles of incorporation, bylaws 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 example, our articles of incorporation and
bylaws provide, among other things, that:
. the board of directors, without shareholder approval, has the authority
to issue preferred stock with rights superior to the rights of the
holders of common stock;
. the board of directors is divided into three classes and directors have
staggered terms; and
. the shareholders may call a special meeting only upon request of 25% of
votes entitled to be cast on an issue.
Georgia law also contains "business combination" and "fair price"
provisions, which our board of directors may adopt without shareholder
approval, that may have the effect of delaying, deterring or preventing a
change in control of Netzee. See "Description of Capital Stock--Business
Combination Provisions of Georgia Law."
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NETZEE
Netzee is a leading provider of integrated Internet banking products and
services and e-commerce solutions to small and mid-sized banks, thrifts and
credit unions, typically with assets of less than $1 billion. Our predecessor,
Direct Access Interactive, Inc., was formed in October 1996 to provide Internet
and telephone banking products and services.
Acquisition of the Remote Banking Operations of SBS Corporation
In August 1999, we acquired SBS Corporation in a merger pursuant to which we
issued to the SBS shareholders 2.6 million shares of our common stock and
approximately $16.6 million in cash. We also repaid approximately $4.9 million
in debt owed by SBS. Immediately after the merger, we sold all of the assets of
SBS, other than its Internet and telephone banking assets, to InterCept in
exchange for 450,000 shares of our common stock previously owned by InterCept.
Based in Birmingham, Alabama, SBS provided automated technology products and
services, including Internet and telephone banking systems, to community
financial institutions nationwide. As of August 6, 1999, SBS had entered into
agreements with 135 community financial institutions to provide Internet
banking and related services. For the year ended December 31, 1998, SBS's
remote banking operations generated approximately $1.4 million in revenues.
David W. Brasfield, who served as the Chief Executive Officer of SBS, currently
serves as our Senior Executive Vice President--Sales and Marketing. See
"Related Party Transactions."
Acquisition of the Internet Banking Divisions of TIB and The Bankers Bank
In September 1999, we acquired the Internet banking divisions of each of
TIB, a Texas state chartered and Federal Reserve member bank, and The Bankers
Bank, a Georgia state chartered and Federal Reserve member bank. In these
acquisitions, we issued 1,361,000 shares of our common stock to each of these
bankers' banks. A "bankers' bank" is a bank that itself is owned by other
financial institutions and provides depository, loan and other banking services
exclusively to financial institutions. At the end of 1998, these two
institutions were the largest bankers' banks in the United States, with
approximately 1,300 independent community financial institution customers in
Texas, New Mexico, Alabama, Georgia, North Carolina, South Carolina, Tennessee
and Florida.
As of September 3, 1999, the Internet banking divisions of TIB and The
Bankers Bank had entered into agreements with 57 financial institutions to
provide Internet banking and related services. We have also entered into
marketing agreements with TIB and The Bankers Bank pursuant to which they will
exclusively market our Internet banking products and services to their
customers and member financial institutions. See "Related Party Transactions."
For the year ended December 31, 1998, the Internet banking divisions of TIB and
The Bankers Bank had total revenues of approximately $77,000 and $432,000,
respectively.
Acquisition of Call Me Bill, LLC
In September 1999, we acquired Call Me Bill, LLC for approximately $3.3
million in cash. Based in Elizabethtown, Kentucky, Call Me Bill provides 24-
hour electronic bill payment services to financial institutions' customers. For
the year ended December 31, 1998, Call Me Bill had total revenues of
approximately $62,000.
Acquisition of Dyad Corporation
In September 1999, we acquired Dyad Corporation for approximately $900,000
in cash and 618,137 shares of our common stock and the assumption of $3.5
million in debt which was repaid at the closing. Based in Norcross, Georgia,
Dyad developed, among other things, proprietary loan application, approval and
fulfillment software that is being integrated into our Internet banking
solution. Some of Dyad's directors and officers have become directors or
officers of Netzee. See "Related Party Transactions." For the year ended
December 31, 1998, Dyad had total revenues of approximately $505,000.
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USE OF PROCEEDS
We estimate that we will receive net cash proceeds of approximately $
million, after deducting estimated underwriting discounts and estimated
offering expenses and based upon an initial public offering price of $ per
share, which is the midpoint of the estimated price range. We will not receive
any proceeds from the sale of shares by the selling shareholders.
We intend to use the net proceeds of this offering received by us:
. to repay approximately $28.8 million of principal and accrued interest
owed to InterCept;
. to expand our sales and marketing efforts;
. to continue our product development; and
. for working capital and other general corporate purposes, including
potential acquisitions.
The loans we intend to repay bear interest at a rate equal to the prime rate
plus 2% per year. As of September 10, 1999, this rate was 10.0% with respect to
one loan and 10.25% with respect to two other loans. These loans mature on the
earlier of (1) the completion of this our initial public offering or (2) August
and September 2001. The borrowings were used to fund our acquisitions of SBS,
Dyad and Call Me Bill.
From time to time in the ordinary course of business, we evaluate the
acquisition of businesses and technologies that complement our business, and we
may use a portion of the net proceeds from this offering to fund these
acquisitions. Currently, however, we do not have any understandings,
commitments or agreements with respect to any acquisitions, and we may not be
able to identify suitable acquisition candidates or complete any acquisition.
The amount of funds that we actually use for these purposes, other than debt
repayment, will depend on many factors, including revisions to our business
plan, material changes in our revenue or expenses, and other factors described
under "Risk Factors." Accordingly, our management will have significant
discretion over the use and investment of the net proceeds from the offering.
Pending the uses described above, we will invest the net proceeds in
interest-bearing accounts or short-term, interest-bearing securities, or both.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our 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 June 30, 1999. Our
capitalization is presented:
. on an actual basis;
. on an unaudited pro forma basis to reflect (1) the acquisitions in the
third quarter of Call Me Bill and Dyad, the remote banking operations of
SBS and the Internet banking divisions of each of TIB and The Bankers
Bank; (2) the acquisition of Direct Access Interactive, Inc. in the
first quarter of 1999; (3) the stock subscriptions to management and a
director entered into on July 1, 1999 for 1,555,000 shares; (4) the
exercise of stock options for 30,000 shares of common stock by a member
of management on August 9, 1999; (5) the sale of 128,617 shares of
common stock to three bankers banks on September 10, 1999; (6) the sale
of 85,000 shares of common stock on September 3, 1999; and (7) the
deferred compensation of $11.4 million to be recorded on the options
issued in August and September 1999; and
. on an unaudited pro forma as adjusted basis to reflect the transactions
described above and our receipt of the net proceeds from the sale of
shares of common stock in this offering, as if each of them
had occurred as of June 30, 1999.
The information in the table should be read in conjunction with the
financial statements and accompanying notes that we have included elsewhere in
this prospectus. See "Unaudited Pro Forma Combined Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
June 30, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------ --------- -----------
(in thousands)
<S> <C> <C> <C>
Short term borrowings and current portion of
long-term debt................................ $ -- $ -- $
====== ======== ======
Long-term debt, net of current portion......... $ 750 $ 29,566 $ --
------ -------- ------
Redeemable common stock........................ -- 29,900
<CAPTION>
Shareholders' (deficit) equity:
<S> <C> <C> <C>
Preferred stock, no par value; 5,000,000 shares
authorized; no shares issued and outstanding.. -- -- --
Common stock, no par value; 70,000,000 shares
authorized; 8,000,000 shares issued and
outstanding, actual; 15,395,855 shares issued
and
outstanding, pro forma; and shares
issued and outstanding pro forma, as
adjusted...................................... 2,166 56,372
Notes receivable from shareholders............. -- (3,203)
Deferred compensation.......................... -- (11,398)
Accumulated deficit............................ (334) (1,227)
------ -------- ------
Total shareholders' equity..................... 1,832 40,544
------ -------- ------
Total capitalization........................... $2,582 $100,010 $
====== ======== ======
</TABLE>
19
<PAGE>
DILUTION
The assumed initial public offering price of $ per share exceeds the pro
forma net tangible book value per share of Netzee. As of June 30, 1999, our net
tangible book value was approximately $38,000 or $0.01 per share. Pro forma net
tangible book (deficit) was approximately $(26.5) million or $(1.72) per share.
Pro forma net tangible book value per share is determined by subtracting our
total liabilities from our total tangible assets as of June 30, 1999 and
dividing this difference by the number of shares of common stock issued and
outstanding, assuming that the following transactions had occurred as of June
30, 1999:
. the acquisitions in the third quarter of 1999 of Call Me Bill and
Dyad and the remote banking operations of SBS and the Internet
banking divisions of each of TIB and The Bankers Bank;
. the acquisition of Direct Access Interactive, Inc. in the first
quarter of 1999;
. the stock subscriptions to management and a director entered into on
July 1, 1999 for 1,555,000 shares;
. the exercise of stock options for 30,000 shares of common stock by a
member of management on August 9, 1999;
. the sale of 128,617 shares of common stock to three bankers' banks on
September 10, 1999;
. the sale of 85,000 shares of common stock on September 3, 1999; and
. the deferred compensation of $11.4 million to be recorded on the
options issued in August and September 1999.
The sale of shares of common stock by us in this offering and the
application of the net proceeds therefrom will result in an immediate increase
in pro forma net tangible book value of $ million or $ per share
to existing shareholders and an immediate dilution of $ per share to
investors purchasing shares of common stock in this offering. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $
Net tangible book deficit at June 30, 1999..................... $
Increase per share attributable to pro forma adjustments ......
--------
Pro forma net tangible book value per share at June 30, 1999 ..
Increase per share attributable to this offering ..............
-----
Pro forma net tangible book value per share after this
offering.......................................................
-----
Dilution per share purchased in this offering.................. $
=====
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999,
the number of shares of common stock we will sell in this offering, the total
price to be paid for these shares, the number of shares of common stock
previously issued, the total consideration paid and the average price per share
paid.
<TABLE>
<CAPTION>
Total Average
Shares Sold by Netzee Consideration Purchase
-------------------------------------------- Price Per
Number Percent Amount Percent Share
------------- ---------------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.... 15,395,855 % $67,684,000 % $
New investors............ % %
------------- -------- ----------- -----
Total................... 100.0% $ 100.0%
============= ======== =========== =====
</TABLE>
The foregoing tables assume:
.a public offering price of $ per share;
20
<PAGE>
.no exercise of the underwriters' over-allotment option; and
.no exercise of any of the outstanding options to purchase common
stock.
Sales by the selling shareholders in this offering will reduce the number of
shares of common stock held by existing shareholders to , or
% of the total number of shares of common stock to be outstanding after
this offering, and will increase the number of shares to be held by new
investors to , or % of the total number of shares of common
stock to be outstanding after this offering. If the underwriters exercise their
over-allotment option in full, the number of shares to be held by existing
shareholders will decrease to , or % of the total shares to be
outstanding after the exercise, and the number of shares to be held by new
investors will increase to , or % of the total shares to be
outstanding after the exercise.
To the extent that any options that are outstanding or will be issued in the
future are exercised, purchasers of the common stock in this offering would
incur further dilution.
21
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
In this section we have provided you with our unaudited pro forma combined
financial statements for the year ended December 31, 1998, and as of and for
the six months ended June 30, 1999. This financial information gives effect the
following as if they occurred as of June 30, 1999 or at the beginning of the
period presented:
. the acquisitions in the third quarter of 1999 of Call Me Bill and Dyad
and the remote banking operations of SBS and the Internet banking
divisions of each of TIB and The Bankers Bank;
. the acquisition of Direct Access Interactive, Inc. in the first quarter
of 1999;
. the stock subscriptions to management and a director entered into on
July 1, 1999 for 1,555,000 shares;
. the exercise of stock options for 30,000 shares of common stock by a
member of management on August 9, 1999;
. the sale of 128,617 shares of common stock to three bankers' banks on
September 10, 1999;
. the sale of 85,000 shares of common stock on September 3, 1999; and
. the deferred compensation of $11.4 million to be recorded on the options
issued in August and September 1999.
We based our unaudited pro forma combined financial statements for the year
ended December 31, 1998 in part on our audited financial statements and the
audited financial statements of Call Me Bill, Dyad, the remote banking
operations of SBS and the Internet banking divisions of TIB and The Bankers
Bank, for the year ended December 31, 1998 and the unaudited financial
statements as of and for the six months ended June 30, 1999.
In July 1999, we issued stock subscriptions to management and a director for
1,555,000 shares of common stock at a purchase price of $2.00 per share. The
members of management and the director entered into full-recourse notes payable
bearing interest at 7%.
In August and September 1999, we granted options to purchase 1,556,500
shares of our common stock at exercise prices ranging from $3.11 to $5.00 per
share. We recorded deferred compensation of approximately $11.4 million, which
will be amortized to expense over the vesting period of the options, which is
generally three years. If we complete our initial public offering, 225,000 of
these options will vest immediately. We recorded approximately $1.8 million in
deferred compensation on options that will be expensed upon completion of the
initial public offering.
In August 1999, a member of management exercised options to purchase 30,000
shares of common stock with a full-recourse interest-bearing note payable for
$93,300.
On September 10, 1999, we sold 128,617 shares of our common stock to three
bankers' banks for $3.11 per share. These shares were sold in connection with
the entering into of a two-year general marketing agreement under which each
bankers' bank has agreed to use its best efforts to promote and market our
Internet banking products and services to community banks. We will record an
intangible asset of approximately $1.1 million related to these marketing
agreements for the difference between the fair value of the common stock and
the price paid. This intangible asset will be amortized over the two-year term
of each of these agreements.
Additionally, we sold 85,000 shares of our common stock for $1.00 to an
employee on September 3, 1999. The difference between the fair value and the
price paid for these shares was recorded as stock compensation expense.
Our unaudited pro forma combined statements of operations do not include any
adjustments for potential cost savings or other operating improvements and do
not purport to represent what our combined results of operations or financial
position would actually have been if any of the above transactions had occurred
as described above. These financial statements also do not project what our
results of operations or financial position will be as of any future date or
for any future period. You should read this financial information together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements and accompanying notes located
in other parts of this prospectus.
22
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Historical
--------------------------------------------
The Call
Bankers Me Pro Forma Pro
Netzee SBS Bank TIB Dyad Bill Adjustments Forma
------ ------ ------- ----- ------ ---- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................... $ 0 $ 312 $ 0 $ 0 $ 19 $ 23 (b) $ 100 $ 939
(h) 400
(i) 85
Accounts receivable,
net................... 90 181 156 116 22 114 (e) (74) 605
Inventories............ 0 55 0 32 0 0 87
Deferred expenses...... 0 0 182 0 0 0 182
Prepaids and other
current assets........ 51 244 705 0 0 5 1,005
------ ------ ------ ----- ------ ---- --------
Total current assets... 141 792 1,043 148 41 142 2,818
------ ------ ------ ----- ------ ---- --------
PROPERTY AND EQUIPMENT,
net.................... 764 149 284 30 19 148 1,394
------ ------ ------ ----- ------ ---- --------
DEFERRED FINANCING
COSTS.................. 0 0 0 0 6,076 0 (c) (6,076) 0
OTHER ASSETS:
Intangible assets,
net................... 1,794 0 0 0 90 0 (a) 46,182 96,946
(b) 30,952
(c) 13,524
(d) 3,325
(h) 1,079
Capitalized software
development costs,
net................... 0 0 645 645 8 0 1,298
Deposits and other
long-term assets...... 0 744 0 0 0 0 744
------ ------ ------ ----- ------ ---- --------
Total other assets..... 1,794 744 645 645 98 0 98,988
------ ------ ------ ----- ------ ---- --------
Total assets........... $2,699 $1,685 $1,972 $ 823 $6,234 $290 $103,200
====== ====== ====== ===== ====== ==== ========
LIABILITIES AND SHAREHOLDERS'
(DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable,
accrued expenses, and
other................. $ 41 $ 193 $ 76 $ 713 $ 116 $ 49 (e) $ (74) $ 1,114
Deferred revenue....... 76 849 251 57 0 278 1,511
Current maturities of
long-term debt........ 0 0 0 0 424 0 (c) (424) 0
Due to parent.......... 0 148 2,494 816 0 0 (a) (148) 0
(b) (3,310)
------ ------ ------ ----- ------ ---- --------
Total current
liabilities........... 117 1,190 2,821 1,586 540 327 2,625
NONCURRENT LIABILITIES:
Deferred revenue....... 0 565 0 0 0 0 565
Long-term, debt, net of
current maturities.... 0 0 0 0 1,632 0 (a) 21,535 28,816
(d) 2,882
(c) 2,767
Due to parent.......... 750 0 0 0 0 0 750
------ ------ ------ ----- ------ ---- --------
Total liabilities.... 867 1,755 2,821 1,586 2,172 327 32,756
WARRANTS WITH REDEMPTION
FEATURE................ 0 0 0 0 10,731 0 (c) (10,731) 0
REDEEMABLE COMMON
STOCK.................. 0 0 0 0 0 0 (a) 29,900 29,900
SHAREHOLDERS' (DEFICIT)
EQUITY:
Subscription
receivable............ 0 0 0 0 (5) 0 (c) 5 0
Preferred stock........
Common stock........... 2,166 0 0 0 1,937 650 (a) (5,175) 56,372
(b) 32,752
(c) 7,228
(d) (244)
(f) 3,110
(g) 93
(h) 1,479
(i) 978
(j) 11,398
Notes receivable from
shareholders.......... 0 0 0 0 0 0 (f) (3,110) (3,203)
(g) (93)
Deferred compensation.. 0 0 0 0 0 0 (j) (11,398) (11,398)
Accumulated deficit.... (334) (70) (849) (763) (8,601) (687) (a) 70 (1,227)
(b) 1,612
(c) 8,601
(d) 687
(i) (893)
------ ------ ------ ----- ------ ---- --------
Total shareholders'
(deficit) equity...... 1,832 (70) (849) (763) (6,669) (37) 40,544
------ ------ ------ ----- ------ ---- --------
Total liabilities and
shareholders'
(deficit) equity...... $2,699 $1,685 $1,972 $ 823 $6,234 $290 $103,200
====== ====== ====== ===== ====== ==== ========
</TABLE>
23
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
---------------------------------------------
The Call
Bankers Me Pro Forma Pro
Netzee SBS Bank TIB Dyad Bill Adjustments Forma
------ ------ ------- ----- ------- ----- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
License, hardware and
implementation........ $ 455 $1,409 $ 67 $ 274 $ 472 $ 28 (t) $ (54) $ 2,651
Monthly maintenance and
services.............. 136 39 10 158 33 34 410
----- ------ ----- ----- ------- ----- --------
Total revenues......... 591 1,448 77 432 505 62 3,061
----- ------ ----- ----- ------- ----- --------
OPERATING EXPENSES:
Costs of license,
hardware,
implementation,
maintenance and
service............... 466 254 113 434 409 28 (u) 40 1,610
(t) 54
Selling, general and
administrative
expenses.............. 442 1,437 416 508 1,688 378 4,869
Stock compensation
expense............... 0 0 0 0 0 0 (x) (3,799) 4,692
(y) (893)
Amortization from
acquisition
intangibles........... 0 0 0 0 0 0 (k) (620) 32,916
(l) (15,282)
(m) (10,827)
(n) (4,538)
(o) (1,108)
(w) (540)
Depreciation and
amortization.......... 15 42 5 7 137 23 229
Asset impairment....... -- -- -- -- 143 -- 143
----- ------ ----- ----- ------- ----- --------
Total operating
expenses.............. 923 1,733 534 949 2,377 429 44,459
----- ------ ----- ----- ------- ----- --------
OPERATING LOSS.......... (332) (285) (457) (517) (1,872) (367) (41,398)
OTHER INCOME, net....... -- 288 -- 54 -- -- (u) (40) 302
INTEREST EXPENSE, net... 20 -- -- -- 1,679 (1) (p) (2,153) 2,694
(q) (295)
(r) (451)
(s) 1,679
(v) 224
----- ------ ----- ----- ------- ----- --------
NET (LOSS) INCOME....... $(352) $ 3 $(457) $(463) $(3,551) $(366) $(43,790)
===== ====== ===== ===== ======= ===== ========
BASIC AND DILUTED NET
LOSS PER SHARE......... $ (2.84)
========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING..... 15,396
========
</TABLE>
24
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
--------------------------------------------
The Call
Bankers Me Pro Forma Pro
Netzee SBS Bank TIB Dyad Bill Adjustments Forma
------ ----- ------- ----- ------- ----- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
License, hardware and
implementation........ $ 222 $ 997 $ 189 $ 225 $ 97 $ 74 (t) $ (109) $ 1,695
Monthly maintenance and
services.............. 119 24 47 111 6 91 398
----- ----- ----- ----- ------- ----- --------
Total revenues......... 341 1,021 236 336 103 165 2,093
----- ----- ----- ----- ------- ----- --------
OPERATING EXPENSES:
Costs of license,
hardware,
implementation,
maintenance and
service............... 171 134 232 250 55 24 (t) 109 757
Selling, general and
administrative
expenses.............. 326 1,071 382 310 423 335 2,847
Stock compensation
expense............... 0 0 0 0 0 0 (x) (1,900) 2,793
(y) (893)
Amortization from
acquisition
intangibles........... 138 0 0 0 0 0 (k) (103) 16,389
(l) (7,641)
(m) (5,414)
(n) (2,269)
(o) (554)
(w) (270)
Depreciation and
amortization.......... 58 14 14 7 49 13 155
----- ----- ----- ----- ------- ----- --------
Total operating
expenses.............. 693 1,219 628 567 527 372 22,941
----- ----- ----- ----- ------- ----- --------
OPERATING LOSS.......... (352) (198) (392) (231) (424) (207) (20,848)
OTHER INCOME, net....... -- 50 -- 109 4 1 164
INTEREST EXPENSE, net... 4 -- -- -- 906 (1) (p) $(1,077) 1,341
(q) (148)
(r) (225)
(s) 906
(v) 112
----- ----- ----- ----- ------- ----- --------
NET LOSS................ $(356) $(148) $(392) $(122) $(1,326) $(207) $(22,025)
===== ===== ===== ===== ======= ===== ========
BASIC AND DILUTED NET
LOSS PER SHARE......... $ (1.43)
========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING..... 15,396
========
</TABLE>
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma balance sheet as of June 30, 1999 reflects the
following adjustments as if they occurred on June 30, 1999:
(a) The issuance of common stock, payment of cash and the recording of
intangible assets associated with the acquisition of SBS. The non-remote
banking assets of SBS were sold to InterCept after the acquisition.
InterCept transferred 450,000 shares of Direct Access Interactive common
stock back to Netzee in consideration for those assets. The purchase price
of SBS included 2,600,000 shares of common stock, $16.6 million in cash and
approximately $4.9 million in repayment of SBS debt. Netzee recorded the
purchase price at the net shares issued of 2,150,000, valued at $11.50 per
share and the cash purchase price of $21.5 million. SBS has the right to
put the shares of stock back to Netzee at $11.50 per share if an initial
public offering is not completed by August 6, 2001. Netzee obtained the
$21.5 million in cash through a promissory note to InterCept. The note
currently bears an interest rate of 10.00% payable quarterly with the first
installment due on October 1, 1999. The excess of the purchase price over
net tangible assets was allocated to the following identifiable intangible
assets with the following amortization lives:
<TABLE>
<S> <C> <C>
Workforce $ 440,000 3 years
Contracts in process $ 1,340,000 4 years
Acquired technology $44,402,000 3 years
</TABLE>
(b) The issuance of common stock and stock options and the recording of
intangible assets associated with the acquisition of the Internet banking
divisions of TIB and The Bankers Bank. The purchase price included
2,722,000 shares of common stock valued at $11.50 per share, options to
purchase 50,000 shares of common stock granted to management of TIB and The
Bankers Bank and 76,000 shares of stock sold to a third party for $100,000.
The options were issued to individuals who were members of management of
TIB and The Bankers Bank who would not continue to be employees of Netzee
after the acquisition. The value of these options was calculated to be
approximately $575,000. As part of the acquisition of TIB and The Bankers
Bank, Netzee allowed the third party to purchase 76,000 shares of common
stock for $100,000. The $774,000 difference between the fair value of the
common stock and the price paid has been considered in the above purchase
prices of TIB and The Bankers Bank. The total purchase price was
approximately $32.7 million. The excess of the purchase price over net
tangible assets was allocated to the following identifiable intangible
assets with the following amortization lives:
<TABLE>
<S> <C> <C>
Workforce $ 330,000 3 years
Contracts in process $ 150,000 3 years
Marketing agreement $ 3,056,000 2 years
Acquired technology $27,416,000 3 years
</TABLE>
(c) The issuance of common stock, payment of cash and the recording of
intangible assets associated with the acquisition of Dyad. The purchase
price of Dyad included 618,137 shares of our common stock valued at $11.50
per share and approximately $900,000 in cash. Netzee financed this
acquisition through a promissory note for approximately $4.4 million to
InterCept. The note currently bears an interest rate of 10.25% payable
quarterly with the first installment due October 1, 1999. Netzee used $3.5
million of the proceeds from the note to pay existing debt at Dyad. Prior
to the acquisition, Dyad had outstanding warrants to a financial
institution. Those warrants were exercised prior to the acquisition;
therefore, all historical balances related to the warrants were removed in
the pro forma adjustments. The excess of the purchase price over net
tangible assets was allocated to the following identifiable intangible
assets with the following amortization lives:
<TABLE>
<S> <C> <C>
Workforce $ 70,000 3 years
Acquired technology $13,543,000 3 years
</TABLE>
26
<PAGE>
(d) The payment of cash and the recording of intangible assets
associated with the acquisition of Call Me Bill. The purchase price of Call
Me Bill was approximately $3.3 million in cash. Netzee obtained most of the
cash by issuing a promissory note to InterCept. The note currently bears an
interest rate of 10.25% payable quarterly with the first installment due on
October 1, 1999. The excess of the purchase price over net assets acquired
was allocated to goodwill and acquired technology and will be amortized
over three years.
(e) This adjustment removes the payable to TIB from the Bankers Bank
and the related receivable from The Bankers Bank. A third party provides
conversion services for implementation of the Internet banking system to
The Bankers Bank's customers. Fees for conversion services historically
were billed and paid through TIB.
(f) The issuance of stock subscriptions to management and a director
for 1,555,000 shares of common stock for full recourse notes payable of
approximately $3.1 million bearing interest at 7% per annum.
(g) The exercise of options to purchase 30,000 shares of common stock
by a member of management for a full recourse note payable of approximately
$93,300 bearing interest at 7% per annum.
(h) The sale of 128,617 shares of common stock to three bankers' banks
on September 10, 1999 for $500,000 or $3.11 per share. The difference
between the price paid per share of $3.11 and the fair value per share of
$11.50 is recorded as an intangible asset of approximately $1.1 million
that will be amortized over the two-year life of the marketing agreements
entered into with the three bankers' banks.
(i) The sale of 85,000 shares of common stock to an employee for
$85,000. The difference between the price paid of $1.00 per share and the
fair value of $11.50 per share is reflected as compensation expense.
(j) The recording of deferred compensation of approximately $11.4
million recorded on options issued in August and September 1999 at below
fair market value.
The unaudited pro forma statements of operations for the six months
ended June 30, 1999 and the year ended December 31, 1998 reflect the
following adjustments as if they occurred on January 1, 1998 and are based
on the historical statements of operations, adjusted to reflect the
following:
(k) The additional amortization of the intangible assets recognized
upon the acquisition of Direct Access Interactive, Inc. of $103,000 for the
six months ended June 30, 1999 and $620,000 for the year ended December 31,
1998.
(l) The additional amortization of the intangible assets recognized
upon the acquisition of SBS of approximately $7.6 million for the six
months ended June 30, 1999 and approximately $15.3 million for the year
ended December 31, 1998. Amortization expense was calculated on a straight
line basis over the estimated useful lives of the intangible assets
acquired discussed in (a).
(m) The additional amortization of the intangible assets recognized
upon the acquisition of TIB and The Bankers Bank, of approximately
$5.4 million for the six months ended June 30, 1999 and approximately
$10.8 million for the year ended December 31, 1998. Amortization expense
was calculated on a straight line basis over the estimated useful lives of
the intangible assets acquired discussed in (b).
(n) The additional amortization of the intangible assets recognized
upon the acquisition of Dyad of approximately $2.3 million for the six
months ended June 30, 1999 and approximately $4.5 million for the year
ended December 31, 1998. Amortization expense was calculated on a straight-
line basis over the estimated useful lives of the intangible assets
acquired discussed in (c).
27
<PAGE>
(o) The additional amortization of the intangible assets recognized
upon the acquisition of Call Me Bill of approximately $554,000 for the six
months ended June 30, 1999 and approximately $1.1 million for the year
ended December 31, 1998. Amortization expense was calculated on a straight-
line basis over the estimated useful lives of the intangible assets
acquired discussed in (d).
(p) The additional interest expense on the promissory note to InterCept
to acquire SBS of approximately $1.1 million for the six months ended June
30, 1999 and approximately $2.2 million for the year ended December 31,
1998.
(q) The additional interest expense on the promissory note to InterCept
to acquire Call Me Bill of approximately $148,000 for the six months ended
June 30, 1999 and approximately $295,000 for the year ended December 31,
1998.
(r) The additional interest expense on the promissory note to InterCept
to acquire Dyad of approximately $225,000 for the six months ended June 30,
1999 and approximately $451,000 for the year ended December 31, 1998.
(s) The elimination of the interest expense on the warrants and the
debt at Dyad of approximately $906,000 for the six months ended June 30,
1999 and $1.7 million for the year ended December 31, 1998.
(t) The elimination of revenue of TIB from The Bankers Bank and the
related expense of The Bankers Bank for the conversion services billed and
paid through TIB as discussed in (e).
(u) The elimination of a $40,000 fee The Bankers Bank paid to TIB for
the right to share outsourced financial institution customer date
conversion services.
(v) The additional interest on the notes payable related to the
subscriptions receivable and the exercise of options from management of
approximately $112,000 for the six months ended June 30, 1999 and
approximately $224,000 for the year ended December 31, 1998.
(w) The additional amortization on the intangible asset for the
marketing agreement entered into with the three bankers' banks of
approximately $270,000 for the six months ended June 30, 1999 and
approximately $540,000 for the year ended December 31, 1998.
(x) The amortization of deferred compensation related to the issuance
of stock options of approximately $1.9 million for the six months ended
June 30, 1999 and approximately $3.8 million for the year ended December
31, 1998.
(y) The recording of stock compensation expense related to the sale of
common stock to an employee of approximately $893,000 for the six months
ended June 30, 1999 and the year ended December 31, 1998.
28
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth selected historical and pro forma financial
information for Netzee. The selected historical financial information prior to
February 28, 1999 reflects the financial position and results of operations of
our predecessor, Direct Access Interactive, Inc., which was formed in October
1996. We acquired Direct Access Interactive on March 9, 1999; however, the
financial information below is presented as if the acquisition occurred on
February 28, 1999. The activity between March 1, 1999 and March 9, 1999 was
immaterial. The purchase method of accounting was used to record the assets and
liabilities of Direct Access Interactive. The financial information of our
predecessor on or before February 28, 1999 is not comparable in all material
respects with our financial information after February 28, 1999.
The selected historical financial information as of December 31, 1997 and
1998 and for the period from inception (October 10, 1996) to December 31, 1996
and for the years ended December 31, 1996, 1997 and 1998 have been derived from
our financial statements included in this prospectus, which have been audited
by Arthur Andersen LLP, independent public accountants. The selected historical
financial information as of December 31, 1996 has been derived from our
unaudited financial statements that are not included in this prospectus. The
selected historical financial information as of June 30, 1999 and for the six
months ended June 30, 1998, for the period from January 1, 1999 to February 28,
1999 and for the period from March 1, 1999 to June 30, 1999, have been derived
from our unaudited financial statements included in this prospectus and, in the
opinion of management, include all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the information.
Operating results for the six months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the entire fiscal year. The
selected historical and pro forma financial information is qualified by
reference to, and should be read in conjunction with, our financial statements
and the notes to the financial statements, including the unaudited pro forma
financial information, included in this prospectus, as well as "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The pro forma statements of operations and balance sheet information reflect
the following as if all of these transactions had occurred on June 30, 1999 or
at the beginning of the periods presented:
. the acquisitions in the third quarter of 1999 of Call Me Bill, Dyad, the
remote banking operations of SBS and the Internet banking divisions of
each of TIB and The Bankers Bank;
. the acquisition of Direct Access Interactive, Inc. in the first quarter
of 1999;
. the stock subscriptions to management and a director entered into on
July 1, 1999 for 1,555,000 shares;
. the exercise of stock options for 30,000 shares of common stock by a
member of management on August 9, 1999;
. the sale of 128,617 shares of common stock to three bankers' banks on
September 10, 1999;
. the sale of 85,000 shares of common stock on September 3, 1999; and
. the deferred compensation of $11.4 million to be recorded on the options
issued in August and September 1999.
The pro forma financial information does not represent what our results of
operations would have been if the transactions had occurred on that date, nor
does it indicate our future financial position or results of future operations.
The pro forma adjustments are based on currently available information and
certain assumptions that we believe are reasonable.
29
<PAGE>
<TABLE>
<CAPTION>
Predecessor
----------------------------------------------------------------------------
For the period For the year ended
from Inception December 31, For the six For the period
(October 10, 1996) ------------------------- months ended from January 1,
to Pro forma June 30, 1999 to
December 31, 1996 1997 1998 1998 1998 February 28, 1999
------------------ ------ ------ --------- ------------ -----------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
License,
hardware and
implementation.. $ 41 $ 583 $ 455 $ 2,651 $ 152 $ 57
Monthly
maintenance and
service........ 4 59 136 410 58 33
------ ------ ------ -------- ------ ------
Total
revenues....... 45 642 591 3,061 210 90
Operating
expenses:
Costs of
license,
hardware,
implementation,
maintenance and
service........ 50 422 466 1,610 206 44
Selling, general
and
administrative
expenses....... 48 308 442 4,869 225 62
Asset
impairment..... -- -- -- 143 -- --
Stock
compensation
expense........ -- -- -- 4,692 -- --
Amortization
from
acquisition
intangibles.... -- -- -- 32,916 -- --
Depreciation and
amortization... 2 11 15 229 7 2
------ ------ ------ -------- ------ ------
Total operating
expenses....... 100 741 923 44,459 438 108
------ ------ ------ -------- ------ ------
Operating loss... (55) (99) (332) (41,398) (228) (18)
Other income..... -- -- -- 302 -- --
Interest expense,
net............. -- -- (20) 2,694 (13) (4)
------ ------ ------ -------- ------ ------
Net loss......... $ (55) $ (99) $ (352) $(43,790) $ (241) $ (22)
====== ====== ====== ======== ====== ======
Basic and diluted
net loss per
share........... $(0.03) $(0.05) $(0.18) $(0.12) $(0.01)
====== ====== ====== ====== ======
Weighted average
common shares
outstanding..... 2,000 2,000 2,000 2,000 2,000
====== ====== ====== ====== ======
Pro forma basic
and diluted net
loss per share.. $ (2.84)
========
Pro forma
weighted average
common shares
outstanding..... 15,396
- --------------------------------------------------
========
<CAPTION>
Pro forma
For the period for the six
from March 1, months ended
1999 to June 30,
June 30, 1999 1999
-------------- ------------
<S> <C> <C>
Statement of Operations Data:
Revenues:
License,
hardware and
implementation.. $ 164 $ 1,695
Monthly
maintenance and
service........ 86 398
-------------- ------------
Total
revenues....... 250 2,093
Operating
expenses:
Costs of
license,
hardware,
implementation,
maintenance and
service........ 127 757
Selling, general
and
administrative
expenses....... 264 2,847
Asset
impairment..... -- --
Stock
compensation
expense........ -- 2,793
Amortization
from
acquisition
intangibles.... -- 16,389
Depreciation and
amortization... 193 155
-------------- ------------
Total operating
expenses....... 584 22,941
-------------- ------------
Operating loss... (334) (20,848)
Other income..... -- 164
Interest expense,
net............. -- 1,341
-------------- ------------
Net loss......... $ (334) $(22,025)
============== ============
Basic and diluted
net loss per
share........... $(0.04)
==============
Weighted average
common shares
outstanding..... 8,000
==============
Pro forma basic
and diluted net
loss per share.. $ (1.43)
============
Pro forma
weighted average
common shares
outstanding..... 15,396
- --------------------------------------------------
============
</TABLE>
<TABLE>
<CAPTION>
Predecessor
------------------
December 31, Pro forma
------------------ June 30, June 30,
1996 1997 1998 1999 1999
---- ----- ----- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash.................................. $ 13 $ 28 $ 14 $ -- $ 939
Working capital ...................... (53) (94) (499) 25 193
Total assets.......................... 72 88 94 2,699 103,200
Long-term debt, net of current
maturities........................... -- -- -- 750 29,566
Redeemable common stock............... -- -- -- -- 29,900
Total shareholders' (deficit) equity.. (4) (103) (455) 1,833 40,544
</TABLE>
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our financial
statements and related notes and other financial information included elsewhere
in this prospectus. This discussion contains forward-looking statements related
to such matters as our future financial performance, business strategy and
financing plans that involve risks and uncertainties. Our actual results could
differ materially from the results anticipated in these forward-looking
statements as a result of many known and unknown factors, including those under
"Risk Factors" and elsewhere in this prospectus.
Overview
Netzee is a rapidly growing provider of integrated Internet banking products
and services and e-commerce solutions to community financial institutions. We
provide cost-effective, outsourced, secure and scalable solutions that enable
community financial institutions to offer to their customers a wide array of
financial products and services over the Internet. As of September 3, 1999,
Netzee had contractual relationships to provide Internet banking products and
services to 288 community financial institutions and to provide telephone
banking products and services to approximately 400 community financial
institutions.
The following discussion of our results of operations includes the results
of our predecessor, Direct Access Interactive, for the periods prior to
March 9, 1999.
During the third quarter of 1999, we completed a series of acquisitions to
provide us with additional strategic marketing partners and complementary
products and services to integrate into our Internet banking operations. On
August 6, 1999, we acquired the remote banking operations of SBS Corporation.
These operations provided us with more customers, additional strategic
marketing partners and our Banking on Main Street(TM) e-commerce software.
On September 3, 1999 we acquired the Internet banking divisions of TIB and
The Bankers Bank, which provided us with strategic marketing access to
approximately 1,300 community financial institution customers of these two
bankers' banks, as well as business cash management software that we have added
to our suite of products and services. Also on September 3, 1999, we acquired
Call Me Bill, LLC and Dyad Corporation. Call Me Bill provides electronic bill
payment services and Dyad provides loan application, procurement and
fulfillment software. We are integrating the products of both Call Me Bill and
Dyad into our Internet banking system. We refer to Call Me Bill, Dyad, the
remote banking operations of SBS and the Internet banking divisions of the two
bankers' banks as the Acquired Companies.
We have accounted for all of our acquisitions to date using the purchase
method of accounting. Because the acquisitions occurred in the third quarter of
1999, the discussion below of our results of operations is presented (1) on a
combined basis for us and each Acquired Company, including a discussion of us
and each Acquired Company on a stand-alone basis, for the years ended December
31, 1997 and 1998 and for the six months ended June 30, 1998 and 1999 and (2)
for us on a stand-alone basis for the years ended December 31, 1996 and 1997.
The only differences between the following presentation of combined operations
and a pro forma presentation relate to increased amortization of the intangible
assets acquired and the additional interest expense on our promissory notes
payable to InterCept. These items are discussed in "--Results of Operations for
Netzee and the Acquired Companies" and "--Liquidity and Capital Resources"
below.
Although we and the Acquired Companies, on a combined basis, have
experienced significant growth in customers and revenues, we and the Acquired
Companies have incurred substantial operating losses and negative cash flows
from operations on a combined basis, and we expect to continue to incur
substantial operating losses and negative cash flows for the foreseeable
future. We and the Acquired Companies incurred net losses on a combined basis
of approximately $5.2 million for the year ended December 31, 1998 and
approximately $2.5 million for the six months ended June 30, 1999.
31
<PAGE>
We have historically derived our revenues from software license, hardware
and implementation fees for our Internet and telephone banking products and
services. All of these fees are paid by the community financial institutions to
us rather than by their customers. Historically, we and the Acquired Companies
have recognized software license, hardware and implementation fees upon the
installation of our products and we recognize our revenues from maintenance and
service on a monthly basis as the services are provided.
We are currently changing our pricing policies for our existing products and
services. We have also modified the pricing policies of the Acquired Companies
to match more closely our new pricing policies. These pricing policies are
summarized as follows:
Internet Banking. We do not currently intend to charge an upfront
implementation fee. Depending on the number of Internet services purchased
by the community financial institution, we will charge the community
financial institution a fixed monthly fee, plus variable fees that are
based on the number of end users and the number of transactions. We
generally provide our Internet banking products and services under
contracts with terms ranging from three to five years.
Telephone Banking. We intend to continue charging community financial
institutions a fixed monthly fee for providing telephone banking product,
but do not intend to charge an up-front fee. We do not charge additional
fees based on the number of financial institution customers who actually
use the telephone banking product we provide.
As a result of these new pricing policies, we believe that recurring monthly
maintenance and service fees will constitute a significantly greater percentage
of total revenues in the future. Furthermore, we believe that Internet banking
products and services and e-commerce solutions will comprise a significantly
greater percentage of our total revenues in the future and that Internet
telephone banking products will continue to decrease as a percentage of total
revenues.
Our cost of license, hardware, implementation, maintenance and service is
comprised of the initial equipment and personnel costs required to implement
Internet and telephone banking for the community financial institution, as well
as the ongoing personnel and system maintenance costs associated with our data
center and the amortization of capitalized software development costs.
Selling, general and administrative expenses include marketing expenses,
sales commissions, employee compensation and benefits, and general office
expenses incurred in the ordinary course of business. Historically we and the
Acquired Companies paid commissions to sales personnel based on products and
services sold.
Depreciation and amortization consists of depreciation of property and
equipment and amortization of intangible assets. Amortization expense will
increase significantly in future periods due to amortization of intangibles
resulting from purchase accounting adjustments for the Acquired Companies.
In July, August and September 1999, we granted options to purchase 1,876,500
shares of common stock to employees, directors and consultants at exercise
prices below fair market value on the date of grant. The deferred compensation
of approximately $11.4 million was recorded as an increase in additional paid
in capital that will be amortized to expense over the vesting period of the
options, generally three years. The vesting of options to purchase 310,000
shares of common stock will accelerate upon an initial public offering.
In the future, we intend to continue to use our internal sales force to
generate new customers. We also have entered into or intend to enter into
additional strategic marketing alliances with partners who will co-market our
products and services to their customer base. We will pay a commission to these
strategic alliance partners based upon the number of new financial institution
customers that they refer to us. We will also pay our strategic alliance
partners a lower commission based upon the number of new financial institution
customers that are located in the partners' specific geographic regions.
32
<PAGE>
Results of Operations for Netzee and the Acquired Companies
The following table sets forth the combined results of our operations and
the operations of the Acquired Companies for the years ended December 31, 1997
and 1998 and for the six months ended June 30, 1998 and 1999. The combined
operating results of us and the Acquired Companies for the periods presented
below are not necessarily indicative of our future results.
<TABLE>
<CAPTION>
Historical Unaudited
Combined Financial Information
----------------------------------------------------
Year Ended December 31, Six Months Ended June 30,
------------------------ --------------------------
1997 1998 1998 1999
----------- ----------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Internet banking:
License, hardware and
implementation......... $ 177 $ 721 $ 367 $ 930
Monthly maintenance and
service................ -- 239 48 299
----------- ----------- ------------ ------------
Total Internet
banking revenues.... 177 960 415 1,229
----------- ----------- ------------ ------------
Telephone banking:
License, hardware and
implementation......... 1,604 1,513 539 777
Monthly maintenance and
service................ 63 138 67 92
----------- ----------- ------------ ------------
Total telephone
banking revenues.... 1,667 1,651 606 869
----------- ----------- ------------ ------------
Other.................... 534 505 184 103
----------- ----------- ------------ ------------
Total revenues........... 2,378 3,116 1,205 2,201
Operating expenses:
Cost of license,
hardware,
implementation,
maintenance and service
....................... 1,059 1,703 639 866
Selling, general and
administrative
expenses............... 3,398 4,871 2,185 2,847
Depreciation and
amortization........... 206 228 98 292
Asset impairment........ -- 143 -- --
----------- ----------- ------------ ------------
Total operating
expenses............ 4,663 6,945 2,923 4,005
----------- ----------- ------------ ------------
Operating loss.......... (2,285) (3,829) (1,718) (1,804)
Other income, net........ 49 342 57 165
Interest expense, net.... 90 1,698 855 909
----------- ----------- ------------ ------------
Net loss................. $ (2,326) $ (5,185) $ (2,516) $(2,548)
=========== =========== ============ ============
</TABLE>
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1999 for
Netzee and the Acquired Companies
Revenues
Total combined revenues increased approximately $996,000 or 82.7% from
approximately $1.2 million for the six months ended June 30, 1998 to
approximately $2.2 million for the six months ended June 30, 1999. This
increase consisted of an increase of approximately $801,000 in combined
license, hardware and implementation revenues, an increase of approximately
$276,000 in combined monthly maintenance and service revenues and a decrease in
other revenue of approximately $81,000.
Internet Banking. Total combined Internet banking revenues increased
from approximately $415,000 for the six months ended June 30, 1998 to
approximately $1.2 million for the six months ended June 30, 1999. Total
combined Internet banking license, hardware and implementation revenues
increased from approximately $367,000 for the six months ended June 30,
1998 to approximately $930,000 for the
33
<PAGE>
six months ended June 30, 1999. The increase was due to an increase in
sales of Internet banking products and services to 18 new community
financial institution customers for the six months ended June 30, 1998 as
compared to 84 new community financial institution customers for the six
months ended June 30, 1999. Total combined monthly maintenance and service
revenues increased from approximately $48,000 for the six months ended June
30, 1998 to approximately $299,000 for the six months ended June 30, 1999.
This increase was due to providing monthly maintenance and service to six
customers for the six months ended June 30, 1998 as compared to 109
customers for the six months ended June 30, 1999.
Telephone Banking. Total combined telephone banking revenues increased
from approximately $606,000 for the six months ended June 30, 1998 to
approximately $869,000 for the six months ended June 30, 1999. Total
combined telephone banking license, hardware and implementation revenues
increased from approximately $539,000 for the six months ended June 30,
1998 to approximately $777,000 for the six months ended June 30, 1999. The
increase was due to an increase in sales of telephone banking products to
38 new community financial institution customers for the six months ended
June 30, 1998 as compared to 72 new community financial institution
customers for the six months ended June 30, 1999. Total combined monthly
maintenance and service revenues increased from approximately $67,000 for
the six months ended June 30, 1998 to approximately $92,000 for the six
months ended June 30, 1999. This increase was due to providing monthly
maintenance and service to 98 customers for the six months ended June 30,
1998 as compared to 193 customers for the six months ended June 30, 1999.
The sources of the changes are summarized as follows:
Netzee. Total revenues increased from approximately $210,000 for the six
months ended June 30, 1998 to approximately $341,000 for the six months
ended June 30, 1999. The sources of the increase are summarized below:
Internet Banking. Netzee began selling Internet banking products and
services in the second half of 1998. Internet banking revenues were
approximately $54,000 for the six months ended June 30, 1999. Internet
banking license, hardware and implementation revenues were
approximately $18,000 for the six months ended June 30, 1999. Monthly
maintenance and service revenues were approximately $36,000 for the six
months ended June 30, 1999.
Telephone Banking. Telephone banking revenues increased from
approximately $210,000 for the six months ended June 30, 1998 to
approximately $287,000 for the six months ended June 30, 1999.
Telephone banking license, hardware and implementation revenues
increased from approximately $152,000 for the six months ended June 30,
1998 to approximately $204,000 for the six months ended June 30, 1999.
The increase was due to an increase in sales of telephone banking
products to 13 new community financial institution customers for the
six months ended June 30, 1998 as compared to 15 new community
financial institution customers for the six months ended June 30, 1999.
Telephone banking monthly maintenance and service revenues increased
from approximately $58,000 for the six months ended June 30, 1998 to
approximately $83,000 for the six months ended June 30, 1999. This
increase was due to providing monthly maintenance and service to 95
customers for the six months ended June 30, 1998 as compared to 136
customers for the six months ended June 30, 1999.
SBS Remote Banking Operations. Total revenues increased from
approximately $543,000 for the six months ended June 30, 1998 to
approximately $1.0 million for the six months ended June 30, 1999. The
sources of the increase are summarized below:
Internet Banking. Internet banking revenues increased from
approximately $160,000 for the six months ended June 30, 1998 to
approximately $455,000 for the six months ended June 30, 1999. Internet
banking license, hardware and implementation revenues increased from
approximately
34
<PAGE>
$160,000 for the six months ended June 30, 1998 to approximately
$431,000 for the six months ended June 30, 1999. The increase was due
to an increase in sales of Internet banking products and services to 12
new community financial institution customers for the six months ended
June 30, 1998 as compared to 18 new community financial institution
customers for the six months ended June 30, 1999. There were no monthly
maintenance and service revenues for the six months ended June 30,
1998. Monthly maintenance and service revenues were approximately
$24,000 for the six months ended June 30, 1999. We provided monthly
maintenance and service to 10 customers for the six months ended
June 30, 1999.
Telephone Banking. Telephone banking license, hardware and
implementation revenues increased from approximately $383,000 for the
six months ended June 30, 1998 to approximately $566,000 for the six
months ended June 30, 1999. The increase was due to decrease in sales
of telephone banking products to 24 new community financial institution
customers for the six months ended June 30, 1998 as compared to 15 new
community financial institution customers for the six months ended June
30, 1999 offset by an increase in recurring license fees from customers
continuing services from prior periods. There were no monthly
maintenance and services revenues for the six months ended June 30,
1998 and 1999.
Internet Banking Divisions of TIB and The Bankers Bank. Total revenues
increased from approximately $255,000 for the six months ended June 30,
1998 to approximately $572,000 for the six months ended June 30, 1999. TIB
and The Bankers Bank did not provide telephone banking products. Internet
banking license, hardware and implementation revenues increased from
approximately $207,000 for the six months ended June 30, 1998 to
approximately $414,000 for the six months ended June 30, 1999. The increase
was due to an increase in sales of Internet banking products and services
to six new community financial institution customers for the six months
ended June 30, 1998 as compared to 16 new community financial institution
customers for the six months ended June 30, 1999. Monthly maintenance and
service revenues increased from approximately $47,000 for the six months
ended June 30, 1998 to approximately $158,000 for the six months ended June
30, 1999. This increase was due to providing monthly maintenance and
service to six customers for the six months ended June 30, 1998 as compared
to 30 customers for the six months ended June 30, 1999.
Call Me Bill. Total revenues increased from approximately $13,000 for
the six months ended June 30, 1998 to approximately $164,000 for the six
months ended June 30, 1999. The sources of the increase are summarized
below:
Internet Banking. Call Me Bill began selling Internet banking
products and services during the second half of 1998. Internet banking
revenues were approximately $148,000 for the six months ended June 30,
1999. Internet banking license, hardware and implementation revenues
were approximately $66,000 for the six months ended June 30, 1999.
Monthly maintenance and service revenues were approximately $81,000 for
the six months ended June 30, 1999.
Telephone Banking. Telephone banking revenues increased from
approximately $13,000 for the six months ended June 30, 1998 to
approximately $16,000 for the six months ended June 30, 1999. Telephone
banking license, hardware, and implementation revenues increased from
approximately $4,000 for the six months ended June 30, 1998 to
approximately $7,000 for the six months ended June 30, 1999. This
increase was due to implementations of Internet banking products and
services for one new community financial institution customer during
the six months ended June 30, 1998 as compared to implementations of
Internet banking products and services for 42 new community financial
institution customers during the six months ended June 30, 1999.
Telephone banking monthly maintenance and service revenues were
approximately $9,000 for the six months ended June 30, 1998 and for the
six months ended June 30, 1999. In July 1998, Call Me Bill began
selling Internet banking products and services, with telephone banking
capabilities. The customers who contracted for the Internet banking
products and services primarily utilized the Internet related aspects
of the products, and therefore, the portions of telephone banking
license, hardware, and
35
<PAGE>
implementation revenues and monthly maintenance services revenue for
telephone banking products were minimal.
Dyad. Total revenues decreased from approximately $184,000 for the six
months ended June 30, 1998 to approximately $103,000 for the six months
ended June 30, 1999. The decrease was due primarily to a decrease in
equipment and hardware sales. We do not anticipate that the hardware and
equipment sales associated with the non-Internet banking services
historically sold by Dyad will continue in the future.
Cost of license, hardware, implementation, maintenance and service
Total combined cost of license, hardware, implementation, maintenance and
service increased approximately $227,000 or 35.5% from approximately $639,000
for the six months ended June 30, 1998 to approximately $866,000 for the six
months ended June 30, 1999. The sources of the increase are summarized as
follows:
Netzee. The cost of license, hardware, implementation, maintenance and
service decreased from approximately $206,000 for the six months ended June
30, 1998 to approximately $171,000 for the six months ended June 30, 1999.
The decrease was due to a reduction in the labor force utilized to provide
implementation and maintenance services, coupled with lower hardware costs
experienced during the six months ended June 30, 1999. Additionally, Netzee
began selling Internet banking products and services in the second half of
1998. Netzee was paid a monthly maintenance and service fee by 95 customers
during the six months ended June 30, 1998 increasing to 136 customers
during the six months ended June 30, 1999.
SBS Remote Banking Operations. The cost of license, hardware,
implementation, maintenance and service decreased from approximately
$141,000 for the six months ended June 30, 1998 to approximately $134,000
for the six months ended June 30, 1999. The decrease was due to
implementations of Internet banking products and services for 12 new
community financial institution customers and telephone banking products
and services for 24 new community financial institution customers during
the six months ended June 30, 1998 as compared to implementations of
Internet banking products and services for 18 new community financial
institution customers and telephone banking products and services for 15
new community financial institution customers during the six months ended
June 30, 1999. SBS also provided monthly maintenance and service to 10
customers during the six months ended June 30, 1999.
Internet Banking Divisions of TIB and The Bankers Bank. The cost of
license, hardware, implementation, maintenance and service increased from
approximately $188,000 for the six months ended June 30, 1998 to
approximately $482,000 for the six months ended June 30, 1999 due to an
increase in implementations of Internet banking products and services to
six new community financial institution customers during the six months
ended June 30, 1998 compared to 16 new community financial institution
customers during the six months ended June 30, 1999. TIB and The Bankers
Bank also provided monthly maintenance and service to six customers during
the six months ended June 30, 1998 compared to 30 customers during the six
months ended June 30, 1999.
Call Me Bill. The cost of license, hardware, implementation, maintenance
and service increased from approximately $7,000 for the six months ended
June 30, 1998 to approximately $24,000 for the six months ended June 30,
1999. The increase was due to sales of bill payment services to one new
community financial institution customer during the six months ended June
30, 1998 as compared to sales of bill payment services to 42 new community
financial institution customers during the six months ended June 30, 1999.
Call Me Bill provided monthly maintenance and service to one customer
during the six months ended June 30, 1998 compared to 57 customers during
the six months ended June 30, 1999.
Dyad. The cost of license, hardware, implementation, maintenance and
service decreased from approximately $97,000 for the six months ended
June 30, 1998 to $55,000 for the six months ended June 30, 1999. This
decrease was due primarily to a decrease in equipment and hardware sales.
36
<PAGE>
Selling, general and administrative expenses
Total combined selling, general and administrative expenses increased
approximately $661,000 or 30.2% from approximately $2.2 million for the six
months ended June 30, 1998 to approximately $2.8 million for the six months
ended June 30, 1999. The sources of the increase are summarized as follows:
Netzee. Selling, general and administrative expenses increased from
approximately $225,000 for the six months ended June 30, 1998 to
approximately $326,000 for the six months ended June 30, 1999. The increase
was due primarily to an increase in sales personnel and associated sales
commissions, as well as an increase in rent expense during the six months
ended June 30, 1999.
SBS Remote Banking Operations. Selling, general and administrative
expenses increased from approximately $600,000 for the six months ended
June 30, 1998 to approximately $1.1 million for the six months ended June
30, 1999. The increase was due primarily to increased sales and other
personnel.
Internet Banking Divisions of TIB and The Bankers Bank. Selling, general
and administrative expenses increased from approximately $343,000 for the
six months ended June 30, 1998 to approximately $692,000 for the six months
ended June 30, 1999. The increase was due primarily to increases in overall
business and operating activities and an increase in the number of
employees.
Call Me Bill. Selling, general and administrative expenses increased
from approximately $150,000 for the six months ended June 30, 1998 to
approximately $335,000 for the six months ended June 30, 1999. The increase
was due primarily to the increased customer base and increased business
activity.
Dyad. Selling, general and administrative expenses decreased from
approximately $867,000 for the six months ended June 30, 1998 to
approximately $423,000 for the six months ended June 30, 1999. The decrease
was due primarily to the closing of certain offices and the related
decrease in personnel.
Depreciation and amortization
Total combined depreciation and amortization increased approximately
$194,000 or 198.0% from approximately $98,000 for the six months ended June 30,
1998 to approximately $292,000 for the six months ended June 30, 1999. This
increase was due primarily to the amortization of the intangible assets from
the acquisition of Direct Access Interactive by Netzee.
Interest expense, net
Total combined net interest expense increased approximately $54,000 or 6.3%
from approximately $855,000 for the six months ended June 30, 1998 to
approximately $909,000 for the six months ended June 30, 1999. The increase was
due primarily to additional debt incurred by Dyad during the six months ended
June 30, 1999.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1998 for
Netzee and the Acquired Companies
Revenues
Total combined revenues increased approximately $738,000 or 31.0% from
approximately $2.4 million for the year ended December 31, 1997 to
approximately $3.1 million for the year ended December 31, 1998. This increase
was comprised of an increase of approximately $453,000 in combined license,
hardware and implementation revenues, an increase of approximately $314,000 in
combined monthly maintenance and service revenues and a decrease in other
revenues of approximately $29,000.
Internet Banking. Total combined Internet banking revenues increased
from approximately $177,000 for the year ended December 31, 1997 to
approximately $1.0 million for the year ended December 31, 1998. Total
combined Internet banking license, hardware and implementation revenues
37
<PAGE>
increased from approximately $177,000 for the year ended December 31, 1997
to approximately $721,000 for the year ended December 31, 1998. The
increase was due to an increase in sales of Internet banking products and
services to 28 new community financial institution customers for the year
ended December 31, 1997 as compared to 76 new community financial
institution customers for the year ended December 31, 1998. We had no
monthly maintenance and service revenues for the year ended December 31,
1997. Total combined monthly maintenance and service revenues were
approximately $239,000 from 45 customers for the year ended December 31,
1998.
Telephone Banking. Total combined telephone banking revenues were
approximately $1.7 million for the year ended December 31, 1997 and for the
year ended December 31, 1998. Total combined telephone banking license,
hardware and implementation revenues decreased from approximately
$1.6 million for the year ended December 31, 1997 to approximately
$1.5 million for the year ended December 31, 1998. The decrease was due to
a decrease in sales of our telephone banking product from 104 new community
financial institution customers for the year ended December 31, 1997 as
compared to 103 new community financial institution customers for the year
ended December 31, 1998. Total combined monthly maintenance and service
revenues increased from approximately $63,000 for the year ended December
31, 1997 to approximately $138,000 for the year ended December 31, 1998.
This increase was due to providing monthly maintenance and service to two
customers for the year ended December 31, 1997 as compared to 17 customers
for the year ended December 31, 1998.
The sources of the changes are summarized as follows:
Netzee. Total revenues decreased from approximately $642,000 for the
year ended December 31, 1997 to approximately $591,000 for the year ended
December 31, 1998. The sources of the decrease are summarized below:
Internet Banking. Netzee began selling Internet banking products and
services in 1998 with sales to four new community financial institution
customers. Internet banking revenues were approximately $24,000 for the
year ended December 31, 1998. Internet banking license, hardware and
implementation revenues were approximately $15,000 for the year ended
December 31, 1998, while Internet banking monthly maintenance and
service revenues were approximately $9,000 for the year ended December
31, 1998.
Telephone Banking. Telephone banking revenues decreased from
approximately $642,000 for the year ended December 31, 1997 to
approximately $567,000 for the year ended December 31, 1998. Telephone
banking license, hardware and implementation revenues decreased from
approximately $583,000 for the year ended December 31, 1997 to
approximately $440,000 for the year ended December 31, 1998. The
decrease was due to a decrease in sales of our telephone banking
product to 49 new community financial institution customers for the
year ended December 31, 1997 as compared to 39 new community financial
institution customers for the year ended December 31, 1998. Telephone
banking monthly maintenance and service revenues increased from
approximately $59,000 for the year ended December 31, 1997 to
approximately $127,000 for the year ended December 31, 1998. This
increase was due to providing monthly maintenance and service to 82
customers for the year ended December 31, 1997 as compared to 121
customers for the year ended December 31, 1998.
SBS Remote Banking Operations. Total revenues increased from
approximately $1.2 million for the year ended December 31, 1997 to
approximately $1.4 million for the year ended December 31, 1998. The
sources of the increase are summarized below:
Internet Banking. Internet banking revenues increased from
approximately $177,000 for the year ended December 31, 1997 to
approximately $381,000 for the year ended December 31, 1998. Internet
banking license, hardware and implementation revenues increased from
approximately $177,000 for the year ended December 31, 1997 to
approximately $342,000 for the year ended December 31, 1998. The
increase was due to an increase in sales of Internet banking products
and
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services to 28 new community financial institution customers for the
year ended December 31, 1997 as compared to 43 new community financial
institution customers for the year ended December 31, 1998. There were
no monthly maintenance and services revenues for the year ended
December 31, 1997. Monthly maintenance and service revenues were
approximately $39,000 for the year ended December 31, 1998.
Telephone Banking. Telephone banking license, hardware and
implementation revenues increased from approximately $1.0 million for
the year ended December 31, 1997 to approximately $1.1 million for the
year ended December 31, 1998. The increase was due to an increase in
recurring license fees from customers continuing services from prior
periods. There were no monthly maintenance and services revenues for
the year ended December 31, 1997 or for the year ended December 31,
1998.
Internet Banking Divisions of TIB and The Bankers Bank. The Internet
banking divisions of TIB and The Bankers Bank began selling Internet
banking products and services in 1998. Total revenues were approximately
$509,000 for the year ended December 31, 1998. TIB and The Bankers Bank did
not provide telephone banking products or services. Internet banking
license, hardware and implementation revenues were approximately $341,000
for the year ended December 31, 1998, while monthly maintenance and service
revenues were approximately $168,000 for the year ended December 31, 1998.
Call Me Bill. Total revenues increased from approximately $4,000 for the
year ended December 31, 1997 to approximately $62,000 for the year ended
December 31, 1998. The sources of the increase are summarized below:
Internet Banking. Call Me Bill began selling Internet banking
products and services in 1998. Internet banking revenues were
approximately $44,000 for the year ended December 31, 1998. Internet
banking license, hardware and implementation, were approximately
$22,000 for the year ended December 31, 1998. Monthly maintenance and
service revenues were approximately $22,000 for the year ended
December 31, 1998.
Telephone Banking. Telephone banking revenues increased from
approximately $4,000 for the year ended December 31, 1997 to
approximately $18,000 for the year ended December 31, 1998. We had no
telephone banking license, hardware and implementation revenues for the
year ended December 31, 1997. Telephone banking license, hardware and
implementation revenues were approximately $6,000 for the year ended
December 31, 1998 for sales of our telephone banking product to 15 new
community financial institution customers. Monthly maintenance and
service revenues increased from approximately $4,000 for the year ended
December 31, 1997 to approximately $12,000 for the year ended December
31, 1998. This increase was due to providing monthly maintenance and
service to two customers for the year ended December 31, 1997 as
compared to 17 customers for the year ended December 31, 1998.
Dyad. Total revenues decreased from approximately $534,000 for the year
ended December 31, 1997 to approximately $505,000 for the year ended
December 31, 1998. The decrease was due primarily to a decrease in
equipment and hardware sales.
Cost of license, hardware, implementation, maintenance and service
Total combined cost of license, hardware, implementation, maintenance and
service increased approximately $644,000 or 60.8% from approximately
$1.1 million for the year ended December 31, 1997 to approximately $1.7 million
for the year ended December 31, 1998. The sources of the increases are
summarized as follows:
Netzee. The cost of license, hardware, implementation, maintenance and
service increased from approximately $422,000 for the year ended
December 31, 1997 to approximately $466,000 for the year
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<PAGE>
ended December 31, 1998. The increase was primarily due to Netzee providing
monthly maintenance and service to 82 customers for the year ended
December 31, 1997 increasing to 121 customers for the year ended
December 31, 1998. We completed implementations of telephone banking
products for 49 new community financial institution customers for the year
ended December 31, 1997 as compared to implementations for 39 new community
financial institution customers ended December 31, 1998. Additionally, we
began selling Internet banking products and services in the year ended
December 31, 1998 with implementations for four new community financial
institution customers.
SBS Remote Banking Operations. The cost of license, hardware,
implementation, maintenance and service increased from approximately
$234,000 for the year ended December 31, 1997 to approximately $254,000 for
the year ended December 31, 1998. The increase was primarily due to
implementations of Internet banking products and services for 28 new
community financial institution customers and telephone banking products
and services for 53 new community financial institutions in the year ended
December 31, 1997 as compared to implementations of Internet banking
products and services for 43 new community financial institution customers
and telephone banking products for 49 new community financial institution
customers in the year ended December 31, 1998. We had no cost of monthly
maintenance and service to customers in the year ended December 31, 1997.
We provided monthly maintenance and services to ten customers in the year
ended December 31, 1998.
Internet Banking Divisions of TIB and The Bankers Bank. We had no cost
of license, hardware, implementation, maintenance and service for the year
ended December 31, 1997. Cost of license, hardware, implementation,
maintenance and service was approximately $546,000 for the year ended
December 31, 1998. The increase was due to initiation of sales of Internet
banking products and services by TIB and The Bankers Bank in the year ended
December 31, 1998 with implementations for 14 new community financial
institution customers. TIB and The Bankers Bank also provided monthly
maintenance and service to 14 customers in the year ended December 31,
1998.
Call Me Bill. The cost of license, hardware, implementation, maintenance
and service increased from approximately $2,000 for the year ended December
31, 1997 to approximately $28,000 for the year ended December 31, 1998. The
increase was due to sales of bill payment services to two new community
financial institution customers in the year ended December 31, 1997 as
compared to sales of bill payment services to 15 new community financial
institution customers in the year ended December 31, 1998. Call Me Bill
also provided monthly maintenance and service to 2 customers in the year
ended December 31, 1997.
Dyad Corporation. The cost of license, hardware, implementation,
maintenance and services remained constant at approximately $400,000 for
the years ended December 31, 1997 and 1998.
Selling, general and administrative expenses
Total combined selling, general and administrative expenses increased
approximately $1.5 million or 43.4% from $3.4 million for the year ended
December 31, 1997 to approximately $4.9 million for the year ended December 31,
1998. The sources of the increase are summarized as follows:
Netzee. Selling, general and administrative expenses increased from
approximately $308,000 for the year ended December 31, 1997 to
approximately $442,000 for the year ended December 31, 1998. The increase
was due primarily to an increase in sales personnel and associated sales
commissions, as well as an increase in rent expense.
SBS Remote Banking Operations. Selling, general and administrative
expenses increased from approximately $886,000 for the year ended December
31, 1997 to approximately $1.4 million for the year ended December 31,
1998. The increase was due primarily to increased sales and other
personnel.
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Internet Banking Divisions of TIB and The Bankers Bank. Selling, general
and administrative expenses increased from approximately $174,000 for the
year ended December 31, 1997 to approximately $925,000 for the year ended
December 31, 1998. The increase was due primarily to the establishment of
the Internet Banking Division of The Bankers Bank on March 1, 1998,
increases in overall business and operating activities, and an increase in
the number of employees.
Call Me Bill. Selling, general and administrative expenses increased
from approximately $111,000 for the year ended December 31, 1997 to
approximately $378,000 for the year ended December 31, 1998. The increase
was due primarily to operations for a full year in 1998 and increased
business activity.
Dyad. Selling, general and administrative expenses decreased from
approximately $1.9 million for the year ended December 31, 1997 to
approximately $1.7 million for the year ended December 31, 1998. The
decrease was due primarily to the closing of certain offices and the
related decrease in personnel.
Depreciation and amortization
Total combined depreciation and amortization increased approximately $22,000
or 10.7% from approximately $206,000 for the year ended December 31, 1997 to
approximately $228,000 for the year ended December 31, 1998 primarily due to
the increase in depreciation related to new property and equipment purchases.
Interest expense, net
Total combined net interest expense increased approximately $1.6 million
from approximately $90,000 for the year ended December 31, 1997 to
approximately $1.7 million for the year ended December 31, 1998. The primary
reason for the increase in net interest expense was a loan obtained by Dyad in
December 1997.
Results of Operations for Netzee
The following table sets forth our unaudited results of operations on a
stand-alone basis for the years ended December 31, 1996 and 1997. Our operating
results for the periods presented below are not necessarily indicative of
results to be expected for any future period.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1997
----------- -----------
(in thousands)
<S> <C> <C>
Revenues:
License, hardware and implementation............... $ 41 $ 583
Monthly maintenance and service.................... 4 59
----------- -----------
Total revenues................................... 45 642
Operating expenses:
Cost of license, hardware, implementation,
maintenance and service........................... 50 422
Selling, general and administrative expenses....... 48 308
Depreciation and amortization...................... 2 11
----------- -----------
Total operating expenses......................... 100 741
----------- -----------
Operating loss..................................... (55) (99)
Other income, net.................................... -- --
Interest expense, net................................ -- --
----------- -----------
Net loss............................................. $ (55) $ (99)
=========== ===========
</TABLE>
41
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Year Ended December 31, 1996 Compared to Year Ended December 31, 1997 for
Netzee
Revenues
Revenues increased approximately $597,000 or 1,326.7% from approximately
$45,000 for the year ended December 31, 1996 to approximately $642,000 for the
year ended December 31, 1997. License, hardware and implementation revenues
increased from approximately $41,000 for the year ended December 31, 1996 to
approximately $583,000 for the year ended December 31, 1997. The increase was
due to sales of telephone banking products and services to 20 new community
financial institution customers for the year ended December 31, 1996 as
compared to sales to 49 new community financial institution customers for the
year ended December 31, 1997. Monthly maintenance and service revenues
increased from approximately $4,000 for the year ended December 31, 1996 to
approximately $59,000 for the year ended December 31, 1997. The increase was
due to Netzee providing monthly maintenance and service to 33 customers for the
year ended December 31, 1996 increasing to 82 customers for the year ended
December 31, 1997.
Cost of license, hardware, implementation, maintenance and service
Cost of license, hardware, implementation, maintenance and service increased
approximately $372,000 or 744.0% from approximately $50,000 for the year ended
December 31, 1996 to approximately $422,000 for the year ended December 31,
1997. The increase was due to implementations of telephone banking products for
20 new community financial institution customers the year ended December 31,
1996 as compared to implementations for 49 new community financial institution
customers for the year ended December 31, 1997. Netzee was paid monthly
maintenance and service fees by 33 customers for the year ended December 31,
1996 increasing to 82 customers for the year ended December 31, 1997.
Selling, general and administrative expenses
Selling, general and administrative expenses increased approximately
$260,000 or 541.7% from approximately $48,000 for the year ended December 31,
1996 to approximately $308,000 for year ended December 31, 1997. The increase
was due primarily to increases in sales personnel and incurred sales
commissions.
Depreciation and amortization
Depreciation and amortization increased approximately $9,000 or 450.0% from
approximately $2,000 for the year ended December 31, 1996 to approximately
$11,000 for the year ended December 31, 1997. The Company was established in
October 1996, and therefore the first full year that fixed assets were
depreciated was the year ended December 31, 1997.
Liquidity and Capital Resources
Since inception, we have financed our operations through cash flow from
operations and borrowings from InterCept, as discussed below, as well as
through a bank line of credit. We paid the line of credit in full in 1998, and
we currently have no lines of credit or other borrowing arrangements with any
financial institution. As of June 30, 1999, we had no cash and had a working
capital deficit of approximately $1.5 million.
Our operating activities generated cash of approximately $13,000 for the
period from inception (October 10, 1996) to December 31, 1996. Our operating
activities used cash of approximately $33,000 and $226,000 for the years ended
December 31, 1997 and 1998, respectively. Cash used by operating activities in
each of these periods primarily resulted from our net losses, partially offset
by increases in accounts payable, accrued expenses and deferred revenues. Our
operating activities generated cash of approximately $350,000 for the six
months ended June 30, 1999. Cash from operating activities for the six months
ended June 30, 1999 resulted primarily from increases in accounts payable and
accrued expenses.
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Our investing activities used cash of approximately $2,000, $18,000, and
$863,000 for the years ended December 31, 1996 and 1997 and the six months
ended June 30, 1999, respectively. The cash used in investing activities
primarily resulted from the purchase of property and equipment, primarily in
the six months ended June 30, 1999 as we purchased additional computer
equipment for operations. We had no material commitments for capital
expenditures as of June 30, 1999.
Our financing activities generated cash of approximately $50,000, $229,000
and $509,000 for the years ended December 31, 1997 and 1998 and the six months
ended June 30, 1999, respectively. The cash generated by financing activities
during the years ended December 31, 1997 and 1998 resulted primarily from
increased borrowings under the line of credit and loans from shareholders, and
the cash generated by financing activities during the six months ended June 30,
1999 resulted primarily from advances from InterCept, offset by payments of
debt.
Prior to September 3, 1999, we were a majority owned subsidiary of
InterCept, and InterCept financed our working capital and general corporate
requirements. We anticipate that we will have additional working capital needs
to be funded by InterCept of between $4.0 million and $6.1 million from August
31, 1999 to November 30, 1999. InterCept has agreed to loan us additional funds
to the extent necessary to fund our working capital and general corporate
requirements through the completion of this offering. We have not borrowed any
amounts from InterCept on this basis as of September 3, 1999. We anticipate
that InterCept would make any necessary funding available to us on an arm's
length basis.
On August 6, 1999 and September 1, 1999, we entered into three promissory
notes with InterCept for an aggregate principal amount of approximately $28.8
million. We used the proceeds of these three promissory notes to fund our
acquisitions of Call Me Bill, Dyad and SBS. These notes currently bear interest
at a rate of 10.0% and 10.25% per year. Each note matures on the earlier of (1)
two years from the date of the promissory note or (2) the completion of our
initial public offering. We intend to use approximately $28.8 million of the
net proceeds of the offering to pay in full the principal and accrued interest
on these promissory notes, as described further in "Use of Proceeds."
We believe that the net proceeds of this offering will be sufficient to
satisfy our cash requirements for at least the next 12 months. However 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.
Market Risk
Our interest income and expense is sensitive to changes in the general level
of U.S. interest rates. Changes in U.S. interest rates affect the interest that
we earn on our cash equivalents as well as the interest that we incur on our
long-term debt. Based on our cash equivalents balance and level of debt at June
30, 1999, our exposure to interest rate risk is not material. We do not expect
to incur debt after the offering.
We do not currently employ any derivative financial instruments, other
financial instruments or derivative commodity instruments to hedge any market
risks, and we do not currently plan to employ them in the future.
Year 2000 Readiness
The year 2000 issue refers to the problems that may arise from the improper
processing of dates and date-sensitive calculations by computers and embedded
microprocessors as the year 2000 approaches and is reached. These problems
generally arise from the fact that most computer hardware and software
components
43
<PAGE>
historically have been programmed to use only two digits to identify the year
in a date. For example, the computer will recognize a code of "00" as the year
1900 rather than the year 2000.
Our business could suffer if the systems on which we depend to conduct our
operations are not year 2000 ready. Our potential areas of exposure include:
. information technology, including computers, software and systems that
we have developed internally or purchased or licensed from others, such
as our Internet and telephone banking products and services and our
billing and accounts receivable system, and hardware and software that
reside in our data center;
. non-information technology, including telephone, utilities and other
similar systems that we use in our internal operations; and
. third parties' systems, particularly the core processing and interface
systems of our community financial institution customers.
Internet and Telephone Banking Products and Services. We acquired the main
operating systems for our banking products and services with our acquisition of
SBS in August 1999, and these systems now serve as the core systems for all of
the Internet and telephone banking products and services we provide. SBS
completed its own year 2000 compliance program to test the readiness of these
systems and to determine whether these systems would be year 2000 compliant.
Based on the results of these tests, we believe that our core Internet and
telephone banking systems are year 2000 compliant.
As part of the compliance tests, SBS followed the initial date and testing
guidelines mandated for financial institutions, including the following five
phases:
. Awareness. During late 1997, SBS identified potential year 2000 issues.
. Assessment. SBS determined the scope of the year 2000 compliance program
and developed a plan of action.
. Renovation. SBS completed all required programming code changes.
. Validation. SBS tested all renovated hardware and software systems to
verify that they were year 2000 compliant. The upgraded Internet and
telephone banking products and services are specifically designed to be
year 2000 compliant. The year portion of all dates is stored as four
digits instead of two. Because there are no date calculations or date
"roll-overs" in this renovated system, the dates will be correct as long
as the correct dates are passed from our community financial institution
customers.
. Implementation. To maintain the current and future integrity of these
systems, SBS began to proactively educate and communicate with vendors
and customers with respect to their year 2000 readiness.
Additionally, Call Me Bill and the Internet banking operations of TIB and
The Bankers Bank have updated all of their products and services and have
verified them to be year 2000 compliant. Direct Access Interactive's operating
system and hardware is no longer being utilized. Dyad is scheduled for a system
upgrade in December 1999, but there can be no assurances that this upgrade will
be completed before January 1, 2000. Because our Internet and telephone banking
customers do not currently use Dyad's system, a year 2000 failure at Dyad will
not materially affect our operations.
Internal Operations. We have tested the systems and technologies supporting
our internal operations, including computers and related software, and non-
information technology systems, such as security, telephone, heating and air
conditioning equipment. All of these systems and technologies, with the
exception of the Direct Access Interactive operating systems and software, have
been successfully updated to be year 2000 compliant.
44
<PAGE>
The Direct Access Interactive system will be replaced by the SBS operating
system in December 1999. Once this is accomplished, our internal operations
should be substantially year 2000 compliant.
Third Party Compliance. The assessment of external year 2000 readiness is
ongoing, and we have provided each of our customers with a detailed disclosure
explaining our year 2000 strategy. In these disclosures, we emphasized that,
although our internal year 2000 testing appears to be successful, each customer
is responsible for ensuring that its systems are prepared for the event. We did
not solicit reports from our customers detailing their compliance progress;
however, our primary customers are banking institutions. As a result, the
majority of our customers have been subjected to the stringent year 2000
compliance requirements established by Federal and state financial regulatory
agencies. In addition, we have received assurances and warranties from the
vendors and other third parties from which we have purchased or licensed
products.
Costs
As of September 1, 1999, we had incurred approximately $60,000 in costs
associated with the year 2000 issue and the implementation of our year 2000
plan. We expect that we will incur at least $110,000 in additional year 2000
expenses during the remainder of 1999, of which approximately $50,000 will be
used to purchase back-up servers, software and other equipment and
approximately $60,000 will be paid for consulting fees. We are in the process
of engaging a consultant to evaluate the status of our year 2000 compliance
efforts, recommend replacement systems in the event of a year 2000-related
failure and coordinate our contingency plans to address potential year 2000
problems and other related tasks. The consulting fees constitute a significant
portion of our future year 2000 expenses because the consultant will have the
task of coordinating the compliance plans for all of the acquired operations.
The consultant's task will be to uncover any unexpected year 2000 issues
resulting fro the acquisitions. We intend to expense all costs associated with
our year 2000 compliance program as they are incurred.
Risks
Our failure to correct a material year 2000 problem could result in an
interruption in, or a failure of, normal business activities or operations. In
a worst case scenario, problems with third party products or services could
force substantial delays in service. In particular, we depend on Internet
service providers, providers of telecommunications and data services, utility
companies and other third party service providers over whom we have little or
no control. If any of these entities fail to correct their year 2000 issues,
our operations may suffer. The results of such a failure could include:
. the loss of revenue and goodwill caused by contact breaches resulting
from year 2000 disruptions;
. the impairment of long-lived assets that must be reclassified to reflect
a shortened life spans due to the year 2000 issue;
. the loss of current customers due to unacceptable service problems; and
. the loss of business opportunities due to delays caused by the year 2000
problem.
See "Risk Factors--Potential year 2000 problems may cause us to lose customers
and subject us to significant liabilities and costs."
Contingency Plans
Although we have found no material year 2000 compliance issues with our
products, services or operating systems, or those of third parties with whom we
do business, contingency plans are currently being developed to mitigate the
risks associated with a year 2000 systems failure. Depending on the systems
affected and the severity of the problem, our finalized contingency plans may
include the replacement of affected equipment and software, use of backup
equipment and emergency allocation of personnel to address year 2000 issues.
45
<PAGE>
However, the implementation of our contingency plans, once finalized, may not
remediate all of our year 2000 issues. This could have a material adverse
effect on our business, financial condition and operating results.
Forward Looking Statements
The estimates and conclusions included in this discussion contain forward-
looking statements and are based on our management's best estimates of future
events. Our expectations about risks, future costs and timely completion of our
year 2000 testing may turn out to be incorrect, and any variance from these
expectations could cause actual results to differ from this discussion. Factors
that could influence our year 2000 compliance risks, the amount of future costs
and the timing of our remediation efforts include our success in identifying
and correcting potential year 2000 issues and the ability of others to address
year 2000 issues.
The statements above related to the ability of our services to operate
properly before, on and after January 1, 2000 are "Year 2000 Readiness
Disclosures" under the Year 2000 Information and Readiness Disclosure Act of
1998. Those statements are not a guaranty, contract or warranty, and our
compliance with that act does not preclude any claims against us based on the
federal securities laws.
Recent Accounting Pronouncements
In June of 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Statement is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. The Statement is not expected to have a significant impact on our
financial statements.
Effects of Inflation
Inflation generally affects our business by increasing the cost of labor,
equipment and materials. If we were to incur variable rate debt, inflation
would also increase the interest expense associated with this type of debt. We
do not believe that inflation has had any material effect on our business
during the periods discussed in this section.
46
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BUSINESS
Overview
We are a leading provider of integrated Internet banking products and
services and e-commerce solutions to community financial institutions. We
provide cost-effective, outsourced, secure and scalable Internet banking and e-
commerce solutions that enable community financial institutions to offer to
their customers a wide array of financial products and services over the
Internet. These products and services are branded with the financial
institution's own name and contain each institution's logo, colors and other
distinctive branding characteristics. This branded solution enables community
financial institutions to provide their customers with the convenience of
Internet banking without losing the personal relationship and service
associated with the local community financial institution.
In addition to our Internet banking products and services, our e-commerce
product, Banking on Main Street(TM), enables a community financial institution
to place its business customers on the Internet through the creation of
individualized web sites. Links to these web sites are incorporated into the
community financial institution's home page. The community financial
institution's web site, therefore, becomes a central Internet marketplace where
consumers and businesses may conduct banking and e-commerce transactions, where
local businesses may sell their products and services, and where national
vendors may access this entire group of customers, all under the trusted brand
name of the community financial institution.
Complementing our Internet banking system, we offer community financial
institutions custom web site design, implementation and marketing services,
telephone banking products and Internet access services. These products and
services are supported by a help desk and a 24 hours a day, 7 days a week,
emergency support service. Our broad range of products and services enables a
community financial institution to compete effectively with the services
offered by larger financial institutions.
Through our Internet banking system, a community financial institution is
able to provide consumer Internet banking, including:
. account statements and balance inquiries;
. check imaging;
. fund transfer capabilities;
. loan application; and
. bill payment.
Along with the services provided to retail customers, our system enables a
community financial institution to offer its commercial customers value-added
business banking and e-commerce functions, including:
. corporate cash management;
. e-commerce services; and
. web site design and hosting.
We expect to earn substantially all of our revenues from recurring monthly
service fees, which are based on flat monthly per user and per transaction
charges paid by our community financial institution customers. We expect to
derive little or no revenue from up-front software or implementation fees.
Our system is supported by our data center, which provides the hardware,
software, communications, transaction processing and data storage services
necessary to allow our community financial institutions to outsource their
Internet banking needs. Through our network design and our relationships with
data processing vendors, we are able to interface our products and services
with a financial institution's existing core banking
47
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and data processing systems. We have successfully interfaced our products and
services with approximately 25 different core processing systems.
As of September 3, 1999, we had 288 community financial institution
customers under contract to utilize our Internet products and services. We are
focused on increasing our community financial institution customer base,
expanding our relationships with our community financial institution customers,
and increasing the penetration of our products and services with their
customers.
Industry Overview
The Internet and E-Commerce
The Internet has emerged as the fastest growing global communications and
transactional medium in history and is dramatically changing the way people and
businesses share information and conduct commerce. International Data
Corporation, a leading provider of research for the information technology
industry, estimates that the number of Internet users worldwide will increase
from approximately 142 million in 1998 to 502 million by 2003, a compound
average growth rate of approximately 29%. This growth is being driven by a
number of factors, including:
. an expanding base of personal computers in the home and workplace;
. an increasing general awareness of the Internet and e-commerce among
consumer and business users;
. improvements in network and communications infrastructure and security;
. easier, faster and less expensive access to the Internet and commercial
on-line services; and
. the introduction of alternative Internet-enabled devices, such as
televisions and hand held computers.
Businesses have also embraced the Internet as an important means of
communicating and conducting transactions. Many companies' web sites are
interactive and transaction-based, enabling them to provide a wide range of e-
commerce applications. International Data Corporation estimates that revenue
from business to consumer e-commerce will increase from approximately $15
billion in 1998 to more than $177 billion in 2003, a compound annual growth
rate of approximately 64%. International Data Corporation estimates that
revenue from business to business e-commerce will increase from approximately
$35 billion in 1998 to more than $1.4 trillion in 2003, a compound annual
growth rate of approximately 109%.
Internet Banking
Consumers, businesses and financial institutions are recognizing that the
Internet is a powerful and efficient medium for the delivery of banking
services. These services include Internet banking, bill payment, bill
presentment and other services for individuals, and cash management, payroll
and other services for the commercial customers of financial institutions.
Consumers and small businesses are increasing their demand for Internet banking
as a convenient and cost-effective method to monitor financial accounts and
transact business 24 hours a day, seven days a week. Additionally, unlike PC
banking which requires the user to load software onto their computers, Internet
banking provides the flexibility to perform a wide range of transactions from
any personal computer or Internet-enabled device delivered through a browser.
International Data Corporation estimates that there were approximately 8.0
million users banking over the Internet in the United States at the end of
1998, and projects that the number will increase to approximately 40 million by
2003, a compound annual growth rate of approximately 38%.
In addition to customer demand, financial institutions are motivated to
provide Internet banking solutions to retain existing customers, attract new
customers, provide additional non-interest sources of revenues and to reduce
costs. International Data Corporation estimates the number of banks offering
on-line banking services will increase from 1,150 in 1998 to 15,845 by 2003,
and that these services will be offered primarily via the
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Internet. Financial institutions have been faced with the loss of their
traditional customer base due, in part, to customer demand for comprehensive
financial services from a single provider. The Internet provides the platform
to market traditional banking products and services and the flexibility to
expand into non-traditional banking services, such as brokerage services,
insurance and bill presentment. Internet banking also allows a financial
institution to collect and analyze customer data for use in targeted marketing
programs.
Internet Banking for Community Financial Institutions
According to Online Banking Report, over 50% of the 100 largest banks in the
United States offer Internet banking. By contrast, only approximately 5% of
community financial institutions currently offer Internet banking.
Nevertheless, according to SNL Securities and The National Credit Union
Administration, there are approximately 6,940 banks, 1,370 thrifts and 10,930
credit unions in the United States with assets of less than $1 billion each.
These community financial institutions hold approximately $1.2 trillion in
deposits, or approximately 28% of total U.S. customer deposits. As a result of
the adoption of Internet banking services by their larger competitors and the
growth of e-commerce, community financial institutions are under increasing
pressure to offer Internet-based home and business banking services. Community
financial institutions realize that if their product and service offerings are
inadequate, they risk losing customers to larger institutions, Internet-only
banks, investment and brokerage companies, retailers, insurance companies or
locally competitive community financial institutions that offer these services.
Community financial institutions face many hurdles in providing a
comprehensive Internet banking solution to their retail and business banking
customers. In particular, competition from other bank and non-bank financial
institutions has eroded profit margins and has forced community financial
institutions to focus on reducing non-interest related costs. Therefore, these
institutions often lack the capital and human resources to develop and maintain
the necessary technology and infrastructure, to design in-house, on-line
banking services, and to provide integrated customer support for their on-line
banking services.
Because of these capital and human resources constraints, we believe that
many community financial institutions require a low-cost, outsourced Internet-
based banking solution. This solution must be implemented rapidly and
cost-effectively and must interface with the institution's existing core
processing system. A community financial institution's Internet banking system
must be secure, reliable and scalable. In addition, the Internet solution must
provide the flexibility to add new products and services such as e-commerce and
other non-traditional banking service offerings.
The Netzee Solution
We provide a full suite of integrated Internet banking products and services
and e-commerce solutions to community financial institutions. Our system
consists of (1) our Internet banking and e-commerce products and services, (2)
implementation, web site design and support and other related services and (3)
our Internet banking data center that supports and hosts these products and
services. Our Internet data center interfaces with a community financial
institution's existing computer hardware and core processing systems, as well
as with a financial institution's customers. Our data center contains the web
servers, computers, data storage, retrieval and security systems, and support
personnel necessary to operate our system.
Our solution provides our customers with the following strategic advantages:
. Internet Banking Services in a Community Environment. Our system gives
community financial institutions the ability to provide the convenience
of on-line banking services while maintaining personal relationships and
affording quality service to their customers. Each community financial
institution can create a customized and branded Internet banking system,
with its trademarks, logo, colors and other distinctive features.
Additionally, the community financial institutions' customers perceive
that they are interacting with their community financial institution.
This allows the community financial institution to compete more
effectively in its market, to improve its customer relations, to
increase its customer base, to offer its customers additional products
and services, and to increase its non-interest income.
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. Gateway to E-Commerce. Our suite of Internet banking products and
services includes Banking on Main Street(TM), a branded e-commerce
enhancement that enables community financial institutions to provide
their customers an easily accessible gateway to a branded Internet-based
network of products and services offered by both national companies and
local merchants. Additionally, through Banking on Main Street(TM),
businesses can increase their customer base and sales by using the
Internet. In addition to standard financial account services, community
financial institutions can offer their commercial customers e-commerce
accounts that include a customized web page and a storefront on the
Internet. This product allows community financial institutions to
develop stronger relationships with their commercial customers by
providing their businesses direct access to a rapidly growing number of
Internet users.
. Outsourcing Solution; Rapid Implementation with Little to No Up-Front
Costs. We provide all of the proprietary software and the hardware
necessary to operate an Internet banking system. Community financial
institutions that use our solution do not need to develop in-house
software, purchase or maintain expensive equipment, or hire a technical
staff. We also offer our customers web site design, development and
hosting. We generally waive up-front implementation costs, which makes
our products and services an affordable solution for many community
financial institutions concerned with the cost of implementing Internet
technology. Compared with installing in-house Internet banking systems,
we can significantly reduce the time and expense necessary to implement,
upgrade and support an Internet solution.
. Internet Access Services. Through an independent ISP, we enable a
community financial institution to sell Internet access services as part
of its Internet banking solution. This Internet access service is
branded in the community financial institution's own name. We charge the
community financial institution a monthly fee for providing this
service.
. Marketing and Consulting Services. We provide on-site marketing and
sales training programs for our community financial institutions and
their customers. These programs are specifically designed to increase
usage of our Internet-based products and services by a community
financial institution's customer base.
. Compatibility with Existing Core Processing Software. Our Internet
banking system is designed to work with different types of core
processing software and data processing services. At present, we have
successfully installed Internet banking products and services that
interface with approximately 25 different core processing software and
data processing systems. Further, we believe that we have the ability to
interface with many other core processing systems with nominal effort
and expense. We also design our systems so that they work with other
banking functions that the financial institution may support, such as
loan application and check imaging services.
. Security Measures. We implement data encryption and firewall technology
to shield our core Internet banking servers from unauthorized access.
Our Internet banking systems have been certified by ICSA, a company that
has developed standards for testing the security of a product against
internationally accepted risk-reduction standards.
. Full Functionality and Scalability. Our solution offers a wide array of
Internet-based banking functions, including products and services for
home and business banking customers, in a single, customized system.
Each community financial institution can choose the products and
services that best fit its customer base and can easily customize its
system to add new or different functions. We have also designed our
Internet banking system with the flexibility to accommodate increased
numbers of users easily.
The Netzee Strategy
We believe that by combining leading Internet banking products and services
with e-commerce capabilities, we can provide an innovative gateway to the
Internet. Community financial institutions can utilize
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our system to create new banking relationships and enhance relationships with
their existing customers. Our objective is to become the leading provider of
Internet banking and e-commerce products and services to community financial
institutions. To accomplish these goals, we intend to:
. Create Branded Electronic Marketplaces. We intend to position the
community financial institution's web site as the destination for on-
line financial and e-commerce applications. Our Banking on Main
Street(TM) product capitalizes on this opportunity by providing our
customers' commercial clients with a convenient and cost-effective means
of selling their products and services on-line. We intend to utilize and
market our e-commerce products and services in tandem with our Internet
banking system to offer community financial institutions a complete
Internet-based presence.
. Capitalize on Strategic Marketing Alliances with Bankers' Banks and
Other Partners. We plan to increase our customer base through our
strategic marketing alliances with bankers' banks, developers of core
processing software and Internet-related service providers. Our existing
strategic partners have business relationships with over 1,850 financial
institutions to which they will exclusively market our Internet banking
solution. We also intend to expand our existing sales force to increase
opportunities with existing partners as well as to develop new strategic
alliances.
. Increase Revenue from Existing Customers. We expect our revenues to be
derived primarily from recurring fees from our community financial
institution customers and per-user fees and other related Internet
services that we provide. In order to increase the number of users of
our on-line banking systems, we provide our customers with marketing
assistance programs and related support services. We intend to use our
client marketing and consulting personnel to encourage community
financial institutions to advertise and promote their on-line systems
effectively. Additionally, our base of commercial and consumer end users
will provide a significant audience to which regional and national
advertising campaigns can be directed. We anticipate that this targeted
marketing will provide an additional source of revenue.
. Develop and Promote Non-Traditional On-Line Banking Service
Offerings. In addition to traditional on-line banking services, we
intend to provide our community financial institutions with access to
new products and services, such as loan origination and processing,
insurance, brokerage, bill presentment, electronic safe deposit boxes
and additional e-commerce opportunities.
. Invest in New Products and Technologies. We have designed our system to
store, access and process large amounts of information. We believe that
our system can quickly and easily be upgraded to offer new on-line
products and services to a financial institution's customers. We also
intend to expand upon and improve our current technology to enhance the
overall functionality and performance of our system. We believe these
improvements will further enhance our Internet banking system and
provide additional services to our customers.
Products and Services
Overview
We design, implement and sell a suite of fully integrated Internet products
and services that enable community financial institutions to offer integrated
Internet banking and e-commerce solutions to their customers. Our Internet
banking system is designed to meet each of our customer's specific
requirements, including a web site branded under our customer's own name and
customized product offerings targeted directly to our customer's core
individual and business customer base. Our Internet banking system consists of
the following:
. proprietary software;
. an interface with a customer's core processing systems;
. e-commerce capabilities;
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. Internet access services;
. a secure data center and a backup facility;
. on-site training;
. system maintenance and upgrades;
. a help desk and a 24 hour, seven days a week emergency support service;
. marketing assistance; and
. web site design, development and hosting.
Internet Banking Products and Services
Our products and services enable a community financial institution's
customers to access the following services on-line:
. Account Information. Customers can view balance information for checking
and savings accounts, certificates of deposit, lines of credit,
automobile loans and mortgage loans. Customers can also view year-to-
date interest accrued or paid, interest rates and deposit maturity
dates.
. Cash Management. Business customers can monitor their accounts, make tax
payments and execute wire transfers. We also provide a cash
concentration function, which periodically sweeps cash from several bank
accounts into a single interest-bearing account.
. Funds Transfer. Customers can transfer funds among accounts and
establish electronic bill payment.
. Check Imaging. Customers can view images of their cancelled checks on
the Internet.
. Compatibility with Personal Financial Management Software. Customers can
download their account information into popular personal financial
management software, such as Quicken(R) and Microsoft Money(R).
. Bill Payment. Customers can pay bills electronically 24 hours a day,
seven days a week and can establish future and recurring payments.
. U.S. Savings Bonds. Customers can purchase U.S. Savings Bonds.
. Secure Messaging. Customers can communicate with a financial institution
through secure, encrypted message systems.
. Additional Features. Customers can reorder paper checks, request an
account statement or contact financial institution personnel by e-mail.
Community financial institutions typically enter into three- to five-year
contracts for our Internet banking products and services. Our customers pay us
a monthly fee under these contracts, based upon the level of usage by their
customers and the types of optional products and services utilized. While we
generally waive up-front fees for the installation of our basic Internet
banking products and services, we may charge additional fees for optional
products and services that our customers elect to receive, such as consulting
and marketing services.
Banking on Main Street(TM) E-Commerce System
We believe we are one of the only companies to design, develop and sell an
e-commerce software package specifically tailored to meet the needs of
community financial institutions and their customers. Banking on Main
Street(TM) expands the gateway to the Internet established through our Internet
banking system. This system assists community financial institutions in
attracting new customers and increasing non-interest revenue from existing
customers by offering their customers an easy to use and fully customizable
product designed to enable these customers to advertise and conduct business
over the Internet.
The Banking on Main Street(TM) program integrates three principal types of
products and services: local merchants, consumer products and business
services. These components are linked together on a Web page that
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resembles a typical town square, with the products and services offered on-line
represented by shops and stores that line the streets. A user simply clicks on
a building or store to access one of the service types.
Our Banking on Main Street(TM) program currently offers the following:
. Local Merchants. This service is the cornerstone of the Banking on Main
Street(TM) concept. This service allows each community financial
institution the ability to offer local businesses and merchants their
own web site. Local merchants who already have web sites should be able
to increase traffic to their web site by being included in the community
financial institution's web site. Local merchants can advertise and sell
products and services, and offer coupons or discounts on their products
and services, all for a low monthly fee. Community financial
institutions can easily adapt this service to their specific area by
adding new local merchants at any time. This feature includes a web site
design "wizard" that allows community financial institution employees to
design and implement a fully functional and customized web site for
small business customers in a matter of minutes.
. Consumer Products. This service provides users a variety of consumer
products and services over the Internet, including discount health
cards, legal and tax services, long distance telephone service, Internet
access and book, video and game retailers. We have established
relationships with both regional and national providers of these
products and services and continually seek to expand the number of these
relationships.
. Business Products and Services. This service offers products and
services to small business customers of financial institutions at
wholesale prices. This service allows financial institutions to help
their commercial customers become more competitive and profitable. For
example, we have created alliances with companies that sell office
products and furniture, as well as with providers of printing, payroll,
leasing, check collection and human resource management services.
Through Banking on Main Street(TM), a community financial institution can
offer to its commercial customers a new banking product, called the "e-commerce
account." When coupled with its standard commercial checking accounts and other
financial services, a financial institution can market and sell its e-commerce
account as a separate commercial banking product that will generate additional
non-interest revenue for the financial institution. The combination of our
Internet banking and e-commerce products allows a financial institution to
provide its customers with a complete gateway to Internet-based products,
services and business opportunities.
In addition to the basic software package, we provide each community
financial institution that uses Banking on Main Street(TM) with training and
usage consulting services to teach its employees how to use the system and to
explain all of its features to their small business customers. We also provide
marketing assistance and materials and a help desk and a 24 hour, seven days a
week emergency support service.
Telephone Banking Product
As with our Internet banking product, our telephone banking product offers a
community financial institution's customers convenient and safe access to
information regarding their accounts from their homes or businesses at any time
of day or night. This product also allows the community financial institution
to spend less time responding to routine account information requests and to
devote more time to developing important personal customer relationships. As of
September 3, 1999, we had approximately 400 community financial institution
customers under contract to utilize our telephone banking product. Standard
features of our telephone banking product include:
. account information, such as current balance, interest rates and account
activity for checking and savings accounts, certificates of deposit and
loans;
. fund transfers between accounts;
. verification for merchants that there are sufficient funds in their
customers' accounts;
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. promotional, marketing and community-related messages; and
. time and temperature.
Our telephone banking product can be installed in a community financial
institution in less than a week with minimal investment and inconvenience. Our
product provides customized messages, menu items and services to meet our
customers' individual needs. We also support our telephone banking product with
a marketing package designed to help our clients introduce the telephone
banking product to their customers and potential customers. We charge our
community financial institution customers who subscribe to our telephone
banking product a recurring monthly fee with no up-front installation fees.
Related Services
Implementation Services
We provide the implementation services necessary to install our products and
to create a customized Internet-based interface that includes the logo, colors
and other distinctive branded characteristics of the community financial
institution. This interface integrates our products and services with the
community financial institution's core processing systems. For a typical
Internet banking system installation, the implementation period currently
averages approximately 60 days.
We currently have the ability to interface with approximately 25 core
processing systems. We use existing third party software and other application
tools to design interfaces with financial institution core processing systems.
Because we rely on existing applications instead of creating proprietary
software, we believe that we have the ability to interface with many core
processing systems with minimal effort and expense.
Marketing Services
We provide our financial institution customers with an Internet marketing
package designed to increase the number of their customers who use their
Internet products and services. We charge fees for these services based upon
the type and length of engagement. This marketing package includes the
following services:
. Strategic Marketing Services. We provide our customers with strategic
assistance in developing, marketing and supporting the success of their
Internet banking and e-commerce products and services. We also offer
customized consulting services to community financial institutions,
which have specific marketing and training needs. These services allow
financial institutions to conduct effective in-branch and community-wide
promotions of our Internet banking services.
. Advertising and Promotional Efforts. We assist our customers in
advertising their on-line services through newspapers, radio, press
releases, banners, billboards, direct mail and other media. We also
provide our customers with in-branch marketing materials, such as
brochures, banners and other promotional items.
. Employee Training. We assist our customers in educating their employees
about the uses and benefits of Internet banking and e-commerce. Our
employee training guide also explains the financial and security
features of the on-line systems, introduces sales techniques, instructs
employees on how to overcome common customer objections and provides
additional resources for learning about the Internet and on-line banking
generally.
Web Site Development and Related Services
Our team of in-house web site designers creates fully interactive and
customized web sites for our community financial institution customers. Working
closely with the customer, the team designs a web site to incorporate the form
and functionality required by the community financial institution, including
the integration
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of proprietary and value-added financial services such as logos and other
branding methods, application forms, financial calculators and links to other
web sites. We offer basic web site development services without charge, and we
provide additional enhancement, customization and design services for a fee. We
host and maintain most of our customers' web sites at our data center.
Product and Service Development
We are continuing to expand and enhance the products and services that we
provide to community financial institutions to enable them to offer a wider
variety of Internet and e-commerce products and services to their customers.
Our development efforts are focused on, among other things:
. Banking on Main Street(TM). We are developing enhancements and new
functions to our Banking on Main Street(TM) e-commerce software package.
For example, we intend to allow financial institutions to include local
advertising on their Internet banking gateway and on their customers' e-
commerce web sites. We anticipate that we will add more products and
features to this package that will enhance its functionality and design.
. Commercial Bill Payment. We are enhancing our commercial bill payment
system to allow businesses to pay bills to third parties over the
Internet.
. Merchant Banking Products. We are designing software that will enable
financial institutions to transact business with bankers' banks over the
Internet. Some of these functions will include fund transfers, account
information and loan origination and participation services.
. Improving Our Products and Services. We are improving the functionality
and breadth of our Internet banking and e-commerce products and
services. We intend to offer on-line access to insurance, loan
origination and fulfillment, electronic safe deposit box, brokerage,
credit history management, bill presentment, tax preparation and filing
and merchant services.
Systems Architecture
Fat Server Architecture
Our computer systems operate in a "fat server" environment. A "server" is
computer hardware and software attached to a network and shared by multiple
users, or "clients." Clients and servers operate in two primary environments:
"fat server" and "thin server." A fat server environment exists where the
servers store and process most or all of the information in the network. By
contrast, a thin server environment exists where the clients or other servers
process more information.
By using fat server technology, our system can process and store large
amounts of information without having to wait for a financial institution's
core processing system to retrieve the information and relay it back to our
computer. Fat server technology provides the following important advantages
over thin server technology:
. Greater Ability to Store Information. Because a fat server is required
to perform substantially more tasks than a thin server, it must have
greater storage capabilities than a thin server. This allows the fat
server to retain more financial information for each user than a thin
server. Our fat server system currently stores multiple years of
customer data, whereas thin server systems typically provide access to
60 to 90 days of financial data. We believe that the information storage
capacity of a fat server provides a more useful and flexible solution
for a community financial institution's customers.
. Greater Ability to Process Information. Fat servers contain most of the
information processing and analysis applications and are designed to
manipulate and analyze customer account information easily. Financial
institutions can utilize fat server technology to analyze customer
account information efficiently to market and sell a variety of
financial products and services, including loan, brokerage, insurance
and tax services, directly to their customers.
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. Greater Ability to Collect Information from Different Sources. Fat
servers are better equipped to collect and consolidate financial
information from several different sources for the end user. For
example, brokerage portfolio, insurance and loan balance information can
be collected from separate sources, transmitted to our server, processed
and organized into a single, easy-to-understand monthly statement that a
user can access and review on-line.
Data Center
All of the Internet banking and e-commerce services that we provide are or
can be hosted and processed in our data center in Birmingham, Alabama. The data
center contains the web servers for the system, as well as the communications
equipment, data storage, retrieval and security software and hardware, and
support personnel necessary to operate each community financial institution
customers' Internet services and connect them to their existing core processing
systems. Our data center communicates with a community financial institution
customer by transferring data from the client community financial institution's
core system to our servers in the data center.
Our data center has been certified by ICSA, a risk-based security company
that, among other things, certifies that a product is secure based upon
internationally accepted security criteria. This certification means that our
data center has been tested by ICSA and has been found to meet defined
standards for risk reduction against a set of known security threats. In order
to maintain our ICSA certification, our data center will be retested annually
and will be subject to spot-checks to verify that it continues to comply with
ICSA's security standards. In addition to ICSA certification, our data center
has also been found to comply with regulations imposed by federal and state
banking authorities, including the Office of the Comptroller of Currency.
To prevent service interruption and information losses due to power
failures, our data center is backed up by high capacity battery systems. These
battery systems provide continuous power to all production systems, including
servers, monitors, telecommunications equipment and individual computers. In
the event of an extended power outage, natural gas-powered generators also
provide backup power to the facilities. We have also implemented a separate
disaster recovery center or "hot site." The hot site maintains pre-programmed
communications designed to take the place of our main data center in the event
of a disaster. This minimizes the risk of customer service disruption and
allows for rapid response to an extended power or systems failure or other
interruption. Off-site files are backed up on a daily basis to minimize the
loss of stored customer information and to ensure system integrity in the event
of a disaster.
Sales and Marketing
Overview
Our primary marketing efforts are focused on building awareness of our
products and services among our target group of community financial
institutions, identifying potential customers and establishing new strategic
alliances. Our sales and marketing efforts are conducted through both direct
and indirect channels.
. Direct Sales Channel. We use print advertisement, telemarketing and
other similar communications to develop contacts at the senior officer
level of target community financial institutions. These contacts are
then passed along to regional sales personnel who follow up with the
specific contact.
. Indirect Sales Channel. Our sales force also uses indirect sales methods
to generate new customers. We engage third parties to refer to us
financial customers who may be interested in using our products and
services. A member of our sales staff will then make a presentation to
the proposed customer and, if successful, complete the transaction. We
also engage third parties to sell and implement our on-line banking
products directly with the community financial institution. In this
case, our sales force does not directly deal with the community
financial institution. We pay the sales group a commission based on the
amount of our products and services that they sell.
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Strategic Marketing Alliances
When evaluating Internet banking solutions, financial institutions usually
focus on the ease of interfacing their existing core processing software with
the Internet banking software. Core processing software is the central software
used by a community financial institution that processes information concerning
banking transactions, such as deposits and withdrawals. The link between the
core processing software and the Internet banking software allows for the
transfer of transactional data between both software systems. We have formed
strategic marketing alliances with InterCept and vendors of core processing
software and outsourced data processing services, all of whom market our
products and services to their customer base. In addition, we have developed
relationships with five bankers' banks to market and promote our services to
their customers and shareholders, all of whom are depository institutions. We
have summarized the material terms of each of our current strategic alliances
below.
In September 1999, we entered into a General Marketing Agent Agreement with
each of TIB, The Bankers Bank, Pacific Coast Bankers' Bank, Oklahoma, The
Bankers' Bank and Atlantic Central Bankers' Bank pursuant to which each
bankers' bank has agreed to use its best efforts to promote and market our
Internet banking products and services to community banks on an exclusive
basis. In return, we will pay commissions to each of these bankers' banks for
all finalized contracts with the community financial institutions. In addition
to these obligations, each bankers' bank has agreed to conduct its business so
as to maintain and increase our goodwill and reputation.
Customers
Our target market is the approximately 19,250 community financial
institutions in the United States with assets of less than $1 billion each.
Within our target market, we focus on (1) independent community financial
institutions, including banks, savings and loan associations, thrifts, trust
companies and credit unions, and (2) financial institutions that are associated
with or shareholders of a bankers' bank, which in each case rely on one or more
of the data processing vendors with whom we have developed interfaces. We are
seeking to expand the number of vendors with whom we have interfaces.
As of September 3, 1999, we have contracts with 288 community financial
institutions to provide our Internet banking products and services. For the
year ended December 31, 1998 and the six months ended June 30, 1999, no
individual customer accounted for more than 10% of our total revenues.
Competition
The market for Internet and telephone banking products and services is
highly competitive, and we expect that competition will intensify in the
future. Our market is highly fragmented, as more than 100 on-line service
outsourcing companies provide Internet and telephone banking products and
services in the United States. We face competition from at least four major
sectors:
. We compete with other companies that provide outsourced Internet banking
services to community financial institutions, including, among others,
Corillian Corporation, Digital Insight Corporation, FundsXpress, Inc.,
Home Account Network, Inc., nFront, Inc., Online Resources and
Communications Corporation, Q-Up Systems, Inc., Source One Software,
Inc. and Sanchez Computer Associates, Inc.
. We compete with large vendors that offer transaction processing services
to financial institutions and also market their own Internet banking
solutions. Among these vendors are Electronic Data Systems Corporation,
Fiserv Correspondent Services, Inc., Jack Henry & Associates, Inc. and
Marshall & Ilsley Corporation.
. We compete with large financial institutions, who provide competitive
products and services to individuals and businesses, including BankOne,
through its Internet subsidiary, Wingspan bank.com, and Citigroup, Inc.,
through its Internet subsidiary, e-Citi. Through their Internet banking
products
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and services, these large financial institutions can obtain customers
from communities in distant locations, effectively decreasing demand for
our products and services in these markets.
. We compete with Internet portals such as E*TRADE, Yahoo!,
RealEstate.com, E-LOAN, Lending Tree.com, and iXL Enterprises, which
serve as an alternative to financial institutions' web sites.
In addition, we could experience competition from our customer financial
institutions and potential customers who develop their own on-line banking
solutions. Rather than purchasing Internet banking products and services from
third-party vendors, community financial institutions could develop, implement
and maintain their own services and applications. We can give no assurance that
these financial institutions will perceive sufficient value in our products and
services to justify investing in them. We also believe that we face competition
from 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.
We believe that our ability to compete successfully depends upon a number of
factors, including, among other things:
. the comprehensiveness, expandability, ease of use and service level of
our products and services;
. our market presence with community financial institutions, which is
enhanced by our strategic marketing alliances;
. our pricing policies compared to the pricing policies of our competitors
and suppliers;
. our ability to interface with vendors of core processing software and
services;
. the reliability, security, speed and capacity of our systems and
technical infrastructure;
. the timing of introductions of new products and services by us and our
competitors; and
. our ability to support unique customer requirements.
We expect competition to increase significantly as new companies enter our
market and current competitors expand their product lines and services. See
"Risk Factors -- Our business is highly competitive."
Government Regulation
The financial services industry is subject to extensive and complex federal
and state regulation. Our current and prospective customers, which consist of
community financial institutions such as commercial banks, savings and loans,
credit unions, thrifts, securities brokers, finance companies, other loan
originators, insurers and other providers of financial services, operate in
markets that are subject to rigorous regulatory oversight and supervision. Our
customers must ensure that marketing our products and services to their
customers is permitted by the extensive and evolving regulatory requirements
applicable to those community financial institutions. These laws and
regulations include federal and state truth-in-lending and truth-in-savings
rules, usury laws, the Equal Credit Opportunity Act, the Fair Housing Act, the
Electronic Fund Transfer Act, the Fair Credit Reporting Act, the Bank Secrecy
Act and the Community Reinvestment Act. The compliance of our products and
services with these requirements depends on a variety of factors, including the
particular functionality, the interactive design and the classification of the
customer. Our financial services customers must assess and determine what is
required of them under these regulations and are responsible for ensuring that
our system and the design of their site conform to their regulatory needs. We
do not make representations to customers regarding applicable regulatory
requirements, and rely on each customer to identify its regulatory issues and
to adequately specify appropriate responses. It is not possible to predict the
impact that any of these regulations could have on our business.
We are not licensed by the Office of the Comptroller of the Currency, the
Board of Governors of the Federal Reserve System, the Office of Thrift
Supervision, the National Credit Union Administration or other
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federal or state agencies that regulate or supervise depository institutions or
other providers of financial services. We are subject to examination by the
Federal depository institution regulators under the Bank Service Company Act
and the Examination Parity and Year 2000 Readiness for Financial Institutions
Act. These regulators have broad supervisory authority to remedy any
shortcomings identified in any examination they may conduct. We are also
subject to encryption and security export laws and regulations which, depending
on future developments, could render our business or operations more costly,
less efficient or impossible.
Federal, state or foreign authorities could adopt laws, rules or regulations
affecting our business operations, such as requiring us to comply with data,
record keeping and other processing requirements. We may become subject to
additional regulation as the market for our business evolves. It is possible
that laws and regulations may be enacted with respect to the Internet, covering
issues such as user privacy, pricing, content, characteristics and quality of
services and products. Existing regulations may be modified.
For example, we are not subject to the disclosure requirements of Regulation
E of the Federal Reserve Board under the Electronic Fund Transfer Act, because
we do not contract with consumers to provide them with electronic funds
transfer services or provide access devices (such as cards, codes or other
means of accessing accounts to initiate electronic funds transfers) to them.
Regulation E regulates certain electronic funds transfers made by providers of
access devices and electronic fund transfer services. Under Regulation E, our
customers are required, among other things, to provide certain disclosure to
retail customers using electronic transfer services, to comply with certain
notification periods regarding changes in the terms of service provided and to
follow certain procedures for dispute resolutions. The Federal Reserve Board
could adopt new rules and regulations for electronic funds transfers that could
lead to increased operating costs and could also reduce the convenience and
functionality of our services, possibly resulting in reduced market acceptance.
In addition, the U.S. Congress is currently considering financial services
reform legislation. The House and Senate have adopted two different bills, and
a continuing House-Senate conference has been convened to craft a compromise.
In addition to other substantive differences between the House bill and the
Senate bill, the House bill includes an entire title devoted to financial
information privacy. The House bill bars a financial institution from
disclosing to nonaffiliated third parties, for any purpose, either directly or
through an affiliate, any nonpublic personal consumer information, unless the
consumer is provided an opportunity to opt out of that disclosure. The Senate
bill contains more limited provisions that relate only to fraudulent
activities. Thus, the final form of any financial services reform legislation
adopted by Congress might limit our ability to offer third parties access to
the consumer information generated by our Internet banking products and
services.
If enacted or deemed applicable to us, the laws, rules or regulations
applicable to financial services activities would render our business or
operations more costly, burdensome, less efficient or impossible. We cannot
assure that federal, state or foreign governmental authorities will not adopt
new regulations addressing electronic financial services or operations
generally that could require us to modify our current or future products and
services. The adoption of laws or regulations affecting our business or our
customer banks' business could have a material adverse effect on our business,
financial condition and results of operations.
A number of proposals at the federal, state and local level and by certain
foreign governments would, if enacted, expand the scope of regulation of
Internet-based financial services and could impose taxes on the sale of goods
and services made over the Internet and certain other Internet activities. Any
development that substantially impairs the growth of the Internet or its
acceptance as a medium for commerce or transaction processing could have a
material adverse effect on our business, financial condition and operating
results.
Intellectual Property
Although we believe that our success depends more upon our technical
expertise than our proprietary rights, our future success and ability to
compete depends in part upon our proprietary technology and proprietary
technology we may license from others. None of our technology is currently
patented. Instead, we rely on a combination of contractual rights and
copyright, trademark and trade secret laws to establish and
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protect our proprietary technology. We generally enter into confidentiality
agreements with our employees, consultants, resellers, customers and potential
customers. We also limit access to and distribution of our source code, and
further limit the disclosure and use of other proprietary information. We
cannot assure that the steps taken by us in this regard will be adequate to
prevent misappropriation of our technology or technology we license from others
or that our competitors will not independently develop technologies that are
substantially equivalent or superior to our technology. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain or use our products or technology or that which we license
from others. In addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States.
Properties
We currently lease the following properties:
<TABLE>
<CAPTION>
Approximate
Location Primary Use Square Feet
----------------------- ------------------------------------------- -----------
<S> <C> <C>
Atlanta, Georgia Corporate headquarters 6,000
Birmingham, Alabama Administrative, sales and marketing offices 15,747
Birmingham, Alabama Remote banking data center 6,514
Elizabethtown, Kentucky Bill payment services office 2,600
Cordova, Tennessee Sales office 3,350
</TABLE>
We are in the process of identifying additional facilities to accommodate
our growth. We believe that suitable additional or alternative space will be
available in the future on commercially reasonable terms as needed.
Employees
As of September 13, 1999, we had a total of approximately 72 full-time
employees. None of our employees is covered by a union or a collective
bargaining agreement. We have not experienced any work stoppages and consider
our relations with our employees to be good.
Legal Proceedings
From time to time we may be involved in litigation arising in the normal
course of our business. We are not a party to any litigation, individually or
in the aggregate, that we believe would have a material adverse effect on our
financial condition or results of operations.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth information about our directors and executive
officers, including their ages as of September 13, 1999:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Glenn W. Sturm.......... 45 Chief Executive Officer and Director
C. Michael Bowers....... 52 President and Chief Operating Officer
David W. Brasfield...... 40 Senior Executive Vice President -- Sales and Marketing
Richard S. Eiswirth..... 30 Executive Vice President and Chief Financial Officer
Steven D. Simpson....... 32 Senior Vice President -- Internet Development and Marketing
John W. Collins......... 51 Chairman of the Board of Directors
Gayle M. Earls.......... 63 Director
Donny R. Jackson........ 50 Director
Joel A. Katz............ 55 Director
Bruce P. Leonard........ 45 Director
A. Jay Waite............ 50 Director
</TABLE>
Glenn W. Sturm has served as our Chief Executive Officer and a director
since our inception in 1999. Since 1997, Mr. Sturm has served as a director of
The InterCept Group, Inc., which upon the completion of this offering will own
% of our common stock. Since 1992, Mr. Sturm has been a partner in the law
firm of Nelson Mullins Riley & Scarborough, L.L.P., where he serves as
Corporate Chairman and as a member of the Executive Committee. Mr. Sturm serves
as a member of the Executive Committee of the Board of Directors of WebMD, Inc.
Mr. Sturm serves on the board of directors of several other privately-held and
three public companies: Phoenix International Ltd., Inc., The InterCept Group,
Inc. and Towne Services, Inc.
C. Michael Bowers has served as our President and Chief Operating Officer
since September 1999. Mr. Bowers served as the Chief Executive Officer of Dyad
Corporation from its inception in 1996 until we acquired it in 1999. From April
1991 to April 1996, Mr. Bowers was the manager of management consulting for
Porter Keadle Moore (formerly Evans, Porter, Bryan & Co.), a financial
institution accounting and consulting firm located in Atlanta, Georgia. Prior
to joining Porter Keadle Moore, Mr. Bowers served in various capacities with
seven community financial institutions. Mr. Bowers has over 25 years of
experience with community financial institutions.
David W. Brasfield has served as our Senior Executive Vice President --
Sales and Marketing since August 1999. Mr. Brasfield served as the President
and Chief Executive Officer of SBS Corporation from 1989 until Netzee acquired
it in August 1999. He also served as the President and Chief Executive Officer
of SBS Data, Inc., the parent company to SBS Corporation, from 1994 until it
was acquired by InterCept in August 1999. Mr. Brasfield currently serves on the
Board of Directors of First National Bank of Shelby County in Columbiana,
Alabama.
Richard S. Eiswirth has served as our Executive Vice President and Chief
Financial Officer since August 1999. Prior to joining Netzee, Mr. Eiswirth was
a certified public accountant with Arthur Andersen LLP from 1991 until 1999.
Steven D. Simpson has served as our Senior Vice President -- Internet
Development and Marketing since September 1999. Prior to joining Netzee, Mr.
Simpson served as Senior Vice President of Operations and Internet Banking for
TIB where he focused on developing technology driven products to assist
community financial institutions from March 1995 until April 1999. From
December 1994 to March 1995, Mr. Simpson served as the Manager for Electronic
Banking at Bank of America, Texas.
John W. Collins has served as a director of Netzee since inception. Mr.
Collins was the co-founder of InterCept and has served as its Chairman of the
Board and Chief Executive Officer since 1996.
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Prior to co-founding InterCept, Mr. Collins served as a director and executive
officer of several of its predecessor companies and affiliates since 1986. Mr.
Collins has over 26 years of experience in various aspects of e-commerce for
community financial institutions. Mr. Collins is also the Chairman of the Board
of Directors of Towne Services, Inc. and several privately held companies.
Gayle M. Earls has served as a director of Netzee since September 1999.
Since 1986, Mr. Earls has served as the President, Chief Executive Officer and
a director of TIB The Independent BankersBank. Mr. Earls also serves as a
director of the Federal Reserve Bank of Dallas.
Donny R. Jackson has served as a director of Netzee since inception. Mr.
Jackson was a co-founder of InterCept and has served as its President, Chief
Operating Officer and a director since its inception in April 1996. Prior to
co-founding InterCept, Mr. Jackson served as a director and executive officer
of several of its predecessor companies and affiliates since 1986. From 1991 to
1992, Mr. Jackson served as the President of Bank Atlanta. Mr. Jackson has over
24 years of experience with community financial institutions, including in
service bureau, enterprise software and other processing and accounting
operations.
Joel A. Katz has served as a director of Netzee since September 1999. Since
1998, Mr. Katz has been a shareholder in the law firm of Greenberg Traurig in
Atlanta, Georgia, where he specializes in the practice of entertainment and
sports law. From 1971 to 1998, Mr. Katz practiced law in Atlanta, most recently
with Katz, Smith & Cohen.
Bruce P. Leonard has served as a director of Netzee since September 1999.
Since 1990, Mr. Leonard has served as the President, Chief Executive Officer
and a director of The Bankers Bank, which is located in Atlanta, Georgia, and
its affiliate, Community Financial Services, Inc. Prior to that, he was Senior
Vice President of The Bankers Bank. He has served as past Chairman of the U.S.
Bankers Banks CEO Council, and as a board member of the Independent Bankers
Association of America. He is currently a board member of the Georgia Bankers
Association, Community Bankers Association of Georgia, Southeastern Bankcard
Association and InterCept.
A. Jay Waite has served as a director of Netzee since September 1999. Mr.
Waite is currently a private investor. From 1989 to 1998, Mr. Waite served as
the Chairman of the Board of Reily Electrical Supply, Inc., an electrical
equipment distributor.
Terms of Directors and Executive Officers
Pursuant to our articles of incorporation, the board of directors is divided
into three classes, as nearly equal in number as possible, designated class I,
class II and class III. Messrs. Katz and Sturm currently serve as class I
directors, Messrs. Waite and Jackson currently serve as class II directors, and
Messrs. Collins, Leonard and Earls currently serve as class III directors. 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 terminates on the date of
the 2000 annual meeting of shareholders, the term of the class II directors
terminates on the date of the 2001 annual meeting of shareholders, and the term
of the class III directors terminates on the date of the 2002 annual meeting of
shareholders, and in each case upon the election and qualification of their
successors. We intend to enter into two-year employment agreements with each of
Messrs. Sturm, Bowers, Brasfield and Eiswirth.
Under agreements with each of The Bankers Bank and TIB, we have agreed to
cause Bruce T. Leonard, President and Chief Executive Officer of The Bankers
Bank, and Gayle M. Earls, President and Chief Executive Officer of TIB, to be
elected as class III directors, whose terms will expire no earlier than our
third annual meeting of shareholders following this offering.
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Committees of the Board of Directors
The board of directors has established an audit committee and a compensation
committee. The audit committee consists of Messrs. Leonard and Waite, and the
compensation committee consists of Messrs. Katz and Waite.
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 will make annual recommendations to
the board of directors of the appointment of independent auditors for the
following year.
The compensation committee reviews and evaluates the compensation and
benefits of all our officers, reviews general policy matters relating to
compensation and benefits of our employees and makes recommendations concerning
these matters to the board of directors. The compensation committee also
administers our 1999 Stock Option and Incentive Plan.
Compensation Committee Interlocks and Insider Participation
Until our compensation committee was established on September 10, 1999, our
board of directors, acting as a whole, determined executive compensation. Glenn
W. Sturm, our Chief Executive Officer, is a member of our board of directors
and, as such, participated in board deliberations concerning executive officer
compensation.
Mr. Sturm is a partner at Nelson Mullins Riley & Scarborough L.L.P. This
firm provided legal services to Netzee and its predecessor Direct Access
Interactive in 1999.
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 are
eligible to receive options under our 1999 Stock Option and Incentive Plan. We
have granted to each of our directors a one-time option to purchase 40,000
shares of common stock, 10,000 of which vest immediately and the remainder of
which vest in equal portions over three years.
Executive Compensation
All five of our executive officers joined us in 1999. We intend to enter
into employment agreements with Messrs. Sturm, Bowers, Brasfield and Eiswirth.
The employment agreements with these executive officers will provide for annual
salaries as follows: Mr. Sturm, $250,000; Mr. Bowers, $200,000; Mr. Brasfield,
$185,000; and Mr. Eiswirth, $140,000. In addition, each of these employment
agreements will provide, among other things:
. for a term of two years;
. for incentive compensation based upon achievement of targeted levels of
performance and other criteria that may be established by the board of
directors from time to time;
. that the executive is eligible to participate in all of our management
incentive programs and stock option plans, and that we will pay for the
executive's health insurance and club dues and that we will provide him
with an automobile allowance and other benefits;
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. for termination upon death or disability or for cause;
. that the executive may terminate the agreement following a change in
control of Netzee;
. that, if the agreement is terminated by either party after a change in
control, other than for cause:
. the executive will receive accrued compensation and bonus, and 1/12
of his annual base salary and bonus each month for the remainder of
the term of the agreement (or if less than one year, for one year),
and, with respect to Mr. Sturm only, we must continue his insurance
benefits until he reaches age 65 unless he obtains these benefits
from a subsequent employer or Medicare; and
. options held by the executive vest and become immediately
exercisable; and
. if the executive's employment is terminated other than for cause, the
executive has the right to demand that we register his shares, subject
to various limitations and conditions.
We have also entered into agreements with other employees who are not
executive officers.
Stock Options
Our board of directors and shareholders have approved the Netzee, Inc. 1999
Stock Option and Incentive Plan. Under this plan, we may grant to our
employees, directors and consultants incentive stock options, non-qualified
stock options, restricted stock awards and stock appreciation rights. We
believe that this plan is an important part of our overall compensation
program. The plan supports our ongoing efforts to attract and retain talented
employees and directors and gives us the ability to provide employees with
incentives that are directly linked to our profitability and increases in
shareholder value. In addition, we have granted, and from time to time in the
future will grant, options outside of the plan.
Eligibility. All of our employees, directors, consultants and advisors are
eligible to receive awards under the plan.
Administration. The compensation committee of the board of directors
administers the plan, except that with respect to options or awards to our
officers, directors or more than 10% shareholders, the full board of directors
or a committee comprised solely of two or more non-employee directors is
responsible for granting awards. The compensation committee will determine the
terms of any awards granted under the plan, within limitations specified in the
plan.
Shares Reserved. The maximum number of shares of common stock that
currently may be subject to outstanding awards, determined immediately after
the grant of any award, is 3,500,000 shares, subject to anti-dilution
adjustments. The plan provides that the number of shares of common stock
available for issuance under the plan shall be increased if necessary on the
first day of each calendar year beginning January 1, 2000 so that the maximum
number of shares available for the issuance of options is equal to 20% of the
number of shares of common stock outstanding on the preceding trading day, as
determined on a fully-diluted basis, and in no case will the number of shares
be less than 3,500,000.
The shares of common stock subject to any award that terminates, expires or
is cashed out without payment being made in the form of common stock will again
be available for distribution under the plan.
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Options to purchase an aggregate of 1,250,000 shares of common stock were
granted to some of our executive officers and directors in July, August and
September 1999, at exercise prices of $2.00, $3.11 and $5.00 per share. The
following executive officers and directors have received grants of options in
the specified amount of shares of common stock:
<TABLE>
<CAPTION>
Amount of Shares
Underlying
Participant Options Granted
----------- ----------------
<S> <C>
Richard S. Eiswirth......................................... 200,000
C. Michael Bowers........................................... 200,000
David Brasfield............................................. 100,000
John W. Collins............................................. 165,000
Gayle M. Earls.............................................. 45,000
Donny R. Jackson............................................ 40,000
Joel A. Katz................................................ 40,000
Bruce P. Leonard............................................ 85,000
Steven D. Simpson........................................... 125,000
Glenn W. Sturm.............................................. 210,000
A. Jay Waite................................................ 40,000
</TABLE>
In addition, options to purchase 626,500 shares of common stock have been
granted to other employees and consultants of Netzee. All options that we have
granted vest in equal installments over a three-year period except:
. 50,000 of Mr. Eiswirth's options are currently vested, 30,000 of which
were exercised by Mr. Eiswirth;
. 10,000 options of each of Messrs. Collins, Earls, Jackson, Katz,
Leonard, Sturm and Waite are currently vested; and
. one-half of Mr. Sturm's, Mr. Bowers' and Mr. Brasfield's options, and
one-half of the remaining 150,000 of Mr. Eiswirth's options, will vest
upon the completion of our initial public offering.
Stock-Based Awards. The plan permits us to grant incentive stock options,
which qualify for special tax treatment, and non-qualified stock options, as
well as restricted stock awards and stock appreciation rights. The exercise
price for incentive stock options cannot be less than the fair market value of
common stock on the date of grant, as determined under the plan. The term of an
incentive stock option may not exceed 10 years, or 5 years if granted to a
shareholder owning more than 10% of the total combined voting power of all
classes of stock. The number of shares subject to options granted to a person
in a year may not exceed 1,000,000. The plan permits the compensation committee
to cancel an option upon exercise by the holder and pay the holder, in cash or
common stock, the difference between the fair market value of the shares
covered by the option and the exercise price.
The board of directors has approved a one-time grant of options to purchase
40,000 shares to each director as of the date the director is first elected to
the board of directors, 10,000 of which vest immediately and the remainder of
which vest in equal portions over three years.
We may also award shares of restricted common stock. Each award agreement
will set forth conditions that must be satisfied before the restricted stock
vests and becomes transferable. Restricted stock awards may be subject to
forfeiture if, for example, the recipient's employment terminates before the
award vests. Except as specified at the time of grant, holders of restricted
stock will have voting rights and the right to receive dividends on their
restricted shares.
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RELATED PARTY TRANSACTIONS
We believe that all of the following transactions were made on terms no less
favorable to us than could have been obtained from unaffiliated third parties
on an arm's length basis. Following the completion of this offering, all
transactions with our shareholders, officers and directors or their affiliates,
if any, will be subject to the approval of a majority of the independent and
disinterested outside directors and will continue to be conducted on terms no
less favorable to us than could be obtained from unaffiliated third parties on
an arm's length basis.
Acquisitions
In September 1999, we acquired Call Me Bill, Dyad, the remote banking
operations of SBS and the Internet banking divisions of TIB and The Bankers
Bank in separate transactions. See "Netzee." In these transactions, many of the
persons who were previously officers, directors or shareholders of the acquired
companies became executive officers or directors of Netzee or beneficial owners
of more than 5% of our common stock. The following table summarizes the total
number of shares of common stock that we issued to these interested persons in
those acquisitions. Of the shares shown for each person receiving shares in the
Dyad and SBS acquisitions, 10% were placed in escrow for one year from the date
of acquisition for indemnification purposes.
<TABLE>
<CAPTION>
Name of Related Number of
Acquisition Party Shares Issued
-------------------------------- ------------------- -------------
<S> <C> <C>
Dyad Glenn W. Sturm 89,889
C. Michael Bowers 69,057
John W. Collins 103,662
Donny R. Jackson 23,019
FDS, LLC(1) 118,932
SBS remote banking David W. Brasfield 866,666
operations Michael Vaughn 866,666
Robert D. Kirk, III 866,666
Internet banking division of TIB TIB 1,361,000
Internet banking division of The
Bankers Bank The Bankers Bank 1,361,000
</TABLE>
--------
(1) Mr. Collins owns 60% of the membership interests in FDS
and Mr. Jackson owns 20% of the membership interests in
FDS.
Relationship with InterCept
InterCept currently owns approximately 49% of our common stock and will own
approximately % after this offering. Our Chairman of the Board of Directors,
John W. Collins, is the Chairman and Chief Executive Officer of InterCept, and
Donny R. Jackson, one of our directors, is the President, Chief Operating
Officer and a director of InterCept. In addition, our Chief Executive Officer,
Glenn W. Sturm, is also a director of InterCept.
Marketing Agreement
We intend to enter into a marketing agreement with InterCept under which our
salespersons will sell InterCept products and services and InterCept
salespersons will sell our products and services. Under this agreement, we will
pay a commission to InterCept for each sale of our products and services made
by InterCept salespersons and for each referral to our sales force that results
in a sale. InterCept correspondingly will pay us for sales and referrals by our
salespersons.
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Sale of SBS Non-Remote Banking Operations
In August 1999, Direct Access Interactive, our predecessor, purchased SBS
for 2.6 million shares of its common stock and $16.6 million in cash.
Additionally, Direct Access Interactive repaid approximately $4.9 million of
SBS debt. In August 1999, while Direct Access Interactive was a majority-owned
subsidiary of InterCept, Direct Access Interactive sold all of the assets it
acquired from SBS, other than SBS's Internet and telephone banking assets, to
InterCept for 450,000 shares of Direct Access Interactive's common stock, which
InterCept previously had owned.
Leases
We lease our sales, marketing and administrative offices in Birmingham,
Alabama from DMB, LLC, which is principally owned by David W. Brasfield, our
Senior Executive Vice President--Sales and Marketing. We pay DMB a monthly rent
of $20,000. We intend to sublease a portion of this property to InterCept.
InterCept currently leases the property that includes our data center
facility in Birmingham, Alabama from DMB, LLC at a monthly rent of $8,500 per
month. We intend to enter into a sublease with InterCept with respect to this
facility.
Promissory Notes
In August 1999, our predecessor, Direct Access Interactive, issued a
promissory note payable to InterCept in the amount of $21.5 million. This note
matures on the earlier of August 6, 2001 or the closing date of our initial
public offering and carries an interest rate of the prime rate as published in
The Wall Street Journal (Eastern Edition) plus 2%. As of September 10, 1999,
this loan bore interest at a rate of 10.0% per year. Interest on the
outstanding balance is due quarterly. The note is secured by all of our assets.
As of September 1, 1999, we had recognized interest expense of approximately
$144,000.
In September 1999, we issued two promissory notes payable to InterCept in
the amounts of $4.4 million and $2.9 million. Each note matures on the earlier
of September 1, 2001 or the closing date of our initial public offering, and
each note carries an interest rate of the prime rate as published in The Wall
Street Journal (Eastern Edition) plus 2%. As of September 10, 1999, this loan
bore interest at a rate of 10.25% per year. Interest only is due quarterly in
arrears with the first payment due on October 1, 1999. The notes are secured by
all of our assets, and we have granted InterCept a security interest in all of
the assets we acquired from Dyad and Call Me Bill. As of September 1, 1999, we
had recognized interest expense of approximately $1,253 and $820 on the two
loans.
We intend to repay the principal and accrued interest on the loans with a
portion of the net proceeds of this offering, as described in "Use of
Proceeds."
Relationship with TIB and The Bankers Bank
In connection with our purchase of the Internet banking division of each of
TIB and The Bankers Bank in September 1999, we agreed to use our commercially
reasonable efforts to begin marketing and selling the Icom B product, currently
owned by them, no later than March 2000. Icom B is an Internet banking product
that allows financial institutions to interface with bankers' banks. They may
contract directly with correspondent banks with respect to the Icom B product
and they will receive our support for Icom B. They have the right to obtain
from us a nonexclusive, royalty free license to the Icom B product and its
source code so that they can continue to use the Icom B product. Under these
agreements, we have agreed to cause Bruce P. Leonard, President and Chief
Executive Officer of The Bankers Bank, and Gayle M. Earls, President and Chief
Executive Officer of TIB, to be elected as class III directors, whose terms
will expire no earlier than our third annual meeting of shareholders following
this offering. We have also agreed to pay commissions to each of these bankers'
banks pursuant to our strategic marketing agreements. See "Business--Sales and
Marketing--Strategic Marketing Alliances."
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Relationship with The Robinson-Humphrey Company, LLC
In connection with our acquisition of Dyad, The Robinson-Humphrey Company,
LLC issued an opinion to our board of directors that the consideration to be
paid to the shareholders of Dyad was fair, from a financial point of view, to
us. We paid Robinson-Humphrey $50,000 for their services.
Director and Officer Loans
On July 1, 1999, Messrs. Collins, Sturm and Jackson entered into
substantially similar full-recourse promissory notes with Direct Access
Interactive as lender. These notes were given as consideration for the issuance
of shares of common stock to these individuals. Mr. Collins borrowed $1.1
million, Mr. Sturm borrowed $1.3 million and Mr. Jackson borrowed $400,000.
Each of these notes bears interest at 7% per year, and interest must be paid on
each June 30 and December 31 until the note is paid in full. These notes mature
on June 30, 2002.
On August 5, 1999, Mr. Eiswirth borrowed $93,300 from Direct Access
Interactive and signed a full-recourse promissory note evidencing this loan. He
borrowed this money to exercise options to purchase 30,000 shares of Direct
Access Interactive common stock. This loan bears interest at a rate of 7% per
year. Interest is payable on each June 30 and December 31 until the note is
paid in full. This note matures on August 4, 2002.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of September 14, 1999, and as adjusted to
reflect the sale of the common stock in this offering, by
. each of our directors;
. each shareholder known by us to be the beneficial owner of more than 5%
of our common stock;
. all of our executive officers and directors as a group, and
. each selling shareholder.
As of September 14, 1999, we had 15,395,855 shares of common stock issued
and outstanding.
A person is deemed to be a beneficial owner of a security if that person has
or shares "voting power," which includes the power to vote or to direct the
voting of a security, or "investment power," which includes the power to
dispose of or to direct the disposition of a security. Except as otherwise
indicated, and subject to applicable community property laws, the persons named
below have sole voting and investment power with respect to all shares of
common stock beneficially owned by them. Unless otherwise indicated, the
address of each beneficial owner below is 2410 Paces Ferry Road, 150 Paces
Summit, Atlanta, Georgia 30339.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially Owned
Prior to the Offering After the Offering
---------------------------------- Number of -----------------------------------
Name of Beneficial Owner Number Percent Shares Offered Number Percent
- ------------------------ -------------- -------------------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
The InterCept Group,
Inc.
3150 Holcomb Bridge
Road, Suite 200
Norcross GA 30071...... 7,557,673(1) 49.1% 0 7,557,673(1)
TIB The Independent
BankersBank
P. O. Box 560528
Dallas TX 75356-0528... 1,361,000 8.8%
The Bankers Bank
2410 Paces Ferry Road
600 Paces Summit
Atlanta GA 30339-4098.. 1,361,000 8.8%
David W. Brasfield
1500 Resource Drive
Birmingham AL 35242.... 916,667(2)(7) 5.9% 0 916,667(2)(7)
Michael Vaughn
1500 Resource Drive
Birmingham AL 35242.... 866,667(2) 5.6% 0 866,667(2)
Robert D. Kirk, III
1500 Resource Drive
Birmingham AL 35242.... 866,667(2) 5.6% 0 866,667(2)
Glenn W. Sturm.......... 814,889(3)(4) 5.3% 0 814,889(3)(4)
John W. Collins......... 757,594(3)(5) 4.9% 0 757,594(3)(5)
Donny R. Jackson........ 351,951(3)(6) 2.3% 0 351,951(3)(6)
Sirrom Investments, Inc
500 Church Street
Nashville TN 37219..... 66,947 * 66,947 0 0%
Gayle M. Earls.......... 10,000(8) * 0 10,000(8) *
Joel A. Katz............ 10,000(8) * 0 10,000(8) *
Bruce P. Leonard........ 10,000(8) * 0 10,000(8) *
A. Jay Waite............ 10,000(8) * 0 10,000(8) *
All directors and
executive officers
as a group (11
persons)............... 3,260,158(9) 20.6% 3,260,158(9)
</TABLE>
- --------
* Less than 1% of the outstanding common stock
(1) All 7,557,673 of our shares beneficially owned by InterCept have been
pledged by InterCept as collateral to a lender to secure debt for money
borrowed.
(2) Includes 86,667 shares held of record by First Union National Bank, as
escrow agent.
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<PAGE>
(3) Excludes 7,557,673 shares held by InterCept as to which Mr. Sturm, Mr.
Collins and Mr. Jackson, directors of InterCept, each disclaim beneficial
ownership.
(4) Includes 95,000 shares underlying options that are immediately exercisable
or will become exercisable upon the completion of this offering.
(5) Includes 118,932 shares held indirectly through FDS, LLC, in which Mr.
Collins owns a 60% membership interest.
(6) Includes 118,932 shares held indirectly through FDS, LLC, in which Mr.
Jackson owns a 20% membership interest.
(7) Includes 50,000 shares underlying options that will become exercisable upon
the completion of this offering.
(8) Includes 10,000 shares underlying options that are immediately exercisable.
(9) Includes a total of 400,000 shares underlying options that are immediately
exercisable or will become exercisable upon the completion of this
offering.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is only a summary and is
subject to the provisions of our articles of incorporation and bylaws, which
are included as exhibits to the registration statement of which this prospectus
forms a part, and the provisions of applicable law.
Authorized and Outstanding Capital Stock
Our articles of incorporation authorize the board of directors to issue
70,000,000 shares of common stock without par value and 5,000,000 shares of
preferred stock without par value, in one or more classes or series and to
determine the voting rights, preferences as to dividends and in liquidation,
and conversion and other rights of each series. We have issued no preferred
stock. As of September 14, 1999, 15,395,855 shares of common stock were
outstanding.
Common Stock
Under the articles of incorporation, holders of common stock are entitled to
receive dividends as the board of directors may legally declare. Each
shareholder is entitled to one vote per share on all matters to be voted upon
and is not entitled to cumulate votes for the election of directors. Holders of
common stock do not have preemptive, redemption or conversion rights and, upon
liquidation, dissolution or winding up of Netzee, will be entitled to share
ratably in the net assets of Netzee available for distribution to common
shareholders. The rights, preferences and privileges of holders of common stock
are subject to the rights, preferences and privileges of holders of any classes
or series of preferred stock that we may issue in the future.
Preferred Stock
The articles of incorporation authorize the board of directors to issue,
without further action by the holders of the common stock, shares of preferred
stock in one or more series and to fix any preferences, conversion and other
rights, voting powers, restrictions, limitations, qualifications and terms and
conditions of redemption as shall be set forth in resolutions adopted by the
board of directors. Articles of amendment must be filed with the Georgia
Secretary of State prior to the issuance of any shares of preferred stock of
the applicable series. Any preferred stock so issued may rank senior to the
common stock with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding-up, or both. In addition, any shares of
preferred stock issued may have class or series voting rights. Issuances of
preferred stock, while providing us with flexibility in connection with general
corporate purposes, may, among other things, have an adverse effect on the
rights of holders of common stock and could have the effect of discouraging or
making it more difficult for a third party to acquire a majority of our
outstanding voting stock or the effect of decreasing the market price of the
common stock. As of the date of this prospectus, no shares of preferred stock
are outstanding, and we have no present plan to issue any shares of preferred
stock.
Classified Board of Directors
The articles of incorporation provide that the board of directors shall
consist of not less than three members, unless the articles of incorporation
are amended to delete the classification of the board of directors. The board
of directors is divided into three classes of directors, as nearly equal in
number as possible, serving staggered three-year terms. As a result,
approximately one-third of the members of the board of directors are elected at
each annual meeting of shareholders. The classification of directors permits
the remaining directors to fill any vacancies on the board of directors and has
the effect of making it more difficult for shareholders to change the
composition of the board of directors. As a result, at least two annual
meetings of shareholders may be required for the shareholders to change a
majority of the directors, whether or not any change in the board of directors
would be beneficial to us and our shareholders and whether or not a majority of
our shareholders believes that such a change would be desirable. We believe,
however, that the longer time required to elect a
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<PAGE>
majority of a classified board of directors will help to ensure the continuity
and stability of our management and policies. Currently, the terms of class I
directors expire upon the date of the 2000 annual meeting of shareholders, the
terms of class II directors expire upon the date of the 2001 annual meeting of
shareholders, and the terms of class III directors expire upon the date of the
2002 annual meeting of shareholders.
Removal of Directors and Filling Vacancies
The bylaws provide that, unless the board of directors otherwise determines,
any vacancies, including vacancies resulting from an increase in the number of
directors, will be filled by the affirmative vote of a majority of the
remaining directors, even if less than a quorum. Directors elected to fill a
vacancy shall hold office until the next election of the class for which they
were chosen. A director may be removed with or without cause by the
shareholders at any time.
Special Meetings and Action of Shareholders by Written Consent
Under the bylaws, the holders of shares representing 25% or more of the
votes entitled to be cast may call a special meeting. Under the articles of
incorporation, the shareholders may act without a meeting and by written
consent, if the written consent is signed by the holders of not less than the
minimum number of votes that would be necessary to authorize the action if it
were presented for a vote at a meeting at which all shareholders entitled to
vote were present and had voted.
Indemnification and Limitation of Liability
The articles of incorporation eliminate, subject to certain exceptions, the
personal liability of a director to us or our shareholders for monetary damage
for breaches of such director's duty of care or other duties as a director. The
articles of incorporation do not provide for the elimination of or any
limitation on the personal liability of a director for (1) any appropriation,
in violation of the director's duties, of any business opportunity of ours, (2)
acts or omissions that involve intentional misconduct or a knowing violation of
law, (3) unlawful corporate distributions, or (4) any transactions from which
the director derived an improper personal benefit. The articles of
incorporation further provide that if the Georgia Business Corporation Code is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director shall be
eliminated or limited to the fullest extent permitted by the Georgia Business
Corporation Code, as amended, without further action by the shareholders. These
provisions of the articles of incorporation will limit the remedies available
to a shareholder in the event of breaches of any director's duties to the
shareholder or to us.
Our bylaws require us to indemnify and hold harmless any director who was or
is a party or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative, including any action or suit by or in the right of Netzee,
because he or she is or was a director of Netzee, against expenses (including,
but not limited to, attorney's fees and disbursements, court costs and expert
witness fees), and against judgments, fines, penalties, and amounts paid in
settlement incurred by him or her in connection with the action, suit or
proceeding. Indemnification would be disallowed under any circumstances where
indemnification may not be authorized by action of the board of directors, the
shareholders or otherwise. The board of directors has the power to cause us to
indemnify our (1) officers, employees and agents, and (2) any director,
officer, employee or agent of Netzee who is or was serving at our request as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
In order to provide this indemnification, the board of directors must adopt a
resolution identifying the person or persons to be indemnified and specifying
the particular rights to be provided, which may be different for each person.
We intend to enter into indemnification agreements with each of our
executive officers and directors that will indemnify them to the fullest extent
permitted by the Georgia Business Corporation Code.
To the extent that we have funds reasonably available to be used, we shall
advance to any Netzee director, and may advance to any officer, employee or
agent of Netzee (but only if so provided by a resolution of the board of
directors), expenses incurred in defending any proceeding for which
indemnification is applicable,
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<PAGE>
even before the final disposition of the proceeding. However, the indemnified
party must provide a written affirmation of his or her good faith belief that
he or she has met the standard of conduct required for indemnification and a
written undertaking to repay any advances made if it is determined that the
person is not entitled to indemnification. At present, the board of directors
has not adopted any indemnification resolutions although it may do so at any
time.
Our bylaws also permit us to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of Netzee, or
who, while serving in that capacity, is also or was also serving at our request
as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, whether or not we were required to indemnify the person by any
bylaw provision or resolution of the board of directors. We intend to purchase
a policy of insurance providing reimbursement of liabilities incurred by
directors and officers in their capacities as such.
Business Combination Provisions of Georgia Law
The Georgia Business Corporation Code generally restricts a corporation from
entering into certain business combinations with an interested shareholder,
which is defined as any person or entity that is the beneficial owner of at
least 10% of the company's voting stock, or its affiliates for a period of five
years after the date on which the shareholder became an interested shareholder,
unless:
. the transaction is approved by the board of directors of the corporation
prior to the date such person became an interested shareholder,
. the interested shareholder acquires 90% of the corporation's voting
stock in the same transaction in which it exceeds 10%, or
. subsequent to becoming an interested shareholder, the shareholder
acquires 90% of the corporation's voting stock and the business
combination is approved by the holders of a majority of the voting stock
entitled to vote on the transaction.
The "fair price" provisions of the Georgia Business Corporation Code further
restrict business combination transactions with 10% shareholders. These
provisions require that the consideration paid for stock acquired in the
business combination must meet specified tests, which are designed to ensure
that shareholders receive at least fair market value for their shares in the
business combination.
The interested shareholder and fair price provisions of the Georgia Business
Corporation Code do not apply to a corporation unless the bylaws of the
corporation specifically provide that these provisions are applicable to the
corporation. Netzee has not elected to be covered by these provisions, but it
could do so by action of the board of directors at any time.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is SunTrust Bank, Inc.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock,
and a significant public market for the common stock may not develop or be
sustained after the offering. Any future sale of substantial amounts of the
common stock in the open market may adversely affect the market price of the
common stock offered by this prospectus. When we complete this offering, we
will have shares of common stock outstanding, or shares if the
underwriters exercise their over-allotment option in full. Of this amount, the
shares sold in this offering will be freely tradeable without restriction
or further registration under the Securities Act, unless the shares are
purchased by persons who are our "affiliates," as that term is defined in Rule
144 under the Securities Act. Sales by affiliates are subject to the
limitations and restrictions imposed by Rule 144, as described below.
We sold the remaining 15,395,855 outstanding shares in private transactions.
Unless registered under the Securities Act, these shares, which we refer to as
"restricted shares," as well as shares that we register in this offering that
are purchased by our affiliates, must be sold in accordance with the holding
period requirements, volume limits and other conditions of an applicable
exemption from registration, such as Rule 144 under the Securities Act
discussed below. Additionally, substantially all of our shareholders have
agreed not to sell any common stock or securities convertible into common stock
for 180 days after the date of this prospectus without the prior approval of
The Robinson-Humphrey Company, LLC, except that we may grant options and sell
shares under our 1999 Stock Option and Incentive Plan without this consent.
Robinson-Humphrey, however, may, in its sole discretion, release all or a
portion of the shares subject to any lockup agreement.
Based on the above, the following table indicates when the shares that will
be outstanding upon completion of this offering will be eligible for sale in
the public market:
<TABLE>
<CAPTION>
Days after the Date Approximate Shares
of this Prospectus Eligible for Future Sale Comment
- ------------------------ ------------------------ -----------------------------------
<S> <C> <C>
Upon effectiveness...... None Freely tradeable shares sold in
this offering and restricted shares
salable under Rule 144(k) that
are not subject to 180-day
lockup.
90 days................. None Restricted shares salable under
Rule 144 or 144(k) that are not
subject to 180-day lockup.
180 days................ None Lockup released; restricted
shares salable under Rule 144,
144(k).
181-366 days............ Restricted shares saleable
under Rule 144
</TABLE>
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned shares for at least one
year is entitled to sell within any three-month period commencing 90 days after
the date of this prospectus a number of shares that does not exceed the greater
of:
. 1% of the then outstanding shares of common stock (approximately
shares immediately after the offering), or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the date upon which a Form 144 was filed with
respect to the sale.
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<PAGE>
Persons selling under Rule 144 must also comply with Rule 144's requirements
concerning the availability of specified public information about us, the
manner of sale and filing of notice of sale. However, a person, or persons
whose shares are aggregated, who is not deemed to have been an affiliate of
ours at any time during the three months immediately preceding the sale and who
has beneficially owned his or her shares for at least two years is entitled to
sell his or her shares under Rule 144(k) without regard to the limitations
described above. Persons deemed to be affiliates must always sell under Rule
144 even after the one-year holding period has been satisfied.
We intend to file a registration statement on Form S-8 under the Securities
Act within 90 days after the date of this prospectus to register 3,500,000
shares of common stock reserved for issuance under our 1999 Stock Option and
Incentive Plan. This will permit non-affiliates to sell immediately those
shares in the public market without limitation and will permit affiliates to
sell their shares in compliance with all requirements of Rule 144, except the
holding period.
In connection with our acquisition of SBS Corporation and Dyad Corporation,
we granted the former shareholders of SBS and Dyad the right to register their
shares of our common stock they received in that acquisition. The former SBS
and Dyad shareholders may require us to register their stock if, at any time
after we have completed this offering, we propose to register any of our
securities under the Securities Act, other than registrations on Form S-4 or
Form S-8.
In connection with our acquisitions of the Internet banking divisions of
each of TIB and The Bankers Bank, we granted to each of these bankers' banks
demand and piggyback registration rights with respect to the 1,361,000 shares
of our common stock that each of them received in these acquisitions. Each
bankers' bank's demand registration rights vest 180 days after the completion
of this offering and if the bankers' bank is required by regulatory authority
to divest some or all of our common stock. Only one demand registration may be
requested by the bankers' banks. Their piggyback registration rights vest upon
the earlier of (1) 180 days after September 3, 1999 or (2) the date that we
become a public company. We have agreed to pay all our expenses incurred in
registering the bankers' banks common stock, and the first $25,000 of expenses
incurred by the selling shareholders.
We anticipate that in connection with employment agreements to be entered
into with each of Glenn W. Sturm, C. Michael Bowers, Richard S. Eiswirth and
David W. Brasfield, we will grant these executive officers both demand and
piggyback registration rights with respect to their shares of our common stock.
We cannot estimate the number of shares that will be sold under Rule 144,
our Form S-8 registration statement or any registration statement that we may
file on behalf of former SBS or Dyad shareholders, since this will depend on
the market price of our common stock, the personal circumstances of the sellers
and other factors.
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<PAGE>
UNDERWRITING
The Robinson-Humphrey Company, LLC, J.C. Bradford & Co. and SunTrust
Equitable Securities Corporation are acting as representatives of the
underwriters named below. Subject to the terms and conditions contained in the
underwriting agreement between us, the selling shareholders and the
representatives of the underwriters, each underwriter named below has severally
agreed to purchase from us and the selling shareholders the number of shares of
common stock indicated opposite the name of each underwriter, at the public
offering price less the underwriting discount set forth on the cover page of
this prospectus:
<TABLE>
<CAPTION>
Underwriter Number of Shares
- ----------- ----------------
The Robinson-Humphrey Company, LLC...............................
<S> <C>
J.C. Bradford & Co...............................................
SunTrust Equitable Securities Corporation........................
Total..........................................................
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to purchase all of the shares, other
than those covered by the over-allotment option described below, if they
purchase any of the shares. The underwriters reserve the right to withdraw,
cancel or modify the offering and to reject orders in whole or in part.
The underwriters propose to offer part of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus and
part of the shares to dealers at that price less a concession not in excess of
$ per share. The underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share on sales to other
dealers. After the initial public offering, the representatives may change the
public offering price and the other selling terms.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to additional shares
of common stock at the public offering price less the underwriting discount.
The underwriters may exercise the option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent the
option is exercised, each underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares approximately
proportionate to each underwriter's initial purchase commitment.
The following table shows the underwriting fees that we and the selling
shareholders will pay to the underwriters in connection with the offering.
These amounts are shown assuming both no exercise and full exercise of the
underwriters' over-allotment option to purchase additional shares of our common
stock.
<TABLE>
<CAPTION>
To be Paid by
Selling
To be Paid by Netzee Shareholders
-------------------- -----------------
Full No Full
No Exercise Exercise Exercise Exercise
----------- -------- -------- --------
<S> <C> <C> <C> <C>
Per share................................ $ $ $ $
Total.................................... $ $ $ $
</TABLE>
We estimate our expenses of this offering, exclusive of the underwriting
discount, will be $ . Additionally, we and the selling shareholders have
agreed to indemnify the underwriters against specified liabilities, including
civil liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect thereof.
The representatives have informed us that the underwriters do not expect to
make sales of common stock offered by this prospectus to accounts over which
they exercise discretionary authority in excess of 5% of the number of shares
of common stock offering by this prospectus.
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<PAGE>
The underwriters have reserved for sale, at the initial public offering
price, up to shares of common stock for our employees, directors and
other persons we have designated, who have expressed an interest in purchasing
shares of our common stock. The number of shares available for sale to the
general public in this offering will be reduced to the extent those persons
purchase the reserved shares. Any reserved shares not so purchased will be
offered to the general public on the same basis as other shares offered by this
prospectus.
Substantially all of our shareholders have agreed that during the 180-day
period following the date of the prospectus, they will not, without the prior
written consent of The Robinson-Humphrey Company, LLC:
. directly or indirectly make, agree to or cause any offer, sale
(including short sale), loan, pledge or other disposition of, or grant
any options, rights or warrants to purchase with respect to, or
otherwise transfer or reduce any risk of ownership of, directly or
indirectly, any shares of our common stock or any securities convertible
into or exchangeable or exercisable for our common stock;
. enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of the common
stock; or
. make any demand for, or exercise any right with respect to, the
registration of shares of our common stock or any securities convertible
into or exchangeable or exercisable for our common stock.
In addition, during the 180-day period, we have also agreed not to issue, or
to file any registration statement with respect to the registration of, any
shares of our common stock or any securities convertible into or exercisable
for our common stock, except that we intend to file a registration statement on
Form S-8 under the Securities Act within 90 days after the completion of the
offering to register shares of common stock issuable under outstanding stock
options or reserved for issuance under our 1999 Stock Option and Incentive
Plan. This will permit holders of those shares to sell them in the public
market without compliance with any holding period requirement.
Before this offering, there has been no public trading market for the common
stock. Consequently, the initial public offering price of the common stock has
been determined by negotiations among us, the representatives of the selling
shareholders and the representatives of the underwriters. The factors
considered in determining the initial public offering price included the
following:
. the history and future prospects of Netzee and our industry;
. our past and present revenues and earnings and the prospects for growth
in our revenues and earnings;
. the present state of our development;
. an assessment of our management;
. the general condition of the economy and the securities markets at the
time of this offering; and
. the market prices of and demand for publicly traded common stock of
comparable companies at the time of the offering.
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "NETZ."
Until the distribution of the common stock is completed, rules of the SEC
may limit the ability of the underwriters and specified selling group members
to bid for and purchase the common stock. As an exception to these rules, the
representatives of the underwriters are permitted to engage in specified
transactions that stabilize the price of the common stock. These transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the common stock. If the underwriters create a short position in
the common stock in connection with this offering (that is, if they sell more
shares of common stock than are set
77
<PAGE>
forth on the cover page of this prospectus), the representatives may reduce
that short position by purchasing common stock in the open market. The
representatives of the underwriters may also elect to reduce any short position
by exercising all or part of the over-allotment option described above. The
representatives of the underwriters may also impose a penalty bid on
underwriters and selling group members in some cases. This means that if the
representatives purchase shares of common stock in the open market to reduce
the underwriters' short position or to stabilize the price of the common stock,
they may reclaim the amount of the selling concession from the underwriters and
selling group members who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of those purchases. The imposition of a penalty bid
might also have an effect on the price of a security if it discourages resales
of the security. None of Netzee, the selling shareholders or any of the
underwriters make any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the common stock. In addition, the underwriters are not required to
engage in these activities and may end any of these activities at any time. The
representatives intend to make a market in the common stock after the
completion of the offering.
Michael C. Nunan and James Graves, partners of J.C. Bradford & Co., one of
the underwriters, and JCB Venture Partnership III, an investment partnership
that is affiliated with J.C. Bradford & Co., own 3,837, 3,837 and 38,366 shares
of Netzee's common stock, respectively. These shareholders received their
shares in connection with Netzee's acquisition of Dyad in September 1999.
In September 1999, we paid The Robinson-Humphrey Company, LLC a fee in the
amount of $50,000 for advisory services rendered in connection with our
acquisition of Dyad.
From time to time in the future in the ordinary course of business, the
representatives may provide investment banking services to us.
There are restrictions on the offer and sale of the common stock in the
United Kingdom. All applicable provisions of the Financial Services Act 1986
and the Public Offers of Securities Regulations 1995 with respect to anything
done by any person in relation to the common stock in, from or otherwise
involving the United Kingdom must be complied with.
Each underwriter has also agreed that it has:
. not offered or sold, and prior to the date six months after the date of
issue of the shares of common stock will not offer or sell, any shares
of common stock to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purpose of
their businesses or otherwise in circumstances which have not resulted
and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995;
. complied, and will comply with, all applicable provisions of the
Financial Services Act 1986 of Great Britain with respect to anything
done by it in relating to the shares of common stock in, from or
otherwise involving the United Kingdom; and
. only issued or passed on, and will only issue or pass on, in the United
Kingdom any document received by it in connection with the issuance of
the shares of common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended) of Great Britain or
is a person to whom the document may otherwise lawfully be issued or
passed on.
78
<PAGE>
EXPERTS
The audited financial statements and schedule included in this prospectus
and elsewhere in the registration statement to the extent and for the periods
indicated in their reports have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, Atlanta, Georgia, will issue an opinion
regarding the validity of the common stock we are offering. Alston & Bird LLP,
Atlanta, Georgia, will pass upon certain legal matters for the underwriters.
Attorneys at Sutherland Asbill & Brennan may purchase shares in this offering.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act to register the common stock we are offering. This prospectus is
part of that registration statement and, as permitted by SEC rules, omits some
of the information in the registration statement and the exhibits and schedules
to the registration statement. For further information about us and our common
stock, you should read the registration statement, together with the
accompanying exhibits and schedules. Statements contained in this prospectus
regarding the contents of any contract or other document are necessarily
summaries. You should read the exhibit for a more complete description of the
contract or document. We qualify each statement contained in this prospectus
regarding the contents of any contract or document filed as an exhibit to the
registration statement by reference to the exhibit.
You may read the registration statement at the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549 and may obtain copies of the
registration statement from the Public Reference Room at prescribed rates. You
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site at
http://www.sec.gov through which you may review the registration statement.
We are not presently a reporting company and do not file reports or other
information with the SEC. On the effective date of the registration statement,
however, we will become a reporting company, and we will register our
securities under the Securities Exchange Act of 1934. Accordingly, the
additional reporting requirements of the Exchange Act will apply to us, and we
will be required to file reports, proxy statements and other information with
the SEC. In addition, after the completion of this offering, we intend to
furnish our shareholders with annual reports containing audited financial
statements, and with quarterly reports, containing unaudited summary financial
information for each of the first three quarters of each fiscal year.
79
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Netzee, Inc. and Direct Access Interactive, Inc. (Predecessor)
Report of Independent Public Accountants................................ F-3
Balance Sheets as of December 31, 1997 and 1998 for Direct Access
Interactive, Inc. (Predecessor) and June 30, 1999 (Unaudited).......... F-4
Statements of Operations for the period from Inception (October 10,
1996) to December 31, 1996 and for the years ended December 31, 1997
and 1998, the six months ended June 30, 1998, and for the period from
January 1, 1999 to February 28, 1999 (Unaudited) for Direct Access
Interactive, Inc. (Predecessor) and for the period from March 1, 1999
to June 30, 1999 (Unaudited)........................................... F-5
Statements of Changes in Shareholders' (Deficit) Equity for the period
form Inception (October 10, 1996) to December 31, 1996 and for the
years ended December 31, 1997 and 1998 and for the periods ended
February 28, 1999 (Unaudited) for Direct Access Interactive, Inc.
(Predecessor) and June 30, 1999 (Unaudited)............................ F-6
Statements of Cash Flows for the period form Inception (October 10,
1996) to December 31, 1996 and for the years ended December 31, 1997
and 1998, for the six months ended June 30, 1998, and for the period
from January 1, 1999 to February 28, 1999 (Unaudited) for Direct Access
Interactive, Inc. (Predecessor) and for the period from March 1, 1999
to June 30, 1999 (Unaudited)........................................... F-7
Notes to Financial Statements........................................... F-8
Dyad Corporation and Subsidiaries
Report of Independent Public Accountants................................ F-18
Consolidated Balance Sheets as of December 31, 1997 and 1998 and June
30, 1999 (Unaudited)................................................... F-19
Consolidated Statements of Operations for the years ended December 31,
1997 and 1998 and the six months ended June 30, 1998 and 1999
(Unaudited)............................................................ F-20
Consolidated Statements of Changes in Shareholders' Deficit for the
years ended December 31, 1997 and 1998 and the six months ended June
30, 1999 (Unaudited)................................................... F-21
Consolidated Statements of Cash Flows for the years ended December 31,
1997 and 1998 and for the six months ended June 30, 1998 and 1999
(Unaudited)............................................................ F-22
Notes to Consolidated Financial Statements.............................. F-23
The Internet Banking Division of The Bankers Bank ("TBB")
Report of Independent Public Accountants ............................... F-31
Balance Sheets as of December 31, 1998 and June 30, 1999 (Unaudited).... F-32
Statements of Operations for the period from Inception (March 1, 1998)
to December 31, 1998 and for the period from Inception (March 1, 1998)
to June 30, 1998 and for the six month period ended June 30, 1999
(Unaudited)............................................................ F-33
Statements of Changes in Accumulated Deficit for the period from
Inception (March 1, 1998) to December 31, 1998 and for the six month
period ended June 30, 1999 (Unaudited)................................. F-34
Statements of Cash Flows for the period from Inception (March 1, 1998)
to December 31, 1998 and for the period from Inception (March 1, 1998)
to June 30, 1998 and for the six month period ended June 30, 1999
(Unaudited)............................................................ F-35
Notes to Financial Statements........................................... F-36
</TABLE>
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
The Internet Banking Division of The Independent BankersBank ("TIB")
Report of Independent Public Accountants................................ F-42
Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999
(Unaudited)............................................................ F-43
Statements of Operations for the period from inception (February 1,
1997) to December 31, 1997 and for the period from Inception (July 31,
1997) to December 31, 1997 and for the year ended December 31, 1998 and
for the six months ended June 30, 1998 and 1999 (Unaudited)............ F-44
Statements of Changes in Accumulated Deficit for the period from
inception (February 1, 1997) to December 31, 1997 and for the year
ended December 31, 1998 and for the six months ended June 30, 1999
(Unaudited)............................................................ F-45
Statements of Cash Flows for the period from inception (February 1,
1997) to December 31, 1997 and for the year ended December 31, 1998 and
for the six months ended June 30, 1998 and 1999 (Unaudited)............ F-46
Notes to Financial Statements........................................... F-47
Call Me Bill, LLC
Report of Independent Public Accountants................................ F-53
Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999
(Unaudited)............................................................ F-54
Statements of Operations for the period from Inception (July 31, 1997)
to December 31, 1997 and for the year ended December 31, 1998 and for
the six months ended June 30, 1998 and June 30, 1999 (Unaudited)....... F-55
Statements of Changes in Members' Deficit for the period from Inception
(July 31, 1997) to December 31, 1997 and for the year ended December
31, 1998 and for the six months ended June 30, 1999 (Unaudited)........ F-56
Statements of Cash Flows for the year ended December 31, 1998 and for
the six months ended June 30, 1998 and 1999............................ F-57
Notes to Financial Statements........................................... F-58
SBS Corporation Internet and Telephone Banking Business
Report of Independent Public Accountants................................ F-62
Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999
(Unaudited)............................................................ F-63
Statements of Operations for the years ended December 31, 1997 and 1998
and the six months ended June 30, 1998 and 1999 (Unaudited)............ F-64
Statements of Changes in Shareholders' Earnings (Deficit) for the years
ended December 31, 1997 and 1998 and the six months ended June 30, 1999
(Unaudited)............................................................ F-65
Statements of Cash Flows for the years ended December 31, 1997 and 1998
and for the six months ended June 30, 1998 and 1999 (Unaudited)........ F-66
Notes to Financial Statements........................................... F-67
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Netzee, Inc.:
We have audited the accompanying balance sheets of NETZEE, INC. (a Georgia
corporation, formerly Direct Access Interactive, Inc.) as of December 31, 1997
and 1998 and the related statements of operations, shareholders' deficit, and
cash flows for the period from inception (October 10, 1996) to December 31,
1996 and for the years ended December 31, 1997 and 1998. 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 Netzee, Inc. as of December
31, 1997 and 1998 and the results of its operations and its cash flows for the
period from inception (October 10, 1996) to December 31, 1996 and for the years
ended December 31, 1997 and 1998 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
September 8, 1999
F-3
<PAGE>
The purchase method of accounting was used to record assets acquired and
liabilities assumed by Netzee, Inc. Such accounting generally results in
increased amortization reported in future periods. Accordingly, the
accompanying financial statements of the Predecessor and Netzee, Inc. are not
comparable in all material respects, since those financial statements report
financial position, results of operations, and cash flows on a different basis
of accounting.
NETZEE, INC.
(Formerly Direct Access Interactive, Inc. "Predecessor")
BALANCE SHEETS
<TABLE>
<CAPTION>
Predecessor
------------------ June 30,
December 31, 1999
1997 1998 (Unaudited)
-------- -------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................................................ $ 28,057 $ 13,985 $ 0
Accounts receivable, net of allowance for doubtful accounts of $0, $10,000, and $10,000 at
December 31, 1997 and 1998, and June 30, 1999, respectively................................ 19,222 35,780 90,483
Prepaid and other current assets............................................................ 0 0 50,547
-------- -------- ----------
Total current assets...................................................................... 47,279 49,765 141,030
PROPERTY AND EQUIPMENT, net................................................................... 1,575 15,006 763,631
-------- -------- ----------
INTANGIBLE ASSETS, net of accumulated amortization of $11,849, $21,985, and $138,938 at
December 31, 1997 and 1998, and June 30, 1999, respectively.................................. 39,022 28,886 1,794,154
-------- -------- ----------
Total assets.............................................................................. $ 87,876 $ 93,657 $2,698,815
======== ======== ==========
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses....................................................... $ 72,295 $165,089 $ 41,390
Line of credit.............................................................................. 0 199,973 0
Current portion of related-party loans from shareholders.................................... 0 79,500 0
Deferred revenues........................................................................... 68,538 103,913 74,465
-------- -------- ----------
Total current liabilities................................................................. 140,833 548,475 115,855
-------- -------- ----------
Due to Parent................................................................................. 0 0 750,000
-------- -------- ----------
RELATED-PARTY LOANS FROM SHAREHOLDERS......................................................... 50,000 0 0
-------- -------- ----------
COMMITMENTS AND CONTINGENCIES (Note 8) SHAREHOLDERS' (DEFICIT) EQUITY:
Preferred stock, no par value, 5,000,000 shares authorized, no shares issued and outstanding
........................................................................................... 0 0 0
Common stock, no par value; 10,000,000 shares authorized, 2,000,000 shares issued and
outstanding at December 31, 1997 and 1998; no par value, 70,000,000 shares authorized,
8,000,000 issued and outstanding at June 30, 1999.......................................... 50,871 50,871 2,166,889
Accumulated deficit......................................................................... (153,828) (505,689) (333,929)
-------- -------- ----------
Total shareholders' (deficit) equity...................................................... (102,957) (454,818) 1,832,960
-------- -------- ----------
Total liabilities and shareholders' (deficit) equity...................................... $ 87,876 $ 93,657 $2,698,815
- --------------------------------------------------
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-4
<PAGE>
The six month period ended June 30, 1999 is presented in two columns below
due to the acquisition of the predecessor on March 9, 1999 which established a
new basis of accounting for certain assets and liabilities of the Company. The
purchase method of accounting was used to record assets acquired and
liabilities assumed by Netzee, Inc. Such accounting generally results in
increased amortization reported in future periods. Accordingly, the
accompanying financial statements of the Predecessor and Netzee, Inc. are not
comparable in all material respects, since those financial statements report
financial position, results of operations, and cash flows on a different basis
of accounting.
NETZEE, INC.
(Formerly Direct Access Interactive, Inc. "Predecessor")
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Predecessor
----------------------------------------------------------------------------
Year Ended For the For the
Period From Inception December 31, Six Months Period From
(October 10, 1996) to -------------------- Ended January 1, 1999 to
December 31, 1996 1997 1998 June 30, 1998 February 28, 1999
--------------------- --------- --------- ------------- ------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
License, hardware and
installation............... $ 40,640 $ 583,086 $ 454,871 $ 152,405 $ 57,080
Monthly maintenance and
service.................... 4,183 59,013 136,141 57,785 33,082
--------- --------- --------- --------- ---------
Total revenues.............. 44,823 642,099 591,012 210,190 90,162
--------- --------- --------- --------- ---------
OPERATING EXPENSES:
Cost of license, hardware,
installation, maintenance
and service................ (49,700) (422,375) (465,577) (205,601) (44,358)
Selling, general and
administrative expenses.... (48,118) (308,197) (442,413) (225,469) (61,749)
Depreciation and
amortization............... (1,696) (10,547) (14,736) (6,728) (2,476)
--------- --------- --------- --------- ---------
Total operating expenses.... (99,514) (741,119) (922,726) (437,798) (108,583)
--------- --------- --------- --------- ---------
OPERATING LOSS............... (54,691) (99,020) (331,714) (227,608) (18,421)
INTEREST EXPENSE............. 0 (117) (20,147) (13,173) (3,469)
--------- --------- --------- --------- ---------
NET LOSS..................... $ (54,691) $ (99,137) $(351,861) $(240,781) $ (21,890)
========= ========= ========= ========= =========
BASIC AND DILUTED NET LOSS
PER SHARE................... $ (0.03) $ (0.05) $ (0.18) $ (0.12) $ ( 0.01)
========= ========= ========= ========= =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING.......... 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000
- --------------------------------------------------
========= ========= ========= ========= =========
<CAPTION>
For the
Period From
March 1, 1999 to
June 30, 1999
----------------
(Unaudited)
<S> <C>
REVENUES:
License, hardware and
installation............... $ 164,472
Monthly maintenance and
service.................... 86,063
----------------
Total revenues.............. 250,535
----------------
OPERATING EXPENSES:
Cost of license, hardware,
installation, maintenance
and service................ (126,454)
Selling, general and
administrative expenses.... (264,310)
Depreciation and
amortization............... (193,272)
----------------
Total operating expenses.... (584,036)
----------------
OPERATING LOSS............... (333,501)
INTEREST EXPENSE............. (428)
----------------
NET LOSS..................... $(333,929)
================
BASIC AND DILUTED NET LOSS
PER SHARE................... $ (0.04)
================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING.......... 8,000,000
- --------------------------------------------------
================
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
The purchase method of accounting was used to record assets acquired and
liabilities assumed by Netzee, Inc. Such accounting generally results in
increased amortization reported in future periods. Accordingly, the
accompanying financial statements of the Predecessor and Netzee, Inc. are not
comparable in all material respects, since those financial statements report
financial position, results of operations, and cash flows on a different basis
of accounting.
NETZEE, INC.
(Formerly Direct Access Interactive, Inc. "Predecessor")
STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
Total
Common Stock Shareholders'
-------------------- Accumulated Equity
Shares Amount Deficit (Deficit)
--------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
PREDECESSOR:
Balance at inception, October
10, 1996..................... 0 $ 0 $ 0 $ 0
Issuance of common stock.... 2,000,000 50,871 0 50,871
Net loss.................... 0 0 (54,691) (54,691)
--------- ---------- --------- ----------
Balance, December 31, 1996.... 2,000,000 50,871 (54,691) (3,820)
Net loss.................... 0 0 (99,137) (99,137)
--------- ---------- --------- ----------
Balance, December 31, 1997.... 2,000,000 50,871 (153,828) (102,957)
Net loss.................... 0 0 (351,861) (351,861)
--------- ---------- --------- ----------
Balance, December 31, 1998.... 2,000,000 50,871 (505,689) (454,818)
Net loss (unaudited)........ 0 0 (21,890) (21,890)
--------- ---------- --------- ----------
Balance, February 28, 1999
(unaudited).................. 2,000,000 $ 50,871 $(527,579) $ (476,708)
========= ========== ========= ==========
- -------------------------------------------------------------------------------
NETZEE, INC.:
Initial parent investment,
March 9, 1999 (unaudited).... 8,000,000 $1,379,965 $ 0 $1,379,965
Contribution from parent
(Unaudited).................. 0 786,924 0 786,924
Net loss (Unaudited)........ 0 0 (333,929) (333,929)
--------- ---------- --------- ----------
Balance, June 30, 1999........ 8,000,000 $2,166,889 $(333,929) $1,832,960
========= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
The six month period ended June 30, 1999 is presented in two columns below
due to the acquisition of the predecessor on March 9, 1999 which established a
new basis of accounting for certain assets and liabilities of the Company. The
purchase method of accounting was used to record assets acquired and
liabilities assumed by Netzee, Inc. Such accounting generally results in
increased amortization reported in future periods. Accordingly, the
accompanying financial statements of the Predecessor and Netzee, Inc. are not
comparable in all material respects, since those financial statements report
financial position, results of operations, and cash flows on a different basis
of accounting.
NETZEE, INC.
(Formerly Direct Access Interactive, Inc. "Predecessor")
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Predecessor
---------------------------------------------------------------------------
Year Ended For the For the
Period From Inception December 31, Six Months Period From
(October 10, 1996) to ------------------- Ended January 1, 1999 to
December 31, 1996 1997 1998 June 30, 1998 February 28, 1999
--------------------- -------- --------- ------------- ------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss..................... $(54,691) $(99,137) $(351,861) $(240,781) $(21,890)
Adjustments to reconcile net
loss to net cash (used in)
provided by operating
activities:
Depreciation and
amortization................ 1,696 10,547 14,736 6,728 2,476
Changes in assets and
liabilities:
Prepaids and other.......... 0 0 0 0 0
Accounts receivable......... (10,000) (9,222) (16,558) (1,791) 12,606
Accounts payable and
accrued expenses........... 58,515 13,783 92,794 46,734 (42,889)
Deferred revenues........... 17,582 50,953 35,375 (15,481) 41,222
-------- -------- --------- --------- --------
Net cash provided by (used
in) operating activities.. 13,102 (33,076) (225,514) (204,591) (8,475)
-------- -------- --------- --------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment................... 0 (1,969) (18,031) (4,181) 0
-------- -------- --------- --------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Contributions from Parent.... 0 0 0 0 0
Borrowings from Parent....... 0 0 0 0 0
Increase (decrease) in line
of credit................... 0 0 199,973 198,000 0
Increase (decrease) in
related-party loans from
shareholders................ 0 50,000 29,500 27,500 (2,000)
-------- -------- --------- --------- --------
Net cash provided by (used
in) financing activities... 0 50,000 229,473 225,500 (2,000)
-------- -------- --------- --------- --------
NET INCREASE (DECREASE) IN
CASH......................... 13,102 14,955 (14,072) 16,728 (10,475)
CASH, beginning of period..... 0 13,102 28,057 28,057 13,985
-------- -------- --------- --------- --------
CASH, end of period........... $ 13,102 $ 28,057 $ 13,985 $ 44,785 $ 3,510
======== ======== ========= ========= ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest....... $ 0 $ 0 $ 14,034 $ 5,366 $ 2,971
- --------------------------------------------------
======== ======== ========= ========= ========
<CAPTION>
For the
Period From
March 1, 1999 to
June 30, 1999
----------------
(Unaudited)
<S> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss..................... $ (333,929)
Adjustments to reconcile net
loss to net cash (used in)
provided by operating
activities:
Depreciation and
amortization................ 193,272
Changes in assets and
liabilities:
Prepaids and other.......... (50,547)
Accounts receivable......... (70,788)
Accounts payable and
accrued expenses........... (150,463)
Deferred revenues........... 12,222
----------------
Net cash provided by (used
in) operating activities.. (400,233)
----------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment................... (862,728)
----------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Contributions from Parent.... 786,924
Borrowings from Parent....... 750,000
Increase (decrease) in line
of credit................... (277,473)
Increase (decrease) in
related-party loans from
shareholders................ 0
----------------
Net cash provided by (used
in) financing activities... 1,259,451
----------------
NET INCREASE (DECREASE) IN
CASH......................... (3,510)
CASH, beginning of period..... 3,510
----------------
CASH, end of period........... $ 0
================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest....... $ 12,515
- --------------------------------------------------
================
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
NETZEE, INC.
(Formerly Direct Access Interactive, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997, AND 1998
(Information as of June 30, 1999 and for the Six Months Ended
June 30, 1998 and 1999 is Unaudited)
1. ORGANIZATION AND NATURE OF BUSINESS
Netzee, Inc. ("Netzee" or the "Company") was formed to effect the
acquisition of certain companies in the Internet banking and related
businesses. Direct Access Interactive, Inc. ("Direct Access") was incorporated
on October 10, 1996. Direct Access was organized to provide telephone banking
and Internet banking services to financial community institutions in the United
States.
The Company is planning an initial public offering (the "Offering") of its
common stock.
Acquisition
On March 9, 1999, Direct Access ("Predecessor") was purchased by The
InterCept Group, Inc. ("InterCept"). Direct Access was operated as a separate
subsidiary of Intercept. The purchase price of Direct Access included
approximately 150,000 shares of InterCept stock and the assumption of
approximately $275,000 in liabilities. Direct Access was later merged with and
into Netzee as discussed in Note 9. The acquisition of Direct Access was
accounted for as a purchase. The excess of the purchase price over the net
tangible assets acquired totaled $1,860,000 and was allocated to the following
identifiable intangible assets with the following amortization lives:
<TABLE>
<S> <C> <C>
Workforce.............................................. $ 60,000 3 years
Contracts in process................................... 390,000 3 years
Acquired technology.................................... 1,410,000 3 years
</TABLE>
The purchase price was determined by reference to the fair market value of
the InterCept stock issued in the acquisition based on the trading value of
$9.25 per share on March 9, 1999. The purchase method of accounting generally
results in increased amortization reported in future periods. Accordingly, the
accompanying financial statements of the Predecessor and the Company are not
comparable in all material respects, since those financial statements report
the financial position, results of operations, and cash flows on a different
basis of accounting.
Although Direct Access was acquired on March 9, 1999, the accompanying
unaudited financial statements for the six months ended June 30, 1999 are
presented as if the acquisition occurred on the close of business on February
28, 1999 instead of March 9, 1999. The operations between March 1, 1999 and
March 9, 1999 were not material. The accompanying financial statements prior to
February 28, 1999 present the financial position and the results of operations
and cash flows of Direct Access, the predecessor to Netzee.
Historical Losses
The Company has incurred net losses since inception. The Company will need
to generate significant revenues to achieve and maintain profitability which
can not be assured. Even if the Company does achieve profitability, the Company
cannot assure that they can sustain or increase profitability on a quarterly or
an annual basis in the future. The Company plans to significantly increase its
sales and marketing, research and development and general and administrative
expenses throughout the remainder of fiscal year 1999. The Company has not
sustained earnings or positive cash flow and will incur substantial expenses to
operate. Advances from Intercept as of June 30, 1999 were approximately
$786,924. Subsequent to June 30, 1999, Netzee has obtained further financing
from InterCept in the form of promissory notes totaling approximately
$28,800,000. These notes bear interest at a rate equal to Prime plus 2% and
mature on the earlier of two years
F-8
<PAGE>
NETZEE, INC.
(Formerly Direct Access Interactive, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
from the date of the promissory note (August and September of 1999) or an
initial public offering. The promissory notes were used to pay the cash
purchase price of $28,800,000 for certain acquisitions discussed in Note 9.
Additional funds from InterCept will be used to fund future operations. Netzee
is planning an initial public offering to pay the balance of the promissory
notes and to fund this expansion. This initial public offering cannot be
assured. The Company anticipates they will have additional working capital
needs to be funded by InterCept of between $4,000,000 and $6,100,000 from
August 31, 1999 to November 30, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Unaudited Financial Information
The financial statements as of June 30, 1999 and for the six months ended
June 30, 1998 and 1999 are unaudited; however, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the unaudited financial statements for these interim
periods have been included. The results of interim periods are not necessarily
indicative of the results to be obtained for a full year.
Property and Equipment
Property and equipment are stated at cost. Subsequent to the March 9, 1999,
acquisition property and equipment are stated at fair value at the date of the
acquisition. Major property additions, replacements, and betterments are
capitalized, while maintenance and repairs which do not extend the useful lives
of these assets are expensed as incurred. Depreciation is provided using the
straight-line method over the useful life of the asset. Property and equipment
consist of furniture and office equipment and are being depreciated over a
period of five years.
Intangible Assets
Intangible assets consist of the intangibles recorded in the acquisition
discussed in Note 1. The carrying amounts of the intangible assets are reviewed
for impairment when events and circumstances indicate that the recorded costs
may not be recoverable. If the review indicates that the undiscounted cash
flows from operations of the related intangible assets over the remaining
amortization period are expected to be less than the recorded amount of the
intangible, the Company's carrying value of the intangible asset is reduced to
its estimated fair value.
F-9
<PAGE>
NETZEE, INC.
(Formerly Direct Access Interactive, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Capitalized Software Development Costs
Research and development costs are expensed as incurred. Computer software
development costs are charged to research and development expense until
technological feasibility of the software is established, after which remaining
software production costs are capitalized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, "Accounting for Computer
Software to Be Sold, Leased, or Otherwise Marketed." These costs are amortized
on the straight-line basis over three years, the estimated economic life of the
software. Amortization of software development costs is included in cost of
license, hardware, installation, monthly maintenance, and service. Amortization
of capitalized software development costs begins as products are made available
for sale or as the related product is put into use, with annual amortization
equal to the greater of the amount computed using the ratio that current gross
revenues bear to the total of current and anticipated future gross revenues for
the product or the straight-line method over the remaining economic life of the
product which is a maximum of three years.
Revenue Recognition
The Company's revenue historically resulted from (1) licensing of software
for Internet banking and telephone banking, (2) installation of the Internet
banking and telephone banking software, (3) sale of hardware, and (4)
maintenance and support services for the Internet banking and telephone banking
software. The Company historically charged a nonrefundable license, hardware,
and installation fee, with an annual maintenance fee, typically renewed every
12 months. The Company recognized the software license fee in 1996 and 1997 in
accordance with the provisions of the American Institute of Certified Public
Accountants Statement of Position ("SOP") No. 91-1, "Software Revenue
Recognition." The revenue from software license fees was recognized in
accordance with SOP No. 97-2, "Software Revenue Recognition," in 1998 and for
the six months ended June 30, 1999. The Company recognized the one-time
nonrefundable software, hardware, and installation fee upon completion of the
installation of the software and hardware. The maintenance fee is recognized
ratably over the term maintenance period, typically 12 months. The Company
anticipates that in the future, it will not charge a license fee at the
beginning of the contract and will collect fees for services rendered on a
monthly basis. The revenue from these arrangements will be recognized as the
services are rendered, typically on a monthly basis.
Deferred Revenue
Deferred revenue represents the liability for amounts collected prior to
complete performance for telephone and Internet banking maintenance service.
Returns and Product Warranty
The Company provides for the costs of returns and product warranty claims
when specific problems are identified. The Company has not experienced
significant returns or warranty claims to date.
Fair Value of Financial Instruments
The fair value of financial instruments classified as current assets or
liabilities, including cash, accounts receivable, and accounts payable,
approximates carrying value due to the short-term maturity of the instruments.
The fair value of the line of credit approximates carrying value, as the
interest rates attached to this line of credit are based on current market
rates.
F-10
<PAGE>
NETZEE, INC.
(Formerly Direct Access Interactive, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Long-Lived Assets
The Company periodically reviews the values assigned to long-lived assets to
determine whether any impairments have occurred. Management believes that the
long-lived assets on the accompanying balance sheets are appropriately valued.
Income Taxes
The Company uses the liability method of accounting for income taxes, as set
forth in SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred tax assets or liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to be settled or realized.
Basic and Diluted Net Loss Per Share
Basic and diluted net loss per share is computed by using net loss divided
by the weighted average number of shares of common stock outstanding for the
period presented. The effect of warrants and stock options has been excluded
from the presentation of diluted net loss per share, as they are antidilutive.
There were no options or warrants outstanding for the period from inception
(October 10, 1996) to December 31, 1996 or for the years ended December 31,
1997 and 1998. The Company had no options or warrants outstanding as of June
30, 1999.
Comprehensive Loss
Comprehensive loss for the six-month periods ended June 30, 1998 and 1999
and for the periods from inception to December 31, 1998 is the same as the net
loss as presented in the accompanying statements of operations.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The statement is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. The statement is not
expected to have a significant impact on the Company's financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1998 and June 30, 1999
consist of the following:
<TABLE>
<CAPTION>
Predecessor
--------------- June 30,
1997 1998 1999
------ ------- --------
<S> <C> <C> <C>
Furniture and office equipment.................... $1,969 $20,000 $817,965
Less accumulated depreciation..................... (394) (4,994) (54,334)
------ ------- --------
Property and equipment, net....................... $1,575 $15,006 $763,631
====== ======= ========
</TABLE>
Depreciation expense for the period from inception (October 10, 1996) to
December 31, 1996, for the years ended December 31, 1997 and 1998, and for the
six months ended June 30, 1998 and 1999 was $0, $394, $4,600, $1,660, and
$55,123, respectively.
F-11
<PAGE>
NETZEE, INC.
(Formerly Direct Access Interactive, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. INTANGIBLE ASSETS
Intangible assets at December 31, 1997 and 1998 and June 30, 1999 consist of
the following:
<TABLE>
<CAPTION>
Predecessor
---------------- June 30,
1997 1998 1999
------- ------- ----------
<S> <C> <C> <C>
Capitalized software development costs......... $50,871 $50,871 $ 73,092
Workforce...................................... 0 0 60,000
Contracts in progress.......................... 0 0 390,000
Acquired technology............................ 0 0 1,410,000
Less amortization.............................. (11,849) (21,985) (138,938)
------- ------- ----------
Intangible assets, net......................... $39,022 $28,886 $1,794,154
======= ======= ==========
</TABLE>
The Company allocated the value of the acquired intangible assets from the
acquisition of Direct Access on March 9, 1999 to workforce, contracts in
progress and acquired technology. The value of the workforce was determined by
reference to the cost of the workforce retained. The value of the contracts in
progress was determined by reference to the recurring revenue generated from
the existing customers of Direct Access. The Company determined that the
remaining value related to acquired technology for the internet and telephone
banking technology.
Amortization expense for the period from inception (October 10, 1996) to
December 31, 1996, for the years ended December 31, 1997 and 1998, and for the
six months ended June 30, 1998 and 1999 was $1,696, $10,153, $10,136, $5,068,
and $140,629, respectively.
5. LINE OF CREDIT
As of December 1998, the Company had a line of credit for up to $202,614,
which is available through July 22, 1999, with a principal balance outstanding
of $199,973 at December 31, 1998. The debt was secured by rental real estate
property and the Company's annual license and maintenance fees. The line of
credit was paid in full on March 9, 1999.
6. RELATED-PARTY TRANSACTIONS
As discussed in Note 9, the Company completed several acquisitions in 1999.
In these transactions, persons who were previously officers, directors or
shareholders of the acquired companies became executive officers or directors
of Netzee or beneficial owners of more than 5% of Netzee's common stock.
Management believes that these transactions were made on terms no less
favorable to Netzee than could have been obtained with unaffiliated third
parties on an arm's length basis.
The Company's Chairman of the Board of Directors is the Chairman and Chief
Executive Officer of InterCept, and a director of the Company is the President,
Chief Operating Officer and a director of InterCept. In addition, the company's
chief executive officer is also a director of InterCept.
In September 1999, the Company entered into a marketing agreement with
InterCept under which company salespeople will sell InterCept products and
services and InterCept salespeople will sell the Company's products and
services. Under this agreement, the Company pays a commission to InterCept for
each sale of the Company's products and services made by InterCept salespersons
and for each referral to the Company's sales force that results in a sale.
InterCept correspondingly pays the Company for sales and referrals by the
Company's salespersons. Management believes that the transactions will be made
on terms no less favorable than could be obtained from unaffiliated third
parties on an arm's length basis.
F-12
<PAGE>
NETZEE, INC.
(Formerly Direct Access Interactive, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Related-party loans from shareholders at December 31, 1997 and 1998 and
June 30, 1999 consist of the following:
<TABLE>
<CAPTION>
Predecessor
---------------- June 30,
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Loan from shareholders, interest payable monthly at 8.5%; the loan was repaid on March 9,
1999........................................................................................... $50,000 $ 77,500 $ 0
Loan from shareholders, noninterest-bearing note; the loan was repaid on January 8, 1999........ 0 2,000 0
------- -------- ---
50,000 79,500 0
Less current maturities......................................................................... 0 (79,500) 0
------- -------- ---
$50,000 $ 0 $ 0
--------------------------------------------------
======= ======== ===
</TABLE>
Towne Services, Inc. is a related party vendor that sold software to the
Company during the six-month period ended June 30, 1999. Certain board members
and shareholders of Netzee are also board members and shareholders of Towne
Services, Inc. The amount will be paid by Intercept, our former Parent, and
this amount has been included as due to Parent on the accompanying balance
sheet.
7. INCOME TAXES
The Company has incurred net operating losses ("NOL") since inception. As
of December 31, 1998, the Company has NOL carryforwards of approximately
$350,000 available to offset its future income tax liability. The NOL
carryforwards begin to expire in 2012. Due to the uncertainty of the
realizability of the net operating losses, the Company has not reflected in
the accompanying statements of operations an income tax benefit for any period
presented and has recorded a valuation allowance equal to the net deferred tax
assets of the Company at December 31, 1997 and 1998. Due to the acquisition on
March 9, 1999, the NOL carryforwards could be limited under Section 382 of the
Internal Revenue Code when ownership of the Company changes by more than 50%,
as defined.
The components of the deferred tax assets and liabilities are as follows as
of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
Predecessor
-------------------
1997 1998
-------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 55,011 $ 133,191
Accounts receivable................................... 0 3,800
Accrued liabilities................................... 4,100 6,506
Deferred revenue...................................... 26,044 39,487
-------- ---------
Total deferred tax assets............................. 85,155 182,984
Valuation allowance................................... (85,155) (182,984)
-------- ---------
Net deferred tax assets............................... $ 0 $ 0
======== =========
</TABLE>
F-13
<PAGE>
NETZEE, INC.
(Formerly Direct Access Interactive, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The components of the income tax benefit for the period from inception
(October 10, 1996) to December 31, 1996 and the years ended December 31, 1997
and 1998 are as follows:
<TABLE>
<CAPTION>
Predecessor
-----------------------------
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Current provision:
Federal..................................... $ 0 $ 0 $ 0
State....................................... 0 0 0
-------- -------- ---------
0 0 0
-------- -------- ---------
Deferred benefit:
Federal..................................... (18,594) (33,707) (119,633)
State....................................... (2,188) (3,965) (14,075)
-------- -------- ---------
(20,782) (37,672) (133,708)
-------- -------- ---------
Total benefit................................. (20,782) (37,672) (133,708)
Valuation allowance........................... 20,782 37,672 133,708
-------- -------- ---------
Total..................................... $ 0 $ 0 $ 0
======== ======== =========
</TABLE>
The following is a summary of the items which resulted in recorded income
taxes that differ from taxes computed using the statutory federal income tax
rate for the period from inception (October 10, 1996) to December 31, 1996 and
the years ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
Predecessor
----------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Tax provision at federal statutory rate.................... 34% 34% 34%
Tax provision at state statutory rate...................... 4 4 4
Effect of valuation allowance.............................. (38) (38) (38)
--- --- ---
Income tax benefit......................................... 0% 0% 0%
=== === ===
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
The Company leases various equipment and facilities under operating lease
agreements. Future minimum annual obligations under these leases as of December
31, 1998 are as follows:
<TABLE>
<S> <C>
1999................................ $ 80,335
2000................................ 77,061
2001................................ 77,061
2002................................ 55,986
--------
Total............................. $290,443
========
</TABLE>
Rent expense for the period from inception (October 1, 1996) to December 31,
1996, the years ended December 31, 1997 and 1998 and the six month periods
ended June 30, 1998 and 1999 was $13,401, $20,241, $53,604, $24,802, and
$38,167, respectively.
Product Liability
As a result of their complexity, software products may contain undetected
errors or failures when first introduced or as new versions are released. There
can be no assurance that, despite testing by the Company and
F-14
<PAGE>
NETZEE, INC.
(Formerly Direct Access Interactive, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
testing and use by current and potential customers, errors will not be found in
new Internet banking systems after commencement of commercial release or, if
discovered, that the Company will be able to successfully correct such errors
in a timely manner or at all. The occurrence of errors and failures in the
Company's products could result in loss of or delay in the market acceptance of
the Company's Internet banking systems, and alleviating such errors and
failures could require significant expenditure of capital and other resources
by the Company. The consequences of such errors and failures could have a
material adverse effect on the Company's business, results of operations, and
financial condition.
Litigation
The Company is subject to litigation related to matters arising in the
normal course of business, including product liability. As of December 31,
1998, management is not aware of any unasserted, asserted, or pending material
litigation or claims against the Company.
9. SUBSEQUENT EVENTS
Acquisition of the remote Internet and telephone banking division of SBS
Corporation
On August 6, 1999, Direct Access purchased the remote banking operations of
SBS Corporation ("SBS Corp"). The purchase price of SBS Corp included 2,600,000
shares of the Company's stock at the estimated fair market value of $11.50 per
share and $21,534,625 in cash. Only the remote Internet and telephone banking
operations of SBS Corp was retained by the Company and the non-Internet banking
operations were sold to InterCept for 450,000 shares of Netzee's stock valued
at $11.50 per share, for a total purchase price of $5,175,000. No gain or loss
was recorded on the transaction by the Company, as the transaction was a
related party transaction. The 2,600,000 shares are redeemable by the Company
on August 6, 2001 at a price of $11.50 per share if the Company's planned
Offering has not occurred two years from the date of issuance. The Company
obtained the cash through a promissory note with InterCept. The note bears an
interest rate of Prime + 2%, payable quarterly. The Company intends to pay the
principal and interest on the note with the proceeds of the planned Offering.
The acquisition of SBS Corp was accounted for as a purchase. The excess of the
purchase price over the net tangible assets acquired was allocated to the
following identifiable intangible assets with the following amortization lives:
<TABLE>
<S> <C> <C>
Workforce............... $ 440,000 3 years
Contracts in process.... 1,340,000 4 years
Acquired technology..... 44,402,000 3 years
</TABLE>
Acquisitions of the Internet banking divisions of The Independent BankersBank
and the Internet banking division of The Bankers Bank
On September 3, 1999, Netzee purchased the Internet banking division of The
Independent BankersBank ("TIB") and the Internet banking division of The
Bankers Bank ("The Bankers Bank"). The acquisitions of TIB and The Bankers Bank
was accounted for as a purchase. The purchase price of TIB and The Bankers Bank
included 2,722,000 shares of Netzee stock valued at $11.50 per share. The
excess of the purchase price over the tangible net assets was allocated to the
following identifiable intangible assets with the following amortization lives:
<TABLE>
<S> <C> <C>
Workforce............... $ 330,000 3 years
Contracts in process.... 150,000 3 years
Marketing agreements.... 3,056,000 2 years
Acquired technology.... 27,416,000 3 years
</TABLE>
F-15
<PAGE>
NETZEE, INC.
(formerly Direct Access Interactive, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Acquisition of Dyad Corporation
On September 3, 1999, the Company purchased all the assets of Dyad
Corporation and subsidiaries ("Dyad"). The purchase price of Dyad included
618,137 shares of Netzee stock valued at $11.50 per share and approximately
$900,000 in cash. The Company also assumed debt owed by Dyad of approximately
$3,500,000. The acquisition of Dyad was accounted for as a purchase. The excess
of the purchase price over the net tangible assets acquired was allocated to
the following identifiable intangible assets with the following amortization
lives:
<TABLE>
<S> <C> <C>
Workforce............... $ 70,000 3 years
Acquired technology..... 14,543,000 3 years
</TABLE>
Acquisition of Call Me Bill LLC
On September 3, 1999, Netzee purchased all the assets of Call Me Bill LLC
("Call Me Bill"). The purchase price of Call Me Bill included cash of
approximately $3,288,000. The Company obtained approximately $2,882,000 in cash
through a promissory note payable with InterCept. The note bears an interest
rate of Prime + 2%, payable quarterly. The Company intends to pay the principle
and interest on the note with the proceeds of the planned Offering. The
acquisition of Call Me Bill was accounted for as a purchase. The excess of the
purchase price over the net tangible assets acquired totaled approximately
$3,325,000 and was allocated to acquired technology with a three year
amortization life.
Issuance of Stock Subscriptions to Employees and Directors
On July 1, 1999, certain employees and directors entered into binding stock
subscriptions for 1,555,000 shares of common stock at a subscription price of
$2.00 per share. The issuance of the shares of stock was pending Board of
Director authorization to increase the number of authorized shares, which was
approved on August 6, 1999. The employees were full time employees of Intercept
at the time of the issuance of the equity securities; however, the employees
were performing services for the Company, which at the time, was a majority
owned subsidiary of Intercept. Therefore, the Company accounted or the issuance
of the equity securities to the employees of InterCept and the directors of the
Company as an issuance of equity securities to employees. The purchase price of
the stock was paid in the form of full recourse, interest bearing notes payable
from the employees and the directors. These notes bear interest at 7% and are
due 3 years from the date of the notes. The Company accounted for the issuance
of stock to the employees and the directors under Accounting Principles Board
Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees." APB
No. 25 requires that a Company recognize the intrinsic value of any equity
instrument issued to employees at a price below the fair value of the Company's
common stock. The Company determined that its value as of July 1, 1999 was
approximately $2.00 per share. As the price per share for the restricted stock
was equal to the fair value on the date of issuance, the Company recorded no
expense associated with the issuance of these equity securities.
Employment Agreements
The Company's executive officers intend to enter into employment agreements
providing for annual salaries ranging from $140,000 to $250,000. Each
employment agreement is for a term of two years and provides for incentive
compensation.
F-16
<PAGE>
NETZEE, INC.
(formerly Direct Access Interactive, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Issuance of Options
The Company had no outstanding options as of December 31, 1998. On August 5,
1999, the Company adopted the Direct Access Interactive, Inc. 1999 Stock Option
and Incentive Plan. Pursuant to the merger of Direct Access Interactive into
Netzee, all the outstanding options to purchase shares of Direct Access
Interactive became options to purchase shares of Netzee. On September 2, 1999
the Company adopted the Netzee, Inc. 1999 stock option and Incentive Plan (the
"Plan"). The Plan is administered by the Board of Directors. The Plan provides
for the granting of incentive and nonqualified stock options, restricted stock
awards and stock appreciation rights. No restricted stock awards on stock
appreciation right grants were made as of December 31, 1998 or September 8,
1999. The total number of shares to be purchased under the Plan currently is
3,500,000 shares. The number of shares of stock available for issuance under
the Plan shall automatically increase on January 1 of each year beginning
January 1, 2000 to an amount equal to 20% of the fully diluted shares of stock
assuming the conversion of all outstanding options and warrants on
December 31 of the previous year, provided however, that the shares available
for issuance shall not be less than 3,500,000. The options are granted at terms
determined by the Board of Directors. The Company had 1,846,500 options
outstanding as of September 7, 1999 and 1,623,500 available for future grant.
The date of grant, the number of options, and the exercise price are as
follows:
<TABLE>
<CAPTION>
Number of Exercise
Date of Grant Options Price
------------- --------- --------
<S> <C> <C>
July 1, 1999......................................... 320,000 $ 2.00
August 5, 1999....................................... 320,000 3.11
September 7, 1999.................................... 220,000 3.11
September 7, 1999.................................... 1,011,500 5.00
</TABLE>
An employee exercised 30,000 of the options on August 5, 1999 with a full
recourse interest bearing note. As of September 8, 1999, 20,000 of the options
were exercisable. The majority of the options vest over a three year period
with 175,000 options being subject to accelerated vesting upon an initial
public offering.
The Company recorded deferred compensation expense on certain of the options
noted above as the exercise price of the options was below the fair market
value of the Company's common stock at the time of grant. The fair market value
of the Company's common stock for each of the grant dates in 1999 and the
compensation recorded was as follows:
<TABLE>
<CAPTION>
Fair Deferred
Date of Grant Value Compensation
------------- ------ ------------
<S> <C> <C>
July 1, 1999.......................................... $ 2.00 $ 0
August 5, 1999........................................ $11.50 2,685,000
September 7, 1999..................................... $11.50 8,713,000
-----------
Total............................................... $11,398,000
===========
</TABLE>
Pro forma information is required by SFAS No. 123, "Accounting for Stock-
Based Compensation." SFAS No. 123 requires that the information be determined
as if the Company has accounted for the issuance of equity securities to
employees under the fair value method required by SFAS No. 123. The fair value
of each option granted in 1999 has been estimated as of the date of grant using
the Black-Scholes option pricing model with an expected dividend yield of 0%,
expected volatility of 90%, a risk free rate of return ranging from 5.85% to
5.93%, and an expected life of 5 years. Using these assumptions, the fair value
of the options granted in 1999 was $13,066,434 which would be amortized over
the vesting period of the options.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Dyad Corporation:
We have audited the accompanying consolidated balance sheets of DYAD
CORPORATION (a Georgia corporation) AND SUBSIDIARIES as of December 31, 1997
and 1998 and the related consolidated statements of operations, shareholders'
deficit, and cash flows for the years then ended. 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 Dyad Corporation and
subsidiaries as of December 31, 1997 and 1998 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
September 3, 1999
F-18
<PAGE>
DYAD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------- June 30,
1997 1998 1999
----------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 1,910,621 $ 15,326 $ 18,689
Restricted cash............................ 245,000 204,167 0
Accounts receivable........................ 31,326 25,870 22,670
Inventories................................ 114,628 3,286 0
Other current assets....................... 7,272 0 0
----------- ---------- ----------
Total current assets..................... 2,308,847 248,649 41,359
PROPERTY AND EQUIPMENT, net.................. 255,687 50,972 18,667
GOODWILL, net of accumulated amortization of
$59,568, $97,050, and $114,542 at December
31, 1997 and 1998 and June 30, 1999,
respectively................................ 145,347 107,864 90,372
DEFERRED FINANCING COSTS..................... 7,746,121 6,664,397 6,076,138
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, net
of accumulated amortization of $20,990,
$37,813, and $46,017 at December 31, 1997
and 1998 and June 30, 1999, respectively.... 33,230 16,407 8,203
OTHER ASSETS................................. 7,791 0 0
----------- ---------- ----------
Total assets............................. $10,497,023 $7,088,289 $6,234,739
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses...... $ 179,908 $ 148,920 $ 116,461
Customer deposits.......................... 60,000 0 0
Current portion of long-term debt.......... 17,520 19,123 424,495
Deferred revenue........................... 135,250 0 0
----------- ---------- ----------
Total current liabilities................ 392,678 168,043 540,956
----------- ---------- ----------
LONG-TERM LIABILITIES:
Debt, less current portion and unamortized
discount of 2,120,573, 1,972,304, and
1,869,845 at December 31, 1997 and 1998
and June 30, 1999, respectively........... 1,405,464 1,533,803 1,632,193
Deferred revenue........................... 411,666 0 0
----------- ---------- ----------
Total long-term liabilities.............. 1,817,130 1,533,803 1,632,193
----------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 10, 11,
and 12)
WARRANTS WITH REDEMPTION FEATURE............. 9,752,573 10,404,573 10,730,573
----------- ---------- ----------
SHAREHOLDERS' DEFICIT:
Preferred stock, no par value; 50,000
shares authorized, no shares issued and
outstanding............................... 0 0 0
Common stock, no par value; 1,000,000
shares authorized, 11,677, 12,027, and,
12,027 shares issued and outstanding at
December 31, 1997 and 1998 and June 30,
1999, respectively........................ 1,287,218 1,937,218 1,937,218
Subscription receivable (Note 10).......... (5,000) (5,000) (5,000)
Accumulated deficit........................ (2,747,576) (6,950,348) (8,601,201)
----------- ---------- ----------
Total shareholders' deficit.............. (1,465,358) (5,018,130) (6,668,983)
----------- ---------- ----------
Total liabilities and shareholders'
deficit................................. $10,497,023 $7,088,289 $6,234,739
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-19
<PAGE>
DYAD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended For the Six Months Ended
December 31, June 30,
------------------------ --------------------------
1997 1998 1998 1999
----------- ----------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Equipment and hardware
sales................. $ 418,773 $ 375,140 $ 108,834 $ 97,246
License fees........... 108,334 97,499 65,000 0
Support and maintenance
fees.................. 7,000 32,702 10,417 5,840
----------- ----------- ------------ ------------
Total revenues....... 534,107 505,341 184,251 103,086
----------- ----------- ------------ ------------
OPERATING EXPENSES:
Cost of sales.......... (400,934) (409,002) (96,570) (54,779)
Selling, general, and
administrative........ (1,634,456) (1,524,266) (806,301) (390,244)
Research and
development........... (283,027) (164,243) (60,376) (32,995)
Asset impairment
charge................ 0 (143,000) 0 0
Depreciation and
amortization.......... (159,840) (136,795) (72,138) (48,565)
----------- ----------- ------------ ------------
Total costs and
expenses............ (2,478,257) (2,377,306) (1,035,385) (526,583)
----------- ----------- ------------ ------------
OPERATING LOSS........... (1,944,150) (1,871,965) (851,134) (423,497)
----------- ----------- ------------ ------------
OTHER INCOME (EXPENSE)
Other income........... 25,000 0 36,186 4,199
Interest expense, net.. (89,689) (1,678,807) (842,263) (905,555)
----------- ----------- ------------ ------------
(64,689) (1,678,807) (806,077) (901,356)
----------- ----------- ------------ ------------
NET LOSS................. $(2,008,839) $(3,550,772) $ (1,657,211) $ (1,324,853)
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-20
<PAGE>
DYAD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Total
----------------- Subscription Accumulated Shareholders'
Shares Amount Receivable Deficit Deficit
------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31,
1996................... 9,611 $ 288,218 $(5,000) $ (738,737) $ (455,519)
Issuance of common
stock for cash....... 1,066 949,000 0 0 949,000
Issuance of common
stock in connection
with the acquisition
of MoneyPro.......... 1,000 50,000 0 0 50,000
Net loss.............. 0 0 0 (2,008,839) (2,008,839)
------ ---------- ------- ----------- -----------
BALANCE, December 31,
1997................... 11,677 1,287,218 (5,000) (2,747,576) (1,465,358)
Issuance of common
stock to Phoenix
(Note 4)............. 350 650,000 0 0 650,000
Accretion of Warrants
with redemption
feature (Note 7)..... 0 0 0 (652,000) (652,000)
Net loss.............. 0 0 0 (3,550,772) (3,550,772)
------ ---------- ------- ----------- -----------
BALANCE, December 31,
1998................... 12,027 1,937,218 (5,000) (6,950,348) (5,018,130)
Accretion of Warrants
with redemption
feature (unaudited).. 0 0 0 (326,000) (326,000)
Net loss (unaudited).. 0 0 0 (1,324,853) (1,324,853)
------ ---------- ------- ----------- -----------
BALANCE, June 30, 1999
(Unaudited)............ 12,027 $1,937,218 $(5,000) $(8,601,201) $(6,668,983)
====== ========== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-21
<PAGE>
DYAD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended For the Six Months Ended
December 31, June 30,
------------------------ --------------------------
1997 1998 1998 1999
----------- ----------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $(2,008,839) $(3,550,772) $ (1,657,211) $ (1,324,853)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization........ 176,663 157,780 80,760 58,001
Amortization of
deferred financing
costs and discount
on notes payable.... 0 1,229,186 578,192 686,649
Asset impairment..... 0 143,000 0 0
Changes in assets and
liabilities, net of
effects of
acquisition:
Accounts
receivable........ (31,326) 5,456 3,725 3,200
Inventories........ 8,865 111,342 (75,478) 3,286
Restricted Cash.... (245,000) 40,833 0 204,167
Deferred revenue... 546,916 103,089 (65,000) 0
Other assets....... 60,543 15,063 (19,071) 0
Accounts payable
and accrued
expenses.......... (33,736) (30,988) (47,514) (32,459)
Customer deposits.. 28,805 (60,000) 0 0
----------- ----------- ------------ ------------
Net cash used in
operating
activities....... (1,497,109) (1,836,011) (1,201,867) (402,009)
----------- ----------- ------------ ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment......... (202,718) (41,764) (35,765) 0
----------- ----------- ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayments of long-term
debt.................. (25,379) (17,520) 0 0
Payment of deferred
financing costs....... (114,121) 0 0 0
Proceeds from sale of
common stock.......... 949,000 0 0 0
Decrease in due to
related party......... (735,981) 0 0 0
Proceeds from issuance
of debt and warrants.. 3,500,000 0 6,548 405,372
----------- ----------- ------------ ------------
Net cash provided
by (used in)
financing
activities....... 3,573,519 (17,520) 6,548 405,372
----------- ----------- ------------ ------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 1,873,692 (1,895,295) (1,231,084) 3,363
CASH AND CASH
EQUIVALENTS, beginning
of period.............. 36,839 1,910,621 1,910,621 15,326
----------- ----------- ------------ ------------
CASH AND CASH
EQUIVALENTS, end of
period................. $ 1,910,531 $ 15,326 $ 679,537 $ 18,689
=========== =========== ============ ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid for
interest............. $ 89,689 $ 459,285 $ 205,051 $ 166,001
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-22
<PAGE>
DYAD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(Information as of June 30, 1999 and for the Six Months Ended
June 30, 1998 and 1999 is Unaudited)
1. ORGANIZATION AND NATURE OF BUSINESS
Financial Delivery Systems, Inc. was incorporated in Georgia on May 9, 1996
and later changed its name to Dyad Corporation (the "Company"). The Company
develops high technology products and services which will enable consumers to
obtain financing for consumer durables at the point of sale through the use of
automated loan devices.
In January, 1997, the Company acquired MoneyPro, Inc. ("MoneyPro") which
provides mortgage lending information technology and related services in a
transaction accounted for as a purchase (Note 3).
In May, 1997, the Company acquired Bank Systems & Equipment Corporation
("Basecorp") which provides automated branching centers, printers, and related
supplies to financial institutions in a transaction accounted for as a pooling
of interests (Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, MoneyPro and Basecorp. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Unaudited Financial Information
The financial statements as of June 30, 1999 and for the six months ended
June 30, 1998 and 1999 are unaudited; however, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the unaudited financial statements for these interim
periods have been included. The results of interim periods are not necessarily
indicative of the results to be obtained for a full year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Restricted Cash
In conjunction with the Sirrom Note (Note 6), the Company was required to
establish an interest escrow account of $245,000 in December of 1997. The
account is designated for monthly interest payments on the Note payable to
Sirrom Investments, Inc. (See Note 6) if the Company fails to make such
payments.
F-23
<PAGE>
DYAD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant Customers
Approximately 24% of the Company's revenues were derived from the license
fee of a national distributor for the year ended December 31, 1998.
Approximately 40% and 15% of the Company's revenues were derived from equipment
and hardware sales to four major customers during the year ended 1998 and the
six month period ended 1999, respectively.
Property and Equipment
Property and equipment are stated at cost less impairment changes as
discussed in Note 5. Major property additions, replacements, and betterments
are capitalized, while maintenance and repairs which do not extend the useful
lives of these assets are expensed as incurred. The detail of property and
equipment at December 31, 1997 and 1998 and June 30, 1999 is as follows:
<TABLE>
<CAPTION>
Useful
1997 1998 1999 Lives
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
Furniture and fixtures............ $ 74,014 $ 48,274 $ 48,274 Five years
Computers and equipment........... 248,610 180,446 179,216 Three years
Vehicles.......................... 25,327 16,747 16,747 Five years
Leasehold improvements............ 18,617 19,866 19,866 Lease term
-------- -------- --------
366,568 265,333 264,103
Less accumulated depreciation..... (110,881) (214,361) (245,436)
-------- -------- --------
$255,687 $ 50,972 $ 18,667
======== ======== ========
</TABLE>
Depreciation expense for the year ended December 31, 1997 and 1998 and the
six months ended June 30, 1998 and 1999 was $55,203, $103,480, $52,147, and
$31,075, respectively.
Capitalized Software Development Costs
Research and development costs are expensed as incurred. Software
development costs are charged to research and development expense until
technological feasibility of the software is established, after which remaining
software production costs are capitalized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, "Accounting for Computer
Software to be Sold, Leased, or Otherwise Marketed." Amortization of
capitalized software development costs begins as products are made available
for sale or as the product is put into use with annual amortization equal to
the greater of the amount computed using the ratio that current gross revenues
bear to the total of current and anticipated future gross revenues for the
product or the straight-line method over the remaining economic life of the
product. Amortization expense of $20,990, $16,823, $8,411, and $8,204 for the
years ended December 31, 1997 and 1998 and for the six months ended June 30,
1998 and 1999, respectively, has been included in cost of sales in the
accompanying consolidated statements of operations. The Company amortizes
software development costs over three years.
Goodwill
Goodwill represents the excess of the purchase price over the net tangible
and identifiable intangible assets of acquired businesses. Goodwill is
amortized on a straight-line basis over five years. Amortization expense for
the year ended December 31, 1997 and 1998 and the six months ended June 30,
1998 and 1999 was $59,568, $37,482, $18,741, and $17,492, respectively.
F-24
<PAGE>
DYAD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at December 31, 1997 and 1998 and June
30, 1999 consist of the following:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Accounts payable.................................. $ 85,240 $ 55,805 $ 48,495
Accrued expenses.................................. 94,668 93,115 67,966
-------- -------- --------
$179,908 $148,920 $116,461
======== ======== ========
</TABLE>
Revenue Recognition
Dyad's sources of revenue included equipment and hardware sales, software
license fees, hardware support and maintenance fees. Revenue from equipment and
hardware sales is recognized upon receipt and acceptance by customers. For
software license fees, hardware support, and maintenance fees, the Company
recognizes revenue ratably over the period of the applicable agreement.
Deferred Revenues
Deferred revenues represent the liability for amounts collected prior to
complete performance of maintenance contracts and for advanced billings to
customers related to software license fees.
Fair Value of Financial Instruments
The fair value of instruments classified as current assets or liabilities,
including cash and cash equivalents, restricted cash, accounts receivable, and
accounts payable approximate carrying value due to the short-term maturity of
the instruments.
Long-Lived Assets
The Company periodically reviews the values assigned to tangible and
intangible long-lived assets to determine if any impairments have occurred. If
the review indicates that the undiscounted cash flows from operations of the
related long-lived assets over the remaining depreciation or amortization
period are expected to be less than the recorded amount of the long-lived
assets, the Company's carrying value of the long-lived assets will be reduced
to their estimated fair value. Management believes that the long-lived assets
on the accompanying balance sheet are appropriately valued.
Inventories
Inventories consist of computer equipment and hardware that are carried at
the lower of cost (determined by the first in, first out method) or market
(replacement cost).
Returns and Product Warranty
The Company provides for the costs of returns and product warranty claims
when specific problems are identified. The Company has not experienced
significant returns or warranty claims to date.
F-25
<PAGE>
DYAD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes, as set forth in SFAS No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, deferred tax assets or liabilities are determined based on the
differences between the financial reporting and tax basis of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to be settled or realized.
Comprehensive Loss
Comprehensive loss for years ended December 31, 1997 and 1998 and the six-
month period ended June 30, 1999 is the same as the net loss as presented in
the accompanying statements of operations.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
New Accounting Pronouncement
In June of 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The Statement is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. The Statement is not
expected to have a significant impact on the Company's financial statements.
3. ACQUISITIONS
In January, 1997, the Company acquired all of the outstanding shares of
common stock of MoneyPro in exchange for 1,000 shares of common stock of the
Company with a total fair value of $50,000, based upon recent sales of common
stock to outside parties. The transaction was accounted for as a purchase. The
total consideration exchanged exceeded the net tangible asset value of MoneyPro
by $204,914. This amount was allocated to goodwill and is being amortized over
a period of five years. The results of operations of the acquired business have
been included in the Company's consolidated financial statements from the date
of acquisition.
On May 13, 1997, the Company acquired all of the outstanding shares of
common stock of Basecorp in exchange for 1,111 shares of common stock of the
Company. The transaction was accounted for as a pooling of interests. The
results of operations of Basecorp have been included in the accompanying
financial statements for all periods presented.
4. LICENSE AND DISTRIBUTION AGREEMENT WITH PHOENIX INTERNATIONAL LTD., INC.
("PHOENIX")
On March 5, 1997, the Company granted Phoenix an exclusive right to market,
sell, and license the Company's products internationally and to current Phoenix
customers as well as the nonexclusive right to market, sell, and license the
Company's products to potential Phoenix customers. Phoenix paid the Company
$650,000 for this five-year license. The license fee was being recognized
ratably over the period of the license agreement of five years.
On September 31, 1998, the Company issued 350 shares of common stock of the
Company to Phoenix as consideration to terminate the agreement. Accordingly,
the remaining deferred license fee of $444,167 at September 31, 1998 was
reclassified to common stock in the accompanying December 31, 1998 balance
sheet, and a contract settlement expense of $205,833 for the previous revenue
recognized was included in selling and general expenses in the statement of
operations for years ended December 31, 1998.
F-26
<PAGE>
DYAD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. ASSET IMPAIRMENT CHARGE
Pursuant to SFAS No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of", the Company evaluated the
recoverability of the long-lived assets, including intangibles as of December
31, 1998. The Company determined that the future undiscounted cash flows were
below the carrying value of property and equipment, resulting in a noncash
asset impairment charge of $143,000, included in the accompanying statement of
operations for the year ended December 31, 1998.
6. DEBT
Long-term debt as of December 31, 1997 and 1998 and June 30, 1999 consists
of the following:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Note payable to Sirrom Investments, Inc.
("Sirrom") (the "Sirrom Note"),
interest payable monthly at 14%,
$3,500,000 due January 31, 2003........ $3,500,000 $3,500,000 $3,500,000
Note payable to The InterCept, Inc.,
interest at 8.5%, payable monthly, due
on demand.............................. 0 0 415,214
Note payable to American Express Small
Business Services, interest at prime
plus 3.75% (11.75% at December 31,
1998), payable monthly through November
2000................................... 17,427 11,662 9,284
Note payable to Barnett Bank of Central
Florida, interest at 9%, payable
monthly through August 2000............ 11,203 7,461 0
Note payable to AT&T, interest at
17.11%, payable monthly through
September 1999......................... 14,927 6,107 2,035
---------- ---------- ----------
3,543,557 3,525,230 3,926,533
Less current portion.................... (17,520) (19,123) (424,495)
---------- ---------- ----------
3,526,037 3,506,107 3,502,038
Less unamortized original issue
discount............................... (2,120,573) (1,972,304) (1,869,845)
---------- ---------- ----------
$1,405,464 $1,533,803 $1,632,193
========== ========== ==========
</TABLE>
The above long-term debt as of December 31, 1998 is due as follows:
<TABLE>
<S> <C>
1999.......................................................... $ 19,123
2000.......................................................... 6,107
2003.......................................................... 3,500,000
----------
3,525,230
Less current portion.......................................... (19,123)
Original issue discount....................................... (1,972,304)
----------
Total....................................................... $1,533,803
==========
</TABLE>
F-27
<PAGE>
DYAD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Sirrom Note was issued on December 31, 1997 for $3,500,000 and is
secured by all assets of the Company. As discussed in Note 7, warrants to
purchase up to 3,587 shares at $.01 per share were issued with the Sirrom Note.
The value of the warrants was determined to be $2,120,573. The value was
determined based on the relative fair value of the warrants, based on
management's estimates considering recent sales of common stock to outside
parties. A corresponding amount of the loan proceeds has been allocated to the
warrants and has been accounted for as a debt discount and warrants with
redemption feature in the accompanying balance sheets. The debt discount is
being amortized to interest expense over the term of the Sirrom Note. Total
amortization of the debt discount for the year ended December 31, 1998 and for
the six months ended June 30, 1998 and 1999 was $638,264, $311,108, and
$347,100, respectively.
A guarantee for the Sirrom Note has been provided by a major shareholder of
the Company. As consideration for providing this guarantee the shareholder
entered into a warrant agreement, as discussed in Note 7, whereby the
shareholder will receive warrants to purchase up to 5,088 shares at $.01 per
share. The fair market values of the warrants at December 31, 1997 was
$7,632,000, based on management's estimates considering recent sales of common
stock to outside parties as of December 31, 1997 and has been recorded as a
deferred financing cost and will be amortized as additional interest expense
over the term of the Sirrom Note. Total amortization of the debt discount for
the year ended December 31, 1998 and for the six months ended June 30, 1998 and
1999 was $1,081,724, $527,263, and $588,259, respectively.
7. WARRANTS WITH REDEMPTION FEATURE
In connection with the issuance of the Sirrom Note and the provision of the
guarantee by the major shareholder discussed in Note 6, the Company issued
warrants to purchase 1,470 shares of common stock at a price of $.01 per share.
In the event the Sirrom Note remains outstanding on January 1, 2003, Sirrom and
the major shareholder will receive an additional 7,205 shares of common stock,
based on a graduated scale with six-month increments, as defined. As discussed
in Note 6, the value assigned to these warrants was $9,752,573. Sirrom and the
major shareholder have the option to require the Company to redeem the warrants
for a period of 30 days after maturity of the Sirrom Note in December 2002 at a
purchase price equal to fair market value, as defined. Upon the acquisition of
the Company by Netzee, the redemption right terminated. Accordingly, in periods
prior to the Netzee acquisition, the Company has accounted for the warrants as
temporary equity under Emerging Issues Task Force 88-9, "Put Warrants." The
excess of the redemption value over the carrying value is being accrued by
periodic charges to accumulated deficit over the redemption period. This
accrual amounted to $652,000 and $326,000 for the year ended December 31, 1998
and for the six months ended June 30, 1999, respectively.
In conjunction with the acquisition of the Company by Netzee, Inc.
("Netzee") in September 1999 (Note 12), the Company intends to repay the Sirrom
Note prior to December 1999. As such, Sirrom will receive warrants to purchase
a total of 1,745 shares, or 13% of the Company, for $.01 per share and the
major shareholder will receive warrants to purchase a total of 2,276 shares, or
14.5% of the Company, for $.01 per share. The warrants were exercised and the
redemption rights were terminated during September 1999.
8. INCOME TAXES
The Company has incurred a net operating loss ("NOL") since inception. As of
December 31, 1998, the Company has NOL carryforwards of approximately
$4,500,000 available to offset its future income tax liability. The NOL
carryforwards begin to expire in 2011. Due to the uncertainty of the
realizability of the net operating losses, the Company has not reflected in the
accompanying statement of operations an income tax benefit for any period
presented and recorded a valuation allowance equal to the net deferred tax
assets of the
F-28
<PAGE>
DYAD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company at December 31, 1997 and 1998. Additionally, due to the acquisition
discussed in Note 12, the Company's ability to benefit from certain NOL
carryforwards could be limited under Section 382 of the Internal Revenue Code
when ownership of the Company changes by more than 50%, as defined.
The components of the deferred tax assets and liabilities are as follows as
of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $ 651,188 $ 1,709,953
Inventory........................................... 0 51,472
Accrued liabilities................................. 5,966 5,966
Property............................................ 6,707 13,413
Research and development............................ 171,952 234,364
Amortization........................................ 34,412 68,824
Other............................................... 60,110 60,110
--------- -----------
Total deferred tax assets.......................... 930,335 2,144,102
Valuation allowance.................................. (930,335) (2,144,102)
--------- -----------
Net deferred tax assets.............................. $ 0 $ 0
========= ===========
</TABLE>
The components of the income tax benefit for the years ended December 31,
1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Current:
Federal........................................... $ (0) $ (0)
State............................................. (0) (0)
----------- -----------
(0) (0)
----------- -----------
Deferred:
Federal........................................... (1,174,305) (2,033,320)
State............................................. (138,154) (239,214)
----------- -----------
(1,312,459) (2,272,534)
----------- -----------
Total benefit...................................... (1,312,459) (2,272,534)
Valuation allowance............................... 1,312,459 2,272,534
----------- -----------
Total............................................ $ 0 $ 0
=========== ===========
</TABLE>
The following is a summary of the items which resulted in recorded income
taxes to differ from taxes computed using the statutory federal income tax rate
for the years ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Tax provision at federal statutory rate.......................... 34% 34%
Tax provision at state statutory rate............................ 4 4
Effect of valuation allowance.................................... (38) (38)
--- ---
Income tax benefit............................................... 0% 0%
=== ===
</TABLE>
F-29
<PAGE>
DYAD CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. COMMITMENTS AND CONTINGENCIES
Operating Lease
The Company leases an automobile under an operating lease agreement. Future
minimum annual obligations under these leases as of December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999............................................................... $3,991
2000............................................................... 2,743
------
Total............................................................ $6,734
======
</TABLE>
Litigation
The Company is subject to litigation related to matters arising in the
normal course of business, including product liability. As of December 31,
1998, management is not aware of any unasserted, asserted, or pending material
litigation or claims against the Company.
10. SUBSCRIPTION RECEIVABLE
During 1996, a shareholder of the Company purchased shares of the Company's
common stock. In consideration of the common shares, the shareholder entered
into a $5,000 nonrecourse, noninterest-bearing note (the "Note"). The
outstanding principal balance of the Note has been reflected as a component of
shareholders' deficit in the accompanying balance sheet.
11. RELATED-PARTY TRANSACTIONS
The Company rents certain office space in Norcross, Georgia, from a related
party.The Company incurred approximately $39,000 and $16,000 of rent expense
related to this lease for the year ended December 31, 1997 and 1998,
respectively.
12. SUBSEQUENT EVENT
On September 3, 1999, the Company was acquired by Netzee. The consideration
received was approximately 618,137 shares of common stock of Netzee,
approximately $900,000 of cash, and assumption of debt, including the Sirrom
Note, of approximately $3,500,000. This acquisition has been accounted for as a
purchase in accordance with Accounting Principles Board Opinion No. 16.
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Internet Banking Division of
The Bankers Bank:
We have audited the accompanying balance sheet of THE INTERNET BANKING
DIVISION OF THE BANKERS BANK (an unincorporated division of a Georgia chartered
Federal Reserve member bank) as of December 31, 1998 and the related statements
of operations, changes in accumulated deficit, and cash flows for the period
from inception (March 1, 1998) to December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 The Internet Banking
Division of The Bankers Bank as of December 31, 1998 and the results of its
operations and its cash flows for the period from inception (March 1, 1998) to
December 31, 1998 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
September 3, 1999
F-31
<PAGE>
THE INTERNET BANKING DIVISION OF THE BANKERS BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowance for doubtful
accounts of $0 and $36,000 at December 31, 1998 and
June 30, 1999, respectively........................ $ 205,750 $ 156,346
Other receivables................................... 214,224 705,095
Deferred expenses................................... 286,500 181,500
---------- ----------
Total current assets.............................. 706,474 1,042,941
PROPERTY AND EQUIPMENT, net........................... 113,563 284,498
CAPITALIZED SOFTWARE DEVELOPMENT COSTS................ 214,145 644,717
---------- ----------
Total assets...................................... $1,034,182 $1,972,156
========== ==========
LIABILITIES AND ACCUMULATED DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses............... $ 314,826 $ 75,778
Deferred revenue.................................... 326,500 251,000
Due to Parent....................................... 849,531 2,494,118
---------- ----------
Total current liabilities......................... 1,490,857 2,820,896
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 7)
ACCUMULATED DEFICIT:
Accumulated deficit................................. (456,675) (848,740)
---------- ----------
Total liabilities and accumulated deficit......... $1,034,182 $1,972,156
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-32
<PAGE>
THE INTERNET BANKING DIVISION OF THE BANKERS BANK
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period For the Period
from Inception from Inception For the Six
(March 1, 1998) to (March 1, 1998) to Months Ended
December 31, 1998 June 30, 1998 June 30, 1999
------------------ ------------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUES:
Installation fees........ $ 67,500 $ 10,000 $ 189,000
Monthly license and
support fees............ 9,536 354 46,721
--------- --------- ---------
Total revenues......... 77,036 10,354 235,721
--------- --------- ---------
OPERATING EXPENSES:
Cost of installation,
license, and support.... (112,583) (12,000) (231,934)
Selling, general, and
administrative
expenses................ (416,455) (120,214) (381,756)
Depreciation and
amortization............ (4,673) (1,369) (14,096)
--------- --------- ---------
Total operating
expenses.............. (533,711) (133,583) (627,786)
--------- --------- ---------
NET OPERATING LOSS......... $(456,675) $(123,229) $(392,065)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-33
<PAGE>
THE INTERNET BANKING DIVISION OF THE BANKERS BANK
STATEMENTS OF CHANGES IN ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Accumulated
Deficit
-----------
<S> <C>
BALANCE at inception, March 1, 1998................................ $ 0
Net loss......................................................... (456,675)
---------
BALANCE, December 31, 1998......................................... (456,675)
Net loss (unaudited)............................................. (392,065)
---------
BALANCE, June 30, 1999 (unaudited)................................. $(848,740)
=========
</TABLE>
The accompanying notes are an integral part of these statements.
F-34
<PAGE>
THE INTERNET BANKING DIVISION OF THE BANKERS BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
From Inception For the Period
(March 1, 1998) From Inception For the
to (March 1, 1998) Six Months Ended
December 31, 1998 to June 30, 1998 June 30, 1999
----------------- ---------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss................. $(456,675) $(123,229) $ (392,065)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation and
amortization........... 4,673 1,369 14,096
Changes in assets and
liabilities:
Accounts receivable..... (205,750) (45,250) 49,404
Other receivables....... (214,224) 0 (490,871)
Deferred expenses....... (286,500) (108,000) 105,000
Accounts payable and
accrued expenses....... 314,826 138,955 (239,048)
Deferred revenue........ 326,500 101,000 (75,500)
--------- --------- -----------
Net cash used in
operating
activities........... (517,150) (35,155) (1,028,984)
--------- --------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to capitalized
software development
costs................... (214,145) 0 (430,572)
Purchase of property and
equipment............... (118,236) (15,899) (185,031)
--------- --------- -----------
Net cash used in
investing
activities........... (332,381) (15,899) (615,603)
--------- --------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from
Parent............... 849,531 51,054 1,644,587
--------- --------- -----------
NET CHANGE IN CASH........ 0 0 0
CASH, beginning of
period................... 0 0 0
--------- --------- -----------
CASH, end of period....... $ 0 $ 0 $ 0
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-35
<PAGE>
THE INTERNET BANKING DIVISION OF THE BANKERS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(Information as of June 30, 1999 and for the Six Months Ended
June 30, 1998 and 1999 is Unaudited)
1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
The Internet Banking Division of The Bankers Bank (the "Company") was
established as an unincorporated division on March 1, 1998 by The Bankers Bank
(the "Parent"), a Georgia chartered Federal Reserve member bank. The Company
was organized to provide business solutions utilizing Internet-enabled
technology to financial institutions and their customers and business customers
in the United States. The Company provides a blend of marketing and technical
expertise to deliver, support, and promote Internet-enabled technology to
financial institutions. The Company has developed a number of Internet banking
services that enable financial institutions to utilize a system of hardware and
software, developed, implemented, and maintained by the Company, through which
customers of the financial institution can use commonly available personal
computer software to communicate electronically with the financial institution
and perform certain electronic home banking, bill paying, and other on-line
banking transactions.
The accompanying financial statements present the financial position,
results of operations, and cash flows of the Company as if it were a separate
entity for all periods presented. Accordingly, the accompanying financial
statements for the period from inception (March 1, 1998) to December 31, 1998,
the period from inception (March 1, 1998) to June 30, 1998, and the six month
period ended June 30, 1999 include certain administrative costs and expenses
which have been allocated to the Company by the Parent. The costs have been
allocated on a pro rata basis based primarily on employee headcount or incurred
time and services and represent management's best estimates of what support
costs would have been had the Company been operated as a separate entity. The
Parent performs services and incurs certain costs for the Company. Services
provided include tax, treasury, risk management, employee benefits, legal, data
processing, application of cash receipts, and other general corporate services.
Corporate costs of Parent services totaling $145,670, $60,006, and $236,596
have been allocated to the Company during the period from inception (March 1,
1998) to December 31, 1998, the period from inception (March 1, 1998) to June
30, 1998, and the six month period ended June 30, 1999, respectively, and are
included in selling, general, and administrative expenses in the accompanying
statements of operations. In the opinion of management, the method of
allocating these costs is reasonable. However, the costs of services charged to
the Company are not necessarily indicative of the costs that would have been
incurred if the Company had performed these functions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Unaudited Financial Information
The financial statements as of June 30, 1999 and for the period from
inception (March 1, 1998) to June 30, 1998, and for the six months ended June
30, 1999 are unaudited; however, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the unaudited financial statements for these interim periods
have been included. The results of the interim periods are not necessarily
indicative of the results to be obtained for a full year.
F-36
<PAGE>
THE INTERNET BANKING DIVISION OF THE BANKERS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
Property and Equipment
The Parent holds legal title to all property and equipment. These assets are
stated at cost. Major property additions, replacements, and betterments are
capitalized, while maintenance and repairs which do not extend the useful lives
of these assets are expensed as incurred. Depreciation is provided using the
straight-line method for financial reporting purposes. The property and
equipment primarily consist of leasehold improvements and are depreciated over
the remaining term of the lease.
Capitalized Software Development Costs
Research and development costs are expensed as incurred. Computer software
development costs are charged to research and development expense until
technological feasibility of the software is established; after which,
remaining software production costs are capitalized in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting For
Computer Software to be Sold, Leased, or Otherwise Marketed." Amortization of
capitalized software-development costs begins as products are made available
for sale or as the related product is put into use with annual amortization
equal to the greater of the amount computed using the ratio that current gross
revenues bear to the total of current and anticipated future gross revenues for
the product or the straight-line method over the remaining economic life of the
product, not to exceed five years. Currently, none of the developed software is
available for general release and, as such, is not being amortized.
Revenue Recognition
The Company's revenue consists of revenues from the licensing of software
and fees from consulting, implementation, training, and maintenance services.
The Company recognizes revenue in accordance with the provisions of the
American Institute of Certified Public Accountants Statement of Position No.
97-2, "Software Revenue Recognition." The Company recognizes the one-time
nonrefundable implementation fee upon completion of the installation of the
software. License revenues and maintenance fees related to customer maintenance
and support are billed together and recognized ratably over the term of the
software license and support agreement, which is typically three years.
Amounts that have been prepaid or invoiced but that do not yet qualify for
recognition under the Company's revenue recognition policy are reflected as
deferred revenues.
Deferred Revenue and Deferred Expenses
Deferred revenue represents the liability for advanced billings to customers
primarily related to Internet banking software and hardware implementation and
training. Such amounts are recognized upon completion. Deferred expenses
represent services provided to the Company's customers by third parties. These
third parties provide service related to Internet banking software and hardware
implementation, training and conversion of the financial institution's customer
data. Such amounts are recognized in expense when the related revenue is
recognized.
Returns and Product Warranty
The Company provides for the costs of returns and product warranty claims
when specific problems are identified. The Company has not experienced
significant returns or warranty claims to date.
F-37
<PAGE>
THE INTERNET BANKING DIVISION OF THE BANKERS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fair Value Financial Instruments
The fair value of instruments classified as current assets or liabilities,
including accounts receivable and accounts payable, approximate carrying value
due to the short-term maturity of the instruments.
Long-Lived Assets
The Company periodically reviews the values assigned to long-lived assets to
determine if any impairments have occurred. Management believes that the long-
lived assets on the accompanying balance sheets are appropriately valued.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses include the following as of December
31, 1998 and June 30, 1999:
<TABLE>
<CAPTION>
1998 1999
-------- -------
<S> <C> <C>
Accounts payable............................................ $294,826 $75,778
Accrued license fee......................................... 20,000 0
-------- -------
$314,826 $75,778
======== =======
</TABLE>
Funding of Operations by Parent
The Parent funds the Company's operations as necessary. Transfers of
operating funds between the Parent and the Company occur on a noninterest-
bearing basis, with the net amounts of these transfers reflected in due to the
Parent in the accompanying balance sheets. The net balance in due to Parent of
$849,531 and $2,494,118 at December 31, 1998 and June 30, 1999, respectively,
is classified as a component of current liabilities in the accompanying balance
sheets.
Income Taxes
The Company uses the liability method of accounting for income taxes, as set
forth in SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred tax assets or liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to be settled or realized.
Comprehensive Loss
Comprehensive loss for the period from inception (March 1, 1998) to December
31, 1998, the period from inception (March 1, 1998) to June 30, 1998, and the
six month period ended June 30, 1999 is the same as the net loss as presented
in the accompanying statements of operations.
Advertising and Sales Promotion Costs
Advertising and sales promotion costs are expensed as incurred and totaled
$23,037, $54,692, and $50 from the period from inception (March 1) to June 30,
1998, the period from inception (March 1) to December 31, 1998, and the six
month period ended June 30, 1999, respectively.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards
F-38
<PAGE>
THE INTERNET BANKING DIVISION OF THE BANKERS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
for derivative instruments, including certain derivative instruments embedded
in other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The statement is effective for all fiscal quarters
for all fiscal years beginning after June 15, 2000. The statement is not
expected to have a significant impact on the Company's financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and June 30, 1999 consist of the
following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Furniture, fixtures, and leasehold improvements.......... $ 93,771 $150,391
Computer equipment....................................... 20,482 129,292
Computer software........................................ 3,983 23,584
-------- --------
118,236 303,267
Less accumulated depreciation............................ (4,673) (18,769)
-------- --------
Property and equipment, net.............................. $113,563 $284,498
======== ========
</TABLE>
Depreciation expense for the period from inception (March 1, 1998) to
December 31, 1998, the period from inception (March 1, 1998) to June 30, 1998,
and the six month period ended June 30, 1999 was $4,673, $1,369, and $14,096,
respectively.
4. RELATED-PARTY TRANSACTIONS
On September 3, 1999, the Company was acquired by Netzee, Inc. ("Netzee"),
as discussed in Note 8. The Internet Banking Division of The Independent
Bankers Bank ("TIB") was also acquired by Netzee on this date. The Company and
TIB have conducted business together since the Company's inception (March 1,
1998). The Company paid TIB $40,000 for the period from inception (March 1,
1998) to December 31, 1998 for the right to share outsourced financial
institution customer data conversion services, for which TIB has an agreement
with a third party. This fee is included in cost of implementation,
maintenance, and usage on the accompanying statements of operations for the
period from inception (March 1, 1998) to December 31, 1998.
Actual fees for conversion services are billed and paid through TIB. The
Company incurred $54,000, $12,000, and $109,000 in conversion services expense
during the period from inception (March 1, 1998) to December 31, 1998, the
period from inception (March 1, 1998) to June 30, 1998, and the six month
period ended June 30, 1999, respectively. At December 31, 1998 and June 30,
1999, the Company owed TIB $25,710 and $74,386, respectively, for conversion
services performed by the third party.
On January 1, 1999, the Company entered into a product development agreement
with TIB and an independent developer (the "Developer"), in which the Developer
is developing two commercial cash management systems for the Company and TIB,
who will share ownership and development costs of such systems equally. The
actual development began in 1998. The Company pays the Developer for all costs
incurred and TIB reimburses the Company for half of the amounts. The Company
accounts for the computer development costs in accordance with SFAS No. 86, as
discussed in Note 1. At December 31, 1998 and June 30, 1999, TIB owed the
Company $214,224 and $704,893, respectively, for development costs incurred to
date. This receivable is included in other receivables on the accompanying
balance sheets.
5. INCOME TAXES
The Company was included in the consolidated federal income tax return of
the Parent for the fiscal year ended December 31, 1998. The Company's provision
for income tax benefit in the accompanying
F-39
<PAGE>
THE INTERNET BANKING DIVISION OF THE BANKERS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
statements of operations reflect the federal and state income taxes calculated
as if the Company was a stand-alone entity. The Company has incurred a net
operating loss ("NOL") since inception. As of December 31, 1998, the Company
has NOL carryforwards of approximately $416,000 available to offset its future
income tax liability. The NOL carryforwards begin to expire in 2018. Due to the
uncertainty of the realizability of the net operating losses, the Company has
not reflected these carryforwards in the accompanying statements of operations
on a stand-alone basis an income tax benefit for any period presented and
recorded a valuation allowance equal to the net deferred tax assets of the
Company at December 31, 1998.
The components of the income tax benefit for the period from inception
(March 1, 1998) to December 31, 1998 are as follows:
<TABLE>
<S> <C>
Current:
Federal...................................................... $ 0
State........................................................ 0
---------
0
Deferred:
Federal...................................................... (155,087)
State........................................................ (18,246)
---------
(173,333)
Change in valuation allowance.................................. 173,333
---------
Total...................................................... $ 0
=========
</TABLE>
The following is a summary of the items which caused recorded income taxes
to differ from taxes computed using the statutory federal income tax rate for
the period from inception (March 1, 1998) to December 31, 1998:
<TABLE>
<S> <C>
Tax benefit at statutory rate....................................... (34)%
Effect of:
State income tax, net............................................. (4)
Valuation allowance............................................... 38
---
Income tax benefit.................................................. 0 %
===
</TABLE>
Deferred tax assets and liabilities are determined based on the difference
between the financial accounting and tax basis of assets and liabilities.
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1998 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards............................. $ 158,133
Deferred revenue............................................. 124,070
---------
282,203
---------
Deferred tax liabilities:
Deferred expenses............................................ (108,870)
---------
Net deferred tax assets before valuation allowance............. 173,333
Valuation allowance............................................ (173,333)
---------
Net deferred tax assets........................................ $ 0
=========
</TABLE>
F-40
<PAGE>
THE INTERNET BANKING DIVISION OF THE BANKERS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. EMPLOYEE BENEFIT PLANS
The Parent sponsors a 401(k) profit sharing plan (the "Plan"), a defined
contribution plan covering substantially all employees of the Company. Under
the Plan's deferred compensation arrangement, eligible employees who elect to
participate in the Plan may contribute between 1% and 15% of eligible
compensation, as defined, to the Plan. The Parent is required to match employee
contributions up to 3%. During the period from inception (March 1, 1998) to
December 31, 1998, matching contributions to company employees totaled $2,066
and are included as a component of selling, general, and administrative
expenses in the accompanying statements of operations.
7. COMMITMENTS AND CONTINGENCIES
Operating Lease
The Company leases certain office space under an operating lease agreement.
Future minimum annual obligations under this lease as of December 31, 1998 are
as follows:
<TABLE>
<S> <C>
1999................................. $51,380
2000................................. 22,890
-------
Total.............................. $74,270
=======
</TABLE>
Rent expense for the period from inception (March 1, 1998) to December 31,
1998, the period from inception (March 1, 1998) to June 30, 1998, and the six
month period ended June 30, 1999 was $14,000, $5,600, and $19,845,
respectively.
Product Liability
As a result of their complexity, software products may contain undetected
errors or failures when first introduced or as new versions are released. There
can be no assurance that, despite testing by the Company and testing and use by
current and potential customers, errors will not be found in new Internet
banking systems after commencement of commercial release or, if discovered,
that the Company will be able to successfully correct such errors in a timely
manner or at all. The occurrence of errors and failures in the Company's
products could result in loss of or delay in the market acceptance of the
Company's Internet banking systems, and alleviating such errors and failures
could require significant expenditure of capital and other resources by the
Company. The consequences of such errors and failures could have a material
adverse effect on the Company's business, results of operations, and financial
condition.
Litigation
The Company is subject to litigation related to matters arising in the
normal course of business, including product liability. As of December 31,
1998, management is not aware of any unasserted, asserted, or pending material
litigation or claims against the Company.
8. SUBSEQUENT EVENT
On September 1, 1999, the Company was acquired by Netzee, Inc. ("Netzee")
for 1,361,000 shares of Netzee's stock. The acquisition of the Company was
accounted for as a purchase under Accounting Principles Board Opinion No. 16.
F-41
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Internet Banking Division of
The Independent BankersBank:
We have audited the accompanying balance sheets of THE INTERNET BANKING
DIVISION OF THE INDEPENDENT BANKERSBANK (an unincorporated division of a Texas
chartered Federal Reserve member bank) as of December 31, 1997 and 1998 and the
related statements of operations, changes in accumulated deficit, and cash
flows for the period from inception (February 1, 1997) to December 31, 1997,
and the year ended December 31, 1998. 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 The Internet Banking
Division of The Independent BankersBank as of December 31, 1997 and 1998 and
the results of its operations and its cash flows for the period from inception
(February 1, 1997) to December 31, 1997 and the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
September 3, 1999
F-42
<PAGE>
THE INTERNET BANKING DIVISION OF
THE INDEPENDENT BANKERSBANK
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------- June 30,
1997 1998 1999
--------- --------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable ...................... $ 5,054 $ 91,520 $ 116,083
Inventory ................................ 15,300 30,885 31,635
--------- --------- ---------
Total current assets.................... 20,354 122,405 147,718
PROPERTY AND EQUIPMENT, net................. 4,721 23,111 30,283
CAPITALIZED SOFTWARE DEVELOPMENT COSTS (Note
2)......................................... 0 214,145 644,717
--------- --------- ---------
Total assets............................ $ 25,075 $ 359,661 $ 822,718
========= ========= =========
LIABILITIES AND ACCUMULATED DEFICIT
CURRENT LIABILITIES:
Accrued expenses.......................... $ 1,060 $ 7,285 $ 7,285
Accounts payable ......................... 0 214,224 704,894
Deferred revenue.......................... 22,625 98,250 57,000
Due to Parent............................. 179,761 680,974 816,314
--------- --------- ---------
Total current liabilities............... 203,446 1,000,733 1,585,493
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 6 and
7)
ACCUMULATED DEFICIT:
Accumulated deficit....................... (178,371) (641,072) (762,775)
--------- --------- ---------
Total liabilities and accumulated
deficit................................ $ 25,075 $ 359,661 $ 822,718
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-43
<PAGE>
THE INTERNET BANKING DIVISION OF
THE INDEPENDENT BANKERSBANK
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
From Inception For the Year For the Six Months
(February 1, 1997) Ended Ended June 30,
to December 31, December 31, --------------------
1997 1998 1998 1999
------------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Installation fees...... $ 0 $ 273,747 $ 197,415 $ 224,859
Monthly license and
support fees.......... 0 158,513 46,950 111,435
--------- --------- --------- ---------
Total revenues....... 0 432,260 244,365 336,294
--------- --------- --------- ---------
OPERATING EXPENSES:
Cost of installation,
license, and support.. 0 (433,820) (176,214) (250,445)
Selling, general and
administrative
expenses.............. (173,679) (508,559) (222,488) (309,808)
Depreciation and
amortization.......... (4,692) (6,582) (3,081) (6,744)
--------- --------- --------- ---------
Total operating
expenses............ (178,371) (948,961) (401,783) (566,997)
--------- --------- --------- ---------
Other Income........... 0 54,000 0 109,000
--------- --------- --------- ---------
NET OPERATING LOSS....... $(178,371) $(462,701) $(157,418) $(121,703)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-44
<PAGE>
THE INTERNET BANKING DIVISION OF
THE INDEPENDENT BANKERSBANK
STATEMENT OF CHANGES IN ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Accumulated
(Deficit)
-----------
<S> <C>
BALANCE, February 1, 1997.......................................... $ 0
Net loss......................................................... (178,371)
---------
BALANCE, December 31, 1997......................................... (178,371)
Net loss......................................................... (462,701)
---------
BALANCE, December 31, 1998......................................... (641,072)
Net loss (unaudited)............................................. (121,703)
---------
BALANCE, June 30, 1999 (unaudited)................................. $(762,775)
=========
</TABLE>
The accompanying notes are an integral part of these statements.
F-45
<PAGE>
THE INTERNET BANKING DIVISION OF
THE INDEPENDENT BANKERSBANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
From Inception For the Six Months
February 1, 1997 For the Ended June 30
to Year Ended -----------------------
December 31, 1997 December 31, 1998 1998 1999
----------------- ----------------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............. $(178,371) $(462,701) $(157,418) $(121,703)
Adjustments to
reconcile net loss
to net cash used in
operating
activities:
Depreciation and
amortization....... 4,692 6,582 3,081 6,744
Changes in assets
and liabilities:
Accounts
receivable........ (5,054) (86,466) (117,362) (24,563)
Accrued expenses... 1,060 6,225 0 0
Inventory.......... (15,300) (15,585) 7,665 (750)
Deferred revenues.. 22,625 75,625 (22,625) (41,250)
--------- --------- --------- ---------
Net cash (used in)
provided by
operating
activities....... (170,348) (476,320) (286,659) (181,522)
--------- --------- --------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Additions to
capitalized software
development costs... 0 (214,145) 0 (430,572)
Accounts payable
related to funding
of software
development......... 0 214,224 0 490,670
Purchase of property
and equipment....... (9,413) (24,972) (11,681) (13,916)
--------- --------- --------- ---------
Net cash used in
investing
activities....... (9,413) (24,893) (11,681) (46,182)
--------- --------- --------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net proceeds from
Parent.............. 179,761 501,213 298,340 135,340
--------- --------- --------- ---------
NET CHANGE IN CASH..... 0 0 0 0
CASH, beginning of
period................ 0 0 0 0
--------- --------- --------- ---------
CASH, end of period.... $ 0 $ 0 $ 0 $ 0
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-46
<PAGE>
THE INTERNET BANKING DIVISION OF THE INDEPENDENT BANKERSBANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(Information as of June 30, 1999 and for the Six Months Ended
June 30, 1998 and 1999 is Unaudited)
1. ORGANIZATION AND NATURE OF BUSINESS
The Internet Banking Division of The Independent BankersBank (the "Company")
was established as an unincorporated division on February 1, 1997. The Company
was organized by The Independent BankersBank (the "Parent"), a Texas chartered
Federal reserve member bank to provide Internet banking solutions and internet
banking services to other banker's associations and independent financial
institutions in the United States. The Company provides a blend of marketing
and technical expertise to deliver, support, and promote Internet-enabled
technology to financial institutions. The Company has developed a number of
Internet banking services that enable financial institutions to utilize a
system of hardware and software, developed, implemented, and maintained by the
Company, through which customers of the financial institution can use commonly
available personal computer software to communicate electronically with the
financial institution and perform certain electronic home banking, bill paying,
and other on-line banking transactions.
The accompanying financial statements present the financial position,
results of operations, and cash flows of the Company as if it were a separate
entity for all periods presented. Accordingly, the accompanying financial
statements for the period of inception (February 1, 1997) to December 31, 1997,
the year ended December 31, 1998, and the six month periods ended June 30, 1998
and 1999 include certain administrative costs and expenses, which have been
allocated to the Company by Parent. The costs have been allocated on a pro rata
basis based primarily on employee headcount or incurred time and services and
represent management's best estimates of what support costs would have been had
the Company been operated as a separate entity. The Parent performs services
and incurs certain costs for the Company. Services provided include tax,
treasury, risk management, employee benefits, legal, data processing,
application of cash receipts, and other general corporate services. Corporate
costs of Parent services totaling $85,376, $116,079, $55,682, and $70,416 have
been allocated to the Company during the period from inception (February 1,
1997) to December 31, 1997, the year ending December 31, 1998, and the six
month periods ended June 30, 1998 and 1999, respectively, and are included in
selling, general, and administrative expenses in the accompanying statements of
operations. In the opinion of management, the method of allocating these costs
is reasonable. However, the costs of services charged to the Company are not
necessarily indicative of the costs that would have been incurred if the
Company had performed these functions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Unaudited Financial Information
The financial statements as of June 30, 1999, and for the six months ended
June 30, 1998 and 1999 are unaudited; however, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the unaudited financial statements for these interim
periods have been included. The results of interim periods are not necessarily
indicative of the results to be obtained for a full year.
F-47
<PAGE>
THE INTERNET BANKING DIVISION OF THE INDEPENDENT BANKERSBANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
Inventory
The Company maintains finished goods, comprised of hardware that are
provided to banks as part of the implementation process. These inventories are
valued at the lower of cost or market, cost being determined on the first-in,
first-out ("FIFO") basis.
Property and Equipment
The Parent holds legal title to all property and equipment. These assets are
stated at cost. Major property additions, replacements, and betterments are
capitalized, while maintenance and repairs which do not extend the useful lives
of these assets are expensed as incurred. Depreciation is provided using the
straight-line method for financial reporting purposes. The property and
equipment primarily consists of furniture and office equipment and is
depreciated in five years.
Capitalized Software Development Costs
Research and development costs are expensed as incurred. Computer software
development costs are charged to research and development expense until
technological feasibility of the software is established; after which,
remaining software production costs are capitalized in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting For
Computer Software to be Sold, Leased, or Otherwise Marketed." Amortization of
capitalized software-development costs begins as products are made available
for sale or as the related product is put into use with annual amortization
equal to the greater of the amount computed using the ratio that current gross
revenues bear to the total of current and anticipated future gross revenues for
the product or the straight-line method over the remaining economic life of the
product, not to exceed five years. Currently none of the developed software is
available for general release and, as such, is not being amortized.
Revenue Recognition
The Company's revenue consists of revenues from the licensing of software
and fees from consulting, implementation, training, and maintenance services.
The Company recognizes revenue in accordance with the provisions of American
Institute of Certified Public Accountants Statement of Position ("SOP") No. 97-
2, "Software Revenue Recognition." The company recognizes the one-time non-
refundable implementation fee upon completion of the installation of the
software. License revenues and maintenance fees related to customer maintenance
and support are billed together and recognized ratably over the term of the
software license and support agreement, which is typically three years.
Revenues from services fees are recognized as the services are performed.
Amounts that have been prepaid or invoiced but that do not yet qualify for
recognition under the Company's revenue recognition policy are reflected as
deferred revenues.
Deferred Revenue and Deferred Expenses
Deferred revenue represents the liability for advanced billings to customers
primarily related to internet banking software and hardware implementation and
training. Such amounts are recognized as revenue ratably
F-48
<PAGE>
THE INTERNET BANKING DIVISION OF THE INDEPENDENT BANKERSBANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
over the period of the applicable agreement. Deferred expenses represent
services provided to the Company's customers by third parties. These third
parties provide services related to Internet banking software and hardware
implementation training and conversion of the financial institution's customer
data. Such amounts are recognized in connection with the recognition of related
revenues.
Returns and Product Warranty
The Company provides for the costs of returns and product warranty claims
when specific problems are identified. The Company has not experienced
significant returns or warranty claims to date.
Fair Value Financial Instruments
The fair value of instruments classified as current assets or liabilities,
including accounts receivable and accounts payable, approximate carrying value
due to the short-term maturity of the instruments.
Long-Lived Assets
The Company periodically reviews the values assigned to long-lived assets to
determine if any impairments have occurred. Management believes that the long-
lived assets on the accompanying balance sheets are appropriately valued.
Funding of Operations by Parent
Parent funds the Company's operations as necessary. Transfers of operating
funds between Parent and the Company occur on a noninterest-bearing basis, with
the net amounts of these transfers reflected in due to Parent in the
accompanying balance sheets. The net balance is due to Parent of $179,761,
$680,974, and $816,314 at December 31, 1997, December 31, 1998, and June 30,
1999, respectively, is classified as a component of current liabilities in the
accompanying balance sheets.
Income Taxes
The Company uses the liability method of accounting for income taxes, as set
forth in SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred tax assets or liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to be settled or realized.
Comprehensive Loss
Comprehensive loss for the period from inception (February 1, 1997) to
December 31, 1997, the year ended December 31, 1998, and the six month periods
ended June 30, 1998 and 1999 is the same as the net loss as presented in the
accompanying statements of operations.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The statement is effective for all fiscal quarters
for all fiscal years beginning after June 15, 2000. The statement is not
expected to have a significant impact on the Company's financial statements.
Advertising and Sales Promotion Costs
Advertising and sales promotion costs are expensed as incurred and totaled
$10,780, $8,613, $5,321 and $3,576 for the period from inception (February 1,
1997) to December 31, 1998, and the six month periods ended June 30, 1998 and
1999, respectively.
F-49
<PAGE>
THE INTERNET BANKING DIVISION OF THE INDEPENDENT BANKERSBANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1998, and June 30, 1999
consist of the following:
<TABLE>
<CAPTION>
December 31
--------------- June 30,
1997 1998 1999
------ ------- --------
<S> <C> <C> <C>
Furniture and office equipment.................... $9,413 $34,385 $48,301
Less accumulated depreciation................... (4,692) (11,274) (18,018)
------ ------- -------
Property and equipment, net....................... $4,721 $23,111 $30,283
====== ======= =======
</TABLE>
4. INCOME TAXES
The Company was included in the consolidated federal income tax return of
the Parent for the fiscal years ended December 31, 1997 and 1998. The Company's
provision for income tax benefit in the accompanying statements of operations
reflects the federal income tax calculated as if the Company was a stand-alone
entity. At December 31, 1998, the Company has incurred a net operating loss
("NOL") since inception of approximately $462,700. As of December 31, 1998, the
Company has NOL carryforwards available to offset its future income tax
liability. The NOL carryforwards begin to expire in 2012. Due to the
uncertainty of the realizability of the net operating losses, the Company has
not reflected these carryforwards in the accompanying statement of operations
on a stand-alone basis an income tax benefit for any period presented and has
recorded a valuation allowance equal to the net deferred tax assets of the
Company at December 31, 1997 and 1998. The Company is a Texas chartered bank
and is not subject to state income taxes.
The following is a summary of the items which caused recorded income taxes
to differ from taxes computed using the statutory federal income tax rate for
the period from inception (February 1, 1997) to December 31, 1997 and for the
year ended December 31, 1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Tax provision at federal statutory rate.......................... 34% 34%
Valuation allowance.............................................. (34) (34)
--- ---
0% 0%
=== ===
</TABLE>
The components of the deferred tax asset for the period from inception
(February 1, 1997) to December 31, 1997 and for the year ended December 31,
1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Deferred income tax benefit:
Net operating loss carryforward......................... $60,646 $157,318
Accrued liabilities..................................... 360 2,477
Deferred revenue........................................ 7,694 33,405
------- --------
Deferred tax asset.................................. 68,700 193,200
Valuation allowance....................................... (68,700) (193,200)
------- --------
Net deferred tax assets............................. $ 0 $ 0
======= ========
</TABLE>
5. EMPLOYEE BENEFIT PLAN
Parent sponsors the Company's 401(k) plan (the "Plan"), a defined
contribution plan covering substantially all employees of the Company. To
become eligible, employees must be with the company at least
F-50
<PAGE>
THE INTERNET BANKING DIVISION OF THE INDEPENDENT BANKERSBANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
six months at the time of the Plan enrollment date. These enrollment dates
occur on January 1 and July 1 of each year. Eligible employees who elect to
participate in the Plan may contribute between 1% and 15% of eligible
compensation, as defined by the Plan. Employee contribution matching is
determined by the Parent as elective deferral contributions are made. These
matches are discretionary up to 5% of the employees' compensation. Expenses
relating to the matching contributions are allocated to the Company. During the
period from inception (February 1, 1997) to December 31, 1997, the year ended
December 31, 1998, and the six month periods end June 30, 1998 and 1999. Parent
matching totals were $0, $3,951, $0, and $8,195, respectively, and is included
as a component of selling, general, and administrative expenses in the
accompanying statements of operations.
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
Internet Banking Division currently subleases space from the Parent,
however, there is not a signed agreement for future commitments. The Company
has no lease obligations and currently has no lease commitments outstanding.
The total rent expense for the period from inception (February 1, 1997) to
December 31, 1997, the year ended December 31, 1998, and the six month periods
ended June 30, 1998 and 1999 is $1,015, $8,036, $1,427, and $4,557,
respectively.
Product Liability
As a result of their complexity, software products may contain undetected
errors or failures when first introduced or as new versions are released. There
can be no assurance that, despite testing by the Company and testing and use by
current and potential customers, errors will not be found in new Internet
banking systems after commencement of commercial release or, if discovered,
that the Company will be able to successfully correct such errors in a timely
manner or at all. The occurrence of errors and failures in the Company's
products could result in loss of or delay in the market acceptance of the
Company's Internet banking systems, and alleviating such errors and failures
could require significant expenditure of capital and other resources by the
Company. The consequences of such errors and failures could have a material
adverse effect on the Company's business, results of operations, and financial
condition.
Litigation
The Company is subject to litigation related to matters arising in the
normal course of business, including product liability. As of December 31,
1998, management is not aware of any unasserted, asserted, or pending material
litigation or claims against the Company.
7. RELATED-PARTY TRANSACTIONS
On September 3, 1999, the Company was acquired by Netzee, Inc. ("Netzee"),
as discussed in Note 8. The Internet Banking Division of The Bankers Bank of
Georgia ("BB-GA") was also acquired by Netzee on this date. The Company and BB-
GA have conducted business together since the BB-GA'S inception (March 1,
1998). The Company has received $40,000 for the period from March 1, 1998
through December 31, 1998 from BB-GA, for the right of BB-GA to share
outsourced financial institution customer data conversion services, for which
the Company has an agreement with a third party to perform. This fee is
included in other income revenues on the accompanying statement of operations
for the year end December 31, 1998.
F-51
<PAGE>
THE INTERNET BANKING DIVISION OF THE INDEPENDENT BANKERSBANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
The conversion service provider bills the company actual fees for conversion
services which are billed and paid through BB-GA. The Company recognized $0,
$54,000, $12,000, and $109,000 in conversion services revenues during the
period from inception (February 1, 1997) to December 31, 1997, the year ended
December 31, 1998, and the six month periods ended June 30, 1998 and 1999,
respectively. At December 31, 1998 and June 30, 1999, the Company had a
receivable from BB-GA of $25,710 and $74,386, respectively, for conversion
services performed by the third party.
On January 1, 1999, the Company entered into a product development agreement
with BB-GA and an independent developer (the "Developer"), in which the
Developer is developing two commercial cash management systems for the Company
and BB-GA, who will share ownership and development costs of such systems
equally. The actual commencement of the development began in 1998. The Company
reimburses BB-GA for half of the amounts incurred by Developer for contractual
services performed. The Company accounts for the capitalized software
development costs in accordance with SFAS No. 86, as discussed in Note 1. As of
December 31, 1997 and 1998 and June 30, 1999, the Company had a payable of $0,
$214,224, and $704,893, respectively, to BB-GA for development costs incurred
to date. This payable is stated separately on the accompanying balance sheets.
8. SUBSEQUENT EVENT
On September 3, 1999, the Company was acquired by Netzee, Inc., ("Netzee"),
for 1,361,000 shares of Netzee's stock. The acquisition of the Company was
accounted for as a purchase under Accounting Principles Board Opinion No. 16.
F-52
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Call Me Bill, LLC:
We have audited the accompanying balance sheets of CALL ME BILL, LLC (a
Kentucky limited liability company) as of December 31, 1997 and 1998 and the
related statements of operations, changes in members' deficit, and cash flows
for the period from inception (July 31, 1997) to December 31, 1997 and for the
year ended December 31, 1998. 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 Call Me Bill, LLC as of
December 31, 1997 and 1998 and the results of its operations and its cash flows
for the period from inception (July 31, 1997) to December 31, 1997 and for the
year ended December 31, 1998 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Atlanta, Georgia
September 3, 1999
F-53
<PAGE>
CALL ME BILL, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
-------------------- June 30,
1997 1998 1999
--------- --------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash......................................... $ 386 $ 13,989 $ 23,358
Accounts receivable, net of allowance for
doubtful accounts of $0, $7,500, and $7,500
at December 31, 1997, December 31, 1998, and
June 30, 1999, respectively................. 750 76,437 114,076
Other assets................................. 1,868 7,368 4,535
--------- --------- ---------
Total current assets..................... 3,004 97,794 141,969
PROPERTY AND EQUIPMENT, net.................. 73,825 93,234 147,796
OTHER ASSETS:
Organizational costs, net.................. 5,181 0 0
--------- --------- ---------
Total assets........................... $ 82,010 $ 191,028 $ 289,765
========= ========= =========
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses...... $ 3,711 $ 27,719 $ 48,458
Deferred revenues.......................... 15,813 193,844 278,352
--------- --------- ---------
Total current liabilities................ 19,524 221,563 326,810
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES (Note 6 and 7)
MEMBERS' DEFICIT:
Members' equity............................ 176,367 449,921 649,921
Accumulated deficit........................ (113,881) (480,456) (686,966)
--------- --------- ---------
Total members' deficit................... 62,486 (30,535) (37,045)
--------- --------- ---------
Total liabilities and members'
deficit............................... $ 82,010 $ 191,028 $ 289,765
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-54
<PAGE>
CALL ME BILL, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Six For the Six
For the Period From Inception For the Months Ended Months Ended
(July 31, 1997) to Year Ended June 30, June 30,
December 31, 1997 December 31, 1998 1998 1999
----------------------------- ----------------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Monthly transaction
fees................. $ 3,687 $ 33,432 $ 9,153 $ 90,536
Implementation fees... 0 28,285 3,750 73,870
--------- --------- --------- ---------
Total revenues...... 3,687 61,717 12,903 164,406
OPERATING EXPENSES:
Cost of transactions
and implementations.. (1,835) (27,732) (7,609) (23,688)
Selling, general, and
administrative
expenses............. (111,337) (378,122) (150,237) (335,426)
Depreciation and
amortization......... (4,397) (22,987) (10,438) (13,130)
--------- --------- --------- ---------
Total operating
expenses........... (117,569) (428,841) (168,284) (372,244)
--------- --------- --------- ---------
OPERATING LOSS.......... (113,882) (367,124) (155,381) (207,838)
OTHER INCOME............ 0 0 0 747
INTEREST INCOME......... 1 549 130 581
--------- --------- --------- ---------
NET OPERATING LOSS...... $(113,881) $(366,575) $(155,251) $(206,510)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-55
<PAGE>
CALL ME BILL, LLC
STATEMENTS OF CHANGES IN MEMBERS' DEFICIT
<TABLE>
<CAPTION>
Total
Members' Accumulated Members'
Equity Deficit Deficit
-------- ----------- ---------
<S> <C> <C> <C>
BALANCE at inception, July 31, 1997............ $ 0 $ 0 $ 0
Contribution for membership units............ 176,367 0 176,367
Net loss..................................... 0 (113,881) (113,881)
-------- --------- ---------
BALANCE, December 31, 1997..................... 176,367 (113,881) 62,486
Contribution for membership units............ 273,554 0 273,554
Net loss..................................... 0 (366,575) (366,575)
-------- --------- ---------
BALANCE, December 31, 1998..................... 449,921 (480,456) (30,535)
Contribution for membership units
(unaudited)................................. 200,000 0 200,000
Net loss (unaudited)......................... 0 (206,510) (206,510)
-------- --------- ---------
BALANCE, June 30, 1999 (Unaudited)............. $649,921 $(686,966) $ (37,045)
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-56
<PAGE>
CALL ME BILL, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period For the For the Six Months
From Inception Year Ended Ended June 30
(July 31, 1997) to December 31, -----------------------
December 31, 1997 1998 1998 1999
------------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............. $(113,881) $(366,575) $(155,251) $(206,510)
Adjustments to
reconcile net loss
to net cash used in
operating
activities:
Depreciation and
amortization....... 4,397 22,987 10,438 13,130
Bad debt expense.... 0 7,500 0 0
Gain on disposal of
fixed assets....... 0 0 0 (747)
Changes in assets and
liabilities:
Accounts
receivable......... (750) (83,187) (3,570) (37,639)
Other assets........ (1,868) (5,500) (735) 2,833
Accounts payable and
accrued expenses... 3,711 24,008 12,135 20,739
Deferred revenues... 15,813 178,031 20,376 84,508
--------- --------- --------- ---------
Net cash used in
operating
activities........ (92,578) (222,736) (116,607) (123,686)
--------- --------- --------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Organizational
costs............... (6,258) 0 0 0
Purchases of property
and equipment, net.. (77,145) (37,215) (17,513) (66,945)
--------- --------- --------- ---------
Net cash used in
operating
activities........ (83,403) (37,215) (17,513) (66,945)
--------- --------- --------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Contributions from
members............. 176,367 273,554 136,257 200,000
--------- --------- --------- ---------
NET CHANGE IN CASH..... 386 13,603 2,137 9,369
CASH, beginning of
period................ 0 386 386 13,989
--------- --------- --------- ---------
CASH, end of period.... $ 386 $ 13,989 $ 2,523 $ 23,358
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-57
<PAGE>
CALL ME BILL, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION, NATURE OF BUSINESS, AND BASIS OF PRESENTATION
Call Me Bill, LLC (the "Company") was organized on July 31, 1997 by Fort
Knox National Company ("FKNC", 60% member owner) and Military Services
Incorporated ("MSI", 40% member owner), both Kentucky corporations. The Company
was organized for providing business solutions utilizing Internet and telephone
technology to financial institutions and real estate property management
companies and their customers in the United States. The Company provides a
blend of marketing and technical expertise to deliver, support, and promote
Internet and telephone technology to financial institutions and property
management companies. The Company has developed a number of Internet and
telephone banking services that enable financial institutions and property
management companies to utilize a system of hardware and software, developed,
implemented, and maintained by the Company, through which customers can use
commonly available personal computer software and telephone technology to
perform certain electronic home banking, bill paying, and other on-line banking
transactions.
The Company's Articles of Organization state that the termination date of
the Company is December 31, 2025, unless sooner dissolved in a manner provided
by law.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Unaudited Financial Information
The financial statements for the six months ended June 30, 1998 and 1999 are
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
the unaudited financial statements for these interim periods have been
included. The results of interim periods are not necessarily indicative of the
results to be obtained for a full year.
Property and Equipment
Property and equipment are stated at cost. Major property additions,
replacements, and betterments are capitalized, while maintenance and repairs
which do not extend the useful lives of these assets are expensed as incurred.
Depreciation is provided using the straight-line method for financial reporting
purposes. The property and equipment primarily consist of computer hardware and
software and are depreciated over a five-year period.
Revenue Recognition
The Company's functions allow customers to process transactions utilizing
the Company's software. The Company's revenues are generated through initial
installation fees and recurring transaction fees. Management
F-58
<PAGE>
CALL ME BILL, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
believes that the prices charged for both the installation fees and the
recurring transaction fees are based on the relative fair value of the related
services provided. Accordingly, the Company recognized the installation and
recurring transaction fees as the related services are provided. Revenues
related to the installation fees are recognized upon completion of the
installation. Transaction fees are recognized on a monthly basis as earned.
Deferred Revenues
Deferred revenues represent implementation fees and annual service fees
collected but not recognized.
Returns and Product Warranty
The Company provides for the costs of returns and product warranty claims
when specific problems are identified. The Company has not experienced
significant returns or warranty claims to date.
Fair Value of Financial Instruments
The fair values of instruments classified as current assets or liabilities,
including accounts receivable and accounts payable, approximate carrying value
due to the short-term maturity of the instruments.
Long-Lived Assets
The Company periodically reviews the values assigned to long-lived assets
to determine whether any impairments have occurred. Management believes that
the long-lived assets on the accompanying balance sheets are appropriately
valued.
Income Taxes
The Company is a limited liability company and is considered a partnership
for income tax purposes, and thus, no income tax benefit has been recorded in
the financial statements. Losses of the Company are considered on the members'
respective returns.
Comprehensive Losses
Comprehensive loss for the period from inception (July 31, 1997) to
December 31, 1997, the year ended December 31, 1998, and the six-month periods
ended June 30, 1998 and 1999 is the same as the net loss as presented in the
accompanying statements of operations.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The statement is effective for all fiscal quarters
for all fiscal years beginning after June 15, 2000. Adoption of the statement
is not expected to have a significant impact on the Company's financial
statements.
F-59
<PAGE>
CALL ME BILL, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1998 and June 30, 1999
consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------- June 30,
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Computer hardware............................... $57,639 $ 60,048 $ 69,093
Computer software............................... 17,124 47,638 42,500
Telephone equipment............................. 2,382 2,382 20,008
Construction in progress........................ 0 3,020 48,212
------- -------- --------
77,145 113,088 179,813
Less accumulated depreciation................... (3,320) (19,854) (32,017)
------- -------- --------
Property and equipment, net..................... $73,825 $ 93,234 $147,796
======= ======== ========
</TABLE>
Depreciation expense for the period from inception (July 31, 1997) to
December 31, 1997 the year ended December 31, 1998, and the six months ended
June 30, 1998 and 1999 was $3,320, $17,806, $7,848, and $12,163, respectively.
4. INTANGIBLE ASSETS
The Company has certain deferred organizational costs relating to the start-
up of the business which were fully amortized as of December 31, 1998.
5. EMPLOYEE BENEFIT PLANS
FKNC sponsors the Company's 401(k) plan (the "Plan"), a defined contribution
plan covering substantially all employees of the Company. Under the Plan's
deferred compensation arrangement, eligible employees who elect to participate
in the Plan may contribute between 1% and 15% of eligible compensation, as
defined by the Plan. Employee contribution matching is determined by FKNC as
elective deferral contributions are made. The Company joined the Plan January
1, 1998, and FKNC's matching contributions for the year ended December 31, 1998
were $2,210. Expenses relating to the matching contributions are allocated to
the Company (Note 7).
6. COMMITMENTS AND CONTINGENCIES
Letter of Credit
On May 11, 1998, the Company established a one-year, $100,000 irrevocable
standby letter of credit with Bank One of Kentucky. However, the Company has
not drawn on the letter of credit since the inception of the business. The
letter of credit was automatically renewed on May 11, 1999 for one year.
Litigation
The Company is subject to litigation related to matters arising in the
normal course of business, including product liability. As of December 31, 1997
and 1998, management is not aware of any unasserted, asserted, or pending
material litigation or claims against the Company.
F-60
<PAGE>
CALL ME BILL, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. RELATED-PARTY TRANSACTIONS
Operating Lease
The Company subleases facilities from MSI under an operating sublease and
leases equipment and furniture under an operating lease. There is no formal
written lease or sublease agreement. However, for the period from inception
(July 31, 1997) to December 31, 1997, for the year ended December 31, 1998, and
for the six-month periods ending June 30, 1998 and 1999, the Company paid
$10,956, $25,607, $13,007, and $12,600, respectively, in lease expense to MSI.
In August 1999, the Company renewed both the sublease and lease for $1,300 and
$600 per month, respectively, under a written one-year operating sublease and
lease agreement.
Cost Allocation
The accompanying financial statements include certain administrative costs
and expenses, which have been allocated to the Company by FKNC and MSI. FKNC
and MSI perform services and incur certain costs on behalf of the Company.
Services provided include tax, accounting, risk management, employee benefits,
data processing, application of cash receipts, and other general corporate
services. The costs have been allocated on a pro rata basis, primarily on
employee head count and incurred time and services, and represent management's
best estimates of what support costs would have been had the Company incurred
such costs on its own. Corporate costs of member owners' services totaling
$60,813, $19,041, $6,160, and $44,885 have been allocated to the Company during
the period of inception (July 31, 1997) to December 31, 1997, the year ended
December 31, 1998, and the six-month periods ended June 30, 1998 and 1999,
respectively, and are included in selling, general, and administrative expenses
in the accompanying statements of operations. In the opinion of management, the
method of allocating these costs is reasonable.
8. SUBSEQUENT EVENT
In April 1999, the Company organized Net-Merce, LLC for the purpose of
selling Internet banking and bill payment products to financial institutions
and real estate property management companies. The June 30, 1999 financial
statements are consolidated and include the accounts of the Company and the
wholly owned subsidiary.
On September 3, 1999, the Company was acquired by Netzee, Inc. ("Netzee")
for approximately $3,288,000 in cash. The acquisition of the Company was
accounted for as a purchase under Accounting Principles Board Opinion No. 16.
F-61
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SBS Corporation:
We have audited the accompanying balance sheets of SBS CORPORATION INTERNET
AND TELEPHONE BANKING BUSINESS (an unincorporated division of SBS Corporation,
an Alabama corporation) as of December 31, 1997 and 1998 and the related
statements of operations, retained earnings (deficit), and cash flows for the
years then ended. 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 SBS Corporation Internet
and Telephone Banking Business as of December 31, 1997 and 1998 and the results
of its operations and its cash flows for the years then ended in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
September 6, 1999
F-62
<PAGE>
SBS CORPORATION
INTERNET AND TELEPHONE BANKING BUSINESS
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1998 1999
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................... $ 27,278 $ 273,962 $ 311,533
Accounts receivable, net of an
allowance for doubtful accounts of $0,
$7,140, and $0 at December 31, 1997,
1998, and June 30, 1999,
respectively.......................... 37,873 275,292 181,658
Lease receivable, current.............. 51,341 191,795 244,356
Other assets........................... 44,105 59,194 54,950
-------- ---------- ----------
Total current assets................. 160,597 800,243 792,497
PROPERTY AND EQUIPMENT, net.............. 81,149 145,954 149,297
OTHER ASSETS:
Lease receivable, net of current
portion............................... 97,769 522,395 743,794
Due from Parent........................ 250,957 0 0
-------- ---------- ----------
Total assets......................... $590,472 $1,468,592 $1,685,588
======== ========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accrued expenses....................... $ 58,293 $ 74,765 $ 67,175
Customer deposits...................... 92,544 107,580 126,450
Deferred revenue, current.............. 296,269 651,628 849,282
Due to Parent.......................... 0 177,407 148,141
-------- ---------- ----------
Total current liabilities............ 447,106 1,011,380 1,191,048
LONG-TERM LIABILITIES:
Deferred revenue, net of current
portion............................... 68,965 380,259 564,753
COMMITMENTS AND CONTINGENCIES:
RETAINED EARNINGS (DEFICIT).............. 74,401 (76,953) (70,213)
-------- ---------- ----------
Total liabilities and accumulated
deficit............................. $590,472 $1,468,592 $1,685,588
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-63
<PAGE>
SBS CORPORATION
INTERNET AND TELEPHONE BANKING BUSINESS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
---------------------- -----------------------
1997 1998 1998 1999
---------- ---------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
License, hardware, and
implementation.............. $1,198,260 $1,408,965 $ 542,571 $ 997,162
Monthly maintenance and
service..................... -- 39,241 -- 23,820
---------- ---------- --------- ----------
Total revenues............. 1,198,260 1,448,206 542,571 1,020,982
---------- ---------- --------- ----------
OPERATING EXPENSES:
Costs of license, hardware,
implementation, and
maintenance................. (234,005) (254,177) (141,012) (134,132)
Selling, general, and
administrative.............. (886,497) (1,437,104) (600,378) (1,070,647)
Depreciation................. (26,910) (42,262) (4,393) (13,850)
---------- ---------- --------- ----------
Total operating expenses... (1,147,412) (1,733,543) (745,783) (1,218,629)
---------- ---------- --------- ----------
OPERATING INCOME (LOSS)........ 50,848 (285,337) (203,212) (197,647)
OTHER INCOME................... 23,553 287,889 20,702 50,481
---------- ---------- --------- ----------
NET INCOME (LOSS).............. $ 74,401 $ 2,552 $(182,510) $ (147,166)
========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-64
<PAGE>
SBS CORPORATION
INTERNET AND TELEPHONE BANKING BUSINESS
STATEMENTS OF RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
Retained
Earnings
/(Deficit)
----------
<S> <C>
BALANCE, December 31, 1996.......................................... $ --
Net income........................................................ 74,401
---------
BALANCE, December 31, 1997.......................................... 74,401
Net income........................................................ 2,552
---------
BALANCE, December 31, 1998.......................................... 76,953
Net loss (unaudited).............................................. (147,166)
---------
BALANCE, June 30, 1999 (unaudited).................................. $ (70,213)
=========
</TABLE>
The accompanying notes are an integral part of these statements.
F-65
<PAGE>
SBS CORPORATION
INTERNET AND TELEPHONE BANKING BUSINESS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
------------------ -----------------------
1997 1998 1998 1999
-------- -------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................. $ 74,401 $ 2,552 $(182,510) $(147,166)
Adjustments to reconcile net
income (loss) to net cash used in
operating activities:
Depreciation..................... 26,910 42,262 4,393 13,850
Changes in assets and
liabilities:
Accounts receivable............. 39,921 (237,419) (275,052) 93,634
Lease receivable................ 1,006 (565,080) (513,580) (273,960)
Inventories..................... (9,005) (15,089) (15,089) 4,244
Deferred revenue................ 591 666,653 1,029,781 382,148
Accrued liabilities............. 21,060 16,472 (30,438) (7,590)
Customer deposits............... 29,205 15,036 (1,259) 18,870
-------- -------- --------- ---------
Net cash provided by (used in)
operating activities.......... 184,089 (74,613) 16,246 84,030
-------- -------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment........................ (61,740) (107,067) (26,521) (17,193)
-------- -------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Advances to/from Parent, net...... (305,036) 428,364 105,581 (29,266)
-------- -------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (182,687) 246,684 95,306 37,571
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 209,965 27,278 27,278 273,962
-------- -------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 27,278 $273,962 $ 122,584 $ 311,533
======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-66
<PAGE>
SBS CORPORATION
INTERNET AND TELEPHONE BANKING BUSINESS
NOTES TO FINANCIAL STATEMENTS
(Information as of June 30, 1999 and for the six months ended June 30, 1998 and
1999 are unaudited)
1. ORGANIZATION AND NATURE OF BUSINESS
SBS Corporation (an Alabama corporation) ("SBS" or "Parent") designs,
develops, markets, and supports computer software and provides computer
equipment primarily to community financial institutions located predominantly
in the southeastern region of the United States. The financial statements and
related footnotes contained herein reflect the operations of the SBS
Corporation Internet and Telephone Banking Business ("SBS Internet and
Telephone Banking Business" or the "Company").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company is not a separate subsidiary of SBS nor has it been operated as
a separate division of SBS. The financial statements of the internet and
telephone banking business have been derived from the statements of SBS and
have been prepared to present its financial position, results of operations,
and cash flows on a stand-alone basis. The majority of the operating expenses
in the accompanying financial statements have been allocated to the internet
and telephone banking business by SBS. These costs have been allocated based on
specific identification where possible or on a pro rata basis based primarily
on employee headcount or time incurred and represent management's best estimate
of what support cost would have been had the Company been operated as a
separate entity. Such allocated expenses may not be indicative of what such
expenses would have been had the internet and telephone banking business been
operated as a separate entity.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Unaudited Financial Information
The financial statements as of June 30, 1999 and for the six months ended
June 30, 1998 and 1999 are unaudited; however, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the unaudited financial statements for these interim
periods have been included. The results of interim periods are not necessarily
indicative of the results to be obtained for a full year.
Funding of Operations by Parent
The Parent Company funds the Company's operations as necessary. Transfers of
operating funds between the Parent Company and the Company occur on a
noninterest-bearing basis, with the net amounts of these transfers reflected in
due to/from Parent Company in the accompanying balance sheets.
F-67
<PAGE>
SBS CORPORATION
INTERNET AND TELEPHONE BANKING BUSINESS
NOTES TO FINANCIAL STATEMENTS--(Continued)
Property and Equipment
SBS holds legal title to all property and equipment. These assets are stated
at cost. Major property additions, replacements, and betterments are
capitalized, while maintenance and repairs which do not extend the useful lives
of these assets are expensed as incurred. The Company provides for depreciation
using the straight-line method over the estimated useful lives of the assets.
Property, plant, and equipment consisted of the following at December 31, 1997
and 1998 and June 30, 1999:
<TABLE>
<CAPTION>
December 31,
------------------ June 30, Useful
1997 1998 1999 Lives
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Furniture and fixtures................. $ 35,906 $ 54,570 $ 54,570 7 years
Machinery and equipment................ 78,923 167,326 184,520 5 years
-------- -------- --------
114,829 221,896 239,070
Less accumulated depreciation.......... (33,680) (75,942) (89,793)
-------- -------- --------
$ 81,149 $145,954 $149,297
======== ======== ========
</TABLE>
Product Development Costs
Software research and development costs and maintenance costs related to
software development are expensed as incurred.
Revenue Recognition
The Company's revenue is generated from internet and telephone banking
sales. Internet banking is charged based on an initial installation fee and an
ongoing monthly license fee which is billed in advance for the following twelve
months. Telephone banking, historically, has been billed in a similar manner to
internet banking, with an initial installation fee and an ongoing annual
license fee which is billed in advance. The Company changed the way in which
telephone banking is billed during 1998. The majority of new customers in 1998
entered into a five year sales-type lease agreement with five equal payments in
advance which incorporates the initial installation and ongoing license for
five years. Those customers that do not enter into sale-type lease agreements
are billed according to the historical approach of an initial installation fee
and an ongoing annual license fee.
Revenue from software license fees in 1997 was recognized in accordance with
the provisions of the American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP") No. 91-1, "Software Revenue
Recognition". Effective from the beginning of 1998, the revenue from software
license fees was recognized in accordance with AICPA SOP No. 97-2 "Software
Revenue Recognition". Revenue recognition under SOP No. 91-1 and SOP No. 97-2
is not significantly different. Specifically, in all periods presented, the
ongoing license fees, for contracts other than those involving a lease, have
been deferred and recognized ratably over the twelve month period to which the
ongoing licenses apply on the basis that the reduced ongoing license fees are
essentially post-contract customer support entitling the customer to
unspecified upgrades/enhancements and telephone support. Revenue for all lease
agreements, with the exception of revenue attributable to equipment which is
recognized upon installation, has been deferred and recognized ratably over the
period of the lease on the basis that the fee is not "fixed and determinable"
as defined by SOP No. 97-2.
Deferred Revenues
Deferred revenues represent the liability for amounts billed prior to
complete performance on maintenance contracts, for advanced billings related to
software license fees and for hardware, software, installation and continuing
license fees financed through sales-type leases. (See Note 3)
F-68
<PAGE>
SBS CORPORATION
INTERNET AND TELEPHONE BANKING BUSINESS
NOTES TO FINANCIAL STATEMENTS--(Continued)
Returns and Product Warranty
The Company provides for the costs of returns and product warranty claims
when specific problems are identified. The Company has not experienced
significant returns or warranty claims to date.
Fair Value Financial Instruments
The fair value of instruments classified as current assets or liabilities,
including accounts receivable, and accrued liabilities, approximate carrying
value due to the short-term maturity of the instruments. Likewise, the carrying
amount of the Company's long-term debt approximates fair value based on current
rates for debt with similar maturities.
Long-Lived Assets
The Company periodically reviews the values assigned to long-lived assets to
determine if any impairments have occurred. Management believes that the long-
lived assets on the accompanying balance sheets are appropriately valued.
Other assets
Other assets represent equipment held predominantly at customer sites
awaiting installation and are carried at the lower of market or cost as
determined by the first-in, first-out method.
Income Taxes
The Parent Company elected S corporation status for federal and state income
tax purposes as of February 1, 1992, whereby profits, losses and credits are
taxed to the shareholders. Accordingly, no provision for income taxes is
reflected in the accompanying financial statements.
New Accounting Pronouncements
In June of 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging
activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The Statement is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. The Statement is not
expected to have a significant impact on the Company's financial statements.
3. MINIMUM LEASE PAYMENTS RECEIVABLE
The Company's leasing operations relate to telephone banking. All of the
leases are classified as sales-type leases. (See Note 2)
F-69
<PAGE>
SBS CORPORATION
INTERNET AND TELEPHONE BANKING BUSINESS
NOTES TO FINANCIAL STATEMENTS--(Continued)
At December 31, 1998, future minimum lease payments receivable under non-
cancelable leases, are as follows:
<TABLE>
<CAPTION>
Year Ending December 31:
------------------------
<S> <C>
1999.......................................................... $ 239,016
2000.......................................................... 210,516
2001.......................................................... 182,156
2002.......................................................... 176,616
---------
Total minimum lease payments receivable........................... 808,304
Less amount representing interest................................. (94,114)
---------
Present value of net minimum lease payments receivable............ 714,190
Less current maturities of lease payments receivable.............. (191,795)
---------
Capital lease payments receivable................................. $ 522,395
=========
</TABLE>
4. DUE FROM PARENT COMPANY
The Parent Company borrows and advances funds from/to the internet and
telephone banking business on a noninterest-bearing basis.
5. LAWSUIT SETTLEMENT
During 1998, the Company, as plaintiff, settled a lawsuit and received
$250,000. This settlement is included in other income in the statement of
operations. The Company incurred approximately $113,000 in legal expenses in
relation to this settlement. These legal fees are included in selling, general
and administrative in the statement of operations.
6. RELATED-PARTY TRANSACTIONS
SBS rents certain office space in Birmingham, Alabama, from a related party.
The Company, which utilizes a portion of this office space, incurred expense of
approximately $49,618, $45,824, $22,912 and $30,394 for the years ended
December 31, 1997 and 1998 and the six months ended June 30, 1998 and 1999,
respectively.
7. EMPLOYEE BENEFITS
The Company maintains a defined contribution 401(k) benefit plan which
covers substantially all employees, subject to certain minimum age and service
requirements. Under the plan, employees may elect to defer up to ten percent of
their salary, subject to Internal Revenue Code limits. The Company matches one
hundred percent of the first six percent of the employees contributions. In
addition, the plan allows for the Company to make discretionary contributions
based on the participants' salary. The Company made contributions to the plan
of $27,511, $31,868, $15,934 and $22,501 for the years ended December 31, 1997
and 1998 and the six months ended June 30, 1998 and 1999, respectively.
8. SUBSEQUENT EVENT
On August 6, 1999, SBS was acquired by Netzee, Inc. ("Netzee"). Prior to the
acquisition, SBS borrowed approximately $4,900,000 from a bank. The
consideration received was approximately 2,600,000 shares of common stock of
Netzee and $21,534,000 in cash of which $4,900,000 was used to repay the note
to the bank. The acquisition was accounted for as a purchase under Accounting
Principles Board No. 16.
F-70
<PAGE>
[INSIDE BACK COVER]
[TRANSACTION FLOW DIAGRAM TO APPEAR HERE]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
Common Stock
----------------
P R O S P E C T U S
----------------
The Robinson-Humphrey Company
J.C. Bradford & Co.
SunTrust Equitable Securities
, 1999
Until , 1999, all dealers that buy, sell or trade the common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Unless otherwise defined, all capitalized terms contained in this Part II
shall have the meanings ascribed to them in the prospectus which forms a part
of this registration statement. Netzee is sometimes referred to in this Part II
as the "registrant."
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses that we expect to incur
in connection with the sale and distribution of the securities we are
registering pursuant to this registration statement, other than underwriting
discounts. All amounts are estimated except the SEC registration fee, the
National Association of Securities Dealers, Inc. filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee................................................ $15,290
National Association of Securities Dealers, Inc. filing fee......... 6,000
Nasdaq National Market listing fee.................................. *
Blue sky fees and expenses.......................................... *
Accounting fees and expenses........................................ *
Legal fees and expenses............................................. *
Printing and engraving expenses..................................... *
Registrar and transfer agent's fees................................. *
Directors' and officers' liability insurance........................ *
Miscellaneous fees and expenses..................................... *
-------
Total ............................................................. $ *
=======
</TABLE>
- --------
* To be filed by amendment
Item 14. Indemnification of Directors and Officers.
Georgia Business Corporation Code
Section 14-2-851 of the Georgia Business Corporation Code, or the "GBCC,"
empowers a corporation to indemnify a director (including a former director and
including a director who is or was serving at the request of the corporation as
a director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise) against liability arising from official acts if the
director acted in good faith and reasonably believed that his or her conduct
was in the best interests of the corporation. For all other acts, the
corporation may indemnify a director who acted in good faith and reasonably
believed that the conduct was not opposed to the best interests of the
corporation. The corporation may indemnify a director with respect to criminal
proceedings if the director acted in good faith and had no reasonable cause to
believe the conduct was unlawful. A corporation may not indemnify a director
adjudged liable for conduct involving receipt of an improper personal benefit.
In addition, section 14-2-856 of the GBCC permits the articles of
incorporation, bylaws, a contract, or resolution approved by the shareholders
to authorize the corporation to indemnify a director against claims to which
the director was a party, including claims by the corporation or in the right
of the corporation (e.g., a shareholder derivative action). However, the
corporation may not indemnify the director for liability to the corporation for
any appropriation of a corporate opportunity, intentional misconduct or knowing
violation of law, unlawful distributions or receipt of an improper benefit.
Section 14-2-852 of the GBCC provides for mandatory indemnification against
reasonable expenses incurred by a director who is wholly successful in
defending an action to which the director was a party due to
II-1
<PAGE>
his or her status as a director of the corporation on the merits or otherwise.
Section 14-2-854 allows a court, upon application by a director, to order
indemnification and advancement of expenses if it determines that the director
is entitled to indemnification under the GBCC or if it determines that
indemnification is fair and reasonable even if the director has failed to meet
the statutory standard of conduct under section 14-2-851. However, the court
may not order indemnification in excess of reasonable expenses for liability to
the corporation or for receipt of an improper benefit.
Section 14-2-857 of the GBCC permits a corporation to indemnify an officer
(including a former officer and including an officer who is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise) to the same
extent as a director. A corporation may indemnify an officer who is not a
director to a further extent by means of articles of incorporation, bylaw,
board resolution, or contract. However, the corporation may not indemnify an
officer for liability arising from conduct involving appropriation of a
corporate opportunity, intentional misconduct or knowing violation of law,
unlawful distributions, or receipt of an improper personal benefit. An officer
who is not a director is also entitled to mandatory indemnification and may
apply for court-ordered indemnification.
Section 14-2-858 of the GBCC permits a corporation to purchase and maintain
insurance on behalf of directors and officers against liability incurred by
them in their capacities or arising out of their status as directors and
officers of the corporation, regardless of whether the corporation would have
the power to indemnify or advance expenses to the director or officer for the
same liability under the GBCC.
We intend to enter into indemnification agreements with each of our
executive officers and directors that will indemnify them to the fullest extent
permitted by the GBCC.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Netzee pursuant
to the foregoing provisions, we have been informed that in the opinion of the
SEC, this indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Articles of Incorporation
Article VIII of the Articles of Incorporation exculpates the directors of
Netzee from personal liability for money damages to Netzee or its shareholders
to the fullest extent permitted by the GBCC, as it may be amended from time to
time. Currently, under the GBCC, the directors are exculpated from all
liability to Netzee or its shareholders except for liability arising from
conduct involving appropriation of a corporate opportunity, intentional
misconduct or knowing violation of law, unlawful distributions, or receipt of
an improper personal benefit. The Articles of Incorporation also provide that
any repeal or modification of Article V of the Articles of Incorporation by the
shareholders of Netzee shall not adversely affect any right or protection of a
director of Netzee existing at the time of such repeal or modification.
Bylaws
Article VII of Netzee's Bylaws provides that Netzee must indemnify any
person who is or was a director of Netzee who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, including any action or suit by or in the right of Netzee,
against any judgment, settlement, penalty, fine or reasonable expenses incurred
with any of the foregoing proceedings.
Insurance
We intend to purchase a policy of insurance providing reimbursement to our
officers and directors of indemnification payments and related liabilities
incurred in their capacities as such.
II-2
<PAGE>
Underwriting Agreement
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
underwriters of Netzee, its directors and its officers and the selling
shareholders, and by Netzee and the selling shareholders of the underwriters,
for certain liabilities, including liabilities arising under the Securities
Act, and affords certain rights of contribution with respect thereto.
Item 15. Recent Sales of Unregistered Securities.
Since its inception in August 1999, Netzee has issued the following
securities that were not registered under the Securities Act of 1933:
(1) On September 3, 1999, in connection with the merger of Direct Access
Interactive, Inc. with and into Netzee, Netzee issued 11,735,000 shares
of common stock to the former shareholders of Direct Access
Interactive. Netzee also issued options to purchase 610,000 shares of
Netzee common stock to persons who had been issued options to purchase
Direct Access Interactive common stock.
(2) On September 3, 1999, in connection with the merger of Dyad Corporation
with and into Netzee, Netzee issued 618,137 shares to those former
shareholders of Dyad who certified to Netzee that they qualified as
"accredited investors" as defined in Regulation D of the Securities Act
of 1933.
(3) On September 3, 1999, Netzee issued 1,361,000 shares of common stock to
each of TIB The Independent Bankers Bank and The Bankers Bank in
connection with the acquisition of the Internet banking divisions of
each of these bankers' banks.
(4) On September 7, 1999, Netzee issued to certain executive officers,
directors and employees of Netzee stock options to purchase 220,000
shares of common stock at a weighted average exercise price of $3.11
per share. No shares of common stock have been issued pursuant to the
exercise of these options.
(5) On September 7, 1999, Netzee issued to certain employees of Netzee
stock options to purchase 1,016,500 shares of common stock at a
weighted average exercise price of $5.00 per share. No shares of common
stock have been issued pursuant to the exercise of these options.
(6) On September 9, 1999, Netzee issued 31,100 shares of common stock to
certain former employees of Call Me Bill, LLC who certified to Netzee
that they qualified as "accredited investors" as defined in Regulation
D of the Securities Act of 1933.
(7) On September 9 and 10, 1999, Netzee issued 289,618 shares of common
stock to persons who certified to Netzee that they were "accredited
investors" as defined in Regulation D of the Securities Act. Netzee
received a total of $750,000 in consideration for these shares.
The issuances of these securities in the transactions described above were
deemed to be exempt from registration under the Securities Act in reliance on
sections 3(b) and 4(2) of the Securities Act, including Rules 506 and 701
promulgated thereunder as transactions by an issuer not involving any public
offering. Appropriate legends were affixed to the share certificates issued in
the transactions described above.
II-3
<PAGE>
Item 16. Exhibits and Financial Statements Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger, dated August 6, 1999, by and among
Direct Access Interactive, Inc., SBS Corporation and the shareholders
of SBS Corporation.
2.2 Agreement and Plan of Merger, dated September 3, 1999, by and among
Netzee, Inc., Dyad Corporation and certain of the shareholders of Dyad
Corporation.
2.3 Asset Contribution Agreement, dated September 3, 1999, by and among
The InterCept Group, Inc., Netzee, Inc. and The Bankers Bank.
2.4 Asset Contribution Agreement, dated September 3, 1999, by and among
The InterCept Group, Inc., Netzee, Inc. and TIB The Independent
BankersBank.
2.5 Acquisition Agreement, dated September 3, 1999, by and among Netzee,
Inc., Call Me Bill, LLC and each of the members of Call Me Bill, LLC.
2.6* Asset Transfer Agreement, dated August 6, 1999, by and between The
InterCept Group, Inc. and Direct Access Interactive, Inc.
2.7 Agreement and Plan of Merger, dated September 3, 1999, by and between
Netzee, Inc. and Direct Access Interactive, Inc.
3.1 Articles of Incorporation of Netzee, Inc., as amended to date.
3.2 Bylaws of Netzee, Inc., as amended to date.
4.1* Form of Netzee, Inc. common stock certificate.
4.2 Registration Rights Agreement, dated August 6, 1999, by and between
Netzee, Inc. (as successor to Direct Access Interactive, Inc.) and
each of the former shareholders of SBS Corporation.
4.3 Registration Rights Agreement, dated September 3, 1999, by and among
Netzee, Inc., The Bankers Bank and TIB The Independent BankersBank.
4.4 Registration Rights Agreement, dated September 3, 1999, by and among
Netzee, Inc. and each of the former shareholders of Dyad Corporation.
4.5 Agreement, dated September 3, 1999, by and between Netzee, Inc. and
Sirrom Investments, Inc., regarding registration rights of Sirrom.
5.1* Opinion of Sutherland Asbill & Brennan LLP.
10.1* Netzee, Inc. 1999 Stock Option and Incentive Plan.
10.2* Direct Access Interactive, Inc. 1999 Stock Option and Incentive Plan.
10.3* Option Agreement, dated July 1, 1999, by and between Netzee, Inc. (as
successor to Direct Access Interactive, Inc.) and Glenn W. Sturm.
10.4* Option Agreement, dated July 1, 1999, by and between Netzee, Inc. (as
successor to Direct Access Interactive, Inc.) and John W. Collins.
10.5* Option Agreement, dated July 1, 1999, by and between Netzee, Inc. (as
successor to Direct Access Interactive, Inc.) and Donny R. Jackson.
10.6* Employment Agreement to be entered into by and between Netzee, Inc.
and Glenn W. Sturm.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<C> <S>
10.7* Employment Agreement to be entered into by and between Netzee, Inc.
and C. Michael Bowers.
10.8* Employment Agreement to be entered into by and between Netzee, Inc.
and David W. Brasfield.
10.9* Employment Agreement to be entered into by and between Netzee, Inc.
and Richard S. Eiswirth.
10.10* Form of Indemnification Agreement between Netzee, Inc. and each of its
executive officers and directors.
10.11 Promissory Note, dated August 6, 1999, from Netzee, Inc. as maker to
The InterCept Group, Inc. as payee, in the principal amount of
$21,534,625.
10.12 Promissory Note, dated September 1, 1999, from Netzee, Inc. as maker
to The InterCept Group, Inc. as payee, in the principal amount of
$4,399,639.22.
10.13 Promissory Note, dated September 1, 1999, from Netzee, Inc. as maker
to The InterCept Group, Inc. as payee, in the principal amount of
$2,882,200.
10.14 Promissory Note, dated July 1, 1999, from John W. Collins as maker, to
Netzee, Inc. (as successor to Direct Access Interactive, Inc.), as
payee.
10.15 Promissory Note, dated July 1, 1999, from Glenn W. Sturm as maker, to
Netzee, Inc. (as successor to Direct Access Interactive, Inc.), as
payee.
10.16 Promissory Note, dated July 1, 1999, from Donny R. Jackson as maker,
to Netzee, Inc. (as successor to Direct Access Interactive, Inc.), as
payee.
10.17 Promissory Note, dated August 5, 1999, from Richard S. Eiswirth, Jr.
as maker, to Netzee, Inc. (as successor to Direct Access Interactive,
Inc.).
21.1 Subsidiaries of Netzee.
23.1* Consent of Sutherland Asbill & Brennan LLP, which is included in
Exhibit 5.1.
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney, which is included on page II-7.
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
27.4 Financial Data Schedule.
27.5 Financial Data Schedule.
99.1 Schedule II to Financial Statements.
99.2 Report of Independent Public Accountants on Financial Statement
Schedule.
</TABLE>
- --------
*To be filed by amendment.
II-5
<PAGE>
(b) Financial Statements and Schedule
See Index to Financial Statements on page F-1 of the prospectus which
forms a part of this Registration Statement.
Schedule II - Valuation and Qualifying Accounts, incorporated by
reference from Exhibit 99.1 to this registration statement.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing(s) specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and
this offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on the 14th day of September, 1999
NETZEE, INC.
/s/ Glenn W. Sturm
By: _________________________________
Glenn W. Sturm, Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Glenn W. Sturm, Richard S. Eiswirth and C.
Michael Bowers, and each of them, his true and lawful attorneys-in-fact and
agents, each 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 registration statement relating to this offering covered by
this Registration Statement and filed pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission
(or with any other governmental or regulatory authority), 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, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Glenn W. Sturm Chief Executive Officer September 14, 1999
______________________________________ and Director (Principal
Glenn W. Sturm Executive Officer)
/s/ Richard S. Eiswirth Executive Vice President September 14, 1999
______________________________________ and Chief Financial
Richard S. Eiswirth Officer (Principal
Financial and Accounting
Officer)
/s/ C. Michael Bowers President and Chief September 14, 1999
______________________________________ Operating Officer
C. Michael Bowers
/s/ John W. Collins Chairman of the Board of September 14, 1999
______________________________________ Directors
John W. Collins
/s/ Donny R. Jackson Director September 14, 1999
______________________________________
Donny R. Jackson
/s/ Bruce P. Leonard Director September 14, 1999
______________________________________
Bruce P. Leonard
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gayle M. Earls Director September 14, 1999
______________________________________
Gayle M. Earls
/s/ Joel A. Katz Director September 14, 1999
______________________________________
Joel A. Katz
/s/ A. Jay Waite Director September 14, 1999
______________________________________
</TABLE> A. Jay Waite
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger, dated August 6, 1999, by and among
Direct Access Interactive, Inc., SBS Corporation and the shareholders
of SBS Corporation.
2.2 Agreement and Plan of Merger, dated September 3, 1999, by and among
Netzee, Inc., Dyad Corporation and certain of the shareholders of Dyad
Corporation.
2.3 Asset Contribution Agreement, dated September 3, 1999, by and among
The InterCept Group, Inc., Netzee, Inc. and The Bankers Bank.
2.4 Asset Contribution Agreement, dated September 3, 1999, by and among
The InterCept Group, Inc., Netzee, Inc. and TIB The Independent
BankersBank.
2.5 Acquisition Agreement, dated September 3, 1999, by and among Netzee,
Inc., Call Me Bill, LLC and each of the members of Call Me Bill, LLC.
2.6* Asset Transfer Agreement, dated August 6, 1999, by and between The
InterCept Group, Inc. and Direct Access Interactive, Inc.
2.7 Agreement and Plan of Merger, dated September 3, 1999, by and between
Netzee, Inc. and Direct Access Interactive, Inc.
3.1 Articles of Incorporation of Netzee, Inc., as amended to date.
3.2 Bylaws of Netzee, Inc., as amended to date.
4.1* Form of Netzee, Inc. common stock certificate.
4.2 Registration Rights Agreement, dated August 6, 1999, by and between
Netzee, Inc. (as successor to Direct Access Interactive, Inc.) and
each of the former shareholders of SBS Corporation.
4.3 Registration Rights Agreement, dated September 3, 1999, by and among
Netzee, Inc., The Bankers Bank and TIB The Independent BankersBank.
4.4 Registration Rights Agreement, dated September 3, 1999, by and among
Netzee, Inc. and each of the former shareholders of Dyad Corporation.
4.5 Agreement, dated September 3, 1999, by and between Netzee, Inc. and
Sirrom Investments, Inc., regarding registration rights of Sirrom.
5.1* Opinion of Sutherland Asbill & Brennan LLP.
10.1* Netzee, Inc. 1999 Stock Option and Incentive Plan.
10.2* Direct Access Interactive, Inc. 1999 Stock Option and Incentive Plan.
10.3* Option Agreement, dated July 1, 1999, by and between Netzee, Inc. (as
successor to Direct Access Interactive, Inc.) and Glenn W. Sturm.
10.4* Option Agreement, dated July 1, 1999, by and between Netzee, Inc. (as
successor to Direct Access Interactive, Inc.) and John W. Collins.
10.5* Option Agreement, dated July 1, 1999, by and between Netzee, Inc. (as
successor to Direct Access Interactive, Inc.) and Donny R. Jackson.
10.6* Employment Agreement to be entered into by and between Netzee, Inc.
and Glenn W. Sturm.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<C> <S>
10.7* Employment Agreement to be entered into by and between Netzee, Inc.
and C. Michael Bowers.
10.8* Employment Agreement to be entered into by and between Netzee, Inc.
and David W. Brasfield.
10.9* Employment Agreement to be entered into by and between Netzee, Inc.
and Richard S. Eiswirth.
10.10* Form of Indemnification Agreement between Netzee, Inc. and each of its
executive officers and directors.
10.11 Promissory Note, dated August 6, 1999, from Netzee, Inc. as maker to
The InterCept Group, Inc. as payee, in the principal amount of
$21,534,625.
10.12 Promissory Note, dated September 1, 1999, from Netzee, Inc. as maker
to The InterCept Group, Inc. as payee, in the principal amount of
$4,399,639.22.
10.13 Promissory Note, dated September 1, 1999, from Netzee, Inc. as maker
to The InterCept Group, Inc. as payee, in the principal amount of
$2,882,200.
10.14 Promissory Note, dated July 1, 1999, from John W. Collins as maker, to
Netzee, Inc. (as successor to Direct Access Interactive, Inc.), as
payee.
10.15 Promissory Note, dated July 1, 1999, from Glenn W. Sturm as maker, to
Netzee, Inc. (as successor to Direct Access Interactive, Inc.), as
payee.
10.16 Promissory Note, dated July 1, 1999, from Donny R. Jackson as maker,
to Netzee, Inc. (as successor to Direct Access Interactive, Inc.), as
payee.
10.17 Promissory Note, dated August 5, 1999, from Richard S. Eiswirth, Jr.
as maker, to Netzee, Inc. (as successor to Direct Access Interactive,
Inc.).
21.1 Subsidiaries of Netzee.
23.1* Consent of Sutherland Asbill & Brennan LLP, which is included in
Exhibit 5.1.
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney, which is included on page II-7.
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
27.4 Financial Data Schedule.
27.5 Financial Data Schedule.
99.1 Schedule II to Financial Statements.
99.2 Report of Independent Public Accountants on Financial Statement
Schedule.
</TABLE>
- --------
*To be filed by amendment.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
August 6, 1999
By and Among
DIRECT ACCESS INTERACTIVE, INC.
(A Georgia Corporation)
And
SBS CORPORATION
(An Alabama Corporation)
And
The Shareholders of SBS Corporation Named on Schedule I hereto
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE 1 THE MERGER............................................................. 1
Section 1.1 The Merger........................................................ 1
Section 1.2 Closing........................................................... 1
Section 1.3 Effective Time of the Merger...................................... 2
Section 1.4 Articles of Incorporation; Bylaws................................. 2
ARTICLE 2 OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION.................... 2
ARTICLE 3 CONSIDERATION AND CONVERSION AND EXCHANGE OF SHARES.................... 2
Section 3.1 Consideration and Conversion of Shares............................ 2
(a) Company Common Stock...................................... 2
(b) Purchaser Common Stock.................................... 3
Section 3.2 Escrow of Certain Shares.......................................... 3
Section 3.3 Fractional Shares................................................. 3
Section 3.4 Surrender and Exchange of Certificates............................ 3
(a) Surrender of Certificates................................. 3
(b) Lost Certificates......................................... 4
(c) Dividends on Purchaser Common Stock....................... 4
(d) Adjustments............................................... 4
Section 3.5 Legending of Securities........................................... 5
Section 3.6 Phantom Stock Option Plan......................................... 5
Section 3.7 Anti-dilution Protection.......................................... 6
ARTICLE 4 RULES OF CONSTRUCTION.................................................. 6
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS..... 8
Section 5.1 Organization...................................................... 9
Section 5.2 Capitalization.................................................... 9
Section 5.3 Authority; No Violation........................................... 9
Section 5.4 Financial Statements.............................................. 10
Section 5.5 Broker's and Other Fees........................................... 11
Section 5.6 Absence of Certain Changes or Events.............................. 11
Section 5.7 Legal Proceedings................................................. 13
Section 5.8 Taxes and Tax Returns............................................. 14
Section 5.9 Employee Benefit Plans and Relations.............................. 15
Section 5.10 Compliance with Applicable Laws................................... 16
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Section 5.11 Certain Contracts............................................................. 17
Section 5.12 Properties and Insurance...................................................... 18
Section 5.13 Environmental Matters......................................................... 19
Section 5.14 Intellectual Property......................................................... 20
(a) Ownership........................................................... 20
(b) Procedures for Copyright Protection................................. 20
(c) Procedures for Trade Secret Protection.............................. 20
(d) Ownership of Software............................................... 21
(e) Absence of Claims................................................... 21
Section 5.15 Adequacy of Technical Documentation........................................... 21
Section 5.16 Third-Party Components in Software............................................ 21
Section 5.17 Third-Party Interests or Marketing Rights in Software......................... 22
Section 5.18 No Parachute Payments......................................................... 22
Section 5.19 Absence of Certain Agreements and Practices................................... 22
Section 5.20 Major Vendors and Customers................................................... 23
Section 5.21 Accounts Receivable........................................................... 23
Section 5.22 Bank Accounts................................................................. 23
Section 5.23 Corporate Records............................................................. 24
Section 5.24 Combinations Involving the Company............................................ 24
Section 5.25 Labor Relations............................................................... 24
Section 5.26 Year 2000 Matters............................................................. 24
Section 5.27 Change in Control Provisions.................................................. 25
Section 5.28 Disclosure.................................................................... 25
ARTICLE 6 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS........................... 25
Section 6.1 Securities Act Compliance..................................................... 25
Section 6.2 Access to Information......................................................... 26
Section 6.3 Experience; Investment........................................................ 26
Section 6.4 No Prior Convictions.......................................................... 26
Section 6.5 Tax Advice.................................................................... 27
Section 6.6 Shareholders' Additional Representations...................................... 27
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................................... 28
Section 7.1 Corporate Organization........................................................ 28
Section 7.2 Capitalization................................................................ 28
Section 7.3 Authority; No Violation....................................................... 28
Section 7.4 Financial Statements.......................................................... 29
Section 7.5 Broker's and Other Fees....................................................... 30
Section 7.6 Legal Proceedings............................................................. 30
Section 7.7 Properties and Insurance...................................................... 30
Section 7.8 Intellectual Property......................................................... 31
(a) Ownership........................................................... 31
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
(b) Ownership of Software................................................ 31
(c) Absence of Claims.................................................... 31
(d) Third Party Interests in Software.................................... 32
Section 7.9 Compliance with Applicable Laws................................................ 32
Section 7.10 Taxes and Tax Returns.......................................................... 32
Section 7.11 Corporate Records.............................................................. 33
Section 7.12 Combinations Involving the Purchaser........................................... 33
Section 7.13 Disclosure..................................................................... 33
ARTICLE 8 COVENANTS AND AGREEMENTS OF THE PARTIES............................................... 33
Section 8.1 Current Information............................................................ 33
Section 8.2 Confidentiality................................................................ 33
Section 8.3 Regulatory Matters; Consents; Cooperation, etc................................. 34
Section 8.4 Parties' Efforts; Further Assurances; Cooperation.............................. 34
Section 8.5 Public Announcements........................................................... 34
Section 8.6 Failure to Fulfill Conditions.................................................. 34
Section 8.7 Disclosure Supplements......................................................... 34
Section 8.8 Release; Covenant Not to Sue................................................... 35
Section 8.9 No Transfers................................................................... 36
Section 8.10 Special Provisions with Respect to the Company................................. 36
Section 8.11 Cooperation and Exchange of Information........................................ 36
Section 8.12 Release of Guaranties.......................................................... 37
ARTICLE 9 CLOSING CONDITIONS.................................................................... 37
Section 9.1 Conditions of Each Party's Obligations Under this Agreement.................... 37
(a) Approvals and Regulatory Filings..................................... 37
(b) Suits and Proceedings................................................ 37
(c) Closing of Other Merger.............................................. 37
Section 9.2 Conditions to the Obligations of Purchaser under this Agreement................ 37
(a) Representations and Warranties; Covenants and Agreements; Consents... 38
(b) Opinion of Counsel................................................... 38
(c) Certificates......................................................... 38
(d) Nonsolicitation and Confidentiality Agreements....................... 38
(e) Intentionally omitted................................................ 38
(f) Termination or Assignment of Certain Agreements...................... 38
(g) Employment Agreements................................................ 38
(h) Release of Obligations............................................... 38
(i) Escrow Agreement..................................................... 39
Section 9.3 Conditions to the Obligations of the Company and the Shareholders
under this Agreement ........................................................ 39
(a) Representations and Warranties; Covenants and Agreements; Consents... 39
(b) Certificates......................................................... 39
</TABLE>
Page iii
<PAGE>
<TABLE>
<S> <C>
(c) No Material Adverse Effect on Purchaser.............................. 39
(d) Approvals............................................................ 39
(e) Escrow Agreement..................................................... 39
(f) Opinion of Purchaser's Counsel....................................... 40
(g) Termination of Guaranties............................................ 40
(h) Registration Rights Agreement........................................ 40
(i) Employment Agreements................................................ 40
ARTICLE 10 TERMINATION, AMENDMENT AND WAIVER..................................................... 40
Section 10.1 Termination................................................................. 40
Section 10.2 Effect of Termination....................................................... 41
Section 10.3 Specific Performance........................................................ 41
Section 10.4 Amendment................................................................... 41
Section 10.5 Extension; Waiver........................................................... 41
ARTICLE 11 INDEMNIFICATION....................................................................... 41
Section 11.1 Indemnification by the Company and Shareholders............................. 41
Section 11.2 Indemnification by Purchaser................................................ 42
Section 11.3 Claims for Indemnification.................................................. 42
Section 11.4 Defense of Claim by Third Parties........................................... 43
Section 11.5 Third Party Claim Assistance................................................ 43
Section 11.6 Settlement of Indemnification Claims........................................ 43
Section 11.7 Manner of Indemnification by the Company and Shareholders................... 44
Section 11.8 Certain Limitations......................................................... 44
Section 11.9 Exclusive Remedy............................................................ 44
Section 11.10 Insurance Reduction......................................................... 44
ARTICLE 12 MISCELLANEOUS......................................................................... 45
Section 12.1 Expenses.................................................................... 45
Section 12.2 Notices..................................................................... 45
Section 12.3 Parties in Interest......................................................... 46
Section 12.4 Entire Agreement............................................................ 46
Section 12.5 Counterparts................................................................ 47
Section 12.6 Governing Law............................................................... 47
Section 12.7 Arbitration................................................................. 47
Section 12.8 Invalidity of any Part...................................................... 47
Section 12.9 Time of the Essence; Computation of Time.................................... 48
</TABLE>
Page iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is dated and effective
as of August 6, 1999, by and among DIRECT ACCESS INTERACTIVE, INC., a Georgia
corporation (the "Purchaser"), SBS CORPORATION, an Alabama corporation (the
"Company"), and the shareholders of the Company named on Schedule I hereto, each
----------
a resident of the State designated on Schedule I (each a "Shareholder" and,
----------
collectively, the "Shareholders"). The Purchaser, the Company and the
Shareholders are hereinafter collectively called the "Parties."
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Shareholders own all of the outstanding common stock, par
value $10.00 per share, of the Company (the "Company Common Stock");
WHEREAS, subject to the terms and conditions of this Agreement, the
Purchaser, the Company and the Shareholders desire and deem it in their
respective best interests that the Company be merged with and into the Purchaser
(the "Merger");
WHEREAS, the parties intend that the Merger, to the extent of the non-cash
consideration, qualify as a tax-free transaction pursuant to Section 368(a) of
the Internal Revenue Code of 1986, as amended; and
WHEREAS, the Boards of Directors and the shareholders of the Company and
the Purchaser have approved the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
Parties agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. At the Effective Time (as defined below), the Company
----------
shall be merged with and into the Purchaser in accordance with the provisions of
this Agreement, the Georgia Business Corporation Code (the "GBCC") and the
Alabama Business Corporation Act (the "ABCA"), and the separate existence of the
Company shall thereupon cease, and the Purchaser, as the surviving corporation
in the Merger (sometimes referred to as the "Surviving Corporation"), shall
continue its corporate existence under the laws of the State of Georgia as a
wholly-owned subsidiary of The InterCept Group, Inc. ("InterCept"). The Merger
shall have the effect provided under applicable laws including, but not limited
to, Section 14-2-1106 of the GBCC and Section 10-2B-11.06 of the ABCA.
1.2 Closing. The consummation of the transactions contemplated by this
-------
Agreement (the "Closing") shall take place at the offices of Nelson Mullins
Riley & Scarborough, L.L.P., 999 Peachtree Street, N.E., Suite 1400, Atlanta,
Georgia 30309 at
<PAGE>
10:00 a.m. on August 6, 1999 or at such other place and time as the Purchaser
and the Company may agree (the "Closing Date"). The parties agree to use all
commercially reasonable efforts to hold the Closing on or before August 6, 1999.
At the Closing, the parties shall execute and deliver the certificates, opinions
and other instruments and documents referred to in Article 9.
1.3 Effective Time of the Merger. Contemporaneous with or immediately
----------------------------
following the Closing, the parties shall cause a certificate of merger (the
"Certificate of Merger") to be executed, delivered and filed with the Secretary
of State of the State of Georgia and with the Secretary of State of the State of
Alabama in accordance with the provisions of the GBCC and ABCA. The Merger
shall become effective at the close of business on the date of such filing,
unless a different effective time is specified in the Certificate of Merger (the
"Effective Time").
1.4 Articles of Incorporation; Bylaws. The Certificate of Incorporation
---------------------------------
and Bylaws of the Purchaser shall become the Certificate of Incorporation and
Bylaws of the Surviving Corporation, to the extent the provisions thereof are
permitted under the GBCC, until duly amended in accordance with applicable law.
ARTICLE 2
OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
At the Effective Time, the persons who are directors and officers of the
Purchaser at the Effective Time will become the directors and officers of the
Surviving Corporation until such time as they may be replaced in accordance with
the Bylaws of the Surviving Corporation.
ARTICLE 3
CONSIDERATION AND CONVERSION AND EXCHANGE OF SHARES
3.1 Consideration and Conversion of Shares. At the Effective Time, in
--------------------------------------
consideration for and fulfillment of the obligations, covenants, terms and
conditions set forth in this Agreement, by virtue of the Merger:
(a) Company Common Stock. Each issued and outstanding share of
--------------------
Company Common Stock (an aggregate of 150 shares) shall automatically be
canceled and extinguished and shall thereafter be converted into only the right
to receive (i) 17333-1/3 shares of common stock, without par value, of the
Purchaser (the "Purchaser Common Stock"), and (ii) One Hundred Eleven Thousand
Three Dollars and 37/100 ($111,003.37) in cash without interest (the "Cash"),
subject to the escrow provided for in Section 3.2 below. Each share of Company
Common Stock held in the treasury of Company, if any, shall be automatically
canceled and extinguished, and no payment shall be made in respect of such
shares.
(b) Purchaser Common Stock. Each share of Purchaser Common Stock
----------------------
issued and outstanding at the Effective Time shall thereafter represent one
validly issued, fully
<PAGE>
paid and nonassessable share of common stock of the Surviving Corporation, which
shall then constitute all of the issued and outstanding shares of the Surviving
Corporation.
3.2 Escrow of Certain Shares. At the Closing, Purchaser shall deliver (or
------------------------
cause to be delivered) to the escrow agent set forth in the Escrow Agreement in
the form of Exhibit 3.2 hereto (the "Escrow Agreement"), one certificate for
-----------
Purchaser Common Stock equal to ten percent (10%) of the Purchaser Common Stock
to be issued in connection with the Merger pursuant to Section 3.1(a)
(collectively, the "Escrow Shares") for the escrow established pursuant to the
Escrow Agreement. Until such Escrow Shares are disbursed under the terms of the
Escrow Agreement, the Shareholders shall be entitled to vote such Escrow Shares
according to their pro rata interest, as provided in the Escrow Agreement.
Dividends, distributions and other proceeds, if any, paid with respect to the
Escrow Shares during the escrow period shall be held in escrow and disbursed
under the Escrow Agreement in the same manner as the Escrow Shares. Certificates
for the remaining shares of Purchaser Common Stock to be delivered in connection
with the Merger shall be delivered to the Shareholders in accordance with
Section 3.5 below.
3.3 Fractional Shares. No fractional shares of Purchaser Common Stock
-----------------
will be issued, and fractional shares to which the Shareholders would otherwise
be entitled will be disregarded.
3.4 Surrender and Exchange of Certificates.
--------------------------------------
(a) Surrender of Certificates. At the Closing, Purchaser shall
-------------------------
deliver certificates for the number of shares of Purchaser Common Stock provided
for in Section 3.1(a). Upon surrender to Purchaser of certificates representing
Company Common Stock (the "Certificates"), and subject to the Escrow Agreement,
the holder of such Certificates shall be entitled to receive at the Closing in
exchange therefor, (i) the amount of Cash to which such Shareholder shall have
become entitled pursuant to the provisions of Section 3.1(a) payable by wire
transfer to such Shareholder's designated account and (ii) one or more
certificates as requested by the holder (properly issued, executed and
countersigned, as appropriate) representing that number of whole shares of
Purchaser Common Stock to which such Shareholder shall have become entitled
pursuant to the provisions of Section 3.1, and the Certificates so surrendered
shall forthwith be canceled. All payments in respect of Company Common Stock
that are made in accordance with the terms hereof shall be deemed to have been
made in full satisfaction of all rights pertaining to such securities.
(b) Lost Certificates. In the case of any lost, misplaced, stolen or
-----------------
destroyed Certificate, the holder thereof will be required, as a condition
precedent to delivery to such holder of the purchase price for his shares of
Company Common Stock, to deliver to Purchaser an indemnity agreement and a bond
in such sum as Purchaser reasonably directs as indemnity against any claim that
may be made against Purchaser with respect to the Certificate alleged to have
been lost, misplaced, stolen or destroyed.
(c) Dividends on Purchaser Common Stock. No holder of a Certificate
-----------------------------------
shall be entitled to delivery of any dividend or other distribution from
Purchaser having a record
<PAGE>
date after the Closing Date until surrender of such holder's Certificate
pursuant to this Section 3.4. Upon such surrender, there shall be paid to the
holder the amount of any dividends or other distributions (without interest)
that theretofore became payable by Purchaser but were not paid by reason of the
foregoing with respect to the number of shares of Purchaser Common Stock
represented by the Certificate(s) issued upon such surrender. From and after the
Closing Date, Purchaser shall, however, be entitled to treat any such
Certificate that has not yet been surrendered pursuant to Section 3.4(a) as
evidencing the ownership of the aggregate purchase price represented by such
Certificate, notwithstanding any failure to surrender such Certificate.
(d) Adjustments. In the event that at any time after the date hereof
-----------
and prior to the Closing Date, Purchaser shall effect (i) a dividend or other
distribution with respect to Purchaser Common Stock payable in Purchaser Common
Stock or other property (other than cash), (ii) a combination or conversion of
outstanding Purchaser Common Stock into a smaller number of shares of such
Purchaser Common Stock, or (iii) any reorganization or reclassification, or any
consolidation or merger of Purchaser with another corporation where Purchaser is
not the surviving corporation, or the sale of all or substantially all of its
assets to another corporation, in such a way that holders of outstanding
Purchaser Common Stock shall be entitled to receive (either directly or upon
subsequent liquidation) stock, securities or other property with respect to or
in exchange for such Purchaser Common Stock (any such event described in (i)-
(iii) above referred to as a "Diluting Event"), then, as a condition of such
Diluting Event, lawful and adequate provision shall be made whereby the
Shareholders shall thereafter be entitled to receive (under the same terms
otherwise applicable to their receipt of Purchaser Common Stock), in addition to
or in lieu of (as the case may be) the number of shares of Purchaser Common
Stock, as the case may be, to which such Shareholders are entitled immediately
prior to such Diluting Event, such shares of stock, securities or other property
as may be issued or payable with respect to or in exchange for that number of
shares of Purchaser Common Stock to which the Shareholders were so entitled, and
in any case appropriate provision shall also be made with respect to such
Shareholders' rights and interests to the end that the provisions of this
Section 3.4 shall thereafter be applicable in relation to any shares of stock,
securities or other property thereafter deliverable to such Shareholders
pursuant to the provisions hereof.
3.5 Legending of Securities.
-----------------------
(a) The shares of Purchaser Common Stock to be delivered in connection
with this Agreement will be issued in a transaction exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act") by reason of
Section 4(2) thereof, Regulation D promulgated thereunder, or other private
offering exemptions and Purchaser is relying on the representations of the
Shareholders with respect to such exemptions. Each Shareholder understands and
agrees that stop transfer instructions with respect to the shares of Purchaser
Common Stock received by each Shareholder pursuant to this Agreement will be
given to Purchaser's transfer agent and that there will be placed on the
certificates for such shares a legend stating in substance as follows:
<PAGE>
The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, and may not be offered, sold,
transferred or otherwise disposed of unless registered with the United
States Securities and Exchange Commission and the securities
regulatory authorities of applicable states or unless an exemption
from such registration is available.
The securities represented hereby are subject to the provisions of an
Agreement and Plan of Merger and a Registration Rights Agreement dated
August 6, 1999, and may not be sold or otherwise transferred, except
in accordance therewith. Copies of such agreement may be obtained at
the principal executive offices of Direct Access Interactive, Inc.
(b) The foregoing legends will also be placed on any certificate
representing securities issued subsequent to the original issuance of the
Purchaser Common Stock pursuant to this Agreement as a result of any transfer of
such shares or any stock dividend, stock split or other recapitalization as long
as the Purchaser Common Stock issued to the Shareholders pursuant to this
Agreement has not been transferred in such manner to justify the removal of the
legend therefrom.
3.6 Phantom Stock Option Plan. Pursuant to its Phantom Stock Option Plan
-------------------------
effective as of November 1998, the Company has issued 85,715 shares of its
phantom stock (the "Phantom Stock"), 17,143 of which vest upon a Change in
Control of the Company (as defined therein), which includes the transactions
contemplated by this Agreement. All holders of Phantom Stock, the amounts of
Phantom Stock they hold, the amounts of Phantom Stock which vest or will be
vested upon Closing and the amount of cash to be paid to each holder of Phantom
Stock are identified on Schedule 3.6. At or prior to Closing, the Company shall
------------
terminate its Phantom Stock Option Plan, whereupon all unvested Phantom Stock
will expire with no liability to the Company. Contemporaneously with the
Closing, the Company will enter into an agreement with the sole holder of vested
shares of Phantom Stock terminating such holder's Phantom Stock Agreement and
all rights thereunder in consideration for the payment by the Company to the
holder of $74,800 in cash. Such payment shall cause a reduction in the
aggregate purchase price to be paid by the Purchaser to the Shareholders under
this Agreement and appropriate adjustments shall be made to the amount of Cash
paid to the Shareholders at Closing as a result of such payments by the
Purchaser to the holder of Phantom Stock.
3.7 Anti-dilution Protection. Prior to filing of its initial Underwritten
------------------------
Public Offering (as defined below), Purchaser may not issue shares of Purchaser
Common Stock such that, following any such issuance, the aggregate number of
shares of Purchaser Common Stock issued to the Shareholders under this Agreement
(including shares held in escrow) shall represent less than 16.0% of the total
outstanding shares of Purchaser Common Stock; provided, however, that Purchaser
-------- -------
may issue shares of Purchaser Common Stock in a transaction that causes the
Shareholder's ownership to be less than 16.0% if:
<PAGE>
(a) David W. Brasfield consents to the transaction;
(b) at least two (2) investment bankers selected by Purchaser
determine that the fair market value of the shares of Purchaser Common Stock
issued to the Shareholders following such transaction is not less than the fair
market value of such shares prior to the transaction; or
(c) such additional issuance is for cash consideration which the
Purchaser's Board of Directors deems to be for fair market value at such time.
For the purposes of the consent in (a) above, David W. Brasfield shall be
the Shareholders' representative, and the Shareholders hereby agree to be bound
by his decision. For purposes of this Agreement, "Underwritten Public Offering"
means a public offering of the common stock of the Purchaser which is offered
and sold in a "firm-commitment" underwriting pursuant to a registration
statement on a form suitable for such offering which has been declared effective
by the U.S. Securities and Exchange Commission.
ARTICLE 4
RULES OF CONSTRUCTION
In the interpretation of this Agreement, unless otherwise
provided or the context otherwise requires:
(a) The singular includes the plural and vice versa and, in
particular (but without limiting the generality of the foregoing), any word or
expression defined in the singular has the corresponding meaning used in the
plural and vice versa;
(b) Any reference to any gender includes the other gender;
(c) Any reference to an Article, Section, Exhibit, clause, subclause,
paragraph, subparagraph, Schedule or recital is a reference to an Article,
Section, Exhibit, clause, subclause, paragraph, subparagraph, Schedule or
recital of this Agreement;
(d) Any reference to any agreement, instrument or other document (1)
shall include all appendices, exhibits and schedules thereto and all agreements,
documents or other writings incorporated by reference therein, and (2) shall be
a reference to such agreement, instrument or other document as amended,
supplemented, modified, suspended, restated or novated from time to time;
(e) Any reference to any statute shall be construed as including all
statutory provisions consolidating, amending or replacing such statute and all
governmental regulations and rules promulgated thereunder;
(f) Any reference to "writing" includes printing, typing, lithography
-------
and other means of reproducing words in a visible form;
<PAGE>
(g) Any reference to a time or date or to a local time or date is a
reference to the time and date in Atlanta, Georgia;
(h) The headings and Article, Section and paragraph numbering
contained in this Agreement are used solely for convenience and do not
constitute a part of this Agreement, nor shall such headings and numbering be
used in any manner to aid in the construction of this Agreement;
(i) References herein to the "Company Disclosure Schedules" mean the
disclosure schedules, dated as of the date hereof, which have been delivered by
the Company and/or the Shareholders to the Purchaser and all other documents,
agreements, and other items disclosed by the Company and/or the Shareholders in
writing to the Purchaser and attached to such schedules in connection with this
Agreement, and references to a numbered Company Disclosure Schedule shall mean
that portion of the Company Disclosure Schedules that refers to the specific
section or subsection of Article 5 of this Agreement;
(j) The term "disclosed by Purchaser" means and includes, with
respect to information concerning any event, fact or circumstance, information
contained in the Purchaser's Disclosure Schedules, in this Agreement and the
other Purchase Agreements;
(k) The term "including" means "including, without limitation";
(l) The term "Governmental Authority" means any United States
federal, state or local, or foreign, governmental, regulatory or administrative
authority, agency, department, board, investigative body or commission or any
court, tribunal, or judicial or arbitral body;
(m) The term "Knowledge" as used with respect to (1) the Shareholders
(including any references to the Shareholders being aware of a particular
matter) means the actual knowledge of the Shareholders and information which
they reasonably should have known, after inquiry, given the nature of the
disclosure and (2) the Company or the Purchaser (including any references to the
Company or the Purchaser being aware of a particular matter) means the actual
knowledge of the officers of the Company or the Purchaser, as the case may be,
and information which they reasonably should have known, after inquiry, given
the nature of the disclosure;
(n) The term "Material Adverse Effect" with respect to a person or
entity means any circumstance, change in, or effect on the business and affairs
of such person or entity or any Subsidiary thereof that, individually or in the
aggregate with any other circumstances, changes in, or effects on, the business
and affairs of such person or entity and its Subsidiaries: (1) is, or would
reasonably be expected to be, materially adverse to the business, operations,
assets or liabilities, prospects, results of operations or financial condition
of such person or entity and its Subsidiaries, taken as a whole, or (2) would
reasonably be expected to materially adversely affect the ability of such person
or entity and its Subsidiaries to operate or conduct its or their business and
affairs in the manner in which it is currently operated or conducted or
contemplated by such person or entity to be operated or conducted;
<PAGE>
(o) The term "person" means any individual, partnership, limited
liability company, firm, corporation, association, trust, joint venture,
unincorporated organization or other entity, as well as any syndicate or group
that would be deemed to be a person under Section 13(d)(3) of the Exchange Act
(as defined herein);
(p) References herein to the "Purchaser Disclosure Schedules" mean
the disclosure schedules, dated as of the date hereof, which have been delivered
by the Purchaser to the Company and the Shareholders and all other documents,
agreements, and other items disclosed by the Purchaser in writing to the Company
and the Shareholders and attached to such schedules in connection with this
Agreement, and references to a numbered Purchaser Disclosure Schedule shall mean
that portion of the Purchaser Disclosure Schedules that refers to the specific
section or subsection of Article 7 of this Agreement;
(q) The term "Subsidiary" means any corporation, partnership, joint
venture or other legal entity in which a specified person or entity, directly or
indirectly, owns or controls the voting of at least a 50% share or other equity
interest or for which such person or entity, directly or indirectly, acts as a
general partner or managing member; and
(r) Each of the Parties acknowledges that it has had the opportunity
to negotiate the terms and provisions of this Agreement, with the assistance and
review of its counsel. This Agreement, therefore, shall be construed without
regard to any presumption or other rule requiring construction against the party
causing the Agreement to be drafted.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
To induce the Purchaser to enter into this Agreement and the other Purchase
Agreements (defined in Section 12.4 below), the Company and the Shareholders,
jointly and severally, hereby represent and warrant to Purchaser as follows:
5.1 Organization.
------------
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Alabama. The Company has
the corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted, and, except as
disclosed on Company Disclosure Schedule 5.1(a), is duly licensed or qualified
----------------------------------
to do business and is in good standing in each jurisdiction in which it is
required to be so licensed or qualified, except where the failure of the Company
to be so licensed, qualified or in good standing would not have and is not
reasonably likely to have a Material Adverse Effect on the Company.
(b) Company Disclosure Schedule 5.1(b) sets forth true and correct
----------------------------------
copies of the Articles of Incorporation and Bylaws of the Company and all
amendments thereto.
<PAGE>
(c) Except as disclosed on Company Disclosure Schedule 5.1(c), the
----------------------------------
Company does not own or control, directly or indirectly, any equity interest in
any corporation, company, association, partnership, joint venture or other
entity.
5.2 Capitalization. The authorized capital stock of the Company consists
--------------
of 1,000 shares of Company Common Stock and no shares of preferred stock or any
other form of capital stock. As of the date hereof, there are 150 shares of
Company Common Stock issued and outstanding. Company Disclosure Schedule 5.2
-------------------------------
sets forth the number of shares of Company Common Stock owned by each
Shareholder and the number of shares of Company Common Stock which may be
acquired by each holder of warrants and options to purchase Company Common
Stock. There are no options, warrants, or other rights to acquire Company
Common Stock from the Company. All issued and outstanding shares of Company
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable, were not issued in violation of any preemptive rights and were
issued pursuant to effective registration statements or under available
exemptions from the registration requirements of the federal and state
securities laws. Except as set forth on Company Disclosure Schedule 5.2, the
-------------------------------
Company has not granted nor is it bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the transfer, purchase, subscription or issuance of any shares of capital stock
of the Company or any securities representing the right to purchase, subscribe
or otherwise receive any shares of such capital stock or any securities
convertible into any such shares, and, except as set forth on Company Disclosure
------------------
Schedule 5.2, there are no agreements or understandings with respect to voting
- ------------
any such shares.
5.3 Authority; No Violation.
-----------------------
(a) Except as disclosed on Company Disclosure Schedule 5.3(a)
----------------------------------
(collectively, the "Company Approvals"), no consents, approvals, authorizations,
clearances or orders of, filings or registrations with or notices to
(collectively "Authorizations") any third party or any Governmental Authority
are necessary on behalf of the Company or any of the Shareholders in connection
with (i) the execution and delivery by the Company and the Shareholders of this
Agreement and the other Purchase Agreements, (ii) the consummation by the
Company and the Shareholders of the transactions contemplated hereby and thereby
and (iii) the performance of the Company's and the Shareholder's obligations
under this Agreement and the Purchase Agreements. The Company has the full
corporate power and authority to execute and deliver this Agreement and the
other Purchase Agreements and to consummate the transactions contemplated hereby
and thereby in accordance with the terms hereof and thereof. The execution and
delivery of this Agreement and the other Purchase Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly approved by the Board of Directors and Shareholders of the Company
in accordance with the Articles of Incorporation and Bylaws of the Company and
with applicable Laws (as defined below). Except for the Company Approvals, no
other corporate proceedings on the part of the Company are necessary for the
Company and the Shareholders to execute and deliver this Agreement and the other
Purchase Agreements to which they are a party and for the Company and the
Shareholders to be bound by the terms hereof and thereof. This Agreement and
the
<PAGE>
other Purchase Agreements to which they are a party have been duly and validly
executed and delivered by the Company and the Shareholders and constitute the
valid and binding obligation of the Company and the Shareholders enforceable
against the Company and the Shareholders in accordance with its and their terms,
except to the extent that the availability of the remedy of specific performance
may be limited by equitable principles.
(b) Neither the execution and delivery by the Company and the
Shareholders of this Agreement and the other Purchase Agreements to which they
are a party, nor the consummation by the Company and the Shareholders of the
transactions contemplated hereby and thereby in accordance with the other terms
hereof and thereof, nor compliance by the Company and the Shareholders with any
of the terms or provisions hereof or thereof, will: (i) violate any provision of
the Company's Articles of Incorporation or Bylaws; (ii) assuming that the
Company Approvals are duly obtained, violate any United States federal, state or
local or foreign statute, code, ordinance, rule, regulation, judgment, order,
writ, ruling, decree or injunction of any Governmental Authority (collectively,
"Laws") applicable to the Company, the Shareholders or any of its or their
respective properties or assets; or (iii) violate, conflict with, result in a
breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in the
creation of any lien, mortgage, security interest, pledge, charge, other right
of third parties or other encumbrance (collectively, "Liens") upon any of the
respective properties or assets of the Company or the Shareholders under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to which
the Company or the Shareholders is a party, or by which they or any of their
respective properties or assets may be bound or affected except, with respect to
(ii) and (iii) above, such as individually or in the aggregate will not have a
Material Adverse Effect on the Company, and which will not prevent or delay the
consummation of the transactions contemplated hereby.
5.4 Financial Statements.
--------------------
(a) Company Disclosure Schedule 5.4(a) sets forth copies of: (i) the
----------------------------------
balance sheets of the Company as of June 30, 1999, December 31, 1998, December
31, 1997 and December 31, 1996, and (ii) the statements of income, stockholders'
equity and cash flows for the periods ended June 30, 1999, December 31, 1998,
December 31, 1997 and December 31, 1996 (together with the related notes,
collectively, the "Company Financial Statements"). The Company Financial
Statements for 1997 and 1998 have been audited by Hardman Guess Frost &
Cummings, P.C. and the audit letters of such firm are included therein.
(b) The Company Financial Statements have been prepared in accordance
with generally accepted accounting principles and practices ("GAAP") applied
consistently during the periods involved (except as may be indicated therein or
in the notes thereto), and present fairly the financial position of the Company
as of the respective dates set forth therein, and the consolidated results of
the Company's operations and its cash flows for the respective periods set forth
therein, in accordance with GAAP, except, in the case of interim financial
statements, for normal year-end adjustments consistent with past practice.
<PAGE>
(c) The books and records of the Company have been maintained in
material compliance with applicable legal and accounting requirements, including
GAAP.
(d) Except as and to the extent reflected, disclosed or reserved
against in the Company Financial Statements, or as disclosed in Company
-------
Disclosure Schedule 5.4(d), since December 31, 1998, the Company has not
- --------------------------
incurred any liabilities or obligations of any kind, whether absolute, accrued,
contingent or otherwise ("Liabilities"), except (1) in the ordinary course of
business and consistent with past practice, (2) Liabilities that in the
aggregate do not have a Material Adverse Effect on the Company and (3) this
Agreement and the other Purchase Agreements.
(e) Since December 31, 1998, to the Company's and the Shareholders'
Knowledge, there has not been any change, occurrence or circumstance affecting
the business, results of operations or financial condition of the Company that
has had, individually or in the aggregate, a Material Adverse Effect on the
Company since that date or which is reasonably likely to have a Material Adverse
Effect on the Company, other than changes, occurrences and circumstances
disclosed by the Company on the Company Disclosure Schedules.
5.5 Broker's and Other Fees. Except as disclosed in Company Disclosure
----------------------- ------------------
Schedule 5.5, neither Company nor any of the Shareholders have employed any
- ------------
broker or finder or incurred any liability for any broker's or finder's fees or
commissions in connection with any of the transactions contemplated by this
Agreement and the other Purchase Agreements.
5.6 Absence of Certain Changes or Events.
------------------------------------
(a) Except as disclosed in Company Disclosure Schedule 5.6(a) or as
----------------------------------
reflected in the Company Financial Statements for June 30, 1999, the Company and
the Shareholders do not have Knowledge of any facts or conditions which they
reasonably believe to be likely to cause a Material Adverse Effect on the
Company in the next twelve months from that reflected in the Company Financial
Statements.
(b) Except for the execution of this Agreement and as set forth in
Company Disclosure Schedule 5.6(b) or as reflected in the Company Financial
- ----------------------------------
Statements for June 30, 1999, since December 31, 1998, the Company has conducted
its business only in the ordinary course, consistent with past practice and
neither the Company nor the Shareholders has taken or permitted any of the
actions set forth below:
(1) failed to maintain its existence and status in good standing
in all jurisdictions in which it is required to be qualified or registered to
conduct its business, except where the failure to do so would not have a
Material Adverse Effect on the Company;
(2) failed to maintain all of its tangible assets in good
operating condition (ordinary wear and tear excepted);
(3) changed any provision of its Articles of Incorporation or
Bylaws;
<PAGE>
(4) issued any additional shares of Company Common Stock or
other securities, rights to purchase or agreements of any character relating to
the authorized or issued capital stock of the Company or any securities
convertible into shares of such stock, or split, combined or reclassified any
shares of its capital stock, or declared, set aside or paid any dividend or
other distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock;
(5) directly or indirectly redeemed, purchased or otherwise
acquired any capital stock of the Company;
(6) granted any severance or termination pay to, or entered into
or amended any employment or severance agreement with, any of its directors,
officers or employees; adopted any new employee benefit plan or arrangement of
any type or increased compensation or benefits to its directors, officers or
employees except with respect to employee increases and discretionary bonuses
paid in the ordinary course of business and consistent with past practices and
policies and, with regard to bonuses, in amounts that do not result in a
material variance from the amounts reflected for such payments through the date
of the most recent balance sheet included in the Company Financial Statements;
(7) made any capital expenditures in excess of $50,000
individually or $100,000 in the aggregate in the aggregate outside the ordinary
course of business or acquired in any manner whatsoever any business or entity;
(8) entered into, terminated, modified or amended any agreement
or arrangement with any officer or director of the Company or any "affiliate" of
any such officer or director, as that term is defined in Regulation 14A of the
Exchange Act (an "Affiliate");
(9) made any change in its accounting methods or practices or
any change in the method of valuing assets included in the Company Financial
Statements;
(10) increased, or made any change in any assumptions underlying
the method of calculating any bad debt, contingency or other reserves from those
reflected in the Company Financial Statements;
(11) incurred, paid, discharged or satisfied any Liabilities in
excess of $50,000 in the aggregate, other than in the ordinary course of
business;
(12) written down the value of any inventory or written off as
uncollectible any notes or accounts receivable, except for write-downs and
write-offs in the ordinary course of business;
(13) canceled or waived any claims or rights, or sold,
transferred, distributed or otherwise disposed of any material assets or
properties, except in the ordinary course of business;
<PAGE>
(14) declared, filed or permitted to be filed any voluntary or
involuntary bankruptcy, receivership, insolvency or other similar proceeding or
petition with any Governmental Authority with respect to the Company or any of
the Shareholders;
(15) failed to perform its obligations under any Material
Contract (except those being contested in good faith) or entered into, assumed
or amended any agreement that would be a Material Contract other than agreements
to provide services entered into in the ordinary and usual course of business;
(16) taken any action that would or could reasonably be expected
to result in (A) a Material Adverse Effect on the Company or (B) any of the
Company's or the Shareholders' representations and warranties contained in
Article 5 or any of the Shareholders' representations and warranties contained
in Article 6 not being true and correct in any material respect at the Closing
Date, or that would cause any of the conditions to Closing not to be satisfied;
or
(17) directly or indirectly agreed to do any of the foregoing.
(c) Prior to December 31, 1998, neither the Company nor the
Shareholders had taken or permitted any of the actions described in Section
5.6(b) above that should have been reflected in the Company Financial Statements
but are not.
5.7 Legal Proceedings. Except as disclosed in Company Disclosure Schedule
----------------- ---------------------------
5.7, neither the Company nor any of the Shareholders is a party to any, and
- ---
there are no pending or, to the Company's or the Shareholders' Knowledge,
threatened legal, administrative, arbitral or other proceedings, claims, actions
or governmental investigations of any nature against the Company or the
Shareholders. Except as disclosed in Company Disclosure Schedule 5.7, the
-------------------------------
Company is not a party to any order, judgment or decree entered in any lawsuit
or proceeding. Without limiting the foregoing, except as disclosed in Company
-------
Disclosure Schedule 5.7, to the Company's or the Shareholders' Knowledge, no
- -----------------------
actions, suits, demands, notices, claims, investigations or proceedings are
pending or threatened against or otherwise involving, directly or indirectly,
any officer, director, employee or agent of the Company (in connection with such
officer's, director's, employee's or agent's activities on behalf of the Company
or that otherwise relate, directly or indirectly to the Company or its
properties or securities) including without limitation any notices, demand
letters or requests from any Governmental Authority relating to such potential
Liabilities, nor, to the Company's or the Shareholders' Knowledge, are there any
circumstances which they reasonably believe to be likely to lead to such
actions, suits, demands, notices, claims, investigations or proceedings.
5.8 Taxes and Tax Returns. Except as disclosed in Company Disclosure
--------------------- ------------------
Schedule 5.8:
- ------------
(a) The Company has duly filed (and until the Closing Date will so
file) all returns, declarations, reports, information returns and statements
("Returns") required to be filed by it in respect of any United States federal,
state or local, or foreign, Taxes and has duly paid (and until the Closing Date
will so pay) all such Taxes due and payable, other than Taxes
<PAGE>
which are being contested in good faith (and disclosed by the Company and the
Shareholders to Purchaser in writing). As used herein, "Tax" or "Taxes" means
and includes any and all taxes, fees, levies, assessments, duties, tariffs,
imposts, and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any Governmental Authority, including, without limitation: foreign,
domestic, central, local, state or other jurisdictional taxes or other charges
on or with respect to income, estimated income, franchises, business,
occupation, windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation, or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value added, or gains taxes;
license, registration and documentation fees; and customs duties, tariffs, and
similar charges. The Company has established (and until the Closing Date will
establish) on its books and records reserves that are adequate for the payment
of all Taxes not yet due and payable, but are incurred in respect of the Company
through such date.
(b) None of the Returns of the Company have been examined by the
Internal Revenue Service (the "IRS"), or any other United States federal, state
or local or any foreign Governmental Authority within the past six years. There
are no audits or other Governmental Authority proceedings presently pending nor,
to the Knowledge of the Company and the Shareholders, any other disputes pending
with respect to, or claims asserted for, Taxes upon the Company, nor has the
Company given any currently outstanding waivers or comparable consents regarding
the application of any statute of limitations with respect to any Taxes or
Returns. There are no Liens for Taxes upon the assets of the Company, except
Liens for Taxes not yet due. The Company and the Shareholders have complied
(and until the Closing Date will comply) in all respects with all applicable
Laws relating to the payment and withholding of Taxes.
(c) The Company (i) has not requested any extension of time within
which to file any Return which Return has not since been filed (ii) is not a
party to any agreement providing for the indemnification, allocation or sharing
of Taxes; (iii) except as set forth on Company Disclosure Schedule 5.8(c) is not
----------------------------------
required to include in income any adjustment by reason of a voluntary change in
accounting method initiated by the Company (nor to the Company's or the
Shareholders' Knowledge has any Governmental Authority proposed any such
adjustment or change of accounting method); (iv) has not filed a consent with
any Governmental Authority pursuant to which the Company has agreed to recognize
gain (in any manner) relating to or as a result of this Agreement or the
transactions contemplated hereby; or (v) has not been a member of an affiliated
group of corporations within the meaning of Section 1504 of the Internal Revenue
Code of 1986, as amended ("Code").
5.9 Employee Benefit Plans and Relations. Except as disclosed in Company
------------------------------------ -------
Disclosure Schedule 5.9:
- -----------------------
(a) The Company does not maintain or contribute to any "employee
pension benefit plan" (the "Company Pension Plans"), as such term is defined in
Section 3 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including any
<PAGE>
pension, profit-sharing, retirement, thrift or stock bonus plan, "employee
welfare benefit plan" (the "Company Welfare Plans"), as such term is defined in
Section 3 of ERISA, or any other stock option plan, stock purchase plan,
restricted stock plan, deferred compensation plan, severance plan, bonus plan or
other similar plan, program or arrangement (collectively the "Employee Plans").
The Company has not contributed to, or been required to contribute to, any
"Multiemployer Plan," as such term is defined in Section 3(37) of ERISA.
(b) Each of the Company Pension Plans is intended to be a qualified
plan within the meaning of Section 401(a) of the Code, and neither the Company
nor the Shareholders are aware of any fact or circumstance that would adversely
affect the qualified status of any such plan.
(c) Each of the Company Pension Plans, Company Welfare Plans and
other Employee Plans has been operated in compliance in all material respects
with the provisions of ERISA, the Code, and all other applicable Laws.
(d) Neither the Company nor, to the Company's or the Shareholders'
Knowledge, any trustee, fiduciary or administrator of any Company Pension Plan
or Company Welfare Plan or any trust created thereunder, has engaged in a
"prohibited transaction" as such term is defined in Section 4975 of the Code,
which could subject the Company or any such trustee, fiduciary or administrator
thereof, to the tax or penalty on prohibited transactions imposed by said
Section 4975.
(e) No Company Pension Plan or any trust created thereunder has been
terminated, nor have there been any "reportable events" for which the 30 day
notice has not been waived with respect to any Company Pension Plan, as that
term is defined in Section 4043(b) of ERISA.
(f) There are no pending or, to the Company's or the Shareholders'
Knowledge, threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of the Company Pension Plans or the
Company Welfare Plans or any trusts related thereto.
(g) Accruals; Funding.
-----------------
(i) Pension Plans. None of the Employee Plans is a Pension
-------------
Plan subject to ERISA Title IV (including those for retired, terminated or other
former employees and agents).
(ii) Other Plans. Company Disclosure Schedule 5.9(g) fully and
----------- ----------------------------------
accurately sets forth any funding liability under each Employee Plan not subject
to ERISA Title IV, whether insured or otherwise, specifically setting forth any
liabilities under any retiree medical arrangement and specifically designating
any insured plan which provides for retroactive premium or other adjustments.
The levels of insurance reserves and accrued liabilities with regard to each
such Employee Plan are reasonable and are sufficient to provide for all incurred
but unreported claims and any retroactive premium adjustments.
<PAGE>
(iii) Contributions. Except as set forth on Company Disclosure
-------------
Schedule 5.9(g): (A) the Company and each trade or business (whether or not
- ---------------
incorporated), which together with the Company is treated as a single employer
pursuant to Code Section 414(b), (c), (m) or (o) (an "ERISA Affiliate"), has
made full and timely payment of all amounts required to be contributed under the
terms of each Employee Plan and applicable Law, or required to be paid as
expense under such Employee Plan, including the Pension Benefit Guaranty
Corporation ("PBGC") premiums and amounts required to be contributed under Code
Section 412; (B) where applicable, all contributions have been made in
accordance with the actuarial recommendations; and (C) no excise taxes are
assessable as a result of any nondeductible or other contributions made or not
made to an Employee Plan.
(h) Summary plan descriptions and all other returns, reports,
registration statements, prospectuses, documents, statements and communications
required to have been filed, published or disseminated under ERISA or other Laws
and the rules and regulations promulgated by the Department of Labor under ERISA
and the Treasury Department or by the Securities and Exchange Commission ("SEC")
with respect to the Employee Plans have been so filed, published or
disseminated, except where a failure to do so would not have a Material Adverse
Effect on the Company.
5.10 Compliance with Applicable Laws. Except as set forth in Company
------------------------------- -------
Disclosure Schedule 5.10, the Company holds all licenses, franchises, permits,
- ------------------------
consents and authorizations ("Licenses") necessary for the lawful conduct of its
business, except to the extent a failure to hold such Licenses would not have a
Material Adverse Effect. No proceeding is pending or, to the Company's or
Shareholder's Knowledge, threatened seeking the revocation or suspension of any
License. Except as set forth on Company Disclosure Schedule 5.10, the Company is
--------------------------------
and has been in compliance in all material respects with all applicable Laws,
and neither the Company nor any Shareholder has received any notices of any
allegation of any violation by the Company of any Laws or Licenses.
5.11 Certain Contracts.
-----------------
(a) Company Disclosure Schedule 5.11(a) lists the following
----------------------------------
agreements (collectively, the "Material Contracts"), including, without
limitation, leases, purchase contracts and commitments, to which the Company is
a party or by which the Company or any of its properties or assets is bound:
(i) all agreements involving an annual commitment or payment
by any party thereto of more than $100,000 individually or in any group of
related agreements;
(ii) all joint venture, sales agency, sales representative or
distributorship, broker, franchise or similar agreements;
(iii) all license agreements pursuant to which the Company
licenses any intellectual property from another party that are material to the
Company's business and all license agreements pursuant to which the Company
licenses intellectual property to other parties that were not entered into in
the ordinary course of business;
Page 16 of 47
<PAGE>
(iv) all leases of real and personal property that is material
to the Company's business and operations;
(v) all notes, bonds, mortgages, security agreements,
guarantees and other agreements and instruments for or relating to any lending
or borrowing by the Company in any amount (exclusive of advances to employees
for expenses in the ordinary course of business);
(vi) all powers of attorney, guarantees, suretyships or similar
agreements; and
(vii) all other agreements (other than agreements with the
Company's customers described in Section 5.11(f)) to which the Company or any
Shareholder is a party and either (A) which is material to the Company's
business or (B) the breach of or default under which would have a Material
Adverse Effect on the Company (for purposes of this Clause (vii) only, breaches
or defaults which cause only a cash Liability of $50,000 individually or
$100,000 in the aggregate shall not be deemed to cause a "Material Adverse
Effect").
(b) Except as set forth on Company Disclosure Schedule 5.11(b), to
-----------------------------------
the Knowledge of the Company and the Shareholders, each of the Material
Contracts is valid, binding and enforceable on the parties thereto in accordance
with its terms. The Company has provided a true and complete copy of each
Material Contract to Purchaser.
(c) Except as disclosed in Company Disclosure Schedule 5.11(c), (i)
-----------------------------------
the Company is not a party to or bound by any agreement or understanding
(whether written or oral) with respect to the employment of any officers,
employees, directors or consultants, and (ii) the consummation of the
transactions contemplated by this Agreement and the other Purchase Agreements
will not (either alone or upon the occurrence of any additional acts or events)
result in any payment (whether of severance pay or otherwise) or other
obligation becoming due from the Company to any officer, employee, director,
shareholder or consultant thereof. Company Disclosure Schedule 5.11(c) sets
-----------------------------------
forth true and correct copies of all severance or employment agreements with
officers, directors, employees, agents or consultants to which the Company is a
party.
(d) Except as disclosed in Company Disclosure Schedule 5.11(d), no
-----------------------------------
agreement or understanding to which the Company or any Shareholder is a party or
by which any of them is bound limits the freedom of the Company or any
Shareholder to compete in any line of business or with any person.
(e) Except as disclosed in Company Disclosure Schedule 5.11(e),
-----------------------------------
neither the Company nor any Shareholder nor, to the Knowledge of the Company or
the Shareholders, any other party thereto, is in default under any of the
Material Contracts or any other material agreement to which the Company or any
Shareholder is a party or to which its or their properties is bound; to the
Company's and the Shareholders' Knowledge, no event has occurred which (whether
with or without notice, lapse of time or the happening or occurrence
Page 17 of 47
<PAGE>
of any other event) would constitute a default thereunder entitling any party to
terminate a Material Contract or other such agreement or to otherwise claim or
collect damages the impact of which would have a Material Adverse Effect on the
Company; and the continuation, validity and effectiveness of all such Material
Contracts and agreements under the current terms thereof and the current rights
and obligations of the Company and the Shareholders thereunder will in no way be
affected, altered or impaired by the consummation of the transactions
contemplated hereby and by the other Purchase Agreements. Except as disclosed in
Company Disclosure Schedule 5.11(e), upon consummation of the transactions
- ----------------------------------
contemplated by this Agreement and the other Purchase Agreements, the Company
will be entitled to continue to enjoy the material advantages and benefits of
the business arrangements, agreements, opportunities and relationships of the
Company as it enjoyed prior to the date hereof without interference or
interruption.
(f) Company Disclosure Schedule 5.11(f) sets forth samples of
-----------------------------------
contracts, licenses and other agreements used in the ordinary course of its
business in connection with the sale by the Company of its products and services
to customers. The actual contracts, licenses, and other agreements entered into
with customers contain substantially the same terms as the samples provided,
subject to changes negotiated and entered into in the ordinary course of
business, which changes do not materially adversely impact the rights or
obligations of the Company under such contracts, licenses and agreements.
5.12 Properties and Insurance.
------------------------
(a) Except as disclosed in Company Disclosure Schedule 5.12(a), the
----------------------------------
Company has good and marketable title to all assets and properties, whether real
or personal, tangible or intangible, reflected in the Company Financial
Statements as of June 30, 1999, or owned or acquired subsequent thereto (except
to the extent that such assets and properties have been disposed of for fair
value in the ordinary course of business since such date), subject to no Liens
except (i) statutory liens for amounts not yet delinquent or which are being
contested in good faith (and for which adequate reserves have been made) and
(ii) such Liens and title imperfections that do not in the aggregate have a
Material Adverse Effect on the Company. The Company as lessee has the right
under valid and subsisting leases to occupy, use, possess and control all real
property leased by the Company as presently occupied, used, possessed and
controlled by the Company or necessary in the operation of its businesses as
currently conducted.
(b) The business operations and insurable material properties and
assets of the Company are insured for their benefit under the policies or bonds
as in effect on the date hereof, copies of which are attached hereto as Company
-------
Disclosure Schedule 5.12(b). The Company has not received any notice of
- --------------------------
cancellation or notice of a material amendment of any such insurance policy or
bond and the Company is not in default under any such policy or bond, no
coverage thereunder is being disputed and all material claims thereunder have
been filed in a timely fashion.
Page 18 of 47
<PAGE>
(c) No person other than the Company is currently entitled to
possession of any of the properties that are material to the business or
operations of the Company or the loss of use of which would have a Material
Adverse Effect on the Company, whether owned or leased by the Company. To the
Company's and the Shareholders' Knowledge, the real property, buildings,
structures and improvements owned or leased by the Company conform in all
material respects to all applicable Laws, including zoning regulations, none of
which would upon consummation of the transactions contemplated hereby adversely
interfere with the use of such properties, buildings, structures or improvements
for the purposes for which they are now utilized. The Company has not received
notice of, and to the Company's and the Shareholders' Knowledge, there does not
exist (i) any pending or contemplated condemnation or eminent domain proceeding
affecting the properties owned or leased by the Company, (ii) any proposal for
increasing the assessed value of any such properties for state, county, local or
other ad valorem Taxes or (iii) any pending or contemplated proceedings or
public improvements that would result in the levy of any special Tax or
assessment against any such properties; and there are no outstanding
requirements or recommendations by the Company's insurance providers requiring
or recommending any repairs or work to be done with reference to any such
properties or any basis for such. The properties and assets owned or leased by
the Company constitute all of the property and assets that the Company uses or
may reasonably need in connection with the operation of its business as
conducted on the Closing Date, and all such property and assets are in good
repair and operating condition, normal wear and tear excepted. The consummation
of the transactions contemplated by this Agreement and the other Purchase
Agreements will not impair the ability of the Company to continue to use such
properties and assets.
5.13 Environmental Matters.
---------------------
(a) The operations of the Company comply, and have complied, in all
material respects with all applicable Laws relating to pollution or protection
of the environment ("Environmental Laws").
(b) The Company has obtained all environmental, health and safety
Licenses and other authorizations necessary for the operation of the Company's
business, all of which are valid and in good standing and are not subject to any
modification or revocation proceeding, and the Company is in compliance in all
material respects with all terms and conditions thereof.
(c) Neither the Company nor any of the Shareholders has received any
notice of any pending or threatened investigation, proceeding or claim to the
effect that the Company is or may be liable to any person or entity, or
responsible or potentially responsible for the costs of any remedial or removal
action or other cleanup costs, as a result of noncompliance with any
Environmental Laws or arising out of the presence, generation, storage or
disposal of hazardous waste, including liability under the United States
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, any state superfund law or any Environmental Law, and there is no past
or present action, or to the Company's and the Shareholders' Knowledge,
activity, condition or circumstance that could be
Page 19 of 47
<PAGE>
expected to give rise to any such liability on the part of the Company to any
person or entity or for any such cleanup costs.
5.14 Intellectual Property. The Company develops, markets and licenses
---------------------
certain proprietary application software products and systems to financial
institutions and other customers (the "Software Programs"), and in connection
therewith the Company has developed certain related technical documentation and
user reference manuals (the "Documentation"). The Software Programs and the
Documentation are collectively referred to as the "Software." The Software
Programs are listed on Company Disclosure Schedule 5.14.
--------------------------------
(a) Ownership. Except as set forth in Company Disclosure Schedule
--------- ---------------------------
5.14(a), the Company owns all patents, trademarks, service marks, trade names
- -------
and copyrights (including registrations, licenses and applications pertaining
thereto) and all other proprietary information used by the Company in the
conduct of its business. Company Disclosure Schedule 5.14(a) sets forth all
-----------------------------------
domestic and foreign patents, trademarks, service marks, trade names and
copyrights owned or used by the Company and all applications therefor and
registrations thereof.
(b) Procedures for Copyright Protection. Company Disclosure Schedule
----------------------------------- ---------------------------
5.14(b) sets forth the form and placement of the proprietary legends and
- -------
copyright notices displayed in or on the Software including screen displays. In
no instance has the eligibility of the Software for protection under copyright
law been forfeited to the public domain.
(c) Procedures for Trade Secret Protection. Neither the Company nor
--------------------------------------
any Shareholder has ever disclosed source code for any of the Software to a
third party other than the persons identified in Company Disclosure Schedule
---------------------------
5.14(c), each of which has executed a nondisclosure agreement in favor of the
- -------
Company. The Company discloses its source code to employees only on a need-to-
know basis in connection with the performance of their duties to the Company.
Except as described in Company Disclosure Schedule 5.14, each current employee
--------------------------------
of the Company and each former employee of the Company whose employment has
terminated since January 1, 1996 has executed and delivered to the Company an
Employment Agreement in the form attached to Company Disclosure Schedule 5.14
--------------------------------
containing provisions for the protection of trade secrets and confidential
information of the Company and the absolute ownership by the Company of all work
resulting from the performance of services by such employee. The source code and
system documentation comprising the Software have at all times been maintained
by the Company in confidence and the Company has not taken (nor has it failed to
take) any action which would be reasonably likely to result in such source code
and system documentation not being protectable as a trade secret under
applicable Laws.
(d) Ownership of Software. Except as disclosed on Company Disclosure
--------------------- ------------------
Schedule 5.14(d), all persons who have contributed to or participated in the
- ----------------
conception and development of the Software on behalf of the Company have been
full-time employees of the Company hired to prepare such works within the scope
of employment. As a consequence, the Company has all ownership interests in the
Software.
Page 20 of 47
<PAGE>
(e) Absence of Claims. Except as set forth in Company Disclosure
----------------- ------------------
Schedule 5.14(e), no claims have been asserted by any person to rights in the
- ----------------
Software, and to the Knowledge of the Company and the Shareholders, no valid
basis for any such claim exists. To the Knowledge of the Company and the
Shareholders, the use of the Software by the Company and its licensees does not
infringe on the rights of any person (whether arising under copyright, trade
secret, patent, unfair competition or other Laws that protect intellectual
property rights). To the Knowledge of the Company and the Shareholders, the use
by the Company of the patents, trademarks, service marks, trade names and
copyrights identified in Company Disclosure Schedule 5.14(a) does not infringe
-----------------------------------
the rights of any person, and no claim has been asserted that the use by the
Company of any of the foregoing infringes the rights of any person. Neither the
Company nor the Shareholders has received notice of any claim asserted by any
person to the effect that any current or former employee of the Company has
violated the provisions of any noncompete or nondisclosure agreement with such
person, or has disclosed any proprietary information of such person to the
Company or any third party.
5.15 Adequacy of Technical Documentation. The Software includes the source
-----------------------------------
code, system documentation and schematics for all Software Programs, as well as
any programmer comments for documentation and pertinent commentary or
explanation that may be reasonably necessary to render such materials
understandable and usable by a trained computer programmer. The Software also
includes the programs (including compilers), workbenches, tools and higher level
language, if any, used for the development, maintenance and implementation of
the Software Programs.
5.16 Third-Party Components in Software. The Company has validly obtained
----------------------------------
the right and license to use, copy, modify and distribute any third-party
programming and materials contained in the Software pursuant to the contracts
identified in Company Disclosure Schedule 5.16, subject to no further license
--------------------------------
fee, royalty or other payment obligations not identified in Company Disclosure
------------------
Schedule 5.16, other than software maintenance payments customarily associated
- -------------
therewith. The Software contains no other programming or materials in which any
third party may claim superior, joint or common ownership, including any right
or license. The Software does not contain derivative works of any programming or
materials not owned in their entirety by the Company.
5.17 Third-Party Interests or Marketing Rights in Software. Other than in
-----------------------------------------------------
the ordinary course of business pursuant to the terms of the standard form
agreements attached to Company Disclosure Schedule 5.11(f), the Company has not
-----------------------------------
granted, transferred or assigned any right or interest in the Software to any
person except pursuant to the contracts identified on Company Disclosure
------------------
Schedule 5.17. There are no contracts, agreements, licenses, commitments or
- -------------
arrangements in effect with respect to the marketing, distribution, licensing or
promotion of the Software by any independent salesperson, distributor,
sublicensor or other remarketer or sales organization except as set forth on
Company Disclosure Schedule 5.17.
- --------------------------------
5.18 No Parachute Payments. Except as disclosed on Company Disclosure
--------------------- ------------------
Schedule 5.18, no officer, director, employee, shareholder or agent (or former
- -------------
officer, director, employee, shareholder or agent) of the Company is entitled
now, or will or may be
Page 21 of 47
<PAGE>
entitled to as a consequence of this Agreement and the other Purchase
Agreements, to any payment or benefit from the Company or the Purchaser which if
paid or provided would constitute an "excess parachute payment," as defined in
Section 280G of the Code.
5.19 Absence of Certain Agreements and Practices.
-------------------------------------------
(a) Except as set forth in Company Disclosure Schedule 5.19(a) or in
-----------------------------------
connection with customary transactions in the ordinary course of business, no
present or former officer, director or shareholder of the Company:
(i) owes money to the Company;
(ii) has made any claim (as defined in Section 101 of the United
States Bankruptcy Code) against the Company or, to the Company's and the
Shareholders' Knowledge, has any basis for any such claim;
(iii) has any interest in any material property or assets used by
the Company in its business;
(iv) has any benefits that are contingent on the transactions
contemplated by this Agreement and the other Purchase Agreements, other than as
stated herein;
(v) has any agreement with the Company that is not terminable
by the Company without penalty or notice;
(vi) has any agreement providing severance benefits or other
benefits after the termination of employment of such employee (before or after a
change in control) regardless of the reason for such termination of employment;
or
(vii) has any agreement or plan, any of the benefits of which
will be increased, vested or accelerated by the occurrence of any of the
transactions contemplated by this Agreement and the other Purchase Agreements.
(b) Neither the Company nor any of its directors, officers, agents,
affiliates or employees, nor any other person acting on behalf of the Company or
the Shareholders has (i) given or agreed to give any gift or similar benefit
having a value of $1,000 or more to any customer, supplier or governmental
employee or official or any other person, for the purpose of directly or
indirectly furthering the business of the Company, (ii) used any corporate funds
for contributions, payments, gifts or entertainment, or made any expenditures
relating to political activities to government officials or others in violation
of any applicable Laws or (iii) received any unlawful contributions, payments,
gifts or expenditures in connection with the business of the Company.
5.20 Major Vendors and Customers. Company Disclosure Schedule 5.20 sets
--------------------------- --------------------------------
forth a list of each licensor, developer, remarketer, distributor and supplier
of property or services
Page 22 of 47
<PAGE>
to, and each licensee, end-user or customer of, the Company, to whom the Company
paid in the aggregate in excess of $100,000 during calendar year 1998, or for
the six months ended June 30, 1999. The Company has on the Closing Date executed
valid and binding agreements with no less than 135 customers with respect to its
internet banking products and services, and has installed such products in 90
customers.
5.21 Accounts Receivable. Company Disclosure Schedule 5.21 sets forth the
------------------- --------------------------------
accounts receivable of the Company as of December 31, 1998, as reflected in the
Company Financial Statements as of that date, and the accounts receivable of the
Company as of June 30, 1999, together with an aging of these accounts. These
accounts receivable, and all accounts receivable of the Company created after
June 30, 1999, arose from valid transactions in the ordinary course of business
and to the Company's and the Shareholders' Knowledge, will be good and
collectible at the recorded amounts thereof, except to the extent adequate
reserves therefor have been made on the Company Financial Statements in
accordance with GAAP. To the Company's and the Shareholders' Knowledge, no
portion of the accounts receivable is subject to counterclaim or setoff.
5.22 Bank Accounts. Company Disclosure Schedule 5.22 lists all bank, money
------------- --------------------------------
market, savings and similar accounts and safe deposit boxes of the Company,
specifying the account numbers, the authorized signatories or persons having
access to them, and the passwords used to access such accounts, including
through voice response and internet services.
5.23 Corporate Records. The corporate record books (including the share
-----------------
records) of the Company are materially complete, accurate and up to date with
all necessary signatures and set forth all meetings and actions taken by the
shareholders and directors of the Company and all transactions involving the
shares of the Company (and contain all canceled share certificates).
5.24 Combinations Involving the Company. All mergers, consolidations or
----------------------------------
other business combinations involving the Company and all liquidations,
purchases or other transactions by which the Company or any of its Subsidiaries
acquired or disposed of any of their business and property were conducted in
material compliance with applicable charter documents, bylaws, any other
applicable agreements, instruments and documents and applicable Laws.
5.25 Labor Relations. Except as disclosed on Company Disclosure Schedule
--------------- ---------------------------
5.25, the Company is in material compliance with all federal and state Laws
- ----
respecting employment and employment practices, terms and conditions of
employment, wages and hours, and is not engaged in any unfair labor or unlawful
employment practice. There is no unlawful employment practice or discrimination
charge pending before the United States Equal Employment Opportunity Commission
("EEOC") or any EEOC recognized state "referral agency." There is no unfair
labor practice charge or complaint against the Company pending before the
National Labor Relations Board ("NLRB"). There is no labor strike, dispute,
slowdown or stoppage actually pending or, to the Company's or the Shareholders'
Knowledge,
Page 23 of 47
<PAGE>
threatened against or involving or affecting the Company and no NLRB
representation question exists respecting any of its employees. No grievance or
arbitration proceeding is pending and no written claim therefor exists. There is
no collective bargaining agreement that is binding on the Company. Except for
any Material Contract disclosed pursuant to Section 5.11, the Company is not a
party to or bound by any agreement, arrangement or understanding with any
employee or consultant that cannot be terminated on notice of ninety (90) or
fewer days without liability to the Company or that entitles the employee or
consultant to receive any salary continuation or severance payment or retain any
specified position with the Company.
5.26 Year 2000 Matters. The Company has conducted reasonable testing in
-----------------
conformity with industry standards, including but not limited to the FFIEC Year
2000 Management Awareness publication issued on May 5, 1997, as amended or
supplemented, to test the Software, the Company's internal systems and software,
and the network connections it maintains as part of its business to determine
whether they are "Millennium Compliant" and, based upon these tests, the Company
and the Shareholders have no Knowledge that any of such Software systems or
connections is not "Millennium Compliant." For the purposes of this Agreement
"Millennium Compliant" means: (a) the functions, calculations, and other
computing processes of the Software (collectively, "Processes") perform as
designed regardless of the date in time on which the Processes are actually
performed and regardless of the date input to the Software, whether or not the
dates include leap years; (b) the Software can accept, store, sort, extract,
sequence, and otherwise manipulate date inputs and date values, and return and
display date values, as designed and in a materially accurate manner, regardless
of the dates used or format of the date input; (c) the Software will function
without interruptions caused by the date in time on which the Processes are
actually performed or by the date input to the Software; (d) the Software
accepts and responds to four digit year date input in a manner that resolves any
material ambiguities as to the century in an accurate manner; and (e) the
Software displays, prints and provides electronic output of date information in
ways that are unambiguous as to the determination of the century. The Company
has provided the Purchaser with access to the results of such tests.
5.27 Change in Control Provisions Company Disclosure Schedule 5.27
---------------------------- --------------------------------
contains a true and complete copy of all agreements in effect to which the
Company or any Shareholder is a party and which contain any provisions which
become effective or are accelerated or contingent upon a change in control,
merger, consolidation, sale of assets or stock or other business combination
involving the Company or otherwise require any payment or performance by the
Company or any officer, director or shareholder thereof, now or in the future,
in connection with or as a result of any of the transactions contemplated by
this Agreement or any of the other Purchase Agreements.
5.28 Disclosure. No representation, warranty or statement made by the
----------
Company and/or the Shareholders in this Agreement, the other Purchase Agreements
or in any document or certificate furnished or to be furnished to the Purchaser
pursuant to this Agreement or the other Purchase Agreements contains or will
contain any untrue or incomplete statement or omits or will omit to state any
material fact necessary to make the statements contained herein or therein not
misleading. The Company and the Shareholders have completely and accurately
Page 24 of 47
<PAGE>
responded in all material respects to all diligence inquiries made by Purchaser
and its officers, directors, attorneys, accountants and other representatives in
connection with this Agreement and the other Purchase Agreements, and have
disclosed all material facts (and have not omitted any material facts) Known or
reasonably available that are reasonably necessary in order to make the
Company's and the Shareholders' responses to such inquiries, in light of the
circumstances in which such responses were made, not misleading.
ARTICLE 6
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
To induce the Purchaser to enter into this Agreement and the other
Purchase Agreements (defined in Section 12.4 below), each Shareholder hereby
represents and warrants to the Purchaser, severally and not jointly, as follows:
6.1 Securities Act Compliance. Each Shareholder acknowledges that none of
-------------------------
the shares of Purchaser Common Stock to be delivered to the Shareholders
pursuant to this Agreement will, at the time of delivery, be registered under
the securities laws of any state or federal authority (the "Securities Laws").
Each Shareholder represents and warrants that he is acquiring the Purchaser
Common Stock for investment, and not with a view toward, or for resale in
connection with, a distribution of Purchaser Common Stock. Each Shareholder
acknowledges that the Purchaser Common Stock may be sold, pledged, hypothecated,
disposed of, or otherwise transferred or distributed only (i) pursuant to an
effective registration statement covering the Purchaser Common Stock under the
Securities Laws, or (ii) pursuant to an exemption from the registration
requirements of the Securities Laws.
6.2 Access to Information. Each Shareholder has had access to the books
---------------------
and records of Purchaser and has otherwise had access to sufficient information
about Purchaser upon which to analyze the transactions contemplated by this
Agreement. Each Shareholder has been given the opportunity to ask questions and
receive answers from the officers of Purchaser concerning the terms and
conditions of the transactions contemplated by this Agreement and the business
and financial condition of each of Purchaser. Each Shareholder has had the
opportunity to obtain any additional information he deems necessary to verify
the accuracy and completeness of information provided by Purchaser in connection
with this Agreement and the transactions contemplated hereby.
6.3 Experience; Investment. Each Shareholder has such knowledge and
----------------------
experience in financial and business matters as to enable such Shareholder (a)
to utilize the information made available to him in connection with the
transactions contemplated by this Agreement and the other Purchase Agreements,
(b) to evaluate the merits and risks associated with the acquisition of
Purchaser Common Stock pursuant hereto, and (c) to make an informed decision
with respect thereto. Each Shareholder's business and financial experience is
such that Purchaser could reasonably assume such Shareholder has the capacity to
protect his own interests in connection with the offer, sale and issuance of the
Purchaser Common Stock. Each Shareholder is financially capable of bearing the
risk of loss of any and all consideration surrendered in exchange for the
Purchaser Common Stock and acknowledges that an investment
Page 25 of 47
<PAGE>
in the Purchaser Common Stock involves a high degree of risk, including a
possible total loss of investment, and the purchase price of the Purchaser
Common Stock may not be indicative of the future value of the securities. Each
Shareholder represents that because of one or more of the following criteria,
such Shareholder is an "accredited investor" within the meaning of Regulation D
promulgated by the Commission under the Securities Act, by reason of: (a) the
Shareholder is a natural person who has a net worth or joint net worth with the
Shareholder's spouse exceeding $1,000,000 at the time of purchase; (b) the
Shareholder is a natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and who reasonably expects
to reach the same income level in the current year; (c) the Shareholder is a
corporation, partnership or trust with total assets in excess of $5,000,000; or
(d) all of the Shareholder's shareholders, partners or members, as the case may
be, participating in the investment in the Company, are "accredited investors".
Each Shareholder understands that the officers, directors, attorneys and other
advisors of Purchaser will rely upon the representations and warranties made by
such Shareholders in this Agreement in order to establish any necessary
exemption from the registration provisions of the Securities Act and applicable
state securities laws.
6.4 No Prior Convictions. No Shareholder has been convicted of, arrested
--------------------
for, or has any action pending for, a crime involving fraud, embezzlement or
theft or any similar crime.
6.5 Tax Advice. Each Shareholder has reviewed with his tax advisor the
----------
United States federal, state, local and foreign tax consequences of an
investment in the Purchaser Common Stock and the transactions contemplated by
this Agreement and the other Purchase Agreements. Such Shareholder is relying
solely on such advisor and not on any statements or representations of the
Purchaser or any of its agents, and understands that he (and not the Purchaser
or any other person or entity) shall be responsible for his own tax liability
that may arise as a result of this investment or the transactions contemplated
by this Agreement and the other Purchase Agreements.
6.6 Shareholders' Additional Representations. To induce the Purchaser to
----------------------------------------
enter into this Agreement, each Shareholder also represents and warrants to the
Purchaser as follows:
(a) The Shareholder has the right, power, capacity and authority to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby; this Agreement has been duly and validly executed and
delivered by the Shareholder and is entered into voluntarily without promise or
benefit other than as set forth herein; and this Agreement constitutes the
Shareholder's legal, valid and binding obligation, enforceable in accordance
with its terms.
(b) The Shareholder owns, of record and beneficially, valid title to
his shares of Company Common Stock, and such shares are free and clear of all
Liens, Claims (as defined below) and encumbrances. Other than the Company Common
Stock owned by the
Page 26 of 47
<PAGE>
Shareholder, the Shareholder does not own, beneficially or of record, or have
any right to acquire, now or in the future, any shares of stock or other
securities of any kind of the Company. The Shareholder has not granted nor is he
bound by any outstanding subscriptions, options, warrants, calls, commitments o
agreement of any character calling for the transfer, purchaser, subscription or
issuance of any shares of capital stock of the Company or any securities
representing the right to purchase, subscribe or otherwise receive any shares of
such capital stock or any securities convertible into any such shares, and there
are no agreements or understandings with respect to voting any such shares.
(c) The Shareholder has not granted nor is he bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the transfer, purchase, subscription or issuance of
any shares of capital stock of the Company or any securities representing the
right to purchase, subscribe or otherwise receive any shares of such capital
stock or any securities convertible into any such shares, and there are no
agreements or understandings with respect to voting any such shares. The
execution, delivery and performance of this Agreement by the Shareholder will
not conflict with or result in a breach of any agreement, instrument, order,
injunction, decree, statute, rule or regulation applicable to the Shareholder or
any of his or her assets. The execution, delivery and performance of this
Agreement by the Shareholder does not require the consent or approval of any
third party or governmental agency or authority which has not been obtained (and
a copy of which is attached hereto).
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
To induce the Company and the Shareholders to enter into this
Agreement and the other Purchase Agreements, the Purchaser hereby represents and
warrants to the Company and the Shareholders as follows:
7.1 Corporate Organization.
----------------------
(a) Purchaser is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Georgia. Purchaser has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted, and is duly licensed
or qualified to do business and is in good standing in each jurisdiction in
which the nature of the business conducted by it or the character or location of
the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed, qualified
or in good standing would not have a Material Adverse Effect on Purchaser.
(b) Purchaser Disclosure Schedule 7.1 sets forth true and complete
---------------------------------
copies of the Articles of Incorporation and Bylaws of Purchaser and all
amendments thereto.
7.2 Capitalization. The authorized capital stock of the Purchaser consists
--------------
of 70,000,000 shares of common stock, without par value, (the "Purchaser Common
Stock")
Page 27 of 47
<PAGE>
8,000,000 of which are issued and outstanding and 5,000,000 shares of preferred
stock, none of which are issued and outstanding. Purchaser Disclosure Schedule
-----------------------------
7.2 sets forth the number of shares of Purchaser Common Stock owned by its sole
- ---
shareholder and the number of shares of Purchaser Common Stock which may be
acquired by each holder of warrants and options to purchase Purchaser Common
Stock. Other than as disclosed on Purchaser Disclosure Schedule 7.2, there are
---------------------------------
no options, warrants, or other rights to acquire Purchaser Common Stock. All
issued and outstanding shares of Purchaser Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable, were not
issued in violation of any preemptive rights and were issued pursuant to
effective registration statements or under available exemptions from the
registration requirements of the federal and state securities laws. Except as
set forth on Purchaser Disclosure Schedule 7.2, the Purchaser has not granted
---------------------------------
any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the transfer, purchase, subscription or
issuance of any shares of capital stock of the Purchaser or any securities
representing the right to purchase, subscribe or otherwise receive any shares of
such capital stock or any securities convertible into any such shares, and,
except as set forth on Purchaser Disclosure Schedule 7.2, there are no
---------------------------------
agreements or understandings with respect to voting any such shares.
7.3 Authority; No Violation.
-----------------------
(a) Except as disclosed on Purchaser Disclosure Schedule 7.3(a)
------------------------------------
(collectively, "Purchaser Approvals"), no Authorizations are necessary on behalf
of the Purchaser in connection with (i) the execution and delivery by the
Purchaser of this Agreement and the other Purchase Agreements, (ii) the
consummation by the Purchaser of the transactions contemplated hereby and
thereby and (iii) the performance of the Purchaser's obligations under this
Agreement and the other Purchase Agreements. The Purchaser has the full
corporate power and authority to execute and deliver this Agreement and the
other Purchase Agreements to which it is a party and the consummation by the
Purchaser of the other transactions contemplated hereby and thereby in
accordance with the terms hereof and thereof. The execution and delivery of this
Agreement and the other Purchase Agreements and the consummation of the
transactions contemplated hereby and thereby have
been duly and validly approved by the Board of Directors and the sole
shareholder of the Purchaser in accordance with the Articles of Incorporation
and Bylaws of the Purchaser and applicable Laws. No other corporate proceedings
on the part of the Purchaser are necessary to consummate the transactions so
contemplated. This Agreement and the other Purchase Agreements have been duly
and validly executed and delivered by the Purchaser and constitute the valid and
binding obligation of the Purchaser enforceable against the Purchaser in
accordance with its terms, except to the extent that the availability of the
remedy of specific performance may be limited by equitable principles.
(b) Neither the execution and delivery of this Agreement and the
other Purchase Agreements to which it is a Party by the Purchaser, nor the
consummation by the Purchaser of the transactions contemplated hereby and
thereby in accordance with the terms hereof and thereof, nor compliance by the
Purchaser with any of the terms or provisions hereof and thereof, will (i)
violate any provision of the Purchaser's Articles of Incorporation or
Page 28 of 47
<PAGE>
Bylaws, (ii) violate any Laws applicable to the Purchaser or any of its
properties or assets, or (iii) except where a waiver or consent had been
obtained or will be obtained prior to Closing, violate, conflict with, result in
a breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in the
creation of any Lien upon any of the respective properties or assets of the
Purchaser under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which the Purchaser is a party, or by which it or
any of its properties or assets may be bound or affected except, with respect to
(ii) and (iii) above, such as individually or in the aggregate will not have a
Material Adverse Effect on the Purchaser, and which will not prevent or delay
the consummation of the transactions contemplated hereby.
7.4 Financial Statements.
--------------------
(a) Attached hereto as Purchaser Disclosure Schedule 7.4 is a true
---------------------------------
and complete copy of the financial statements of the Purchaser at and for the
periods ending December 31, 1998 and 1997 and March 31, 1999 (collectively, the
"Purchaser Financial Statements"). The Purchaser Financial Statements have been
prepared from the books and records of the Purchaser on the basis of GAAP and,
to the Purchaser's Knowledge, present fairly the financial position of the
Purchaser as of the respective dates set forth therein. The financial statements
of the Purchaser were prepared on a modified cash basis through March 9, 1999.
(b) Except as and to the extent reflected, disclosed or reserved
against in the Purchaser Financial Statements, or as disclosed in Purchaser
---------
Disclosure Schedule 7.4(b), since March 31, 1999 the Purchaser has not incurred
- --------------------------
Liabilities except (i) in the ordinary course of business and consistent with
past practice, (ii) Liabilities that in the aggregate do not have a Material
Adverse Effect on the Purchaser and (iii) this Agreement and the other Purchase
Agreements.
(c) Since March 31, 1999, there has not been any change, occurrence
--------------------
or circumstance affecting the business, results of operations or financial
condition of the Purchaser that has had, individually or in the aggregate, a
Material Adverse Effect on the Purchaser, or which is reasonably likely to have
a Material Adverse Effect on Purchaser, other than changes, occurrences and
circumstances disclosed by the Purchaser to the Company and the Shareholders on
the Purchaser Disclosure Schedules.
(d) To the Purchaser's Knowledge, the books and records of the
Purchaser have been maintained in material compliance with applicable legal and
accounting requirements, including (for periods after March 9, 1999 only), GAAP.
For periods prior to March 9, 1999, the Purchaser's books and records were kept
on a modified cash basis
7.5 Broker's and Other Fees. Neither the Purchaser nor any of its
-----------------------
directors or officers has employed any broker or finder or incurred any
liability for any broker's or finder's
Page 29 of 47
<PAGE>
fees or commissions in connection with any of the transactions contemplated by
this Agreement.
7.6 Legal Proceedings. Except as disclosed in Purchaser Disclosure
----------------- --------------------
Schedule 7.6, the Purchaser is a not a party to any, and there are no pending
- ------------
or, to the Purchaser's Knowledge, threatened legal, administrative, arbitral or
other proceedings, claims, actions or governmental investigations of any nature
against the Purchaser. Except as disclosed in Purchaser Disclosure Schedule 7.6,
---------------------------------
the Purchaser is not a party to any order, judgment or decree entered in any
lawsuit or proceeding. Without limiting the foregoing, except as disclosed in
Purchaser Disclosure Schedule 7.6, to the Purchaser's Knowledge, no actions,
- ---------------------------------
suits, demands, notices, claims, investigations or proceedings are pending or
threatened against or otherwise involving, directly or indirectly, any officer,
director, employee or agent of the Purchaser (in connection with such officer's,
director's, employee's or agent's activities on behalf of the Purchaser or that
otherwise relate, directly or indirectly to the Purchaser or its properties or
securities) including without limitation any notices, demand letters or requests
from any Governmental Authority relating to such potential Liabilities, nor, to
the Purchaser's Knowledge, are there any circumstances which are reasonably
likely to lead to such actions, suits, demands, notices, claims, investigations
or proceedings.
7.7 Properties and Insurance.
------------------------
(a) The Purchaser has good and marketable title to, or holds by valid
and existing lease or license, free and clear of all Liens, each piece of real
and personal property used in its business as now conducted, except in any of
the foregoing cases for such imperfections of title or Liens as (i) are set
forth in Purchaser Disclosure Schedule 7.7 hereof, (ii) are reflected or
---------------------------------
reserved against in the Purchaser Financial Statements, or (c) arise out of
Taxes which are not yet due and payable or are not in default and payable
without penalty or interest.
(b) The business operations and insurable material properties and
assets of the Purchaser are insured for their benefit against risks which, in
the reasonable judgment of the Purchaser, should be insured against, in each
case under policies or bonds issued by insurers of recognized responsibility, in
such amounts with such deductibles and against such risks and losses as are in
the opinion of the Purchaser adequate for the business engaged in by the
Purchaser. The Purchaser has not received any notice of cancellation or notice
of a material amendment of any such insurance policy or bond and the Purchaser
is not in default under any such policy or bond, no coverage thereunder is being
disputed and all material claims thereunder have been filed in a timely fashion.
7.8 Intellectual Property. The Purchaser conducts an active business using
---------------------
proprietary application software products and systems and provides internet
banking and integrated voice response (telephone banking) services utilizing
such products and systems (the "Purchaser's Software Programs"), and in
connection therewith the Purchaser has developed certain related technical
documentation and user reference manuals (the "Purchaser's
Page 30 of 47
<PAGE>
Documentation"). The Software Programs and the Documentation are collectively
referred to as the "Purchaser's Software."
(a) Ownership. The Purchaser owns all patents, trademarks, service
---------
marks, trade names and copyrights (including registrations, licenses and
applications pertaining thereto) and all other proprietary information used by
the Purchaser and material to the conduct of its business, including, without
limitation, the Purchaser's Software.
(b) Ownership of Software. To the Knowledge of Purchaser, all
---------------------
persons who have contributed to or participated in the conception and
development of the Software on behalf of the Purchaser have been full-time
employees of the Purchaser hired to prepare such works within the scope of
employment.
(c) Absence of Claims. To the knowledge of the Purchaser, no claims
-----------------
have been asserted by any person to rights in the Software (other than pursuant
to licenses executed with customers in the ordinary course of business), and no
valid basis for any such claim exists. To the Purchaser's Knowledge, the use of
the Software by the Purchaser and its licensees does not infringe on the rights
of any person (whether arising under copyright, trade secret, patent, unfair
competition or other state or federal laws which protect intellectual property
rights). To the Purchaser's Knowledge, the use by the Purchaser of its patents,
trademarks, service marks, trade names and copyrights does not infringe the
rights of any person, and no written claim has been asserted that the use by the
Purchaser of any of the foregoing infringes the rights of any person. No written
claim has been asserted by any person to the effect that any current or former
employee of the Purchaser has violated the provisions of any noncompete or
nondisclosure agreement with such person, or has disclosed any proprietary
information of such person to the Purchaser or any third party.
(d) Third Party Interests in Software. The Purchaser has not
---------------------------------
granted, transferred, or assigned any right or interest in the Software to any
person, other than pursuant to licenses granted in the ordinary course of
business.
7.9 Compliance with Applicable Laws. The Purchaser has all governmental
-------------------------------
licenses required for its business as currently conducted, except to the extent
a failure to hold such Licenses would not have a Material Adverse Effect on
Purchaser. No proceeding is pending or threatened seeking the revocation or
suspension of any material License. Except as disclosed by the Purchaser on
Purchaser Disclosure Schedule 7.9, the Purchaser's business has been operated
- ---------------------------------
and maintained in all material respects in compliance with applicable Laws. The
Purchaser has not received any notices of any allegation of any violation of any
Laws or Licenses.
7.10 Taxes and Tax Returns. Except as disclosed in Purchaser Disclosure
--------------------- --------------------
Schedule 7.10, since March 9, 1999:
- -------------
(a) The Purchaser has duly filed (and until the Closing Date will
so file) all Returns required to be filed by it in respect of any United States
federal, state or local, or foreign, Taxes and has duly paid (and until the
Closing Date will so pay) all such Taxes due
Page 31 of 47
<PAGE>
and payable, other than (1) Taxes which are being contested in good faith (and
disclosed by the Purchaser to the Company and the Shareholders in writing) and
(2) Taxes and Returns for periods prior to March 9, 1999. The Purchaser has
established (and until the Closing Date will establish) on its books and records
reserves that are adequate for the payment of all Taxes not yet due and payable,
but are incurred in respect of the Purchaser through the date of this Agreement.
(b) There are no audits or other Governmental Authority proceedings
presently pending nor, to the Knowledge of the Purchaser, any other disputes
pending with respect to, or claims asserted for, Taxes upon the Purchaser, nor
has the Purchaser given any currently outstanding waivers or comparable consents
regarding the application of any statute of limitations with respect to any
Taxes or Returns. There are no Liens filed of record publicly for Taxes upon the
assets of the Purchaser, except Liens for Taxes not yet due. The Purchaser has
complied (and until the Closing Date will comply) in all respects with all
applicable Laws relating to the payment and withholding of Taxes.
(c) Purchaser (1) has not requested any extension of time within
which to file any Return which Return has not since been filed (2) is not a
party to any agreement providing for the indemnification, allocation or sharing
of Taxes; (3) is not required to include in income any adjustment by reason of a
voluntary change in accounting method initiated by the Purchaser (nor to the
Purchaser's knowledge has any Governmental Authority proposed any such
adjustment or change of accounting method); and (4) has not filed a consent with
any Governmental Authority pursuant to which the Purchaser has agreed to
recognize gain (in any manner) relating to or as a result of this Agreement or
the transactions contemplated hereby.
7.11 Corporate Records. The corporate record books (including the share
-----------------
records) of the Purchaser are materially complete, accurate and up to date with
all necessary signatures and set forth all meetings and actions taken by the
shareholders and directors of the Purchaser and all transactions involving the
shares of the Purchaser.
7.12 Combinations Involving the Purchaser. The mergers, consolidations or
------------------------------------
other business combinations involving the Purchaser since it became a Subsidiary
of InterCept and all liquidations, purchases or other transactions by which the
Purchaser has acquired or disposed of any of its business and property since
such time were conducted in material compliance with applicable charter
documents, bylaws, any other applicable agreements, instruments and documents
and applicable Laws.
7.13 Disclosure. No representation or warranty of the Purchaser in this
----------
Agreement and the other Purchase Agreements, nor any financial statements or
other written statements or certificates furnished to the Company or the
Shareholders in connection with the transactions contemplated by this Agreement,
contains or as of the Closing Date will contain, any untrue statement of a
material fact, or omit or as of the Closing Date will omit to state a material
fact necessary to make the statements herein or therein not misleading. The
Purchaser has completely and accurately responded in all material respects to
the diligence inquiries made by the Company and the Shareholders in connection
with this Agreement and the other Purchase
Page 32 of 47
<PAGE>
Agreements, and has disclosed all material facts known or reasonably available
that are reasonably necessary in order to make the Purchaser's responses to such
inquiries, in light of the circumstances in which such responses were made, not
misleading.
ARTICLE 8
COVENANTS AND AGREEMENTS OF THE PARTIES
8.1 Current Information. Each of the Parties will notify the other
-------------------
Parties as soon as practicable after any determination or discovery by it of any
fact or circumstance relating to any Party which it has discovered through the
course of investigation and which represents, or is reasonably likely to
represent, a material breach of any representation, warranty, covenant or
agreement of any Party or which has or is reasonably likely to have a Material
Adverse Effect on any Party.
8.2 Confidentiality. The Parties agree that the terms of that certain
---------------
Confidentiality Agreement dated as of July 27, 1999 (the "Confidentiality
Agreement"), a copy of which is attached hereto as Exhibit 8.5 and is
-----------
incorporated herein by reference, shall continue to be applicable to the Parties
from the date hereof to the Closing Date.
8.3 Regulatory Matters; Consents; Cooperation, etc.
----------------------------------------------
(a) Each of the Parties will promptly furnish each other with copies
of written communications received by them or any of their respective
Subsidiaries from, or delivered by any of the foregoing to, any Governmental
Authorities in respect of the transactions contemplated hereby.
(b) As soon as practicable following the date hereof, each of the
Parties will use its commercially reasonable efforts to obtain all material
consents, waivers and other Approvals under any of its or its Subsidiaries'
agreements, contracts, licenses or leases required to be obtained by such Party
in connection with the consummation of the transactions contemplated hereby.
8.4 Parties' Efforts; Further Assurances; Cooperation. Subject to the
-------------------------------------------------
other provisions in this Agreement, the Parties shall in good faith perform
their obligations under this Agreement before, at and after the Closing Date,
and shall each use all commercially reasonable efforts to do, or cause to be
done, all things necessary, proper or advisable under applicable Laws to obtain
all Authorizations and satisfy all conditions to the obligations of the Parties
under this Agreement and to cause the transactions contemplated by this
Agreement to be carried out promptly in accordance with the terms hereof and
shall cooperate fully with each other and their respective officers, directors,
employees, agents, counsel, accountants and other designees in connection with
any steps required to be taken as part of their respective obligations under
this Agreement. Upon the execution of this Agreement and thereafter, each party
shall take such actions and execute and deliver such documents as may be
reasonably requested by the other Parties in order to consummate the
transactions contemplated by this Agreement.
Page 33 of 47
<PAGE>
8.5 Public Announcements. After the Closing Date, none of the
--------------------
Shareholders shall make any public announcement regarding any aspect of this
Agreement without Purchaser's prior written consent. Nothing in this Section
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary in order to satisfy such Party's disclosure obligations
imposed by Law or Governmental Authority.
8.6 Failure to Fulfill Conditions. In the event that any Party determines
-----------------------------
that a material condition to its or the other's obligation to consummate the
transactions contemplated hereby cannot be fulfilled on or prior to August 31,
1999 (the "Deadline Date"), it will promptly notify the other Party. Except for
any acquisition or merger discussions Purchaser may enter into with other
persons, each Party will promptly inform the other Parties of any facts
applicable to it that would be likely to prevent or materially delay
consummation of the transactions contemplated by this Agreement.
8.7 Disclosure Supplements. From time to time prior to the Closing Date,
----------------------
each Party hereto will promptly notify the other Party of any inaccuracy in its
respective Disclosure Schedules delivered pursuant hereto including, without
limitation, any matter which, if existing, occurring or known at the date of
this Agreement, would have been required to be set forth or described in such
Schedule or which is necessary to correct any information in such Schedule that
has been rendered inaccurate. Notwithstanding the foregoing, for the purpose of
determining satisfaction of the conditions set forth in Article 8, no such
notification shall be deemed to amend such Disclosure Schedules or shall be
deemed to be part hereof unless agreed to by the other Parties.
8.8 Release; Covenant Not to Sue.
----------------------------
(a) If the Closing occurs, then each of the Shareholders, on one
hand, and Purchaser, the Company, and their officers, directors, employees,
agents, representatives, successors and assigns (collectively, the "Purchaser
Released Parties"), on the other hand, hereby permanently release each other
from any and all Claims (as defined herein), rights and causes of action that
any of them may have, may have had or may, at any time, claim to have had
against the other, whether arising out of or in connection with any transactions
between the Shareholders and any or all of the Purchaser Released Parties prior
to, or otherwise arising with respect to any fact, circumstance, act or omission
occurring prior to or on the Closing Date; provided, however, that such release
shall not apply to any breach by any party of its representations, warranties
and agreements set forth in this Agreement and the other Purchase Agreements to
which it is a party.
(b) If the Closing occurs, the Shareholders and the Purchaser
Released Parties covenant not to sue or otherwise institute, cause to be
instituted or in any way participate in, any legal or administrative proceeding
against the others with respect to any claims (as defined by Section 101 of the
United States Bankruptcy Code, as amended), debts, demands, actions, causes of
action, suits, accounts, damages and liabilities of every name and nature, both
at law and in equity, whether known or unknown (collectively, the "Claims"),
that the Shareholders, on one hand, or the Purchaser Released Parties, on the
other hand, now
Page 34 of 47
<PAGE>
has, ever had or may, at any time, claim to have had against the other;
provided, however, that such covenant not to sue shall not apply to a suit or
action based solely upon any breach by any party of its representations,
warranties and agreements set forth in this Agreement and the other Purchase
Agreements to which it is a party. The Shareholders and the Purchaser Released
Parties represent and warrant that they have not voluntarily or involuntarily
assigned or suffered any transfer of any of the Claims to any other person or
entity, and they agree to indemnify and hold harmless each other from and
against any loss, damage, liability, cost and expense (including, but not
limited to, attorneys' fees incurred in connection therewith or in connection
with enforcing this indemnity) asserted against, imposed on or incurred by the
other party by reason of any such Claims which were effectively or purportedly
assigned or transferred to any other person or entity.
(c) If the Closing occurs, then the Purchaser hereby permanently
releases the Shareholders and their agents, representatives and assigns
(collectively, the "Shareholder Released Parties") from any and all Claims,
rights and causes of action that the Purchaser may have, may have had or may, at
any time, claim to have had against any or all of the Shareholder Released
Parties, whether arising out of or in connection with any transactions between
the Purchaser and any or all of the Shareholder Released Parties prior to, or
otherwise arising with respect to any fact, circumstance, act or omission
occurring prior to or on the Closing Date; provided, however, that such release
shall not apply to any breach by the Company or the Shareholders of their
representations, warranties and agreements set forth in this Agreement and the
other Purchase Agreements to which they are a party.
(d) If the Closing occurs, the Purchaser covenants not to sue or
otherwise institute, cause to be instituted or in any way participate in, any
legal or administrative proceeding against any of the Shareholder Released
Parties with respect to any Claims, that the Purchaser now has, ever had or may,
at any time, claim to have had against any of the Shareholder Released Parties;
provided, however, that such covenant not to sue shall not apply to a suit or
action based solely upon any breach by Purchaser of its representations,
warranties and agreements set forth in this Agreement and the other Purchase
Agreements to which they are a party. Purchaser represents and warrants that it
has not voluntarily or involuntarily assigned or suffered any transfer of any of
the Claims to any other person or entity, and they agree to indemnify and hold
harmless the Shareholder Released Parties from and against any loss, damage,
liability, cost and expense (including, but not limited to, attorneys' fees
incurred in connection therewith or in connection with enforcing this indemnity)
asserted against, imposed on or incurred by any Shareholder Released Parties by
reason of any such Claims which were effectively or purportedly assigned or
transferred by the Purchaser.
8.9 No Transfers. Except pursuant to this Agreement and the Registration
------------
Rights Agreement between the Purchaser and the Shareholders and with the prior
written consent of Purchaser, none of the Shareholders shall transfer, assign,
convey or otherwise dispose of any of the Purchaser Common Stock or any rights
with respect to such stock (including voting and conversion or option rights)
for one year after the date of this Agreement; provided, however, that the
Shareholders may make gifts of the Purchaser Common Stock to family members and
to trusts, foundations or other entities for charitable or estate planning
purposes, but only if
Page 35 of 47
<PAGE>
such transferee agrees in writing delivered to and for the benefit of the
Purchaser that such shares of Purchaser Common Stock owned by it shall be
subject to this Agreement.
8.10 Special Provisions with Respect to the Company. If the Closing occurs
----------------------------------------------
as provided herein, then at that time all representations, warranties, covenants
and agreements to the extent made or adopted by the Company (and only to such
extent) shall expire and be of no further force and effect, and the Company's
having made representations, warranties, covenants and agreements shall in no
way limit the liability of the Shareholders for those representations,
warranties, covenants and agreements pursuant to this Agreement.
8.11 Cooperation and Exchange of Information. The Parties agree to
---------------------------------------
furnish, or to cause to be furnished in good faith to each other, such
cooperation and assistance as is reasonably necessary to file any future
Returns, to respond to audits, to negotiate settlements with Tax authorities and
to prosecute and defend against Tax claims.
8.12 Release of Guaranties. The Purchaser will use its commercially
---------------------
reasonable best efforts to obtain the release of all Shareholders from all
personal guaranties listed on Schedule 8.12 as promptly as practical after the
-------------
Closing.
ARTICLE 9
CLOSING CONDITIONS
9.1 Conditions of Each Party's Obligations Under this Agreement. The
----------------------------------------------------------
respective obligations of each party under this Agreement shall be subject to
the satisfaction, or, where permissible under applicable Law, waiver at or prior
to the Closing Date of the following conditions:
(a) Approvals and Regulatory Filings. All necessary Authorizations
--------------------------------
of Governmental Authorities required to consummate the transactions contemplated
hereby shall have been obtained without any term or condition which would
materially impair the value of the Company or the Purchaser. All conditions
required to be satisfied prior to the Closing Date by the terms of such
approvals and consents shall have been satisfied; and all statutory waiting
periods in respect thereof shall have expired.
(b) Suits and Proceedings. The consummation of the transactions
---------------------
contemplated hereby will not violate the provisions of any injunction, order,
judgment, decree or Law applicable or effective with respect to Purchaser or the
Company or their officers and directors. No suit or proceeding shall have been
instituted by any person, or, to the Knowledge of Purchaser, Company or the
Shareholders, shall have been threatened by any Governmental Authority, and not
subsequently withdrawn, dismissed or otherwise eliminated, which seeks (i) to
prohibit, restrict or delay consummation of the transactions contemplated hereby
or to limit in any material respect the right of Purchaser to control any
material aspect of the business of Purchaser or the Company after the Closing
Date, or (ii) to subject Purchaser or the Company or their respective directors
or officers to material liability on the
Page 36 of 47
<PAGE>
ground that it or they have breached any Law or otherwise acted improperly in
relation to the transactions contemplated by this Agreement.
(c) Closing of Other Merger. The closing of the transactions
-----------------------
contemplated by the Agreement and Plan of Merger of even date herewith by and
among The InterCept Group, Inc., Zeenet Corporation, SBS Data Services, Inc. and
the Shareholders (the "Other Merger Agreement") shall occur contemporaneously
with the Closing.
9.2 Conditions to the Obligations of Purchaser under this Agreement. The
---------------------------------------------------------------
obligations of the Purchaser under this Agreement shall be further subject to
the satisfaction or waiver, at or prior to the Closing Date (and continued until
the Closing Date), of the following conditions:
(a) Representations and Warranties; Covenants and Agreements;
---------------------------------------------------------
Consents. The representations and warranties of the Company and the Shareholders
- --------
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and shall also be true and correct in all material
respects on the Closing Date as though made on and as of the Closing Date,
except that those representations and warranties which are confined to a
particular date shall speak only as of such date, and the Company and the
Shareholders shall have performed in all material respects the agreements,
covenants and obligations to be performed by it or them at or prior to the
Closing Date. All Authorizations of or with any Governmental Authority or other
third party that are required for or in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby by the Company and the Shareholders shall have been obtained or made.
(b) Opinion of Counsel. Purchaser shall have received an opinion of
------------------
counsel to the Company and the Shareholders, dated the Closing Date, in form and
substance reasonably satisfactory to Purchaser, covering the matters set forth
on Exhibit 9.2(b).
--------------
(c) Certificates. The Shareholders shall have furnished Purchaser
------------
with such certificates of the Company and its authorized officers, Shareholders
or others and such other documents to evidence fulfillment of the conditions set
forth in this Article 9 and otherwise to consummate the transactions
contemplated pursuant to this Agreement as Purchaser may reasonably request,
including certificates in the form attached hereto as Exhibit 9.2(c).
--------------
(d) Nonsolicitation and Confidentiality Agreements. The
----------------------------------------------
Shareholders shall have executed and delivered to Purchaser, Nonsolicitation and
Confidentiality Agreements substantially in the form attached hereto as Exhibit
-------
9.2(d).
- ------
(e) [Intentionally omitted].
-----------------------
(f) Termination or Assignment of Certain Agreements. The Company
-----------------------------------------------
shall have terminated the agreements and contracts listed on Schedule 9.2(f)
---------------
hereto.
Page 37 of 47
<PAGE>
(g) Employment Agreements. On or prior to the Closing Date,
---------------------
Employment Agreements substantially in the form attached here as Exhibit 9.2(g)
--------------
shall be executed and delivered to the Purchaser by each of the Shareholders.
(h) Release of Obligations. All obligations of the Company pursuant
----------------------
to any loan, lease, guaranty, commitment or other undertaking of the Company,
the Shareholders or any of its or their Subsidiaries and other Affiliates,
whether as maker, guarantor or otherwise, shall have been fully and permanently
released or satisfied pursuant to documents and agreements satisfactory in all
respects to Purchaser and its counsel.
(i) Escrow Agreement. The Shareholders shall have executed and
----------------
delivered to Purchaser the Escrow Agreement.
9.3 Conditions to the Obligations of the Company and the Shareholders
-----------------------------------------------------------------
under this Agreement. The obligations of the Company and the Shareholders under
- --------------------
this Agreement shall be further subject to the satisfaction or waiver, at or
prior to the Closing Date, of the following conditions:
(a) Representations and Warranties; Covenants and Agreements;
---------------------------------------------------------
Consents. The representations and warranties of the Purchaser contained in this
- --------
Agreement shall be true and correct in all material respects as of the date
hereof and shall also be true and correct in all material respects on the
Closing Date as though made on and as of the Closing Date, and Purchaser shall
have performed in all material respects the agreements, covenants and
obligations to be performed by them at or prior to the Closing Date. All
Authorizations of or with any Governmental Authority or other third party that
are required for or in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby by the
Purchaser shall have been obtained or made, except where the failure to obtain
any such Authorizations would not have a Material Adverse Effect on Purchaser.
(b) Certificates. Purchaser shall have furnished the Company and the
------------
Shareholders with such certificates of its officers or others and such other
documents to evidence fulfillment of the conditions set forth in this Article 9
and otherwise to consummate the transactions contemplated pursuant to this
Agreement as the Company and the Shareholders may reasonably request.
(c) No Material Adverse Effect on Purchaser. No Material Adverse
---------------------------------------
Effect with respect to Purchaser shall have occurred since the date of this
Agreement except (i) the announcement of this Agreement, and (ii) conditions
effecting global economy or regional economy in which Purchaser operate any part
of its or their business.
(d) Approvals. This Agreement and the transactions contemplated
---------
hereby shall have received all required Government Authorizations and other
consents or approvals from third parties (including lenders, licensees and
lessors) required to consummate the transactions contemplated hereby which,
either individually or in the aggregate, if not obtained would have a Material
Adverse Effect.
Page 38 of 47
<PAGE>
(e) Escrow Agreement. Purchaser shall have executed and delivered to
----------------
the Company and the Shareholders the Escrow Agreement.
(f) Opinion of Purchaser's Counsel. The Company and the Shareholders
------------------------------
shall have received an opinion of counsel to the Purchaser, dated the Closing
Date, in form and substance reasonably satisfactory to the Company and the
Shareholders, covering the matters set forth on Exhibit 9.3(f).
--------------
(g) Termination of Guaranties. The Shareholders' guaranties of
-------------------------
indebtedness of the Company set forth on Schedule 9.3(g) shall have been
released.
(h) Registration Rights Agreement. The Purchaser shall have
-----------------------------
executed and delivered to the Shareholders a Registration Rights Agreement in
the form attached hereto as Exhibit 9.3(h).
--------------
(i) Employment Agreements. On or prior to the Closing Date, an
---------------------
Employment Agreement substantially in the form attached here as Exhibit 9.2(i)
--------------
shall be executed and delivered by Purchaser for Robert D. Kirk.
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated prior to the Closing
-----------
Date, whether before or after approval of this Agreement by the shareholders of
the Purchaser and the Company:
(a) by mutual written consent of Purchaser and the Shareholders;
(b) by Purchaser or the Shareholders if the Closing Date shall not
have occurred on or prior to the Deadline Date; provided, however, that the
right to terminate this Agreement under this Section 10.1(b) shall not be
available to any Party whose action or failure to act has been a principal cause
of or resulted in the failure of the transaction contemplated by this Agreement
to occur on or before such date and such action or failure to act constitutes a
willful and material breach of this Agreement;
(c) by Purchaser, if there has been a material breach of any
representation, warranty, covenant, agreement or obligation of the Company or
any Shareholder hereunder in each case which either is not capable of being
remedied, or, if capable of being remedied, shall not have been remedied within
10 days after receipt by the Company or the Shareholders, as appropriate, of
notice in writing from Purchaser specifying the nature of such breach and
requesting that it be remedied;
(d) by the Shareholders, if there has been a material breach of any
representation, warranty, covenant, agreement or obligation of the Purchaser
hereunder in each case which either is not capable of being remedied, or, if
capable of being remedied, shall not have been remedied within 10 days after
receipt by the Purchaser, as the case may be, of
Page 39 of 47
<PAGE>
notice in writing from the Shareholders specifying the nature of such breach and
requesting that it be remedied;
(e) by Purchaser if any of the conditions set forth in Section 9.1
or 9.2 is not satisfied and is no longer capable of being satisfied by the
Closing Date; or
(f) by the Shareholders if any of the conditions set forth in
Section 9.1 or 9.3 is not satisfied and is no longer capable of being satisfied
by the Closing Date;
10.2 Effect of Termination. If any Party terminates and abandons this
---------------------
Agreement pursuant to Section 10.1, this Agreement, other than Section 8.5(b),
this Section 10.2, Section 10.3, Article 11 and Section 12.1 (each of which
shall survive termination), shall forthwith become void and have no effect,
without any liability on the part of any Party or its officers, directors or
shareholders; provided, however, that nothing contained in this Section 10.2,
shall relieve any Party from any liability for any material breach of this
Agreement or the Confidentiality Agreement.
10.3 Specific Performance. The Parties acknowledge that the rights of each
--------------------
Party to consummate the transactions contemplated hereby are special, unique,
and of extraordinary character, and that, in the event any Party either violates
or fails or refuses to perform any covenant made by it herein, the other Party
or Parties will be without adequate remedy at law. Each Party agrees, therefore,
that in the event that it violates, fails or refuses to perform any covenant or
agreement made by it herein, the other Party or Parties, so long as it or they
are not in breach hereof, may, in addition to the remedies at law, institute and
prosecute an action in a court of competent jurisdiction to enforce specific
performance of such covenant or agreement or seek any other equitable relief.
10.4 Amendment. This Agreement may not be amended except by an instrument
---------
in writing signed on behalf of all the Parties hereto.
10.5 Extension; Waiver. The Parties may, at any time prior to the Closing
-----------------
Date, (a) extend the time for the performance of any of the obligations or other
acts of the other Parties; (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant thereto; or
(c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of any Party to any extension or waiver shall be valid
only if it is set forth in an instrument in writing signed on behalf of the
Party against which the waiver is sought to be enforced and shall apply only to
the specific condition, representation or warranty identified by the writing as
being waived, extended or modified.
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification by the Company and Shareholders. Subject to the terms
-----------------------------------------------
of this Article 11, the Company and the Shareholders (but after the consummation
of the
Page 40 of 47
<PAGE>
transactions contemplated by this Agreement, solely the Shareholders, and not
the Company) shall, jointly and severally, indemnify, defend, save and hold
harmless the Purchaser and its respective subsidiaries, predecessors,
successors, directors, officers, employees, agents, representatives and assigns
(collectively, the "Purchaser Indemnified Parties"), from and against any Claims
(including, without limitation, reasonable attorneys' and accountants' fees and
expenses), together with interest and penalties, if any, awarded by court order
or otherwise agreed to (collectively, "Indemnifiable Damages"), suffered by
Purchaser Indemnified Parties that arise out of or result from any of the
following (whether or not a third party initiates the proceeding or claim giving
rise to such Indemnifiable Damages):
(a) any breach of any of the representations, warranties, covenants
or agreements made by the Company or the Shareholders in this Agreement; or
(b) any breach of any representation, warranty, covenant or
agreement in a document, certificate or affidavit delivered by the Company or
the Shareholders at the Closing.
11.2 Indemnification by Purchaser. Subject to the terms of this Article
----------------------------
11, Purchaser shall indemnify, defend, save and hold harmless the Company and
the Shareholders (but after consummation of the transactions contemplated by
this Agreement, solely the Shareholders, and not the Company) (collectively, the
"Company Indemnified Parties"), from and against any Indemnifiable Damages
suffered by the Company Indemnified Parties that arise out of or result from any
of the following (whether or not a third party initiates the proceeding or claim
giving rise to such Indemnifiable Damages):
(a) any breach of any of the representations, warranties, covenants
and agreements made by Purchaser in this Agreement; or
(b) any breach of any representation, warranty, covenant or
agreement in a document, certificate or affidavit delivered by Purchaser at the
Closing.
11.3 Claims for Indemnification. The representations, warranties,
--------------------------
covenants and agreements of the Parties in this Agreement shall survive the
Closing and shall remain in full force and effect until the completion of an
audit and the issuance of an audit opinion by the Purchaser's independent public
accountants with respect to the Surviving Corporation's fiscal year ended
December 31, 2000, which the Parties agree shall not be later than April 30,
2001; provided, further, that the representations and warranties set forth in
-------- -------
Section 5.8 shall survive until expiration of any applicable statute of
limitations (including any extensions thereof) which will preclude assertion of
Tax claims against the Company or the Surviving Corporation for matters existing
on or prior to the date of this Agreement. The Party seeking indemnification
(the "Indemnified Party") shall give the Party from whom indemnification is
sought (the "Indemnifying Party") a written notice ("Notice of Claim") within
sixty (60) days of the discovery of any loss, liability, claim or expense in
respect of which the right to indemnification contained in this Article 11 may
be claimed; provided, however, that the failure to give such notice within such
sixty (60) day period shall not result in the waiver or loss of any right to
bring such claim hereunder after such period unless, and only to the extent
that, the other Party is actually prejudiced by such failure. In the event a
claim is pending or
Page 41 of 47
<PAGE>
threatened or the Indemnified Party has a reasonable belief as to the validity
of the basis for such claim, the Indemnified Party may give written notice (a
"Notice of Possible Claim") of such claim to the Indemnifying Party, regardless
of whether a loss has arisen from such claim. A Party shall have no liability
under this Article 11 for breach of a representation or warranty, unless a
Notice of Claim or Notice of Possible Claim therefor is delivered by the
Indemnified Party prior to the Distribution Date (as defined in the Escrow
Agreement); provided, however, that the limitations set forth in this Section
11.3 shall not apply to liability under this Article 11 for any intentional
breach of a representation or warranty in this Agreement. Any Notice of Claim or
Notice of Possible Claim shall set forth the representations, warranties,
covenants and agreements with respect to which the claim is made, the specific
facts giving rise to an alleged basis for the claim and the amount of liability
asserted or anticipated to be asserted by reason of the claim.
11.4 Defense of Claim by Third Parties. If any claim is made by a third
---------------------------------
party against a Party to this Agreement that, if sustained, would give rise to a
liability of another Party under this Agreement, the Party against whom the
claim is made shall promptly cause notice of the claim to be delivered to the
other Party and shall afford the other Party and its counsel, at the other
Party's sole expense, the opportunity to join in the defense and settlement of
the claim. The failure to provide such notice will not relieve the Indemnifying
Party of liability under this Agreement unless, and only to the extent that, the
Indemnifying Party is actually prejudiced by such failure.
11.5 Third Party Claim Assistance. From time to time after the Closing,
----------------------------
Purchaser, the Company and the Shareholders shall provide, or cause their
appropriate employees or representatives to provide, the other Parties with
information or data in connection with the handling and defense of any third
party claim or litigation (including counterclaims filed by the parties) in
respect to which a Party may be required to indemnify another Party under this
Agreement. The Party receiving such information or data shall reimburse the
other Parties for all of their reasonable costs and expenses in providing these
services, including, without limitation, (a) all out of pocket, travel and
similar expenses incurred by their personnel in rendering these services; and
(b) all fees and expenses for services performed by third parties engaged by or
at the request of such other Parties.
11.6 Settlement of Indemnification Claims. If a recipient of a Notice of
------------------------------------
Claim desires to dispute such claim, it shall, within thirty (30) days after
receipt of the Notice of Claim, give counter-notice, setting forth the basis for
disputing such claim, to the Shareholders, as the case may be. If no such
counter-notice is given within such thirty (30) day period, or if Purchaser or
the Shareholders, as the case may be, acknowledge liability for indemnification,
then the amount claimed shall be promptly satisfied as provided in Section 11.7.
If, within thirty (30) days after the receipt of counter-notice by Purchaser or
the Shareholders, as the case may be, the Shareholders and the Purchaser shall
not have reached agreement as to the claim in question, then the Party disputing
the claim shall satisfy any undisputed amount as specified in Section 11.7 and
the disputed amount of the claim of indemnification shall be submitted to and
settled by arbitration in accordance with the then prevailing commercial
arbitration rules of the American Arbitration Association. Such
Page 42 of 47
<PAGE>
arbitration shall be held in the Atlanta, Georgia area before a panel of three
(3) arbitrators, one selected by each of the Parties and the third selected by
mutual agreement of the first two, and all of whom shall be independent and
impartial under the rules of the American Arbitration Association. The decision
of the arbitrators shall be final and binding as to any matter submitted under
this Agreement. To the extent the decision of the arbitrators is that a Party
shall be indemnified hereunder, the amount shall be satisfied as provided in
Section 11.7. Judgment upon any award rendered by the arbitrators may be entered
in any court of competent jurisdiction. The date of the arbitrator's decision or
the date a claim otherwise becomes payable pursuant to this Section 11.6 is
referred to as the "Determination Date."
11.7 Manner of Indemnification by the Company and Shareholders. Where the
---------------------------------------------------------
Shareholders are obligated to indemnify the Purchaser Indemnified Parties under
Section 11.1 after the Closing Date, such indemnity obligation must be satisfied
pursuant to the Escrow Agreement by the Shareholders. Thereafter (or, if the
Closing Date fails to occur for any reason), such indemnity obligation must be
satisfied by the Shareholders (or the Company, if the Closing Date fails to
occur) by paying to that Purchaser Indemnified Party cash in an amount equal to
the applicable Indemnified Damages.
11.8 Certain Limitations. The foregoing indemnification obligations are
-------------------
subject to the limitation that no Indemnifying Party shall have any liability
for indemnification for breaches of representations and warranties pursuant to
this Article 11 unless the total Indemnifiable Damages for which the
Indemnifying Party would be liable exceed $100,000 in the aggregate; provided,
--------
however, that the foregoing limitation shall not apply to any Indemnifiable
- -------
Damages with respect to, as a result of or involving any intentional breach of a
representation or warranty in this Agreement. In no event shall the liability
under this Article 11 and Article 12 of the Other Merger Agreement of the
Shareholders, on the one hand, or the Purchaser Indemnified Parties,
collectively on the other hand, exceed the greater of (a) $5,000,000 and (b) the
amounts, if any, held in escrow pursuant to Section 3.2 of this Agreement and
Section 3.2 of the Other Merger Agreement.
11.9 Exclusive Remedy. In the absence of bad faith, fraud, intentional,
----------------
knowing and willful misconduct, if the Closing occurs, the remedies provided in
this Section 11 shall be the exclusive remedies of the parties hereto in
connection with Indemnifiable Damages which arise from the breaches described in
Sections 11.1(a) and (b) and 11.2(a) and (b) suffered by such party.
11.10 Insurance Reduction. All Indemnifiable Damages shall be determined
-------------------
net of actual insurance proceeds received by the Indemnified Party, less costs
and expenses incurred by the Indemnified Party in pursuing the Claim resulting
in the Indemnifiable Damages; provided, however, that any such offset against
-------- -------
Indemnifiable Damages shall be subject to the paying insurance company's rights
to subrogation and any limitations, restrictions or prohibitions on such offset
imposed or required by the Indemnified Party's insurance policy. Nothing
provided herein shall obligate either Party to pursue recovery for Indemnifiable
Damages under any insurance policy.
Page 43 of 47
<PAGE>
ARTICLE 12
MISCELLANEOUS
12.1 Expenses.
--------
(a) Except as otherwise expressly stated herein, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including legal and accounting fees and expenses) shall be
borne by the Party incurring such costs and expenses and shall be paid by such
Party.
(b) Notwithstanding any provision in this Agreement to the
contrary, if any of the Parties shall willfully default in its obligations
hereunder, the non-defaulting Party may pursue any remedy available at law or in
equity to enforce its rights and shall be paid by the willfully defaulting Party
for all damages, costs and expenses, including without limitation reasonable
legal and accounting expenses incurred or suffered by the non-defaulting Party
in connection herewith or in the enforcement of its rights hereunder.
12.2 Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered personally
or by reputable overnight or express courier, sent by registered or certified
mail, postage prepaid, or by telefax (with subsequent delivery via one of the
two previous methods) as follows:
(a) If to Purchaser, to:
Direct Access Interactive, Inc.
3150 Holcomb Bridge Road, Suite 200
Norcross, Georgia 30071
Attn: President and Chief Financial Officer
Telefax: (770) 248-9600
Copy (which shall not constitute notice) to:
Nelson Mullins Riley & Scarborough, LLP
999 Peachtree Street, N.E.
Suite 1400
Atlanta, Georgia 30309
Attn: Susan L. Spencer, Esq.
Telefax: (404) 817-6050
(b) If to the Company (prior to Closing) or the Shareholders, to:
SBS Corporation
1500 Resource Drive
Birmingham, Alabama 35242
Attn: David W. Brasfield
Telefax: (205) 408-4606
Page 44 of 47
<PAGE>
Copy (which shall not constitute notice) to:
Gene T. Price, Esq.
Burr & Forman, LLP
420 N. 20/th/ Street
3100 SouthTrust Tower
Birmingham, Alabama 35203
Telefax: (205) 458-5100
(c) If to the Shareholders, to the addresses identified on Schedule
--------
1 hereto:
-
Copy (which shall not constitute notice) to:
Gene T. Price, Esq.
Burr & Forman, LLP
420 N. 20/th/ Street
3100 SouthTrust Tower
Birmingham, Alabama 35203
Telefax: (205) 458-5100
or such other addresses and telefax numbers as shall be furnished in writing by
any Party, and any such notice or communications shall be deemed to have been
given as of one business day after the date actually sent via overnight or
express courier, five business days after mailed and upon telefax confirmation
of receipt to addressee by the sender.
12.3 Parties in Interest. This Agreement shall be binding on and shall
-------------------
inure to the benefit of the Parties hereto and their respective successors,
representatives and assigns. This Agreement (and the rights and interests
herein) may not be assigned by any Party without the written consent of the
other Parties; provided, however, Purchaser may assign its interests herein to
(a) an entity controlling, controlled by or under common control with Purchaser
or (b) a purchaser or transferee of all or substantially all of the business or
assets of Purchaser, whether by sale of stock or assets, merger or otherwise.
Any attempted assignment in contravention of the foregoing shall be null and
void. Nothing in this Agreement is intended to confer, expressly or by
implication, upon any other person or entity any rights or remedies under or by
reason of this Agreement.
12.4 Entire Agreement. This Agreement, which includes the Disclosure
----------------
Schedules, Exhibits and the other documents, agreements, certificates and
instruments executed and delivered pursuant to or in connection with this
Agreement (collectively, the "Purchase Agreements"), contains the entire
agreement among the Parties with respect to the transactions contemplated by
this Agreement and supersedes all prior negotiations, arrangements or
understandings, written or oral, with respect thereto.
Page 45 of 47
<PAGE>
12.5 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original, and each of which shall
constitute one and the same agreement. Any Party may deliver an executed copy
of this Agreement and any documents contemplated hereby by facsimile
transmission to another Party, and such delivery shall have the same force and
effect as any other delivery of a manually signed copy of this Agreement or of
such other documents.
12.6 Governing Law.
-------------
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF GEORGIA,
EXCLUDING CHOICE OF LAW PRINCIPLES.
(b) Purchaser, the Company and the Shareholders consent to the
exclusive jurisdiction and venue of the courts of any county in the State of
Georgia and the United States Federal District Courts of Georgia, in any
judicial proceeding brought to enforce this Agreement. The Parties agree that
any forum other than the State of Georgia is an inconvenient forum and that a
lawsuit (or non-compulsory counterclaim) brought by one Party against another
Party, in a court of any jurisdiction other than the State of Georgia should be
forthwith dismissed or transferred to a court located in the State of Georgia.
12.7 Arbitration.
-----------
(a) Any dispute, controversy or claim arising out of or relating to
this Agreement or any other related documents, agreements, certificates or other
writing, or the breach, termination, construction, validity or enforceability
hereof or thereof, shall be settled by binding arbitration in accordance with
the rules of the American Arbitration Association (except as otherwise provided
in this Section 12.7).
(b) Termination or limitation of Purchaser's rights in any of its
software, products, or any associated intellectual property rights or documents
may not be awarded under any circumstances. The right to demand arbitration and
to receive damages and obtain other available remedies as provided hereunder
shall be the exclusive remedy in the event an arbitration demand is made, except
that Purchaser shall be entitled to obtain equitable relief, such as injunctive
relief, from any court of competent jurisdiction to protect its rights in any of
its software products or any associated intellectual property rights or
documents while such proceeding is pending or in support of any award made
pursuant to such arbitration.
12.8 Invalidity of any Part. If any provision or part of this Agreement
----------------------
shall for any reason be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Agreement and shall be construed as if such invalid, illegal
or unenforceable provision or part thereof had never been contained herein, but
only to the extent of its invalidity, illegality, or unenforceability. Upon any
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the Parties hereto will negotiate in good faith to
modify this Agreement so as to
Page 46 of 47
<PAGE>
effect the original intent of the Parties as closely as possible in an
acceptable manner to the end that the transactions contemplated by this
Agreement are consummated to the extent possible.
12.9 Time of the Essence; Computation of Time. Time is of the essence of
----------------------------------------
each and every provision of this Agreement. Whenever the last day for the
exercise of any right or the discharge of any duty under this Agreement shall
fall upon Saturday, Sunday or a federal, public or legal holiday, the Party
having such right or duty shall have until 5:00 p.m., Atlanta, Georgia time on
the next succeeding regular business day to exercise such right or to discharge
such duty.
[Remainder of Page Intentionally Left Blank.]
Page 47 of 47
<PAGE>
IN WITNESS WHEREOF, Purchaser, the Company and the Shareholders have caused
this Agreement to be executed by their duly authorized officers as of the day
and year first above written.
PURCHASER
Direct Access Interactive, Inc.
By: /s/ Donny R. Jackson
----------------------------
Its: President
----------------------------
THE COMPANY
SBS Corporation
By: /s/ David W. Brasfield
----------------------------
Its: President
----------------------------
THE SHAREHOLDERS:
/s/ David W. Brasfield
---------------------------------
David W. Brasfield
/s/ Robert D.Kirk, III
---------------------------------
Robert D. Kirk, III
/s/ Michael H. Vaughn
---------------------------------
Michael H. Vaughn
Page 48 of 47
<PAGE>
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
September 3, 1999
By and Among
NETZEE, INC.
(A Georgia corporation)
And
DYAD CORPORATION
(A Georgia corporation)
And
CERTAIN SHAREHOLDERS OF DYAD CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 THE MERGER ................................................ 1
Section 1.1 The Merger............................................. 1
Section 1.2 Time and Place of Closing.............................. 1
Section 1.3 Effective Time of the Merger........................... 2
Section 1.4 Articles of Incorporation; Bylaws...................... 2
ARTICLE 2 OFFICERS AND DIRECTORS OF THE SURVIVING
CORPORATION............................................. 2
ARTICLE 3 CONSIDERATION AND CONVERSION AND EXCHANGE OF SHARES........ 2
Section 3.1 Consideration and Conversion of Shares................. 2
Section 3.2 Escrow of Certain Shares............................... 3
Section 3.3 Fractional Shares...................................... 3
Section 3.4 Surrender and Exchange of Certificates................. 3
Section 3.5 Dissenting Shareholders................................ 5
Section 3.6 Legending of Securities................................ 6
Section 3.7 Company Stock Options and Other Securities............. 6
ARTICLE 4 RULES OF CONSTRUCTION...................................... 7
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
EXECUTING SHAREHOLDERS.................................. 9
Section 5.1 Organization........................................... 9
Section 5.2 Capitalization......................................... 10
Section 5.3 Authority; No Violation................................ 10
Section 5.4 Financial Statements................................... 11
Section 5.5 Broker's and Other Fees................................ 12
Section 5.6 Absence of Certain Changes or Events................... 12
Section 5.7 Legal Proceedings...................................... 13
Section 5.8 Taxes and Tax Returns.................................. 13
Section 5.9 Employee Benefit Plans and Relations................... 14
Section 5.10 Compliance with Applicable Laws........................ 14
Section 5.11 Certain Contracts...................................... 14
Section 5.12 Properties and Insurance............................... 16
Section 5.13 Environmental Matters.................................. 17
Section 5.14 Intellectual Property.................................. 17
Section 5.15 Adequacy of Technical Documentation.................... 19
Section 5.16 Third-Party Components in Software..................... 19
</TABLE>
Agreement and Plan of Merger - Page i
<PAGE>
<TABLE>
<S> <C>
Section 5.17 Third-Party Interests or Marketing Rights in
Software............................................ 19
Section 5.18 Absence of Certain Agreements and Practices............ 19
Section 5.19 Major Vendors and Customers............................ 20
Section 5.20 [Intentionally Omitted]................................ 20
Section 5.21 Bank Accounts.......................................... 20
Section 5.22 Corporate Records...................................... 21
Section 5.23 Combinations Involving the Company..................... 21
Section 5.24 Labor Relations........................................ 21
Section 5.25 Year 2000 Matters...................................... 21
Section 5.26 Change in Control Provisions........................... 22
Section 5.27 Disclosure............................................. 22
ARTICLE 6 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE
EXECUTING SHAREHOLDERS.................................. 22
Section 6.1 Securities Act Compliance.............................. 22
Section 6.2 Access to Information.................................. 23
Section 6.3 Experience; Investment................................. 23
Section 6.4 No Prior Convictions................................... 23
Section 6.5 Tax Advice............................................. 24
Section 6.6 Shareholders' Additional Representations............... 24
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER............ 25
Section 7.1 Corporate Organization................................. 25
Section 7.2 Capitalization......................................... 25
Section 7.3 Authority; No Violation................................ 26
Section 7.4 Financial Statements................................... 27
Section 7.5 Broker's and Other Fees................................ 27
Section 7.6 Legal Proceedings...................................... 27
Section 7.7 Properties and Insurance............................... 28
Section 7.8 Intellectual Property.................................. 28
Section 7.9 Compliance with Applicable Laws........................ 29
Section 7.10 Taxes and Tax Returns.................................. 29
Section 7.11 Corporate Records...................................... 30
Section 7.12 Combinations Involving the Purchaser................... 30
Section 7.13 Absence of Certain Changes or Events................... 30
Section 7.14 Disclosure............................................. 30
ARTICLE 8 COVENANTS AND AGREEMENTS OF THE PARTIES.................... 30
Section 8.1 Conduct of Business.................................... 30
Section 8.2 Negative Covenants..................................... 31
Section 8.3 No Solicitation........................................ 33
Section 8.4 Current Information.................................... 34
Section 8.5 Access to Properties and Records; Confidentiality...... 34
</TABLE>
Agreement and Plan of Merger - Page ii
<PAGE>
<TABLE>
<S> <C>
Section 8.6 Regulatory Matters; Consents; Cooperation, etc......... 34
Section 8.7 Parties' Efforts; Further Assurances; Cooperation...... 35
Section 8.8 Public Announcements................................... 35
Section 8.9 Failure to Fulfill Conditions.......................... 35
Section 8.10 Disclosure Supplements................................. 35
Section 8.11 Release; Covenant Not to Sue........................... 35
Section 8.12 Employment Agreements and Shareholder Agreements....... 36
Section 8.13 No Transfers........................................... 36
Section 8.14 Special Provisions with Respect to the Company......... 36
Section 8.15 Cooperation and Exchange of Information................ 37
Section 8.16 Customer Contacts...................................... 37
Section 8.17 Additional Financial Statements........................ 37
Section 8.18 Information Statement and Proxy Statement.............. 37
Section 8.19 Tax Free Transaction................................... 37
Section 8.20 Shareholders' Meeting.................................. 37
ARTICLE 9 CLOSING CONDITIONS........................................ 38
Section 9.1 Conditions of Each Party's Obligations Under this
Agreement........................................... 38
(a) Approvals and Regulatory Filings............... 38
(b) Suits and Proceedings.......................... 38
(c) Consummation of Other Agreements............... 38
Section 9.2 Conditions to the Obligations of Purchaser under this
Agreement........................................... 38
(a) Representations and Warranties; Covenants and
Agreements; Consents......................... 38
(b) Certificates................................... 39
(c) Work Product Agreements........................ 39
(d) Execution of Agreement; Board and Shareholder
Approval..................................... 39
(e) No Material Adverse Effect on the Company...... 39
(f) No Interest in Software........................ 39
(g) Release of Obligations......................... 39
(h) Escrow Agreement............................... 40
Section 9.3 Conditions to the Obligations of the Company and
the Shareholders under this Agreement............... 40
(a) Representations and Warranties; Covenants
and Agreements; Consents..................... 40
(b) Certificates................................... 40
(c) Escrow Agreement............................... 40
(d) Registration Rights Agreement.................. 40
ARTICLE 10 TERMINATION, AMENDMENT AND WAIVER......................... 40
Section 10.1 Termination........................................... 40
Section 10.2 Effect of Termination................................. 41
Section 10.3 Specific Performance.................................. 41
</TABLE>
Agreement and Plan of Merger - Page iii
<PAGE>
<TABLE>
<S> <C>
Section 10.4 Amendment............................................. 41
Section 10.5 Extension; Waiver..................................... 42
ARTICLE 11 INDEMNIFICATION............................................ 42
Section 11.1 Indemnification by the Company and Shareholders....... 42
Section 11.2 Indemnification by Purchaser.......................... 42
Section 11.3 Claims for Indemnification............................ 43
Section 11.4 Defense of Claim by Third Parties..................... 43
Section 11.5 Third Party Claim Assistance.......................... 43
Section 11.6 Settlement of Indemnification Claims.................. 44
Section 11.7 Manner of Indemnification by the Company and
Shareholders........................................ 44
Section 11.8 Certain Limitations................................... 44
Section 11.9 Exclusive Remedies.................................... 45
Section 11.10 Tax Effect and Insurance.............................. 45
Section 11.11 Subrogation........................................... 45
ARTICLE 12 MISCELLANEOUS.............................................. 46
Section 12.1 Expenses.............................................. 46
Section 12.2 Notices............................................... 46
Section 12.3 Parties in Interest................................... 47
Section 12.4 Entire Agreement...................................... 48
Section 12.5 Counterparts.......................................... 48
Section 12.6 Governing Law......................................... 48
Section 12.7 Arbitration........................................... 48
Section 12.8 Invalidity of any Part................................ 49
Section 12.9 Time of the Essence; Computation of Time.............. 49
Section 12.10 Shareholders Representative........................... 49
</TABLE>
Agreement and Plan of Merger - Page iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is dated and effective as
of September 3, 1999, by and among Netzee, Inc., a Georgia corporation (the
"Purchaser"), DYAD CORPORATION, a Georgia corporation (the "Company"), and
certain of the shareholders of the Company executing this Agreement, each a
resident of the State designated on Schedule 3.1(d) (all of the shareholders of
the Company, a "Shareholder" and collectively the "Shareholders"). The
Purchaser, the Company and the Executing Shareholders are hereinafter
collectively called the "Parties."
W I T N E S S E T H :
WHEREAS, the shareholders executing this Agreement (the "Executing
Shareholders") own substantially all of the issued and outstanding shares of the
Company's common stock, without par value (the "Company Common Stock");
WHEREAS, subject to the terms and conditions of this Agreement, the
Purchaser, the Company and the Executing Shareholders desire and deem it in
their best interests that the Company be merged with and into the Purchaser (the
"Merger");
WHEREAS, the parties intend that the Merger qualify as a tax-free
transaction pursuant to Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), to the extent the consideration is common stock of the
Purchaser; and
WHEREAS, the Board of Directors of the Purchaser and the Company have
approved the Merger;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
Parties agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. At the Effective Time (as defined below), the Company
shall be merged with and into the Purchaser in accordance with the provisions of
this Agreement, and the Georgia Business Corporation Code (the "GBCC"), and the
separate existence of the Company shall thereupon cease, and the Purchaser, as
the surviving corporation in the Merger (sometimes referred to as the "Surviving
Corporation"), shall continue its corporate existence under the laws of the
State of Georgia. The Merger shall have the effect provided under applicable
laws including, but not limited to, Section 14-2-1106 of the GBCC.
1.2 Time and Place of Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Sutherland Asbill & Brennan LLP, 999 Peachtree Street, N.E., Suite 2300,
Atlanta, Georgia 30309 at 10:00 a.m. on the first business day after all
conditions set forth in Article 9 (other than the
Agreement and Plan of Merger - Page 1
<PAGE>
delivery of certificates, opinions and other instruments and documents to be
delivered at the Closing) have been satisfied or waived in writing, or at such
other place and time as the Company and Purchaser may agree (the "Closing
Date"). The Parties agree to use all commercially reasonable efforts to hold the
Closing on or before August 31, 1999. At the Closing, the parties shall execute
and deliver the certificates, and other instruments and documents referred to in
Article 9.
1.3 Effective Time of the Merger. Contemporaneous with or immediately
following the Closing, the parties shall cause a certificate of merger (the
"Certificate of Merger") to be executed, delivered and filed with the Secretary
of State of the State of Georgia in accordance with the provisions of the GBCC.
The Merger shall become effective at the time and date of such filing, unless a
different effective time is specified in the Certificate of Merger (the
"Effective Time").
1.4 Articles of Incorporation; Bylaws. The Articles of Incorporation and
Bylaws of the Purchaser shall become the Articles of Incorporation and Bylaws of
the Surviving Corporation, until duly amended in accordance with applicable law.
ARTICLE 2
OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
At the Effective Time, the persons who are directors and officers of the
Purchaser at the Effective Time will become the directors and officers of the
Surviving Corporation until such time as they may be replaced in accordance with
the Bylaws of the Surviving Corporation.
ARTICLE 3
CONSIDERATION AND CONVERSION AND EXCHANGE OF SHARES
3.1 Consideration and Conversion of Shares. At the Effective Time, in
consideration for and fulfillment of the obligations, covenants, terms and
conditions set forth in this Agreement, by virtue of the Merger:
(a) Company Common Stock held by Accredited Investors. Each issued
and outstanding share of Company Common Stock held by a person who is an
Accredited Investor shall automatically be canceled and extinguished and shall
thereafter be converted into only the right to receive that number of shares of
common stock, without par value, of the Purchaser (the "Purchaser Common Stock")
equal to (i) 700,000 reduced proportionately (i.e., by 38.36 for each share of
Company Common Stock held by a person who is not an Accredited Investor and who
consequently shall receive the cash payment provided in Section 3.1(b)), (ii)
divided by the number of shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time held by persons who are Accredited
Investors, subject to the escrow provided for in Section 3.2 below. Each share
of Company Common Stock held
Agreement and Plan of Merger - Page 2
<PAGE>
in the treasury of Company or by the Purchaser, if any, shall be automatically
canceled and extinguished, and no payment shall be made in respect of such
shares.
(b) Company Common Stock not held By Accredited Investors. Each
issued and outstanding share of Company Common Stock held by a person who is not
an Accredited Investor shall automatically be canceled and extinguished and
shall thereafter be converted into only the right to receive $402.83 per share.
(c) Purchaser Common Stock. Each share of Purchaser Common Stock
issued and outstanding at the Effective Time shall thereafter represent one
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation, which shall then constitute all of the issued and
outstanding shares of the Surviving Corporation.
(d) Accredited Investor. For purposes of this Section 3.1,
"Accredited Investor" means a shareholder who the Purchaser reasonably believes,
based upon written representations of the Shareholder, is an "Accredited
Investor" as provided in Regulation D of the Securities Act of 1933, as amended
(the "Securities Act"). Company Disclosure Schedule 3.1(d) lists the
shareholders who are Accredited Investors and those who are not Accredited
Investors.
3.2 Escrow of Certain Shares. At the Closing, Purchaser shall deliver (or
cause to be delivered) to the escrow agent set forth in the Escrow Agreement in
substantially the form of Exhibit 3.2 hereto (the "Escrow Agreement"), one
certificate for Purchaser Common Stock equal to ten percent (10%) of the
Purchaser Common Stock to be issued in connection with the Merger pursuant to
Section 3.1(a) (collectively, the "Escrow Shares") for the escrow established
pursuant to the Escrow Agreement. Until such Escrow Shares are disbursed under
the terms of the Escrow Agreement, the Shareholders shall be entitled to vote
such Escrow Shares according to their pro rata interests, as provided in the
Escrow Agreement. Dividends, distributions and other proceeds, if any, paid with
respect to the Escrow Shares during the escrow period shall be held in escrow
and disbursed under the Escrow Agreement in the same manner as the Escrow
Shares. Certificates for the remaining shares of Purchaser Common Stock to be
delivered in connection with the Merger shall be delivered to the Shareholders
in accordance with Section 3.5.
3.3 Fractional Shares. No fractional shares of Purchaser Common Stock will
be issued, and fractional shares to which the Shareholders would otherwise be
entitled will be disregarded.
3.4 Surrender and Exchange of Certificates.
(a) Exchange Agent. At the Closing, Purchaser shall deliver
certificates for the number of shares of Purchaser Common Stock provided for in
Section 3.1(a) and cash to make payments pursuant to Section 3.1(b)
(collectively the "Merger Consideration") to such financial institution as may
be selected by Purchaser, or Purchaser shall appoint itself, to act as exchange
agent for the Merger (the "Exchange Agent"). At the Effective Time, Purchaser
Agreement and Plan of Merger - Page 3
<PAGE>
shall direct the Exchange Agent to deliver the number of shares of Purchaser
Common Stock and cash provided for in Section 3.1 and Section 3.2.
(b) Surrender of Certificates. Prior to the Effective Time, Purchaser
shall cause the Exchange Agent to make available to each record holder as of the
Effective Time of an outstanding certificate or certificates which immediately
prior to the Effective Time represented Company Common Stock (the
"Certificates"), a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange Agent) and
instructions for use in effecting the surrender of the Certificates for
conversion thereof. Upon surrender to the Exchange Agent of the Certificates at
the Closing or thereafter, together with such letter of transmittal duly
executed, the holder of such Certificates shall be entitled to receive at the
Closing or promptly after such surrender, if after the Closing, in exchange
therefor (i) one or more certificates as requested by the holder (properly
issued, executed and counter-signed, as appropriate) representing that number of
whole shares of Purchaser Common Stock to which such holder of Company Common
Stock shall have become entitled pursuant to the provisions of Section 3.1(a)
and (ii) the Certificates so surrendered shall forthwith be canceled. From the
Effective Time until surrender in accordance with the provisions of this Section
3.4(b), each Certificate (other than Certificates representing treasury shares
or Certificates held by the Purchaser) shall represent for all purposes only the
right to receive the Merger Consideration. All payments in respect of Company
Common Stock that are made in accordance with the terms hereof shall be deemed
to have been made in full satisfaction of all rights pertaining to such
securities.
(c) Lost Certificates. In the case of any lost, misplaced, stolen or
destroyed Certificate, the holder thereof will be required, as a condition
precedent to delivery to such holder of his or her portion of the Purchaser
Common Stock, to deliver to Purchaser an indemnity agreement and a bond in such
sum as Purchaser may direct as indemnity against any claim that may be made
against Purchaser with respect to the Certificate alleged to have been lost,
misplaced, stolen or destroyed.
(d) Dividends on Purchaser Common Stock. No holder of a Certificate
shall be entitled to delivery of any dividend or other distribution from
Purchaser having a record date after the Effective Time until surrender of such
holder's Certificate pursuant to this Section 3.4. Upon such surrender, there
shall be paid to the holder the amount of any dividends or other distributions
(without interest) that theretofore became payable by Purchaser, but were not
paid by reason of the foregoing with respect to the number of whole shares of
Purchaser Common Stock represented by the Certificate issued upon such
surrender. From and after the Effective Time, Purchaser shall, however, be
entitled to treat any such Certificate that has not yet been surrendered
pursuant to Section 3.4(a) as evidencing the ownership of the aggregate number
of shares of Purchaser Common Stock represented by such Certificate,
notwithstanding any failure to surrender such Certificate.
Agreement and Plan of Merger - Page 4
<PAGE>
(e) No Interest. No interest shall be paid or accrued on any portion
of the Merger Consideration regardless of the cause for delay in payment of the
Merger Consideration.
(f) No Liability. Neither Purchaser nor the Company shall be liable
to any holder of shares of Company Common Stock for any Purchaser Common Stock
(or dividends or distributions with respect thereto) delivered to a public
official pursuant to any abandoned property, escheat or similar law.
(g) Adjustments. In the event that at any time after the date hereof
and prior to the Effective Time, Purchaser shall effect (i) a dividend or other
distribution with respect to Purchaser Common Stock, payable in Purchaser Common
Stock, securities convertible into Purchaser Common Stock, rights to acquire
Purchaser Common Stock or other property (other than cash), (ii) a combination
or conversion of outstanding Purchaser Common Stock into a smaller number of
shares of such Purchaser Common Stock, or (iii) any reorganization or
reclassification, or any consolidation or merger of Purchaser with another
corporation where Purchaser is not the surviving corporation, or the sale of all
or substantially all of its assets to another corporation, in such a way that
holders of outstanding Purchaser Common Stock shall be entitled to receive
(either directly or upon subsequent liquidation) stock, securities or other
property with respect to or in exchange for Purchaser Common Stock (any such
event described in clauses (i) through (iii) above, other than the transactions
contemplated in the information statement provided to the Shareholders in
connection with the transactions contemplated by this Agreement (the
"Information Statement"), referred to as a "Diluting Event"), then, as a
condition of such Diluting Event, lawful and adequate provision shall be made
whereby the Shareholders shall thereafter be entitled to receive (under the same
terms otherwise applicable to their receipt of Purchaser Common Stock), in
addition to or in lieu of (as the case may be) the number of shares of Purchaser
Common Stock to which such Shareholders are entitled immediately prior to such
Diluting Event, such shares of stock, securities or other property as may be
issued or payable with respect to or in exchange for that number of shares of
Purchaser Common Stock to which the Shareholders were so entitled, and in any
case appropriate provision shall also be made with respect to the Shareholders'
rights and interests to the end that the provisions of this Section 3.3 shall
thereafter be applicable in relation to any shares of stock, securities or other
property thereafter deliverable to the Shareholders pursuant to the provisions
hereof.
3.5 Dissenting Shareholders. Any holder of Company Common Stock who
dissents from the Merger and exercises dissenters' rights in accordance with the
provisions of the GBCC and who perfects such rights pursuant to the GBCC shall
be entitled to receive, in lieu of the consideration provided in Section 3.1,
the value of such shares in cash as determined pursuant to the applicable
provisions of the GBCC. Notwithstanding the other provisions of this Article 3,
Company Common Stock with respect to which a proper demand has been made in
accordance with the GBCC shall not be converted into the right to receive Merger
Consideration applicable to such shares as set forth in Section 3.1, unless the
holder
Agreement and Plan of Merger - Page 5
<PAGE>
thereof shall have lost his status as a dissenting Shareholder pursuant to the
applicable provisions of the GBCC.
3.6 Legending of Securities.
(a) The shares of Purchaser Common Stock to be delivered in
connection with this Agreement will be issued in a transaction exempt from
registration under the Securities Act by reason of Section 4(2) thereof,
Regulation D promulgated thereunder, or other private offering exemptions, and
similar exemptions under applicable state securities laws (the "State Acts"),
and Purchaser is relying on the representations of the Shareholders with respect
to such exemptions. Each Shareholder understands and agrees that stop transfer
instructions with respect to the shares of Purchaser Common Stock received by
each Shareholder pursuant to this Agreement will be given to Purchaser's
transfer agent and that there will be placed on the certificates for such shares
a legend stating in substance as follows:
The securities represented hereby have not been registered under
the Securities Act of 1933, as amended, or any state securities
laws and may not be offered, sold, transferred or otherwise
disposed of unless registered with the United States Securities
and Exchange Commission and the securities regulatory authorities
of applicable states or unless an exemption from such registration
is available.
(b) The foregoing legends will also be placed on any certificate
representing securities issued subsequent to the original issuance of the
Purchaser Common Stock pursuant to this Agreement as a result of any transfer of
such shares or any stock dividend, stock split or other recapitalization as long
as the Purchaser Common Stock issued to the Shareholders pursuant to this
Agreement has not been transferred in such manner to justify the removal of the
legend therefrom.
3.7 Company Stock Options and Other Securities.
(a) Prior to or contemporaneously with the Closing, the Company shall
convert into Company Common Stock or cancel all outstanding options, restricted
stock awards, stock appreciation rights, warrants, debt instruments and other
securities convertible into or exchangeable for shares of Company Common Stock
or other securities of the Company (collectively, the "Outstanding Options"),
including options, warrants and other rights to acquire Company Common Stock
outstanding under (i) the Company's stock option plans; and (ii) all other
agreements related to the Outstanding Options (collectively, with the plans
referenced in clause (i) above, the "Stock Option Plans"); provided, however,
-------- -------
that no such conversions or cancellations shall affect the total number of
shares of Purchaser Common Stock to be issued by Purchaser pursuant to Section
3.1. Copies of all Outstanding Options are attached as part of Company
-------
Disclosure Schedule 5.2.
- -----------------------
Agreement and Plan of Merger - Page 6
<PAGE>
(b) No further options or shares of Company Common Stock or any other
securities (whether securities of the Company or any other company) shall be
issued under the Stock Option Plans.
(c) Prior to the Closing, Company shall collect and withhold all
required employment and other withholding taxes applicable or relating to the
exercise or cancellation of, or any other action, omission or other thing
relating to, the Outstanding Options, regardless of whether any such withholding
tax arises prior to, contemporaneously with, or after the Closing.
ARTICLE 4
RULES OF CONSTRUCTION
In the interpretation of this Agreement, unless otherwise provided or
the context otherwise requires:
(a) The singular includes the plural and vice versa and, in
particular (but without limiting the generality of the foregoing), any word or
expression defined in the singular has the corresponding meaning used in the
plural and vice versa;
(b) Any reference to any gender includes the other gender;
(c) Any reference to an Article, Section, Exhibit, clause, subclause,
paragraph, subparagraph, Schedule or recital is a reference to an Article,
Section, Exhibit, clause, subclause, paragraph, subparagraph, Schedule or
recital of this Agreement;
(d) Any reference to any agreement, instrument or other document (i)
shall include all appendices, exhibits and schedules thereto and all agreements,
documents or other writings incorporated by reference therein, and (ii) shall be
a reference to such agreement, instrument or other document as amended,
supplemented, modified, suspended, restated or novated from time to time;
(e) Any reference to any statute shall be construed as including all
statutory provisions consolidating, amending or replacing such statute and all
governmental regulations and rules promulgated thereunder;
(f) Any reference to "writing" includes printing, typing, lithography
and other means of reproducing words in a visible form;
(g) Any reference to a time or date or to a local time or date is a
reference to the time and date in Atlanta, Georgia;
(h) The headings and Article, Section and paragraph numbering
contained in this Agreement are used solely for convenience and do not
constitute a part of this Agreement,
Agreement and Plan of Merger - Page 7
<PAGE>
nor shall such headings and numbering be used in any manner to aid in the
construction of this Agreement;
(i) References herein to the "Company Disclosure Schedules" mean the
disclosure schedules, dated as of the date hereof, which have been delivered by
the Company or the Shareholders to the Purchaser and all other documents,
agreement, and other items disclosed by the Company or the Shareholders in
writing to the Purchaser and attached to such schedules in connection with this
Agreement, and references to a numbered Company Disclosure Schedule shall mean
that portion of the Company Disclosure Schedules that refers to the specific
section or subsection of Article 5 of this Agreement;
(j) The term "disclosed by Purchaser" means and includes, with
respect to information concerning any event, fact or circumstance, information
contained in the Purchaser's Disclosure Schedules, in this Agreement and the
other Purchase Agreements (defined in Section 12.4);
(k) The term "including" means "including, without limitation";
(l) The term "Governmental Authority" means any United States
federal, state or local, or foreign, governmental, regulatory or administrative
authority, agency, department, board, investigative body or commission or any
court, tribunal, or judicial or arbitral body;
(m) The term "Knowledge" as used with respect to (i) the Shareholders
(including any references to the Shareholders being aware of a particular
matter) means the actual knowledge of any of the Shareholders and (ii) the
Company (including any references to the Company being aware of a particular
matter) means the actual knowledge of any of the officers of the Company and
information which any of them reasonably should have known, given the nature of
the disclosure;
(n) The term "Material Adverse Effect" with respect to a person or
entity means any circumstance of, change in, or effect on the business and
affairs of such person or entity or any of its Subsidiaries thereof that,
individually or in the aggregate with any other circumstance of change in, or
effect on, the business and affairs of such person or entity and its
Subsidiaries is materially adverse to the business, operations, assets,
liabilities, prospects, results of operations or financial condition of such
person or entity and its Subsidiaries, taken as a whole; provided, however, that
a Material Adverse Effect with respect to either Purchaser or the Company shall
not include any adverse change in general economic conditions, industry
conditions or general conditions in the markets in which each operates;
(o) The term "person" means any individual, partnership, limited
liability company, firm, corporation, association, trust, joint venture,
unincorporated organization or other entity, as well as any syndicate or group
that would be deemed to be a person under Section 13(d)(3) of the Exchange Act
(as defined herein);
Agreement and Plan of Merger - Page 8
<PAGE>
(p) References herein to the "Purchaser Disclosure Schedules" mean
the disclosure schedules, dated as of the date hereof, which have been delivered
by the Purchaser to the Company and the Shareholders and all other documents,
agreements and other items disclosed by the Purchaser in writing to the Company
and the Shareholders and attached to such schedules in connection with this
Agreement, and references to a numbered Purchaser Disclosure Schedule shall mean
that portion of the Purchaser Disclosure Schedules that refers to the specific
section or subsection of Article 7;
(q) The term "Subsidiary" means any corporation, partnership, joint
venture or other legal entity in which a specified person or entity, directly or
indirectly, owns or controls the voting of at least a 50% share or other equity
interest or for which such person or entity, directly or indirectly, acts as a
general partner or managing member;
(r) The term "Threatened" means any act that would cause a person
reasonably to believe that the act, omission, fact or circumstance with respect
to which such word is used is likely to occur; and
(s) Each of the Parties acknowledges that it has had the opportunity
to negotiate the terms and provisions of this Agreement, with the assistance and
review of its counsel. This Agreement, therefore, shall be construed without
regard to any presumption or other rule requiring construction against the party
causing the Agreement to be drafted.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE EXECUTING SHAREHOLDERS
To induce the Purchaser to enter into this Agreement and the other Purchase
Agreements, the Company (for purposes of this Article 5, the Company shall be
deemed to mean the Company and any Subsidiaries of the Company) and the
Executing Shareholders, jointly and severally, hereby represent and warrant to
Purchaser as follows:
5.1 Organization.
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Georgia. The Company has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted, and, except as
disclosed on Company Disclosure Schedule 5.1(a), is duly licensed or qualified
to do business and is in good standing in each jurisdiction in which the nature
of the business conducted by it or the character or location of the properties
and assets owned or leased by it makes such licensing or qualification
necessary, except where failure to be so licensed, qualified or in good standing
would not have a Material Adverse Effect on the Company.
Agreement and Plan of Merger - Page 9
<PAGE>
(b) Company Disclosure Schedule 5.1(b) sets forth true and correct
copies of the Articles of Incorporation and Bylaws of the Company and all
amendments thereto have been provided to Purchaser.
(c) Except as disclosed on Company Disclosure Schedule 5.1(c), (i)
the Company has no subsidiaries, and (ii) the Company does not own or control,
directly or indirectly, any equity interest in any corporation, company,
association, partnership, joint venture or other entity.
5.2 Capitalization. The authorized capital stock of the Company consists
of 1,000,000 shares of Company Common Stock and 50,000 shares of preferred stock
and no other form of capital stock. As of the Closing Date, there shall be
18,246 shares of Company Common Stock issued and outstanding and no shares of
preferred stock issued and outstanding. Company Disclosure Schedule 5.2 sets
forth the number of shares of Company Common Stock owned by each Shareholder and
the number of shares of Company Common Stock which may be acquired by each
holder of warrants and options to purchase Company Common Stock. Other than as
disclosed on Company Disclosure Schedule 5.2, there are no options, warrants, or
other rights to acquire Company Common Stock. All issued and outstanding shares
of Company Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable, were not issued in violation of any preemptive
rights and were issued pursuant to effective registration statements or under
available exemptions from the registration requirements of the Securities Laws.
Except as set forth on Company Disclosure Schedule 5.2, (a) the Company has not
granted or is bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the transfer, purchase,
registration, subscription or issuance of any shares of capital stock of the
Company or any securities representing the right to purchase, subscribe or
otherwise receive any shares of such capital stock or any securities convertible
into any such shares, and (b) there are no agreements or understandings with
respect to voting any such shares.
5.3 Authority; No Violation.
(a) Except as disclosed on Company Disclosure Schedule 5.3(a)
(collectively, the "Company Approvals"), no consents, approvals, authorizations,
clearances or orders of, filings or registrations with or notices to
(collectively "Authorizations") any third party or any Governmental Authority
are necessary on behalf of the Company or any of the Shareholders in connection
with (i) the execution and delivery by the Company and the Shareholders of this
Agreement and the other Purchase Agreements, (ii) the consummation by the
Company and the Shareholders of the transactions contemplated hereby and thereby
and (iii) the performance of the Company's and each Shareholder's obligations
under this Agreement and the other Purchase Agreements. The Company has the full
corporate power and authority to execute and deliver this Agreement and the
other Purchase Agreements and to consummate the transactions contemplated hereby
and thereby in accordance with the terms hereof and thereof. The execution and
delivery of this Agreement and the other Purchase Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly approved by the Board of Directors and Shareholders of the Company
in
Agreement and Plan of Merger - Page 10
<PAGE>
accordance with the Articles of Incorporation and Bylaws of the Company and with
applicable Laws (as defined below). No other corporate proceedings on the part
of the Company or the Shareholders are necessary for the Company and the
Shareholders to execute and deliver this Agreement and the other Purchase
Agreements to which they are a party and for the Company and the Shareholders to
be bound by the terms hereof and thereof. This Agreement and the other Purchase
Agreements to which the Company is a party have been duly and validly executed
and delivered by the Company and constitute the valid and binding obligations of
the Company enforceable against the Company in accordance with its and their
terms, except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent
conveyance or similar laws in effect that affect the enforcement of creditor's
rights generally or general principles of equity, whether considered in a
proceeding at law or in equity (collectively, the "Equitable Principles").
(b) Neither the execution and delivery by the Company and the
Shareholders of this Agreement and the other Purchase Agreements to which they
are a party, nor the consummation by the Company and the Shareholders of the
transactions contemplated hereby and thereby in accordance with the other terms
hereof and thereof, nor compliance by the Company and the Shareholders with any
of the terms or provisions hereof or thereof, will: (i) violate any provision of
the Company's Articles of Incorporation or Bylaws; (ii) assuming that the
Company Approvals are duly obtained, violate any United States federal, state or
local or foreign statute, code, ordinance, rule, regulation, judgment, order,
writ, ruling, decree or injunction of any Governmental Authority (collectively,
"Laws") applicable to the Company, or any of its properties or assets; or (iii)
violate, conflict with, result in a breach of any provisions of, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of, accelerate the
performance required by, or result in the creation of any lien, mortgage,
security interest, pledge, charge, other right of third parties or other
encumbrance (collectively, "Liens") upon any of the respective properties or
assets of the Company under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company is a party, or by which it
or any of the Company's properties or assets may be bound or affected except,
with respect to clause (iii) above, such as individually or in the aggregate
will not have a Material Adverse Effect on the Company, and which will not
prevent or delay the consummation of the transactions contemplated hereby.
5.4 Financial Statements.
(a) Company Disclosure Schedule 5.4(a) sets forth copies of: (i) the
balance sheets of the Company as of March 31, 1999, June 30, 1999, December 31,
1998 and December 31, 1997, and (ii) the statements of income for the periods
ended March 31, 1999, June 30, 1999, December 31, 1998 and December 31, 1997
(together with the related notes and the financial statements to be delivered
pursuant to Section 8.17, collectively, the "Company Financial Statements").
Agreement and Plan of Merger - Page 11
<PAGE>
(b) The Company Financial Statements present fairly, in all material
respects, the financial position of the Company as of the respective dates set
forth therein, and the results of the Company's operations and its cash flows
for the respective periods set forth therein.
(c) Except as and to the extent reflected, disclosed or reserved
against in the Company Financial Statements, or as disclosed in Company
Disclosure Schedule 5.4(c), since December 31, 1998, the Company has not
incurred any liabilities or obligations of any kind, whether absolute, accrued,
contingent or otherwise ("Liabilities"), except in the ordinary course of
business and consistent with past practice (which, in the aggregate, would not
have a Material Adverse Effect on the Company) and except for this Agreement and
the other Purchase Agreements.
(d) Except as and to the extent reflected, disclosed or reserved
against in the Company Financial Statements, or as disclosed in Company
Disclosure Schedule 5.4(d), since December 31, 1998, there has not been any
change, occurrence or circumstance affecting the business, results of operations
or financial condition of the Company that has had, individually or in the
aggregate, a Material Adverse Effect on the Company or which is reasonably
likely to have a Material Adverse Effect on the Company, other than changes,
occurrences and circumstances disclosed by the Company on the Company Disclosure
Schedules.
(e) The Company's annual net sales for its last fiscal year were less
than $10,000,000, and its total assets at the end of its last fiscal year were
less than $10,000,000. For purposes of this Section 5.4(e), "annual net sales"
and "total assets" shall have the meanings given those terms in and shall be
determined in accordance with the Hart-Scott Rodino Antitrust Improvements Act
of 1976, as amended, and the applicable rules and regulations currently in
effect with respect to said Act.
5.5 Broker's and Other Fees. Neither the Company nor any of the
Shareholders have employed any broker or finder or incurred any liability for
any broker's or finder's fees or commissions in connection with any of the
transactions contemplated by this Agreement and the other Purchase Agreements.
5.6 Absence of Certain Changes or Events.
(a) Except as disclosed in Company Disclosure Schedule 5.6(a), or as
reflected in the Company Financial Statements for June 30, 1999, the Company and
the Shareholders do not have Knowledge of any facts or conditions which they
reasonably believe to be likely to cause a Material Adverse Effect on the
Company in the next twelve (12) months from that reflected in the Company
Financial Statements.
(b) Except as set forth in Company Disclosure Schedule 5.6(b),
neither the Company nor the Shareholders has taken or permitted any of the
actions set forth in Section 8.2(a) since June 30, 1999 and, except for
execution of this Agreement, the Company has conducted its business only in the
ordinary course, consistent with past practice. Prior to
Agreement and Plan of Merger-Page 12
<PAGE>
December 31, 1998, neither the Company nor the Shareholders has taken or
permitted any of the actions set forth in Section 8.2 that are not reflected in
the Company Financial Statements.
5.7 Legal Proceedings. Except as disclosed in Company Disclosure Schedule
5.7, (a) the Company is not a party to any, and there are no pending or, to the
Company's or the Shareholders' Knowledge, threatened legal, administrative,
arbitral or other proceedings, claims, actions or governmental investigations of
any nature against the Company, (b) the Company is not a party to any order,
judgment or decree entered in any lawsuit or proceeding, or (c) no actions,
suits, demands, notices, claims, investigations or proceedings are pending or,
to the Company's or the Shareholders' Knowledge, threatened against or otherwise
involving, directly or indirectly, any officer, director, employee or agent of
the Company (in connection with such officer's, director's, employee's or
agent's activities on behalf of the Company or that otherwise relate, directly
or indirectly to the Company or its properties or securities) including without
limitation any notices, demand letters or requests from any Governmental
Authority relating to such potential Liabilities.
5.8 Taxes and Tax Returns. Except as disclosed in Company Disclosure
Schedule 5.8:
(a) The Company has duly and timely filed (and until the Closing Date
will so file) all returns, declarations, reports, information returns and
statements ("Returns") required to be filed by it in respect of any United
States federal, state or local, or foreign Taxes and has duly and timely paid
(and until the Closing Date will so pay) all such Taxes due and payable, other
than Taxes which are being contested in good faith (and disclosed by the Company
and the Shareholders to Purchaser in writing). As used herein, "Tax" or "Taxes"
means and includes any and all taxes, fees, levies, assessments, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Governmental Authority, including, without
limitation: foreign, domestic, central, local, state or other jurisdictional
taxes or other charges on or with respect to income, estimated income,
franchises, business, occupation, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation, or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer, value
added, or gains taxes; license, registration and documentation fees; and customs
duties, tariffs, and similar charges. The Company has established (and until the
Closing Date will establish) on its books and records reserves that are adequate
for the payment of all Taxes not yet due and payable, but are incurred in
respect of the Company through such date.
(b) None of the Returns of the Company have been examined by the
Internal Revenue Service (the "IRS"), or any other United States federal, state
or local or any foreign Governmental Authority within the past six years. There
are no audits or other Governmental Authority proceedings presently pending nor,
to the Knowledge of the Company and the Shareholders, any other disputes pending
with respect to, or claims asserted for, Taxes upon the Company, nor has the
Company given any currently outstanding waivers or comparable consents regarding
the application of any statute of limitations with respect to any Taxes or
Agreement and Plan of Merger-Page 13
<PAGE>
Returns. There are no Liens for Taxes upon the assets of the Company, except
Liens for Taxes not yet due. The Company and the Shareholders have complied (and
until the Closing Date will comply) in all respects with all applicable Laws
relating to the payment and withholding of Taxes.
(c) The Company (i) has not requested any extension of time within
which to file any Return which Return has not since been filed; (ii) is not a
party to any agreement providing for the indemnification, allocation or sharing
of Taxes; (iii) is not required to include in income any adjustment by reason of
a voluntary change in accounting method initiated by the Company (nor to the
Company's or the Shareholders' Knowledge has any Governmental Authority proposed
any such adjustment or change of accounting method); (iv) has not filed a
consent with any Governmental Authority pursuant to which the Company has agreed
to recognize gain (in any manner) relating to or as a result of this Agreement
or the transactions contemplated hereby; and (v) has not been a member of an
affiliated group of corporations within the meaning of Section 1504 of the Code.
5.9 Employee Benefit Plans and Relations. Except as disclosed in
Company Disclosure Schedule 5.9:
(a) The Company has never maintained or contributed to any "employee
benefit plan" (the "Benefit Plans"), as such term is defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA") The
Company has not contributed to, or been required to contribute to, any
"Multiemployer Plan," as such term is defined in Section 3(37) of ERISA.
(b) The Company has not engaged in a "prohibited transaction" as such
term is defined in Section 4975 of the Code, which could subject the Company to
the tax or penalty on prohibited transactions imposed by said Section 4975.
5.10 Compliance with Applicable Laws. Except as set forth in Company
Disclosure Schedule 5.10, the Company holds all licenses, franchises, permits,
consents and authorizations ("Licenses") necessary for the lawful conduct of its
business, except to the extent a failure to hold such Licenses would not have a
Material Adverse Effect on the Company. No proceeding is pending or to the
Knowledge of the Shareholders threatened seeking the revocation or suspension of
any License. Except as set forth on Company Disclosure Schedule 5.10, the
Company is and has been in compliance in all material respects with all
applicable Laws, and neither the Company nor any Shareholder has received any
notices of any allegation of any violation by the Company of any Law or License.
5.11 Certain Contracts.
(a) Company Disclosure Schedule 5.11(a) lists or describes the
material terms and conditions of the following agreements (collectively, the
"Material Contracts"), including, without limitation, leases, purchase contracts
and commitments, to which the
Agreement and Plan of Merger-Page 14
<PAGE>
Company is a party or by which the Company or any of its material properties or
assets is bound:
(i) all agreements involving an annual commitment or payment
by any party thereto of more than $10,000 individually or $25,000 in the
aggregate or which have a fixed term extending more than 12 months from the date
hereof;
(ii) all joint venture, sales agency, sales representative or
distributorship, broker, franchise, license or similar agreements;
(iii) all leases of real and personal property that is material
to the Company's business and operations;
(iv) all notes, bonds, mortgages, security agreements,
guarantees and other agreements and instruments for or relating to any lending
or borrowing by the Company in any amount (exclusive of advances to employees
for expenses in the ordinary course of business);
(v) all powers of attorney, guarantees, suretyships or similar
agreements;
(vi) all employment agreements; and
(vii) all other agreements to which the Company or any
Shareholder is a party and either (1) which is material to the Company's
business or (2) the breach of or default under which could have a Material
Adverse Effect on the Company.
(b) Except as set forth on Company Disclosure Schedule 5.11(b), each
of the Material Contracts is valid, binding and enforceable on the Company, and
to the knowledge of the Company and the Shareholders, the other parties thereto,
in accordance with its terms. The Company has provided a true and complete copy
of each Material Contract to Purchaser.
(c) Except as disclosed in Company Disclosure Schedule 5.11(c), (i)
the Company is not a party to or bound by any agreement or understanding
(whether written or oral) with respect to the employment of any officers,
employees, directors or consultants, and (ii) the consummation of the
transactions contemplated by this Agreement and the other Purchase Agreements
will not (either alone or upon the occurrence of any additional acts or events)
result in any payment (whether of severance pay or otherwise) or other
obligation becoming due from the Company to any officer, employee, director,
shareholder or consultant thereof. Except as disclosed on Company Disclosure
Schedule 5.11(c), no director, officer, employee, Shareholder or agent (or
former officer, director, employee, shareholder or agent) of the Company is
entitled now, or will or may be entitled to as a consequence of this Agreement,
to any payment or benefit from the Company or Purchaser, which if paid or
provided would constitute an "Excess Purchase Payment" as defined in Section
280G of the Code. Company Disclosure Schedule 5.11(c) sets forth true and
correct copies of all
Agreement and Plan of Merger-Page 15
<PAGE>
severance or employment agreements with officers, directors, employees, agents
or consultants to which the Company is a party.
(d) Except as disclosed in Company Disclosure Schedule 5.11(d), no
agreement or understanding to which the Company or any Shareholder is a party or
by which any of them is bound limits the freedom of the Company or any
Shareholder to compete in any line of business or with any person.
(e) Except as disclosed in Company Disclosure Schedule 5.11(e), (i)
neither the Company nor any Shareholder nor, to the Knowledge of the Company or
the Shareholders, any other party thereto, is in default under any of the
Material Contracts or any other agreement to which the Company or any
Shareholder is a party or to which its or their properties is bound; (ii) to the
Company's and the Shareholders' Knowledge, no event has occurred which (whether
with or without notice, lapse of time or the happening or occurrence of any
other event) would constitute a default thereunder entitling any party to
terminate a Material Contract or other such agreement or to otherwise claim or
collect damages the impact of which would have a Material Adverse Effect on the
Company; and (iii) the continuation, validity and effectiveness of all such
Material Contracts and agreements under the current terms thereof and the
current rights and obligations of the Company and the Shareholders thereunder
will in no way be affected, altered or impaired by the consummation of the
transactions contemplated by this Agreement or the other Purchase Agreements.
Except as disclosed in Company Disclosure Schedule 5.11(e), upon consummation of
the transactions contemplated by this Agreement and the other Purchase
Agreements, the Company will be entitled to continue to enjoy the material
advantages and benefits of the business arrangements, agreements, opportunities
and relationships of the Company as it enjoyed prior to the date hereof without
interference or interruption.
5.12 Properties and Insurance.
(a) Except as disclosed in Company Disclosure Schedule 5.12(a), the
Company has good and marketable title to all assets and properties, whether real
or personal, tangible or intangible, reflected in the Company Financial
Statements as of June 30, 1999, or owned or acquired subsequent thereto (except
to the extent that such assets and properties have been disposed of for fair
value in the ordinary course of business since such date), subject to no Liens
except (i) statutory liens for amounts not yet delinquent or which are being
contested in good faith (and for which adequate reserves have been made) and
(ii) such Liens and title imperfections that do not in the aggregate have a
Material Adverse Effect on the Company or adversely affect the Company's use of
the property subject thereto. The Company as lessee has the right under valid
and subsisting leases to occupy, use, possess and control all real property
leased by the Company as presently occupied, used, possessed and controlled by
the Company or necessary in the operation of its businesses as currently
conducted.
(b) The business operations and insurable material properties and
assets of the Company are insured under policies or bonds owned or issued to the
InterCept Group, Inc.
Agreement and Plan of Merger-Page 16
<PAGE>
(c) No person other than the Company is currently entitled to
possession of any of the properties that are material to the business or
operations of the Company or the loss of use of which would have a Material
Adverse Effect on the Company, whether owned or leased by the Company. The
Company has not received notice of, and to the Company's and the Shareholders'
Knowledge, there does not exist (i) any pending or contemplated condemnation or
eminent domain proceeding affecting the properties owned or leased by the
Company, (ii) any proposal for increasing the assessed value of any such
properties for state, county, local or other ad valorem Taxes or (iii) any
pending or contemplated proceedings or public improvements that would result in
the levy of any special Tax or assessment against any such properties; and to
the Company's and the Shareholder's Knowledge there are no outstanding
requirements or recommendations by the Company's insurance providers requiring
or recommending any repairs or work to be done with reference to any such
properties or any basis for such. The properties and assets owned or leased by
the Company constitute all of the property and assets that the Company uses in
connection with the operation of its business, and all such property and assets
are in usable and operating condition. The consummation of the transactions
contemplated by this Agreement and the other Purchase Agreements will not impair
the ability of the Company to continue to use such properties and assets.
5.13 Environmental Matters.
(a) The operations of the Company comply, and have complied, in all
material respects with all applicable Laws relating to pollution or protection
of the environment ("Environmental Laws").
(b) The Company has obtained all environmental, health and safety
Licenses and other authorizations necessary for the operation of the Company's
business, all of which are valid and in good standing and are not subject to any
modification or revocation proceeding, and the Company is in compliance in all
material respects with all terms and conditions thereof.
(c) Neither the Company nor any of the Shareholders has received any
written notice of any pending or threatened investigation, proceeding or claim
to the effect that the Company is or may be liable to any person or responsible
or potentially responsible for the costs of any remedial or removal action or
other cleanup costs, as a result of noncompliance with any Environmental Laws or
arising out of the presence, generation, storage or disposal of hazardous waste,
including liability under the United States Comprehensive Environmental
Response, Compensation and Liability Act, as amended, any state superfund law or
any Environmental Law, and there is no past or present action, or to the
Company's and the Shareholders' Knowledge, activity, condition or circumstance
that could be expected to give rise to any such liability on the part of the
Company to any person or entity or for any such cleanup costs.
5.14 Intellectual Property.
Agreement and Plan of Merger-Page 17
<PAGE>
(a) Background. The Company develops, markets and licenses certain
proprietary application software products and systems to financial institutions
and other customers (the "Software Programs"), and in connection therewith the
Company has developed certain related technical documentation and user reference
manuals (the "Documentation"). The Software Programs and the Documentation are
collectively referred to as the "Software." The Software Programs are listed on
Company Disclosure Schedule 5.14(a).
(b) Ownership. Except as set forth in Company Disclosure Schedule
5.14(b), the Company owns all patents, trademarks, service marks, trade names
and copyrights (including registrations, licenses and applications pertaining
thereto) and all other proprietary information used by the Company in the
conduct of its business. Company Disclosure Schedule 5.14(b) sets forth all
domestic and foreign patents, trademarks, service marks, trade names and
copyrights owned or used by the Company and all applications therefor and
registrations thereof.
(c) Procedures for Copyright Protection. Company Disclosure Schedule
5.14(c) sets forth the placement of the proprietary legends and copyright
notices displayed in or on the Software including screen displays. In no
instance has the eligibility of the Software for protection under copyright law
been forfeited to the public domain.
(d) Procedures for Trade Secret Protection. Neither the Company nor
any Shareholder has ever disclosed source code for any of the Software to a
third party other than the persons identified in Company Disclosure Schedule
5.14(d), each of which has executed an appropriate nondisclosure agreement in
favor of the Company. The Company discloses its source code to employees only on
a need-to-know basis in connection with the performance of their duties to the
Company. Except as described in Company Disclosure Schedule 5.14(d), each
current employee of the Company and each former employee of the Company has
executed and delivered to the Company a Confidentiality, IP Assignment and
Limited Noncompetition Agreement or an employment or other agreement containing
provisions for the protection of trade secrets and confidential information of
the Company and the absolute ownership by the Company of all work resulting from
the performance of services by such employee. The source code and system
documentation comprising the Software have at all times been maintained by the
Company in confidence and the Company has not taken (nor has it failed to take)
any action which would be reasonably likely to result in such source code and
system documentation not being protectable as a trade secret under applicable
Laws.
(e) Ownership of Software. Except as disclosed on Company Disclosure
Schedule 5.14(e), all persons who have contributed to or participated in the
conception and development of the Software on behalf of the Company have been
full-time employees of the Company hired to prepare such works within the scope
of employment. As a consequence, the Company has all ownership interests in the
Software.
(f) Absence of Claims. Except as set forth in Company Disclosure
Schedule 5.14(f), no claims have been asserted by any person to rights in the
Software, and to the
Agreement and Plan of Merger-Page 18
<PAGE>
Knowledge of the Company and the Shareholders, no valid basis for any such claim
exists. The use of the Software by the Company and its licensees does not
infringe on the rights of any person (whether arising under copyright, trade
secret, patent, unfair competition or other Laws that protect intellectual
property rights). The use by the Company of the patents, trademarks, service
marks, trade names and copyrights identified in Company Disclosure Schedule
5.14(a) does not infringe the rights of any person, and neither the Company nor
any Shareholder has received a claim asserting that the use by the Company of
any of the foregoing infringes the rights of any person. Neither the Company nor
the Shareholders has received notice of any claim asserted by any person to the
effect that any current or former employee of the Company has violated the
provisions of any noncompete or nondisclosure agreement with such person or has
disclosed any proprietary information of such person to the Company or any third
party.
5.15 Adequacy of Technical Documentation. The Software includes the source
code, system documentation and schematics for all Software Programs, as well as
any programmer comments for documentation and pertinent commentary or
explanation that may be reasonably necessary to render such materials
understandable and usable by a trained computer programmer. The Software also
includes the programs (including compilers), workbenches, tools and higher level
language, if any, used for the development, maintenance and implementation of
the Software Programs.
5.16 Third-Party Components in Software. The Company has validly obtained
the right and license to use, copy, modify and distribute any third-party
programming and materials contained in the Software pursuant to the contracts
identified in Company Disclosure Schedule 5.16, subject to no further license
fee, royalty or other payment obligations not identified in Company Disclosure
Schedule 5.16, other than software maintenance payments customarily associated
therewith. The Software contains no other programming or materials in which any
third party may claim superior, joint or common ownership, including any right
or license. The Software does not contain derivative works of any programming or
materials not owned in their entirety by the Company.
5.17 Third-Party Interests or Marketing Rights in Software. The Company
has not granted, transferred or assigned any right or interest in the Software
to any person except pursuant to the contracts identified on Company Disclosure
Schedule 5.17. There are no contracts, agreements, licenses, commitments or
arrangements in effect with respect to the marketing, distribution, licensing or
promotion of the Software by any independent salesperson, distributor,
sublicensor or other remarketer or sales organization except as set forth on
Company Disclosure Schedule 5.17.
5.18 Absence of Certain Agreements and Practices.
(a) Except as set forth in Company Disclosure Schedule 5.18(a) or in
connection with customary transactions in the ordinary course of business, no
present or former officer, director or shareholder of the Company:
Agreement and Plan of Merger-Page 19
<PAGE>
(i) owes money to the Company;
(ii) has made any claim (as defined in Section 101 of the
United States Bankruptcy Code) against the Company or, the Company's and the
Shareholders' Knowledge, has any basis for any such claim;
(iii) has any interest in any material property or assets used
by the Company in its business;
(iv) has any benefits that are contingent on the transactions
contemplated by this Agreement and the other Purchase Agreements, other than as
stated herein;
(v) has any agreement with the Company that is not terminable
by the Company without penalty or notice;
(vi) has any agreement providing severance benefits or other
benefits after the termination of employment of such employee (before or after a
change in control) regardless of the reason for such termination of employment;
or
(vii) has any agreement or plan, any of the benefits of which
will be increased, vested or accelerated by the occurrence of any of the
transactions contemplated by this Agreement and the other Purchase Agreements.
(b) Neither of the Company, its directors or officers, or employees,
or to the Company's Knowledge, its agents, affiliates, nor any other person
acting on behalf of the Company or the Shareholders has (i) given or agreed to
give any gift or similar benefit having a value of $1,000 or more to any
customer, supplier or governmental employee or official or any other person, for
the purpose of directly or indirectly furthering the business of the Company,
(ii) used any corporate funds for contributions, payments, gifts or
entertainment, or made any expenditures relating to political activities to
government officials or others in violation of any applicable Laws or (iii)
received any unlawful contributions, payments, gifts or expenditures in
connection with the business of the Company.
5.19 Major Vendors and Customers. Company Disclosure Schedule 5.19 sets
forth a list of each licensor, developer, remarketer, distributor and supplier
of property or services to, and each licensee, end-user or customer of, the
Company, to whom the Company paid or billed in the aggregate in excess of
$25,000 during calendar year 1998 or for the six months ended June 30, 1999.
5.20 [Intentionally Omitted]
5.21 Bank Accounts. Company Disclosure Schedule 5.21 lists all bank, money
market, savings and similar accounts and safe deposit boxes of the Company,
specifying the account numbers, the authorized signatories or persons having
access to them, and the
Agreement and Plan of Merger-Page 20
<PAGE>
passwords used to access such accounts, including through voice response and
internet services.
5.22 Corporate Records. Except as set forth on Company Disclosure Schedule
5.22, the corporate record books (including the share records) of the Company
are materially complete, accurate and up to date with all necessary signatures
and set forth all meetings and actions taken by the shareholders and directors
of the Company and all transactions involving the shares of the Company (and
contain all canceled share certificates).
5.23 Combinations Involving the Company. All mergers, consolidations or
other business combinations involving the Company and all liquidations,
purchases or other transactions by which the Company or any of its Subsidiaries
acquired or disposed of any of their business and property were conducted in
compliance with applicable charter documents, bylaws, any other applicable
agreements, instruments and documents and applicable Laws.
5.24 Labor Relations. Except as disclosed on Company Disclosure Schedule
5.24, the Company is in material compliance with all federal and state Laws
respecting employment and employment practices, terms and conditions of
employment, wages and hours, and is not engaged in any unfair labor or unlawful
employment practice. There is no unlawful employment practice or discrimination
charge against the Company pending before the United States Equal Employment
Opportunity Commission ("EEOC") or any EEOC recognized state "referral agency."
There is no unfair labor practice charge or complaint against the Company
pending before the National Labor Relations Board ("NLRB"). There is no labor
strike, dispute, slowdown or stoppage actually pending or, to the Company's or
the Shareholders' Knowledge, threatened against or involving or affecting the
Company, and no NLRB representation question exists respecting any of its
employees. No grievance or arbitration proceeding is pending and no written
claim therefor exists. There is no collective bargaining agreement that is
binding on the Company. Except for any Material Contract disclosed pursuant to
Section 5.11, the Company is not a party to or bound by any agreement,
arrangement or understanding with any employee or consultant that cannot be
terminated on notice of ninety (90) or fewer days without liability to the
Company or that entitles the employee or consultant to receive any salary
continuation or severance payment or retain any specified position with the
Company.
5.25 Year 2000 Matters. Except as provided on Company Disclosure Schedule
5.25, the Software and the Company's internal systems and software and the
network connections it maintains are each "Millennium Complaint"; for the
purposes of this Agreement "Millennium Compliant" means: (a) the functions,
calculations, and other computing processes of the Software (collectively,
"Processes") perform as designed regardless of the date in time on which the
Processes are actually performed and regardless of the date input to the
Software, whether or not the dates include leap years; (b) the Software can
accept, store, sort, extract, sequence, and otherwise manipulate date inputs and
date values, and return and display date values, as designed and in a materially
accurate manner, regardless of the dates used or format of the date input; (c)
the Software will function without interruptions caused by the date in time on
which the Processes are actually performed or by
Agreement and Plan of Merger-Page 21
<PAGE>
the date input to the Software; (d) the Software accepts and responds to four
digit year date input in a manner that resolves any material ambiguities as to
the century in an accurate manner; and (e) the Software displays, prints and
provides electronic output of date information in ways that are unambiguous as
to the determination of the century.
5.26 Change in Control Provisions. Company Disclosure Schedule 5.26
contains a true and complete copy of all agreements in effect to which the
Company or any Shareholder is a party and which contain any provisions which
become effective or are accelerated or contingent upon a change in control,
merger, consolidation, sale of assets or stock or other business combination
involving the Company or otherwise require any payment or performance by the
Company or any officer, director or shareholder thereof, now or in the future,
in connection with or as a result of any of the transactions contemplated by
this Agreement or any of the other Purchase Agreements.
5.27 Disclosure. No representation, warranty or statement made by the
Company or the Shareholders in this Agreement, the other Purchase Agreements or
in any document or certificate furnished or to be furnished to the Purchaser
pursuant to this Agreement or the other Purchase Agreements contains or will
contain any untrue or incomplete statement or omits or will omit to state any
material fact necessary to make the statements contained herein or therein not
misleading. The Company and the Shareholders have completely and accurately
responded in all material respects to all diligence inquiries made by Purchaser
and its officers, directors, attorneys, accountants and other representatives in
connection with this Agreement and the other Purchase Agreements and have
disclosed all material facts (and have not omitted any material facts) known or
reasonably available that are reasonably necessary in order to make the Company
and Shareholders' responses to such inquiries, in light of the circumstances in
which such responses were made, not misleading.
ARTICLE 6
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE EXECUTING
SHAREHOLDERS
To induce the Purchaser to enter into this Agreement and the other Purchase
Agreements, each Shareholder hereby represents and warrants to the Purchaser,
severally, as follows:
6.1 Securities Act Compliance. Such Shareholder acknowledges that none of
the shares of Purchaser Common Stock to be delivered to the Shareholder pursuant
to this Agreement will, at the time of delivery, be registered under the
Securities Act or any State Acts (collectively the "Securities Laws"). Such
Shareholder represents and warrants that he is acquiring the Purchaser Common
Stock for investment, and not with a view toward, or for resale in connection
with, a distribution of Purchaser Common Stock. Such Shareholder acknowledges
that Purchaser Common Stock may be sold, pledged, hypothecated, disposed of, or
otherwise transferred or distributed only (i) pursuant to an effective
registration statement
Agreement and Plan of Merger-Page 22
<PAGE>
covering the Purchaser Common Stock under the Securities Laws, or (ii) pursuant
to an exemption from the registration requirements of the Securities Laws.
6.2 Access to Information. Such Shareholder has had access to the books
and records of Purchaser and has otherwise had access to sufficient information
about Purchaser upon which to analyze the transactions contemplated by this
Agreement. Such Shareholder has been given the opportunity to ask questions and
receive answers from the officers of Purchaser concerning the terms and
conditions of the transactions contemplated by this Agreement and the business
and financial condition of Purchaser. Such Shareholder has had the opportunity
to obtain any additional information he deems necessary to verify the accuracy
and completeness of information provided by Purchaser in connection with this
Agreement and the transactions contemplated hereby.
6.3 Experience; Investment. Such Shareholder has such knowledge and
experience in financial and business matters as to enable such Shareholder (a)
to utilize the information made available to such Shareholder in connection with
the transactions contemplated by this Agreement and the other Purchase
Agreements, (b) to evaluate the merits and risks associated with the acquisition
of Merger Consideration pursuant hereto, and (c) to make an informed decision
with respect thereto. Such Shareholder's business and financial experience is
such that Purchaser could reasonably assume such Shareholder has the capacity to
protect its own interests in connection with the offer, sale and issuance of the
Merger Consideration. Such Shareholder (i) is financially capable of bearing
the risk of loss of any and all consideration surrendered in exchange for the
Purchaser Common Stock, and (ii) acknowledges that an investment in the
Purchaser Common Stock involves a high degree of risk, including a possible
total loss of investment, and that the Merger Consideration may not be
indicative of the future value of the securities. Unless otherwise specified on
Company Disclosure Schedule 3.1(d), such Shareholder represents that because of
one or more of the following criteria, such Shareholder is an "accredited
investor" within the meaning of Regulation D promulgated by the Commission under
the Securities Act, by reason of: (i) the Shareholder is a natural person who
has a net worth or joint net worth with the Shareholder's spouse exceeding
$1,000,000 at the time of purchase; (ii) the Shareholder is a natural person who
had an individual income in excess of $200,000 in each of the two most recent
years or joint income with that person's spouse in excess of $300,000 in each of
those years and who reasonably expects to reach the same income level in the
current year; (iii) the Shareholder is a corporation, partnership or trust with
total assets in excess of $5,000,000; or (iv) all of the Shareholder's
shareholders, partners or members, as the case may be, are "accredited
investors". Such Shareholder understands that the officers, directors,
attorneys and other advisors of Purchaser will rely upon the representations and
warranties made by such Shareholder in this Agreement in order to establish any
necessary exemption from the registration provisions of the Securities Laws.
6.4 No Prior Convictions. Such Shareholder has not been convicted of,
arrested for, or has any action pending for, a crime involving fraud,
embezzlement or theft or any similar crime.
Agreement and Plan of Merger-Page 23
<PAGE>
6.5 Tax Advice. Such Shareholder has reviewed with his tax advisor the
United States federal, state, local and foreign tax consequences of an
investment in the Purchaser Common Stock and the transactions contemplated by
this Agreement and the other Purchase Agreements. Such Shareholder is relying
solely on such advisor and not on any statements or representations of Purchaser
or any of its or their agents, and understands that he (and not Purchaser or any
other person or entity) shall be responsible for his own tax liability that may
arise as a result of this investment or the transactions contemplated by this
Agreement and the other Purchase Agreements.
6.6 Shareholders' Additional Representations. To induce the Purchaser to
enter into this Agreement, each Executing Shareholder also represents and
warrants to the Purchaser as follows:
(a) The Shareholder has the right, power, capacity and authority to
execute, deliver and perform this Agreement and the other Purchase Agreements
and to consummate the transactions contemplated thereby; this Agreement and the
other Purchase Agreements each has been duly and validly executed and delivered
by the Shareholder and is entered into voluntarily without promise or benefit
other than as set forth herein; and this Agreement constitutes the Shareholder's
legal, valid and binding obligation, enforceable in accordance with its terms.
No Authorization from any third party or any Governmental Authority is necessary
on behalf of the Shareholder in connection with (i) the execution and delivery
by the Shareholder of this Agreement and the other Purchase Agreements, (ii) the
consummation by the Shareholder of the transactions contemplated hereby or
thereby, and (iii) the performance of the Shareholder's obligations under this
Agreement and the other Purchase Agreements.
(b) The Shareholder owns, of record and beneficially, valid title to
the number of shares of Company Common Stock set opposite the name of such
Shareholder in Company Disclosure Schedule 5.2, and such shares are free and
clear of all Liens (as defined below) and encumbrances. Other than the Company
Common Stock owned by the Shareholder, the Shareholder does not own,
beneficially or of record, or have any right to acquire, now or in the future,
any shares of stock or other securities of any kind of the Company. The
Shareholder has not granted nor is the Shareholder bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements calling for
the transfer, purchase, subscription or issuance of any shares of capital stock
of the Company or any securities representing the right to purchase, subscribe
or otherwise receive any shares of such capital stock or any securities
convertible into any such shares, and there are no agreements or understandings
with respect to voting any such shares. The execution, delivery and performance
of this Agreement by the Shareholder will not conflict with or result in a
breach of any agreement, instrument, order, injunction, decree, statute, rule or
regulation applicable to the Shareholder or any of his or her assets. The
execution, delivery and performance of this Agreement by the Shareholder does
not require the Authorization of any third party or governmental agency or
authority which has not been obtained, and a copy of any such Authorization is
attached to Company Disclosure Schedule 6.6(b).
Agreement and Plan of Merger - Page 24
<PAGE>
(c) Prior to the date of this Agreement, the Shareholder has received
an Information Statement and related materials in connection with his approval
of this Agreement. Such Shareholder acknowledges and agrees that the
Shareholders are responsible for the accuracy of the information supplied by the
Shareholders and the Company for inclusion therein, and Purchaser is responsible
for the accuracy of the information supplied by Purchaser for inclusion therein.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
To induce the Company and the Shareholders to enter into this Agreement
and the other Purchase Agreements, the Purchaser hereby represents and warrants
to the Company and the Shareholders as follows. For purposes of this Article 7,
the Purchaser shall be deemed to mean the Purchaser and Direct Access
Interactive, Inc., and shall not be deemed to include any other entities it has
acquired (or the assets of any other entity acquired), including but not limited
to, SBS Corporation, Call Me Bill, LLC, The Bankers Bank, and TIB The
Independent BankersBank.
7.1 Corporate Organization.
(a) Purchaser is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Georgia. Except as set forth on
Purchaser Disclosure Schedule 7.1, Purchaser has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed, qualified or in good standing would
not have a Material Adverse Effect on Purchaser.
(b) Purchaser Disclosure Schedule 7.1 sets forth true and complete
copies of the Articles of Incorporation and Bylaws of Purchaser and all
amendments thereto.
7.2 Capitalization. The authorized capital stock of the Purchaser consists
of 70,000,000 shares of common stock, without par value, (the "Purchaser Common
Stock") and 5,000,000 shares of preferred stock, none of which are issued and
outstanding. Purchaser Disclosure Schedule 7.2 sets forth the number of shares
of Purchaser Common Stock owned by each shareholder and the number of shares of
Purchaser Common Stock which may be acquired by each holder of warrants and
options to purchase Purchaser Common Stock. Other than as disclosed on Purchaser
Disclosure Schedule 7.2, there are no options, warrants, or other rights to
acquire Purchaser Common Stock. All issued and outstanding shares of Purchaser
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable, were not issued in violation of any preemptive rights and were
issued pursuant to effective registration statements or under available
exemptions from the registration
Agreement and Plan of Merger - Page 25
<PAGE>
requirements of the Securities Laws. Except as set forth on Purchaser Disclosure
Schedule 7.2, the Purchaser has not granted any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the transfer, purchase, subscription or issuance of any shares of capital stock
of the Purchaser or any securities representing the right to purchase, subscribe
or otherwise receive any shares of such capital stock or any securities
convertible into any such shares, and, except as set forth on Purchaser
Disclosure Schedule 7.2, there are no agreements or understandings with respect
to voting any such shares. All outstanding Shares of Purchaser Common Stock are
owned free and clear of all liens, claims, options, proxies, charges, pledges,
security interests, adverse claims and encumbrances (collectively, the "Liens").
7.3 Authority; No Violation.
(a) Except as disclosed on Purchaser Disclosure Schedule 7.3(a)
(collectively, "Purchaser Approvals"), no Authorizations are necessary on behalf
of the Purchaser in connection with (i) the execution and delivery by the
Purchaser of this Agreement and the other Purchase Agreements, (ii) the
consummation by the Purchaser of the transactions contemplated hereby and
thereby and (iii) the performance of the Purchaser's obligations under this
Agreement and the other Purchase Agreements. The Purchaser has the full
corporate power and authority to execute and deliver this Agreement and the
other Purchase Agreements to which it is a party and the consummation by the
Purchaser of the other transactions contemplated hereby and thereby in
accordance with the terms hereof and thereof. The execution and delivery of this
Agreement and the other Purchase Agreements and the consummation of the
transactions contemplated hereby and thereby have been duly and validly approved
by the Board of Directors and the shareholders of the Purchaser in accordance
with the Articles of Incorporation and Bylaws of the Purchaser and applicable
Laws. No other corporate proceedings on the part of the Purchaser are necessary
to consummate the transactions so contemplated. This Agreement and the other
Purchase Agreements have been duly and validly executed and delivered by the
Purchaser and constitute the valid and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with its terms, except to the
extent that the availability of the remedy of specific performance may be
limited by Equitable Principles.
(b) Except as set forth on Purchaser Disclosure Schedule 7.3(a),
neither the execution and delivery of this Agreement and the other Purchase
Agreements to which it is a party by the Purchaser, nor the consummation by the
Purchaser of the transactions contemplated hereby and thereby in accordance with
the terms hereof and thereof, nor compliance by the Purchaser with any of the
terms or provisions hereof and thereof, will (i) violate any provision of the
Purchaser's Articles of Incorporation or Bylaws, (ii) violate any Laws
applicable to the Purchaser or any of its properties or assets, or (iii) except
where a waiver or consent had been obtained or will be obtained prior to
Closing, violate, conflict with, result in a breach of any provisions of,
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, result in the termination of, accelerate the
performance required by, or result in the creation of any Lien upon any of the
Agreement and Plan of Merger - Page 26
<PAGE>
respective properties or assets of the Purchaser under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which the
Purchaser is a party, or by which it or any of its properties or assets may be
bound or affected except, with respect to clauses (ii) and (iii) above, such as
individually or in the aggregate will not have a Material Adverse Effect on the
Purchaser, and which will not prevent or delay the consummation of the
transactions contemplated hereby.
7.4 Financial Statements.
(a) Attached hereto as Purchaser Disclosure Schedule 7.4(a) is a true
and complete copy of the financial statements of Direct Access Interactive, Inc.
at and for the periods ending December 31, 1998 and 1997 and March 31, 1999
(collectively, the "Purchaser Financial Statements"). The Purchaser Financial
Statements present fairly, in all material respects, the financial position of
the Purchaser as of the dates set forth therein.
(b) Other than as shown on Purchaser Disclosure Schedule 7.4(b) or
reserved against in the Purchaser Financial Statements or with respect to the
transactions contemplated in the Information Statement, since March 31, 1999 the
Purchaser has not incurred Liabilities other than pursuant to this Agreement and
the other Purchase Agreements and except for Liabilities incurred in the
ordinary course of business or with respect to the transactions contemplated in
the Information Statement.
(c) Other than as shown on Purchaser Disclosure Schedule 7.4(c), since
March 31, 1999, there has not been any change, occurrence or circumstance
affecting the business, results of operations or financial condition of the
Purchaser that has had, individually or in the aggregate, a Material Adverse
Effect on the Purchaser, other than changes, occurrences and circumstances
disclosed by the Purchaser to the Company and the Shareholders pursuant to this
Agreement (which would not have a Material Adverse Effect on the Company).
7.5 Broker's and Other Fees. Neither the Purchaser nor any of its
directors or officers has employed any broker or finder or incurred any
liability for any broker's or finder's fees or commissions in connection with
any of the transactions contemplated by this Agreement and the other Purchase
Agreements.
7.6 Legal Proceedings. Except as disclosed on Purchaser Disclosure Schedule
7.6, there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending or, to the
Knowledge of the Purchaser's president, chief financial officer, chief operating
officer and general counsel threatened, against or affecting the Purchaser, or
any of its properties, which could (a) reasonably be expected to materially and
adversely affect the ability of the Purchaser to perform its obligations
pursuant to this
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Agreement and the other Purchase Agreements, or (b) have a Material Adverse
Effect on Purchaser.
7.7 Properties and Insurance.
(a) The Purchaser has good and marketable title to, or holds by valid
and existing lease or license, free and clear of all Liens, each piece of real
and personal property used in its business as now conducted, except in any of
the foregoing cases for such imperfections of title or Liens as (i) are set
forth in Purchaser Disclosure Schedule 7.7 hereof, (ii) are reflected or
reserved against in the Purchaser Financial Statements, or (iii) arise out of
Taxes which are not yet due and payable or are not in default and payable
without penalty or interest.
(b) The business operations and insurable material properties and
assets of the Purchaser are insured for their benefit against all risks which,
in the reasonable judgment of the Purchaser, should be insured against, in each
case under policies or bonds issued by insurers of recognized responsibility, in
such amounts with such deductibles and against such risks and losses as are in
the opinion of the Purchaser adequate for the business engaged in by the
Purchaser. The Purchaser has not received any notice of cancellation or notice
of a material amendment of any such insurance policy or bond and the Purchaser
is not in default under any such policy or bond, no coverage thereunder is being
disputed and all material claims thereunder have been filed in a timely fashion.
7.8 Intellectual Property. The Purchaser conducts an active business using
proprietary application software products and systems and provides Internet
banking and integrated voice response (telephone banking) services utilizing
such products and systems (the "Purchaser's Software Programs"), and in
connection therewith the Purchaser has developed certain related technical
documentation and user reference manuals (the "Purchaser's Documentation"). The
Purchaser's Software Programs and the Purchaser's Documentation are collectively
referred to as the "Purchaser's Software."
(a) Ownership. The Purchaser owns all patents, trademarks, service
marks, trade names and copyrights (including registrations, licenses and
applications pertaining thereto) and all other proprietary information used by
the Purchaser and material to the conduct of its business, including, without
limitation, the Purchaser's Software.
(b) Absence of Claims. No claims have been asserted by any person to
rights in the Purchaser's Software (other than pursuant to licenses executed
with customers in the ordinary course of business), and to the Knowledge of the
Purchaser no valid basis for any such claim exists. To the Purchaser's
Knowledge, the use of the Purchaser's Software by the Purchaser and its licenses
does not infringe on the rights of any person (whether arising under copyright,
trade secret, patent, unfair competition or other state or federal laws which
protect intellectual property rights). To the Purchaser's Knowledge, the use by
the Purchaser of its patents, trademarks, service marks, trade names and
copyrights does not infringe the rights of any person, and no written claim has
been asserted that the use by the Purchaser of any of the
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foregoing infringes the rights of any person. No written claim has been asserted
by any person to the effect that any current or former employee of the Purchaser
has violated the provisions of any noncompete or nondisclosure agreement with
such person, or has disclosed any proprietary information of such person to the
Purchaser or any third party.
(d) Third Party Interests in Software. The Purchaser has not granted,
transferred, or assigned any right or interest in the Purchaser's Software to
any person, other than pursuant to licenses granted in the ordinary course of
business.
7.9 Compliance with Applicable Laws. The Purchaser has all Licenses
required for its business as currently conducted, except to the extent a failure
to hold such Licenses would not have a Material Adverse Effect on Purchaser. No
proceeding is pending or threatened seeking the revocation or suspension of any
material License. Except as disclosed by the Purchaser on Purchaser Disclosure
Schedule 7.9, the Purchaser's business has been operated and maintained in all
material respects in compliance with applicable Laws. The Purchaser has not
received any notices of any allegation of any violation of any Laws or Licenses.
7.10 Taxes and Tax Returns.
Except as disclosed in Purchaser Disclosure Schedule 7.10:
(a) The Purchaser has duly filed (and until the Closing Date will so
file) all Returns required to be filed by it in respect of any United States
federal, state or local, or foreign Taxes and has duly paid (and until the
Closing Date will so pay) all such Taxes due and payable, other than Taxes which
are being contested in good faith (and disclosed by the Purchaser to the Company
and the Shareholders in writing). The Purchaser has established (and until the
Closing Date will establish) on its books and records reserves that are adequate
for the payment of all Taxes not yet due and payable, but are incurred in
respect of the Purchaser through the Date of this Agreement.
(b) None of the Returns of the Purchaser have been examined by the
Internal Revenue Service (the "IRS"), or any other United States federal, state
or local or any foreign Governmental Authority within the past six years. There
are no audits or other Governmental Authority proceedings presently pending,
nor, to the Knowledge of the Purchaser, any other disputes pending with respect
to, or claims asserted for, Taxes upon the Purchaser, nor has the Purchaser
given any currently outstanding waivers or comparable consents regarding the
application of any statute of limitations with respect to any Taxes or Returns.
There are no Liens filed of record publicly for Taxes upon the assets of the
Purchaser, except Liens for Taxes not yet due. The Purchaser has complied (and
until the Closing Date will comply) in all respects with all applicable Laws
relating to the payment and withholding of Taxes.
(c) The Purchaser (i) has not requested any extension of time within
which to file any return which Return has not since been filed; (ii) is not a
party to any agreement providing for the indemnification, allocation or sharing
of Taxes; (iii) is not required to include
Agreement and Plan of Merger - Page 29
<PAGE>
in income any adjustment by reason of a voluntary change in accounting method
initiated by the Purchaser (nor to the Purchaser's Knowledge has any
Governmental Authority proposed any such adjustment or change of accounting
method): and (iv) has not filed a consent with any Governmental Authority
pursuant to which the Purchaser has agreed to recognize gain (in any manner)
relating to or as a result of this Agreement or the transactions contemplated
hereby.
7.11 Corporate Records. The corporate record books (including the share
records) of the Purchaser are materially complete, accurate and up to date with
all necessary signatures and set forth all meetings and actions taken by the
shareholders and directors of the Purchaser and all transactions involving the
shares of the Purchaser.
7.12 Combinations Involving the Purchaser. The mergers, consolidations or
other business combinations involving the Purchaser and all liquidations,
purchases or other transactions by which the Purchaser has acquired or disposed
of any of its business and property were conducted in material compliance with
applicable charter documents, bylaws, any other applicable agreements,
instruments and documents and applicable Laws.
7.13 Absence of Certain Changes or Events. Except as disclosed in Purchaser
Disclosure Schedule 7.4(b) or as reflected in the Purchaser Financial
Statements, the Purchaser does not have Knowledge of any facts or conditions
which it reasonably believes to be likely to cause a Material Adverse Effect on
the Purchaser in the next twelve (12) months from that reflected in the
Purchaser Financial Statements.
7.14 Disclosure. No representation, warranty or statement made by the
Purchaser in this Agreement, the other Purchase Agreements or in any document or
certificate furnished, or to be furnished, to the Company or the Shareholders
pursuant to this Agreement or the other Purchase Agreements contains or will
contain any untrue or incomplete statement or omits or will omit to state any
material fact necessary to make the statements herein or therein not misleading.
Purchaser has completely and accurately responded in all material respects to
all diligence inquiries made by the Company, the Shareholders, and the officers,
directors, attorneys, accountants and other representatives of the Company in
connection with this Agreement and the other Purchase Agreements and has
disclosed all material facts (and has not omitted any material facts) known or
reasonably available that are reasonably necessary in order to make the
Purchaser's responses to such inquiries, in light of the circumstances in which
such responses were made, not misleading.
ARTICLE 8
COVENANTS AND AGREEMENTS OF THE PARTIES
8.1 Conduct of Business. Purchaser, on the one hand, and the Company and
the Shareholders, on the other hand, agree that from the date hereof to the
Closing Date, the Company shall conduct its business only in the ordinary course
and consistent with past practice, except for transactions permitted hereunder
or with the prior written consent of Purchaser or the Company, as appropriate.
Without limiting the generality of the foregoing,
Agreement and Plan of Merger - Page 30
<PAGE>
the Executing Shareholders and the Company agree that the Company shall use all
commercially reasonable efforts to:
(a) maintain its existence and status in good standing in all
jurisdictions in which it is required to be qualified or registered to conduct
its business, except where the failure to do so would not have a Material
Adverse Effect on the Purchaser or the Company, as appropriate;
(b) maintain all of its tangible assets in good operating condition,
ordinary wear and tear excepted, and maintain the protection of all intellectual
property in substantially the same standing as exists on the date hereof;
(c) continue performance in the ordinary course of its obligations
under its contracts and agreements;
(d) preserve its business organization intact, use all commercially
reasonable efforts to keep available its present officers and employees and
preserve its present relationships with suppliers, customers and others having
business relationships with it; and
(e) maintain its existing insurance, subject to variations in amount
required by the ordinary operations of its business.
8.2 Negative Covenants. The Company and the Executing Shareholders agree
that from the date hereof to the Closing Date, except as otherwise approved by
Purchaser in writing, or as permitted or required by this Agreement, the Company
will not:
(i) change any provision of its Articles of Incorporation or
Bylaws;
(ii) issue any additional shares of Company Common Stock or
other securities or change the number of shares of its authorized or issued
capital stock or issue or grant any option, warrant, call, commitment,
subscription, right to purchase or agreement of any character relating to the
authorized or issued capital stock of the Company or any securities convertible
into shares of such stock, or split, combine or reclassify any shares of its
capital stock, or declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock;
(iii) directly or indirectly redeem, purchase or otherwise
acquire any capital stock of the Company;
(iv) grant any severance or termination pay to, or enter into
or amend any employment or severance agreement with, any of its directors,
officers or employees; adopt any new employee benefit plan or arrangement of any
type; or award any increase in compensation or benefits to its directors,
officers or employees except with respect to employee increases in the ordinary
course of business and consistent with past practices and policies and, with
regard to bonuses in amounts that do not result in a material variance from
Agreement and Plan of Merger - Page 31
<PAGE>
the amounts reserved for such payments through the date of the most recent
balance sheet included in the Company Financial Statements;
(v) sell or dispose of any assets other than in the ordinary
course of business consistent with past practices;
(vi) make any capital expenditures outside the ordinary course
of business;
(vii) acquire in any manner whatsoever any business or entity;
(viii) enter into, terminate, modify or amend any agreement or
arrangement with any officer or director of the Company or any "affiliate" of
any such officer or director, as that term is defined in Regulation 14A of the
Exchange Act (an "Affiliate");
(ix) make any change in its accounting methods or practices;
(x) incur, create, assume or guarantee any Liabilities except
in the ordinary course of business and as would not have a Material Adverse
Effect on the Company;
(xi) increase, or make any change in any assumptions
underlying the method of calculating any bad debt, contingency or other reserves
from those reflected in the Company Financial Statements;
(xii) make any change in the method of valuing assets included
in the Company Financial Statements;
(xiii) pay, discharge or satisfy any Liabilities, other than by
payment, discharge or satisfaction in the ordinary course of business;
(xiv) permit or allow any of its assets (real, personal or
mixed, tangible or intangible) to be subjected to any Lien, except for Liens
which are in existence on the date hereof and which are disclosed on the Company
Disclosure Schedules and Liens for amounts not yet due and payable which Liens
are contested in good faith and for which adequate reserves have been made;
(xv) write down the value of any inventory or write off as
uncollectible any notes or accounts receivable, except for write-downs and
write-offs in the ordinary course of business;
(xvi) cancel or waive any claims or rights, or sell, transfer,
distribute or otherwise dispose of any assets or properties, except in the
ordinary course of business;
(xvii) declare, file or permit to be filed any voluntary
bankruptcy, receivership, insolvency or other similar proceeding or petition
with any Governmental Authority with respect to the Company or any of the
Shareholders;
Agreement and Plan of Merger - Page 32
<PAGE>
(xviii) fail to perform its obligations under any Material
Contract (except those being contested in good faith) or enter into, assume or
amend any agreement that would be a Material Contract other than agreements to
provide services entered into in the ordinary and usual course of business;
(xix) take any action that results in (A) a Material Adverse
Effect on the Company or (B) any of his or their representations and warranties
contained in Article 5 not being true and correct in any material respect at the
Closing Date, or that would cause any of the conditions to Closing not to be
satisfied; or
(xx) directly or indirectly agree to do any of the foregoing.
8.3 No Solicitation. From the date hereof to the Closing Date or the
earlier termination of this Agreement in accordance with its terms, the Company
and the Executing Shareholders:
(a) agree that neither the Company nor any of its present or future
subsidiaries or other affiliates, nor any of its or their directors, officers,
shareholders, employees, representatives or other agents (collectively, the
"Company Affiliates") shall, directly or indirectly, (i) enter into any
agreement (or agree to do so), or solicit, initiate or knowingly encourage the
invitation of inquiries or proposals or offers from any person (other than the
Purchaser or its or their directors, officers, employees, representatives and
agents) concerning: (A) any sale of assets or transfer of liabilities of the
Company or any of its present or future subsidiaries, divisions or other
affiliates (other than any such sale or transfer in the ordinary course of
business); (B) any issuance, purchase or sale of capital stock or debt or other
securities of the Company or any of its present or future subsidiaries,
divisions or other affiliates; or (C) any merger, consolidation, restructuring,
recapitalization or other significant transaction involving the Company or any
of its present or future subsidiaries, divisions or other affiliates; or (ii)
provide any confidential information to, participate in discussions or
negotiations relating to any such transaction with, or otherwise cooperate with
or assist or participate in any effort to take such action by any person or
entity (other than the Purchaser or its or their directors, officers,
shareholders, employees, representatives and agents). The Company shall
immediately advise Purchaser if any such inquiry, offer or proposal is made or
received by the Company or any of the Company Affiliates;
(b) will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing, and the Company and the Shareholders will
take the necessary steps to inform the individuals or entities referred to above
of the obligations undertaken in this Section 8.3; and
(c) will notify Purchaser immediately of the identity of any potential
acquiror and the terms of any proposal or offer (including, without limitation,
any proposal or offer to any of the Shareholders) with respect to a proposed or
potential merger, acquisition, consolidation, business combination, transfer or
similar transaction involving, or any purchase
Agreement and Plan of Merger - Page 33
<PAGE>
of all or any significant portion of the assets, equity securities of or rights
with respect to any assets or securities of, the Company whether or not
permitted by this Section 8.3.
8.4 Current Information. During the period from the date of this Agreement
to the Closing Date or the earlier termination of this Agreement in accordance
with its terms, upon the reasonable request of Purchaser:
(a) The Company and the Shareholders will cause one or more of the
Company's representatives to confer with representatives of Purchaser regarding
its business, operations, properties, assets and financial condition; each of
the Parties will cause one or more of its representatives to confer with
representatives of the other Parties regarding matters relating to the
completion of the transactions contemplated herein; and
(b) Each of the Parties will notify the other Parties as soon as
practicable after any determination or discovery by it of any fact or
circumstance relating to any Party which it has discovered through the course of
investigation and which represents, or is reasonably likely to represent, a
material breach of any representation, warranty, covenant or agreement of any
Party or which has or is reasonably likely to have a Material Adverse Effect on
any Party.
8.5 Access to Properties and Records; Confidentiality. The Company and the
Executing Shareholders shall permit Purchaser and its representatives reasonable
access to its properties and shall disclose and make available to Purchaser and
its representatives all books, papers and records and information relating to
it, its assets, stock ownership, properties, operations, obligations and
liabilities, including, but not limited to, all books of account (including the
general ledger), tax records, minute books of directors' and shareholders'
meetings, organizational documents, agreements, filings with any Governmental
Authority, accountants' work papers, litigation files, plans affecting
employees, and any other records and information in which Purchaser and its
representatives may have a reasonable interest; provided that such investigation
shall be reasonably related to the transactions contemplated by this Agreement
and shall not interfere unnecessarily with the normal business operations of the
Company.
8.6 Regulatory Matters; Consents; Cooperation, etc.
(a) Each of the Parties will promptly furnish each other with copies
of written communications received by them or any of their respective
Subsidiaries from, or delivered by any of the foregoing to, any Governmental
Authorities in respect of the transactions contemplated hereby.
(b) As soon as practicable following the date hereof, each of the
Parties will use its commercially reasonable efforts to obtain all consents,
waivers and other Approvals under any of its or its Subsidiaries' agreements,
contracts, licenses or leases required to be obtained by such Party in
connection with the consummation of the transactions contemplated hereby.
Agreement and Plan of Merger - Page 34
<PAGE>
8.7 Parties' Efforts; Further Assurances; Cooperation. Subject to the
other provisions in this Agreement, the Parties shall in good faith perform
their obligations under this Agreement before, at and after the Closing Date,
and shall each use all commercially reasonable efforts to do, or cause to be
done, all things necessary, proper or advisable under applicable Laws to obtain
all Authorizations and satisfy all conditions to the obligations of the Parties
under this Agreement and to cause the transactions contemplated by this
Agreement to be carried out promptly in accordance with the terms hereof and
shall cooperate fully with each other and their respective officers, directors,
employees, agents, counsel, accountants and other designees in connection with
any steps required to be taken as part of their respective obligations under
this Agreement. Upon the execution of this Agreement and thereafter, each party
shall take such actions and execute and deliver such documents as may be
reasonably requested by the other Parties in order to consummate the
transactions contemplated by this Agreement.
8.8 Public Announcements. After the Closing Date, none of the Executing
Shareholders shall make any public announcement regarding any aspect of this
Agreement without Purchaser's prior written consent. Nothing in this Section 8.8
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary in order to satisfy such Party's disclosure obligations
imposed by Law or Governmental Authority.
8.9 Failure to Fulfill Conditions. In the event that any Party determines
that a material condition to its or the other's obligation to consummate the
transactions contemplated hereby cannot be fulfilled on or prior to September 2,
1999 (the "Deadline Date"), it will promptly notify the other Party. Each Party
will promptly inform the other Parties of any facts applicable to it that would
be likely to prevent or materially delay consummation of the transactions
contemplated by this Agreement.
8.10 Disclosure Supplements. From time to time prior to the Closing Date,
each Party hereto will promptly notify the other Party of any inaccuracy in its
respective Disclosure Schedules delivered pursuant hereto including, without
limitation, any matter which, if existing, occurring or known at the date of
this Agreement, would have been required to be set forth or described in such
Schedule or which is necessary to correct any information in such Schedule that
has been rendered inaccurate. Notwithstanding the foregoing, no such
notification shall be deemed to amend such Disclosure Schedules or shall be
deemed to be part hereof unless agreed to by the other Parties.
8.11 Release; Covenant Not to Sue.
(a) If the Closing occurs, then the Executing Shareholders and each of
them hereby permanently release Purchaser and the Company, and their officers,
directors, employees, agents, representatives, successors and assigns
(collectively, the "Released Parties") from any and all Claims (as defined
herein), rights and causes of action that any of the Executing Shareholders may
have, may have had or may, at any time, claim to have had against any or all of
the Released Parties, whether arising out of or in connection with any
transactions between the Executing Shareholders and any or all of the Released
Parties prior
Agreement and Plan of Merger - Page 35
<PAGE>
to, or otherwise arising with respect to any fact, circumstance, act or omission
occurring prior to or on the Closing Date; provided, however, that such release
shall not apply to any breach by Purchaser of its representations, warranties
and agreements set forth in this Agreement and the other Purchase Agreements to
which they are a party.
(b) If the Closing occurs, the Executing Shareholders covenant not
to sue or otherwise institute, cause to be instituted or in any way participate
in, any legal or administrative proceeding against any of the Released Parties
with respect to any claims (as defined by Section 101 of the United States
Bankruptcy Code, as amended), debts, demands, actions, causes of action, suits,
accounts, damages and liabilities of every name and nature, both at law and in
equity, whether known or unknown (collectively, the "Claims"), that the
Executing Shareholder or the Company now has, ever had or may, at any time,
claim to have had against any of the Released Parties; provided, however, that
such covenant not to sue shall not apply to a suit or action against Purchaser
arising out of or in connection with any transactions contemplated by this
Agreement and the other Purchase Agreements to which they are a party. Each
Executing Shareholder represents and warrants that the Executing Shareholder has
not voluntarily or knowingly involuntarily assigned or suffered any transfer of
any of the Claims to any other person or entity, and they agree to indemnify and
hold harmless the Released Parties from and against any loss, damage, liability,
cost and expense (including, but not limited to, attorneys' fees incurred in
connection therewith or in connection with enforcing this indemnity) asserted
against, imposed on or incurred by any Released Parties by reason of any such
Claims which were effectively or purportedly assigned or transferred by the
Company or the Executing Shareholders.
8.12 Employment Agreements and Shareholder Agreements. On or prior to
the Closing Date, all agreements between the Company and any of its employees or
shareholders (other than agreements relating to confidentiality, ownership of
inventions and materials and similar agreements benefiting the Company) shall
have been canceled at no cost to the Company. On or prior to the Closing Date,
Employment Agreements substantially in the form attached here as Exhibit 8.12
shall be executed and delivered to Purchaser by any employees of the Company
deemed by Purchaser to be necessary or important to the continued business of
the Company, as contemplated by Purchaser.
8.13 No Transfers. The Executing Shareholders shall execute any
reasonable lock-up or similar agreement requested by the underwriters of the
Purchaser.
8.14 Special Provisions with Respect to the Company. If the Closing
occurs as provided herein, then at that time all representations, warranties,
covenants and agreements to the extent made or adopted by the Company (and only
to such extent) shall expire and be of no further force and effect, and the
Company's having made representations, warranties, covenants and agreements
shall in no way limit the liability of the Shareholders for those
representations, warranties, covenants and agreements pursuant to this
Agreement.
Agreement and Plan of Merger - Page 36
<PAGE>
8.15 Cooperation and Exchange of Information. The Parties agree to
furnish, or to cause to be furnished in good faith to each other, such
cooperation and assistance as is reasonably necessary to file any future
returns, to respond to audits, to negotiate settlements with Tax authorities and
to prosecute and defend against Tax claims.
8.16 Customer Contacts. The Company shall permit Purchaser to conduct a
survey or otherwise inquire of certain or all of the Company's key customers, as
selected by Purchaser, regarding the relationship between such customer and the
Company and the impact of a change in control on such relationship. The Company
shall assist Purchaser in making such survey or inquiries and shall have the
right to have a representative of its choice participate therein.
8.17 Additional Financial Statements. As soon as practicable after the
end of every month (but in no event later than the twentieth day of the
following month) beginning with the month in which this Agreement is signed, the
Company will deliver to Purchaser an unaudited combined balance sheet as of the
end of such month, and related combined statements of income, stockholders'
equity and cash flows for such month, each certified by an officer of the
Company as meeting the standards for financial statements set forth in Section
5.4.
8.18 Information Statement and Written Consent. The Company shall
deliver to the Shareholders copies of the Information Statement describing
Purchaser and the shares of Purchaser Common Stock to be issued in the Merger
which shall be prepared by Purchaser, and a Written Consent with respect to the
approval of this Agreement and the Merger (the "Proxy Statement"), which shall
be prepared by the Company, each of which shall be in compliance with applicable
Law and subject to review and approval of Purchaser and the Company. The
Executing Shareholders shall be responsible for the accuracy of the information
supplied by the Company or the Shareholders for inclusion therein, and Purchaser
shall be responsible for the accuracy of the information supplied by Purchaser
for inclusion therein.
8.19 Tax Free Transaction. The Parties intend that the Merger shall be
treated as a tax free reorganization under the Code to the extent the
consideration is Purchaser Common Stock, shall report the Merger as such for
federal and state income tax purposes, and shall take no action after the
Effective Time to adversely effect the status of the Merger as a tax-free
reorganization under the Code to the extent the consideration is Purchaser
Common Stock.
8.20 Shareholders' Meeting. As soon as practicable after the date of
this Agreement, the Company shall duly and properly call a special meeting of
its Shareholders for the purpose of approving this Agreement, the Merger, and
all other matters necessary to consummate the transactions contemplated hereby,
shall submit all of the foregoing to its Shareholders for such approval as soon
as reasonably practicable, shall recommend such approval and shall use its best
efforts to obtain such approval. The Shareholders may effect such approval by
written consent in lieu of a shareholders' meeting at any time after they have
had a reasonable time within which to review the Offering Memorandum and Proxy
Statement prepared in connection therewith.
Agreement and Plan of Merger - Page 37
<PAGE>
ARTICLE 9
CLOSING CONDITIONS
9.1 Conditions of Each Party's Obligations Under this Agreement. The
respective obligations of each party under this Agreement shall be subject to
the satisfaction, or, where permissible under applicable Law, waiver at or prior
to the Closing Date of the following conditions:
(a) Approvals and Regulatory Filings. All necessary Authorizations
of Governmental Authorities required to consummate the transactions contemplated
hereby shall have been obtained without any term or condition which would have a
Material Adverse Effect on the Company or Purchaser. All conditions required to
be satisfied prior to the Closing Date by the terms of such approvals and
consents shall have been satisfied; and all statutory waiting periods in respect
thereof shall have expired.
(b) Suits and Proceedings. The consummation of the transactions
contemplated hereby will not violate the provisions of any injunction, order,
judgment, decree or Law applicable or effective with respect to Purchaser or the
Company or their officers and directors. No suit or proceeding shall have been
instituted by any person, or, to the Knowledge of Purchaser, the Company or the
Shareholders, shall have been threatened by any Governmental Authority, and not
subsequently withdrawn, dismissed or otherwise eliminated, which seeks (i) to
prohibit, restrict or delay consummation of the transactions contemplated hereby
or to limit in any material respect the right of Purchaser to control any
material aspect of the business of Purchaser or the Company after the Closing
Date, or (ii) to subject Purchaser or the Company or their respective directors
or officers to material liability on the ground that it or they have breached
any Law or otherwise acted improperly in relation to the transactions
contemplated by this Agreement.
(c) Consummation of Other Agreements. The consummation of the
acquisition of The Bankers Bank and TIB The Independent BankersBank shall have
been completed or shall be completed either simultaneously with or immediately
after the transactions contemplated by this Agreement.
9.2 Conditions to the Obligations of Purchaser under this Agreement. The
obligations of the Purchaser under this Agreement shall be further subject to
the satisfaction or waiver, at or prior to the Closing Date (and continued until
the Closing Date), of the following conditions:
(a) Representations and Warranties; Covenants and Agreements;
Consents. The representations and warranties of the Company and the Shareholders
contained in this Agreement and the other Purchase Agreements shall be true and
correct in all material respects as of the date hereof and shall also be true
and correct in all material respects on the Closing Date as though made on and
as of the Closing Date, except that those representations and warranties which
are confined to a particular date shall speak only as of such date, and the
Company and the Shareholders shall have performed in all material respects the
agreements,
Agreement and Plan of Merger - Page 38
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covenants and obligations to be performed by it or them at or prior to the
Closing Date. All Authorizations of or with any Governmental Authority or other
third party that are required for or in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby by the Company and the Shareholders shall have been obtained or made.
(b) Certificates. The Shareholders shall have furnished Purchaser
with such certificates of the Company and its authorized officers, Shareholders
or others and such other documents to evidence fulfillment of the conditions set
forth in this Article 9 and otherwise to consummate the transactions
contemplated pursuant to this Agreement as Purchaser may reasonably request.
(c) Work Product Agreements. The Shareholders shall have delivered
to Purchaser an Assignment of Work Product Agreement, in appropriate form,
signed by all persons who have developed, modified or otherwise had access to
the source code for the Software.
(d) Execution of Agreement; Board and Shareholder Approval. All of
the Shareholders who are Accredited Investors shall have executed this Agreement
and Shareholders who are not Accredited Investors holding at least ninety-eight
percent (98%) of the outstanding shares of Company Common Stock held by
Shareholders who are not Accredited Investors shall have executed an agreement
with the Purchaser in the form attached as Exhibit 9.2(d) (the "Non-Accredited
Shareholder Agreement"). The Board of Directors of the Company shall have
approved this Agreement and the Merger in accordance with the GBCC. No less than
ninety-nine percent (99%) of all of the outstanding shares of Company Common
Stock shall have been voted to approve this Agreement and the other Purchase
Agreements and the Merger and the other transactions contemplated hereby in
accordance with the GBCC.
(e) No Material Adverse Effect on the Company. No event shall have
occurred and no fact or circumstance shall have arisen which has had a Material
Adverse Effect on the Company.
(f) No Interest in Software. Except as set forth in Company
Disclosure Schedule 9.2(f), the Company shall have eliminated or provided for
the elimination of any and all claims to ownership, access, copies, source code
and license and royalty interests in all software and systems associated with
the Company's software.
(g) Release of Obligations. Other than the obligations to The
InterCept Group, Inc. or its Affiliates, all obligations of the Company pursuant
to any loan, lease, guaranty, commitment or other undertaking of the Company,
the Shareholders or any of its or their Subsidiaries and other Affiliates,
whether as maker, guarantor or otherwise, shall have been fully and permanently
released or satisfied pursuant to documents and agreements satisfactory in all
respects to Purchaser and its counsel.
Agreement and Plan of Merger - Page 39
<PAGE>
(h) Escrow Agreement. The parties to the Escrow Agreement other than
the Purchaser shall have executed and delivered to Purchaser the Escrow
Agreement.
9.3 Conditions to the Obligations of the Company and the Shareholders
under this Agreement. The obligations of the Company and the Shareholders under
this Agreement shall be further subject to the satisfaction or waiver, at or
prior to the Closing Date, of the following conditions:
(a) Representations and Warranties; Covenants and Agreements;
Consents. The representations and warranties of the Purchaser contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and shall also be true and correct in all material respects on the
Closing Date as though made on and as of the Closing Date, and Purchaser shall
have performed in all material respects the agreements, covenants and
obligations to be performed by it at or prior to the Closing Date. All
Authorizations of or with any Governmental Authority or other third party that
are required for or in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby by the
Purchaser shall have been obtained or made, except where the failure to obtain
any such Authorizations would not have a Material Adverse Effect on Purchaser.
(b) Certificates. Purchaser shall have furnished the Company and the
Shareholders with such certificates of its officers or others and such other
documents to evidence fulfillment of the conditions set forth in this Article 9
and otherwise to consummate the transactions contemplated pursuant to this
Agreement as the Company and the Shareholders may reasonably request.
(c) Escrow Agreement. Purchaser shall have executed and delivered
the Escrow Agreement.
(d) Registration Rights Agreement. Purchaser shall have executed and
delivered the Registration Rights Agreement in the form attached hereto as
Exhibit 9.3(d).
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated prior to the Closing
Date, whether before or after approval of this Agreement by the shareholders of
the Purchaser and the Company:
(a) by mutual written consent of Purchaser and the Shareholders
Representative;
(b) by Purchaser or the Shareholders Representative if the Closing
Date shall not have occurred on or prior to the Deadline Date; provided,
however, that the right to terminate this Agreement under this Section 10.1(b)
shall not be available to any Party whose
Agreement and Plan of Merger - Page 40
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action or failure to act has been a principal cause of or resulted in the
failure of the transaction contemplated by this Agreement to occur on or before
such date and such action or failure to act constitutes a willful and material
breach of this Agreement;
(c) by Purchaser, if there has been a material breach of any
representation, warranty, covenant, agreement or obligation of the Company or
any Shareholder hereunder in each case which either is not capable of being
remedied, or, if capable of being remedied, shall not have been remedied within
10 days after receipt by the Company or the Shareholders Representative, as
appropriate, of notice in writing from Purchaser specifying the nature of such
breach and requesting that it be remedied;
(d) by the Shareholders Representative, if there has been a material
breach in any representation, warranty, covenant, agreement or obligation of the
Purchaser hereunder in each case which either is not capable of being remedied,
or, if capable of being remedied, shall not have been remedied within 10 days
after receipt by the Purchaser, as the case may be, of notice in writing from
the Shareholders specifying the nature of such breach and requesting that it be
remedied;
(e) by Purchaser if any of the conditions set forth in Section 9.1
or 9.2 is not satisfied and is no longer capable of being satisfied by the
Closing Date; or
(f) by the Shareholders Representative if any of the conditions set
forth in Section 9.1 or 9.3 is not satisfied and is no longer capable of being
satisfied by the Closing Date.
10.2 Effect of Termination. If any Party terminates and abandons this
Agreement pursuant to Section 10.1, this Agreement, other than Section 8.5(b),
Section 10.2, Section 10.3, Article 11 and Section 12.1 (each of which shall
survive termination), shall forthwith become void and have no effect, without
any liability on the part of any Party or its officers, directors or
shareholders; provided, however, that nothing contained in this Section 10.2
shall relieve any Party from any liability for any breach of this Agreement or
the Confidentiality Agreement.
10.3 Specific Performance. The Parties acknowledge that the rights of each
Party to consummate the transactions contemplated hereby are special, unique,
and of extraordinary character, and that, in the event any Party either violates
or fails or refuses to perform any covenant made by it herein, the other Party
or Parties will be without adequate remedy at law. Each Party agrees, therefore,
that in the event that it violates, fails or refuses to perform any covenant or
agreement made by it herein, the other Party or Parties, so long as it or they
are not in breach hereof, may, in addition to the remedies at law, institute and
prosecute an action in a court of competent jurisdiction to enforce specific
performance of such covenant or agreement or seek any other equitable relief.
10.4 Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of all the Parties hereto.
Agreement and Plan of Merger - Page 41
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10.5 Extension; Waiver. The Parties may, at any time prior to the Closing
Date, (a) extend the time for the performance of any of the obligations or other
acts of the other Parties; (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant thereto; or
(c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of any Party to any extension or waiver shall be valid
only if it is set forth in an instrument in writing signed on behalf of the
Party against which the waiver is sought to be enforced and shall apply only to
the specific condition, representation or warranty identified by the writing as
being waived, extended or modified.
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification by the Company and Shareholders. Subject to the terms
of this Article 11, the Company and the Shareholders (but after the consummation
of the transactions contemplated by this Agreement, solely the Shareholders, and
not the Company) shall, jointly and severally, indemnify, defend, save and hold
harmless the Purchaser, and its respective subsidiaries, predecessors,
successors, directors, officers, employees, agents, representatives and assigns
(collectively, the "Purchaser Indemnified Parties"), from and against any Claims
(including, without limitation, reasonable attorneys' and accountants' fees and
expenses), together with interest and penalties, if any, awarded by court order
or otherwise agreed to (collectively, "Indemnifiable Damages"), suffered by
Purchaser Indemnified Parties that arise out of or result from any of the
following (whether or not a third party initiates the proceeding or claim giving
rise to such Indemnifiable Damages):
(a) any breach of any of the representations, warranties, covenants
or agreements made by the Company or the Shareholders in this Agreement or in
the other Purchase Agreements; or
(b) any breach of any representation, warranty, covenant or
agreement in a document, certificate or affidavit delivered by the Company or
the Shareholders at the Closing.
11.2 Indemnification by Purchaser. Subject to the terms of this Article
11, Purchaser shall indemnify, defend, save and hold harmless the Company and
the Shareholders (but after consummation of the transactions contemplated by
this Agreement, solely the Shareholders, and not the Company) (collectively, the
"Company Indemnified Parties"), from and against any Indemnifiable Damages
suffered by the Company Indemnified Parties that arise out of or result from any
of the following (whether or not a third party initiates the proceeding or claim
giving rise to such Indemnifiable Damages):
(a) any breach of any of the representations, warranties, covenants
and agreements made by Purchaser in this Agreement or in the other Purchase
Agreements; or
(b) any breach of any representation, warranty, covenant or
agreement in a document, certificate or affidavit delivered by Purchaser at the
Closing.
Agreement and Plan of Merger - Page 42
<PAGE>
11.3 Claims for Indemnification. The representations and warranties of
the Parties in this Agreement and the other Purchase Agreements shall survive
the Closing and shall remain in full force and effect until the earlier of (i)
the completion of an audit and the issuance of an audit opinion by the
Purchaser's independent public accountants with respect to the Surviving
Corporation's fiscal year ended December 31, 2000, or (ii) April 30, 2001;
provided, however, that the representations and warranties set forth in Section
5.8 shall survive until expiration of any applicable statute of limitations
(including any extensions thereof) which will preclude assertion of Tax claims
against the Company or the Surviving Corporation for matters existing on or
prior to the date of this Agreement. The Party seeking indemnification (the
"Indemnified Party") shall give the Party from whom indemnification is sought
(the "Indemnifying Party") a written notice ("Notice of Claim") within sixty
(60) days of the discovery of any loss, liability, claim or expense in respect
of which the right to indemnification contained in this Article 11 may be
claimed; provided, however, that the failure to give such notice within such
sixty (60) day period shall not result in the waiver or loss of any right to
bring such claim hereunder after such period unless, and only to the extent
that, the other Party is actually prejudiced by such failure. In the event a
claim is pending or threatened or the Indemnified Party has a reasonable belief
as to the validity of the basis for such claim, the Indemnified Party may give
written notice (a "Notice of Possible Claim") of such claim to the Indemnifying
Party, regardless of whether a loss has arisen from such claim. A Party shall
have no liability under this Article 11 for breach of a representation or
warranty, unless a Notice of Claim or Notice of Possible Claim therefor is
delivered by the Indemnified Party prior to the Distribution Date (as defined in
the Escrow Agreement); provided, however, that the limitations set forth in this
Section 11.3 shall not apply to liability under this Article 11 for any
intentional breach of a representation or warranty in this Agreement. Any Notice
of Claim or Notice of Possible Claim shall set forth the representations,
warranties, covenants and agreements with respect to which the claim is made,
the specific facts giving rise to an alleged basis for the claim and the amount
of liability asserted or anticipated to be asserted by reason of the claim.
11.4 Defense of Claim by Third Parties. If any claim is made by a third
party against a Party to this Agreement that, if sustained, would give rise to a
liability of another Party under this Agreement, the Party against whom the
claim is made shall promptly cause notice of the claim to be delivered to the
other Party and shall afford the other Party and its counsel, at the other
Party's sole expense, the opportunity to join in the defense and settlement of
the claim. The failure to provide such notice will not relieve the Indemnifying
Party of liability under this Agreement unless, and only to the extent that, the
Indemnifying Party is actually prejudiced by such failure.
11.5 Third Party Claim Assistance. From time to time after the Closing,
Purchaser, the Company and the Shareholders shall provide or cause their
appropriate employees or representatives to provide the other Parties with
information or data in connection with the handling and defense of any third
party claim or litigation (including counterclaims filed by the parties) in
respect to which a Party may be required to indemnify another Party under this
Agreement. The Party receiving such information or data shall
Agreement and Plan of Merger - Page 43
<PAGE>
reimburse the other Parties for all of their reasonable costs and expenses in
providing these services, including, without limitation, (i) all out of pocket,
travel and similar expenses incurred by their personnel in rendering these
services; and (ii) all fees and expenses for services performed by third parties
engaged by or at the request of such other Parties.
11.6 Settlement of Indemnification Claims. If a recipient of a Notice of
Claim desires to dispute such claim, it shall, within thirty (30) days after
receipt of the Notice of Claim, give counter-notice, setting forth the basis for
disputing such claim, to Purchaser or the Shareholders' Representative, as the
case may be. If no such counter-notice is given within such thirty (30) day
period, or if Purchaser or the Shareholders' Representative, as the case may be,
acknowledges liability for indemnification, then the amount claimed shall be
promptly satisfied as provided in Section 11.7. If, within thirty (30) days
after the receipt of counter-notice by Purchaser or the Shareholders'
Representative, as the case may be, the Shareholders' Representative and
Purchaser shall not have reached agreement as to the claim in question, then the
Party disputing the claim shall satisfy any undisputed amount as specified in
Section 11.7 and the disputed amount of the claim of indemnification shall be
submitted to and settled by arbitration in accordance with the then prevailing
commercial arbitration rules of the American Arbitration Association. Such
arbitration shall be held in the Atlanta, Georgia area before a panel of three
(3) arbitrators, one selected by each of the Parties and the third selected by
mutual agreement of the first two, and all of whom shall be independent and
impartial under the rules of the American Arbitration Association. The decision
of the arbitrators shall be final and binding as to any matter submitted under
this Agreement. To the extent the decision of the arbitrators is that a Party
shall be indemnified hereunder, the amount shall be satisfied as provided in
Section 11.7. Judgment upon any award rendered by the arbitrators may be entered
in any court of competent jurisdiction. The date of the arbitrator's decision or
the date a claim otherwise becomes payable pursuant to this Section 11.6 is
referred to as the "Determination Date."
11.7 Manner of Indemnification by the Company and Shareholders. Where
the Shareholders are obligated to indemnify the Purchaser Indemnified Parties
under Section 11.1 after the Closing Date, such indemnity obligation must be
satisfied first pursuant to the Escrow Agreement. Thereafter, and subject to the
limitations of Section 11.8 hereof, such indemnity obligation must be satisfied
by the Shareholders (or the Company, if the Closing Date fails to occur) by
paying to that Purchaser Indemnified Party cash in an amount equal to the
applicable Indemnified Damages.
11.8 Certain Limitations. Notwithstanding the foregoing in this Article
11, the indemnification obligations of the parties shall not be affected by any
investigation made by the parties hereto prior to the date hereof or the Closing
Date and shall be subject to the following limitations:
(a) No indemnification shall be made for breaches of
representations and warranties pursuant to this Article 11 until the total
Indemnifiable Damages for which the Indemnifying Party would be liable exceeds
$25,000, in which event the Indemnifying Party
Agreement and Plan of Merger - Page 44
<PAGE>
shall be obligated to indemnify to the extent the amount such Indemnifiable
Damages exceed $25,000.
(b) No indemnification shall be made for breaches of
representation and warranties pursuant to this Article 11 to the extent
Indemnifiable Damages to be paid by the Shareholders, on the one hand, or
Purchaser, on the other hand, exceed the amount held pursuant to the Escrow
Agreement, in the case of the Shareholders, or $700,000, in the case of the
Purchaser.
(c) The limitations set forth in Sections 11.8(a) and (b) shall
not apply to Damages arising out of (a) fraud, (b) intentional breaches or (c)
breaches of the representations and warranties in Sections 5.1, 5.2, 5.3,
Article 6, Sections 7.1, 7.2 and 7.3 or in the Non-Accredited Shareholder
- ---------
Agreement; provided, however, that no Shareholder will be liable under this
Section 11.8(c) for more than the Merger Consideration received by such
Shareholder, with Purchaser Common Stock valued as provided in the Escrow
Agreement as of the Determination Date, and if a Shareholder has sold any
Purchaser Common Stock in an arm's length transaction, then such Shareholder
will be liable for the amount of the sales proceeds in lieu of the Purchaser
Common Stock sold.
11.9 Exclusive Remedies. If the Closing occurs, then, subject to Section
------------------
11.8(c), the remedies provided in this Article 11 constitute the sole and
exclusive remedies for recoveries against another party for breaches of the
representations and warranties in this Agreement and for the matters
specifically listed in this Article 11 as being indemnified against, but neither
the foregoing nor anything else in this Agreement shall limit the right of a
party to enforce the performance of this Agreement or of any contract, document
or other instrument executed and delivered pursuant to this Agreement by any
remedy available to it in equity.
11.10 Tax Effect and Insurance. The liability of an Indemnifying Party
------------------------
with respect to any Indemnifiable Damages shall be reduced by the tax benefit
actually realized and any insurance proceeds received by the Indemnified Party
as a result of any losses upon which such Indemnifiable Damages are based, and
shall include any tax detriment actually suffered by the Indemnified Party as a
result of such losses or the claims hereunder. The amount of any such tax
benefit or detriment shall be determined by taking into account the effect, if
any and to the extent determinable, of timing differences resulting from the
acceleration or deferral of items of gain or loss resulting from such losses and
shall otherwise be determined so that payment by the Indemnifying Party of the
Indemnifiable Damages, as adjusted to give effect to any such tax benefit or
detriment, will make the Indemnified Party as economically whole as is
reasonably practical with respect to the losses upon which the Indemnifiable
Damages are based. Any dispute as to the amount of such tax benefit or detriment
shall be resolved by arbitration as provided in this Agreement.
11.11 Subrogation. Upon payment in full of any Indemnifiable Damages,
-----------
whether such payment is effected by set-off or otherwise, or the payment of any
judgment or settlement with respect to a third party claim, the Indemnifying
Party shall be subrogated to the extent of
Agreement and Plan of Merger - Page 45
<PAGE>
such payment to the rights of the Indemnified Party against any person or entity
with respect to the subject matter of such Indemnifiable Damages or third party
claim.
ARTICLE 12
MISCELLANEOUS
12.1 Expenses.
(a) Except as otherwise expressly stated herein, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including legal and accounting fees and expenses) shall be
borne by the Party incurring such costs and expenses and shall be paid by such
Party prior to or on the Closing Date.
(b) Notwithstanding any provision in this Agreement to the contrary,
if any of the Parties shall willfully default in its obligations hereunder, the
non-defaulting Party may pursue any remedy available at law or in equity to
enforce its rights and shall be paid by the willfully defaulting Party for all
damages, costs and expenses, including without limitation reasonable legal and
accounting expenses incurred or suffered by the non-defaulting Party in
connection herewith or in the enforcement of its rights hereunder.
12.2 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or by reputable overnight or express courier, sent by registered or certified
mail, postage prepaid, or by telefax (with subsequent delivery via one of the
two previous methods) as follows:
(a) If to Purchaser, to:
Netzee, Inc.
2410 Paces Ferry Road
150 Paces Summit
Atlanta, Georgia 30339
Attn: President and Chief Financial Officer
Telefax: (770) 805-2024
Copy (which shall not constitute notice) to:
Sutherland Asbill & Brennan LLP
999 Peachtree Street, N.E.
Suite 2300
Atlanta, Georgia 30309
Attn: Mark D. Kaufman
Telefax: (404) 853-8806
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(b) If to the Company or the Shareholders (prior to Closing), to:
Dyad Corporation
3150 Holcomb Bridge Road, Suite 200
Norcross, Georgia 30071
Attn: President
Telefax: (770) 805-2024
Copy (which shall not constitute notice) to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attn: M. Hill Jeffries
Telefax: (404) 881-4999
(c) If to the Shareholders, to the addresses identified in the share
records of the Company:
Copy (which shall not constitute notice) to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attn: M. Hill Jeffries
Telefax: (404) 881-4999
or such other addresses and telefax numbers as shall be furnished in writing by
any Party, and any such notice or communications shall be deemed to have been
given as of the next succeeding business day after the date actually sent via
overnight or express courier, five days after mailed and upon telefax
confirmation of receipt to addressee by the sender.
12.3 Parties in Interest. This Agreement shall be binding on and shall
inure to the benefit of the Parties hereto and their respective successors,
representatives and assigns. This Agreement (and the rights and interests
herein) may not be assigned by any Party without the written consent of the
other Parties; provided, however, Purchaser may assign its interests herein to
(a) an entity controlling, controlled by or under common control with Purchaser
or (b) a purchaser or transferee of all or substantially all of the business or
assets of Purchaser, whether by sale of stock or assets, merger or otherwise.
Any attempted assignment in contravention of the foregoing shall be null and
void. Nothing in this Agreement is intended to confer, expressly or by
implication, upon any other person or entity any rights or remedies under or by
reason of this Agreement.
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<PAGE>
12.4 Entire Agreement. This Agreement, which includes the Disclosure
Schedules, Exhibits and the other documents, agreements, certificates and
instruments executed and delivered pursuant to or in connection with this
Agreement (collectively, the "Purchase Agreements"), contains the entire
agreement among the Parties with respect to the transactions contemplated by
this Agreement and supersedes all prior negotiations, arrangements or
understandings, written or oral, with respect thereto.
12.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, and each of which shall
constitute one and the same agreement. Any Party may deliver an executed copy of
this Agreement and any documents contemplated hereby by facsimile transmission
to another Party, and such delivery shall have the same force and effect as any
other delivery of a manually signed copy of this Agreement or of such other
documents.
12.6 Governing Law.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF GEORGIA,
EXCLUDING CHOICE OF LAW PRINCIPLES.
(b) Purchaser, the Company and the Shareholders consent to the
exclusive jurisdiction and venue of the courts of any county in the State of
Georgia and the United States Federal District Courts of Georgia, in any
judicial proceeding brought to enforce this Agreement. The Parties agree that
any forum other than the State of Georgia is an inconvenient forum and that a
lawsuit (or non-compulsory counterclaim) brought by one Party against another
Party, in a court of any jurisdiction other than the State of Georgia should be
forthwith dismissed or transferred to a court located in the State of Georgia.
12.7 Arbitration.
(a) Notwithstanding Section 12.6(b), any dispute, controversy or
claim arising out of or relating to this Agreement or any other related
documents, agreements, certificates or other writing, or the breach,
termination, construction, validity or enforceability hereof or thereof, shall
be settled by binding arbitration in accordance with the rules of the American
Arbitration Association (except as otherwise provided in this Section 12.7).
(b) Termination or limitation of Purchaser's rights in any of its
software, products, or any associated intellectual property rights or documents
may not be awarded under any circumstances. The right to demand arbitration and
to receive damages and obtain other available remedies as provided hereunder
shall be the exclusive remedy in the event an arbitration demand is made, except
that Purchaser shall be entitled to obtain equitable relief, such as injunctive
relief, from any court of competent jurisdiction to protect its rights in any of
its software products or any associated intellectual property rights or
documents while such proceeding is pending or in support of any award made
pursuant to such arbitration.
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12.8 Invalidity of any Part. If any provision or part of this Agreement
shall for any reason be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Agreement and shall be construed as if such invalid, illegal
or unenforceable provision or part thereof had never been contained herein, but
only to the extent of its invalidity, illegality, or unenforceability. Upon any
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the Parties hereto will negotiate in good faith to
modify this Agreement so as to effect the original intent of the Parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated by this Agreement are consummated to the extent possible.
12.9 Time of the Essence; Computation of Time. Time is of the essence of
each and every provision of this Agreement. Whenever the last day for the
exercise of any right or the discharge of any duty under this Agreement shall
fall upon Saturday, Sunday or a federal, public or legal holiday, the Party
having such right or duty shall have until 5:00 p.m., Atlanta, Georgia time on
the next succeeding regular business day to exercise such right or to discharge
such duty.
12.10 Shareholders Representative.
(a) By executing this Agreement, each of the Shareholders
(notwithstanding any Shareholder's current or future mental or physical
disability or incompetency) hereby irrevocably constitutes and appoints J.T.
Moore and his successors, acting as hereinafter provided, as his attorney-in-
fact and agent in his name, place and stead in connection with the transactions
and agreements contemplated by this Agreement with respect to matters: (i) prior
to the Closing Date, as specified herein, and (ii) subsequent to the Closing
Date (the "Shareholders' Representative"), and acknowledges that such
appointment is coupled with an interest. By executing this Agreement under the
heading "Shareholders' Representative," J.T. Moore hereby (i) accepts his
appointment and authorization to act as Shareholders' Representative as
attorney-in-fact and agent on behalf of the Shareholders in accordance with the
terms of this Agreement, and (ii) agrees to perform his obligations under, and
otherwise comply with, this Section 12.10.
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(b) Each Shareholder by this Agreement fully and completely hereby:
(a) authorizes the Shareholders' Representative (i) to dispute or to refrain
from disputing any claim made by Purchaser under this Agreement or the other
Purchase Agreements, (ii) to negotiate and compromise any dispute which may
arise under, and to exercise or refrain from exercising remedies available under
this Agreement or the other Purchase Agreements and to sign any release or other
document with respect to such dispute or remedy, (iii) to give such instructions
and to do such other things and refrain from doing such other things as the
Shareholders' Representative shall deem necessary or appropriate to carry out
the provisions of this Agreement or the other Purchase Agreements (iv) waive any
condition to the Closing, and (v) to agree in his discretion with the Purchaser
to amend this Agreement; and (b) agrees to be bound by all agreements and
determinations made by and documents executed and delivered by the Shareholders'
Representative under this Agreement or the other Purchase Agreements.
(c) Each of the Shareholders hereby expressly acknowledges and agrees
that the Shareholders' Representative is authorized to act on his behalf,
notwithstanding any dispute or disagreement between the Shareholders, and that
Purchaser and any other person or entity shall be entitled to rely on any and
all actions taken by the Shareholders' Representative under this Agreement or
the other Purchase Agreements without any liability to, or obligation to inquire
of, any of the Shareholders. Purchaser and any other person or entity is hereby
expressly authorized to rely on the genuineness of the signatures of both
members of the Shareholders' Representative, and upon receipt of any writing
which reasonably appears to have been signed by Shareholders' Representative,
Purchaser and any other person or entity may act upon the same without any
further duty of inquiry as to the genuineness of the writing.
(d) If J.T. Moore ceases to function in his capacity as the
Shareholders' Representative for any reason whatsoever, then C. Michael Bowers
shall have the right to appoint a successor.
(e) The authorizations of the Shareholders' Representative shall be
effective until his rights and obligations under this Agreement terminate by
virtue of the termination of any and all obligations of the Shareholders to the
Purchaser under this Agreement.
(f) Shareholders who execute this Agreement shall jointly and
severally indemnify the Shareholders' Representative and his successor and
assigns harmless from and against any and all claims, liabilities, losses,
damages, fines, penalties and expenses, including out-of-pocket expenses and
legal fees and expenses that may be imposed in connection with or arising out of
the performance by the Shareholders' Representative under this Agreement,
provided that the Shareholders' Representative has not acted with gross
negligence or in bad faith or exhibited willful misconduct.
[Remainder of Page Intentionally Left Blank.]
Agreement and Plan of Merger-Page 50
<PAGE>
IN WITNESS WHEREOF, Purchaser, the Company and the Executing Shareholders
have caused this Agreement to be executed by their duly authorized officers as
of the day and year first above written.
PURCHASER:
NETZEE, INC.
By: /s/ Glenn W. Sturm
-----------------------------
Name: Glenn W. Sturm
---------------------------
Title: Chief Executive Officer
--------------------------
THE COMPANY
DYAD CORPORATION
By: /s/ C. Michael Bowers
-----------------------------
Name: C. Michael Bowers
---------------------------
Title: President
--------------------------
THE SHAREHOLDERS:
________________________________
Gary T. Anderson
________________________________
William R. Asbell, Jr.
/s/ C. Michael Bowers
________________________________
C. Michael Bowers
________________________________
William J. Ching
________________________________
Jonathan R. Coe
Agreement and Plan of Merger-Page 51
<PAGE>
/s/ John W. Collins
----------------------------------
John W. Collins
FDS, LLC
By: /s/ John W. Collins
-------------------------------
Name:_____________________________
Title:____________________________
/s/ Jim Graves
----------------------------------
Jim Graves
__________________________________
Neil E. Grayson
/s/ William D. Hasewinkle
----------------------------------
William D. Hasewinkle
__________________________________
Andrew L. Howell
INTERCEPT HOLDING COMPANY, INC.
By: /s/ Donny R. Jackson
-------------------------------
Name: Donny R. Jackson
-----------------------------
Title: President
----------------------------
/s/ Donny R. Jackson
----------------------------------
Donny R. Jackson
JCB VENTURE PARTNERSHIP III
By: /s/ Robert S. Doolittle
-------------------------------
Name: Robert S. Doolittle
-----------------------------
Title: Partner
----------------------------
__________________________________
Jonathan H. Klapper
/s/ Michael C. Nunan
----------------------------------
Michael C. Nunan
Agreement and Plan of Merger - Page 52
<PAGE>
/s/ David L. Patten
----------------------------------
David L. Patten
PHOENIX INTERNATIONAL LTD., INC.
By: /s/ Bahram Yusefzadeh
-------------------------------
Name: Bahram Yusefzadeh
-----------------------------
Title: CHM & CEO
----------------------------
PICKERING INVESTMENTS
By:_______________________________
Name:_____________________________
Title:____________________________
SIRROM INVESTMENTS, INC.
By: /s/ Michael P. Keller
-------------------------------
Name: Michael P. Keller
-----------------------------
Title: Vice President
----------------------------
__________________________________
Susan L. Spencer
__________________________________
John W. Spencer, II
/s/ Glenn W. Sturm
__________________________________
Glenn W. Sturm
/s/ Mike Sulpy
----------------------------------
Mike Sulpy
TAF, L.P.
By:_______________________________
Name:_____________________________
Title:____________________________
__________________________________
Charles D. Vaughn
Agreement and Plan of Merger - Page 53
<PAGE>
EXHIBIT 2.3
ASSET CONTRIBUTION AGREEMENT
September 3, 1999
By and Among
THE INTERCEPT GROUP, INC.
(A Georgia Corporation)
NETZEE, INC.
(A Georgia Corporation)
And
THE BANKERS BANK
(A Georgia Banking Corporation)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE 1. THE CONTRIBUTION..................................................................... 2
Section 1.1. Contribution of Assets......................................................... 2
Section 1.2. Assumption of Liabilities...................................................... 2
Section 1.3. Time and Place of Closing...................................................... 2
ARTICLE 2. [Reserved]........................................................................... 2
ARTICLE 3. CONSIDERATION AND PAYMENT OF CONSIDERATION........................................... 2
Section 3.1. Consideration.................................................................. 2
Section 3.2. Payment of Consideration....................................................... 3
Section 3.3. Adjustment of Company Common Stock............................................. 3
Section 3.4. Legending of Securities........................................................ 3
ARTICLE 4. RULES OF CONSTRUCTION................................................................ 4
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR..................................... 7
Section 5.1. Organization................................................................... 7
Section 5.2. Authority; No Violation........................................................ 7
Section 5.3. Financial Statements........................................................... 8
Section 5.4. Broker's and Other Fees........................................................ 9
Section 5.5. Absence of Certain Changes or Events........................................... 9
Section 5.6. Legal Proceedings.............................................................. 9
Section 5.7. Taxes and Tax Returns.......................................................... 9
Section 5.8. Employee Benefit Plans and Relations........................................... 9
Section 5.9. Compliance with Applicable Laws................................................ 10
Section 5.10. Certain Contracts.............................................................. 10
Section 5.11. Properties and Insurance....................................................... 11
Section 5.12. Environmental Matters.......................................................... 12
Section 5.13. Intellectual Property.......................................................... 12
(a) Ownership................................................................ 12
(b) Procedures for Copyright Protection...................................... 12
(c) Procedures for Trade Secret Protection................................... 12
(d) Absence of Claims........................................................ 12
Section 5.14. Adequacy of Technical Documentation............................................ 13
Section 5.15. Third-Party Components in Software............................................. 13
Section 5.16. Third-Party Interests or Marketing Rights in Software.......................... 13
Section 5.17. Absence of Certain Agreements and Practices.................................... 13
Section 5.18. Major Vendors and Customers.................................................... 14
Section 5.19. Accounts Receivable............................................................ 14
Section 5.20. Bank Accounts.................................................................. 14
Section 5.21. Combinations Involving the Division............................................ 14
</TABLE>
Asset Purchase Agreement - Page i
<PAGE>
<TABLE>
<S> <C>
Section 5.22. Labor Relations................................................................ 14
Section 5.23. Year 2000 Matters.............................................................. 15
Section 5.24. Securities Act Compliance...................................................... 15
Section 5.25. Access to Information.......................................................... 15
Section 5.26. Experience; Investment......................................................... 15
Section 5.27. Tax Advice..................................................................... 16
Section 5.28. Disclosure..................................................................... 16
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF INTERCEPT........................................... 16
Section 6.1. Corporate Organization......................................................... 17
Section 6.2. Authority; No Violation........................................................ 17
Section 6.3. Broker's and Other Fees........................................................ 17
Section 6.4. Legal Proceedings.............................................................. 18
Section 6.5. Disclosure..................................................................... 18
ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................... 18
Section 7.1. Corporate Organization......................................................... 18
Section 7.2. Capitalization................................................................. 18
Section 7.3. Authority; No Violation........................................................ 19
Section 7.4. Financial Statements........................................................... 20
Section 7.5. Broker's and Other Fees........................................................ 21
Section 7.6. Absence of Certain Changes or Events........................................... 21
Section 7.7. Legal Proceedings.............................................................. 21
Section 7.8. Properties and Insurance....................................................... 21
Section 7.9. Intellectual Property.......................................................... 22
(a) Ownership............................................................... 22
(b) Procedures for Copyright Protection..................................... 22
(c) Procedures for Trade Secret Protection.................................. 22
(d) Absence of Claims....................................................... 23
(e) Third Party Interests in Software....................................... 23
Section 7.10. Adequacy of Technical Documentation............................................ 23
Section 7.11. Third-Party Components in Company's Software................................... 23
Section 7.12. Third-Party Interests or Marketing Rights in Software.......................... 23
Section 7.13. Compliance with Laws........................................................... 24
Section 7.14. Taxes and Tax Returns.......................................................... 24
Section 7.15. Corporate Records.............................................................. 25
Section 7.16. Combinations Involving the Company............................................. 25
Section 7.17. No Prior Operations............................................................ 25
Section 7.18. Diligence...................................................................... 25
Section 7.19. SBS Corporation................................................................ 25
Section 7.20. Disclosure..................................................................... 25
ARTICLE 8. COVENANTS AND AGREEMENTS OF THE PARTIES............................................... 25
Section 8.1. Conduct of Business............................................................ 25
Section 8.2. Negative Covenants............................................................. 26
Section 8.3. No Solicitation................................................................ 27
</TABLE>
Asset Purchase Agreement - Page ii
<PAGE>
<TABLE>
<S> <C>
Section 8.4. Current Information............................................................ 28
Section 8.5. Access to Properties and Records; Confidentiality.............................. 28
Section 8.6. Regulatory Matters; Consents; Cooperation, etc................................. 29
Section 8.7. Parties' Efforts; Further Assurances; Cooperation.............................. 29
Section 8.8. Public Announcements........................................................... 29
Section 8.9. Noncompetition, Nonsolicitation and Confidentiality Agreement.................. 29
Section 8.10. Disclosure Supplements......................................................... 30
Section 8.11. Cooperation and Exchange of Information........................................ 30
Section 8.12. Customer Contacts.............................................................. 30
Section 8.13. Employees...................................................................... 30
Section 8.14. Non-Assignable Purchased Contracts............................................. 30
ARTICLE 9. CLOSING CONDITIONS.................................................................... 31
Section 9.1. Conditions of Each Party's Obligations Under this Agreement.................... 31
(a) Approvals and Regulatory Filings.......................................... 31
(b) Suits and Proceedings..................................................... 31
Section 9.2. Conditions to the Obligations of InterCept and the Company under this
Agreement...................................................................... 32
(a) Representations and Warranties; Covenants and Agreements;
Consents.................................................................. 32
(b) Certificates.............................................................. 32
(c) Noncompetition, Nonsolicitation and Confidentiality Agreement............. 32
(d) Work Product Agreements................................................... 32
(e) No Material Adverse Effect on the Division................................ 33
(f) Lease..................................................................... 33
Section 9.3. Conditions to the Obligations of the Transferor under this Agreement........... 33
(a) Representations and Warranties; Covenants and Agreements
Consents.................................................................. 33
(b) Certificates.............................................................. 33
(c) Noncompetition, Nonsolicitation and Confidentiality Agreement............. 33
(d) No Material Adverse Effect................................................ 33
(e) Approvals................................................................. 33
(f) Registration Rights Agreement............................................. 34
(g) Marketing Agreement....................................................... 34
(h) Company's Board........................................................... 34
(i) Completion of Due Diligence on Company.................................... 34
(j) Lease..................................................................... 34
ARTICLE 10. TERMINATION, AMENDMENT AND WAIVER..................................................... 34
Section 10.1. Termination.................................................................... 34
Section 10.2. Effect of Termination.......................................................... 35
Section 10.3. Specific Performance........................................................... 35
Section 10.4. Amendment...................................................................... 35
Section 10.5. Extension; Waiver.............................................................. 35
</TABLE>
Asset Purchase Agreement - Page iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 11. INDEMNIFICATION......................................................................... 36
Section 11.1. Indemnification by the Transferor................................................. 36
Section 11.2. Indemnification by InterCept...................................................... 36
Section 11.3. Indemnification by Company........................................................ 36
Section 11.4. Claims for Indemnification........................................................ 37
Section 11.5. Defense of Claim by Third Parties................................................. 37
Section 11.6. Third Party Claim Assistance...................................................... 37
Section 11.7. Settlement of Indemnification Claims.............................................. 38
Section 11.8. Certain Limitations............................................................... 38
ARTICLE 12. MISCELLANEOUS........................................................................... 39
Section 12.1. Expenses.......................................................................... 39
Section 12.2. Notices........................................................................... 39
Section 12.3. Parties in Interest............................................................... 40
Section 12.4. Entire Agreement.................................................................. 40
Section 12.5. Counterparts...................................................................... 40
Section 12.6. Governing Law..................................................................... 41
Section 12.7. Arbitration....................................................................... 41
Section 12.8. Invalidity of any Part............................................................ 41
Section 12.9. Time of the Essence; Computation of Time.......................................... 41
</TABLE>
Asset Purchase Agreement - Page iv
<PAGE>
ASSET CONTRIBUTION AGREEMENT
----------------------------
THIS ASSET CONTRIBUTION AGREEMENT (this "Agreement") is dated and effective
as of September 3, 1999, by and among THE INTERCEPT GROUP, INC., a Georgia
corporation ("InterCept"), NETZEE, Inc., a Georgia corporation (the "Company"),
and THE BANKERS BANK, a Georgia banking corporation (the "Transferor").
InterCept, the Company, and the Transferor are hereinafter collectively called
the "Parties."
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Transferor or The Bankers Bank (as defined below) owns, leases
or licenses all of the assets used in the Internet banking business conducted by
the Transferor (the "Division");
WHEREAS, the Transferor wishes to contribute to the Company, and the
Company wishes to acquire from the Transferor, certain assets of the Transferor,
as specified in Article 1, in exchange for shares of common stock of the
---------
Company;
WHEREAS, the contribution of the Transferred Assets (as defined below) by
the Transferor to the Company in exchange for Company Common Stock (as defined
below) (the "Contribution") will be effected pursuant to an overall plan of the
Company, which involves the following transactions:
a. The contribution of the Transferred Assets (as defined below);
b. The transfer by The Bankers Bank, a Georgia banking corporation
("The Bankers Bank"), of certain of its assets to the Company in exchange
for shares of Company Common Stock;
c. Direct Access Interactive, Inc., a Georgia corporation ("Direct
Access"), will be merged into the Company in exchange for shares of Company
Common Stock;
d. Dyad Corporation, a Georgia corporation ("Dyad") will be merged
into the Company in exchange for shares of Company Common Stock; and
e. The transfer of all of the membership interests in Call Me Bill,
LLC, a Kentucky limited liability company ("CMB"), to the Company in
exchange for cash.
WHEREAS, it is intended that the Contribution and above series of related
and integrated transactions (overall, the "Exchange") qualify for treatment
under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
WHEREAS, the Boards of Directors of InterCept and the Company have approved
the terms and conditions set forth herein.
Asset Purchase Agreement - Page 1
<PAGE>
ARTICLE 1
THE CONTRIBUTION
1.1 Contribution of Assets. Upon the terms and subject to the conditions
----------------------
of this Agreement, the Transferor shall contribute, assign, deliver and transfer
to the Company and the Company shall receive from the Transferor, all of the
Transferor's right, title and interest in and to the Division, specified or
described on Schedule 1.1, wherever such assets are located and whether
------------
personal, tangible or intangible, in electronic form or otherwise, and whether
or not any of such assets have any value for accounting purposes or are carried
or reflected on or specifically referred to in the Transferor's books or
financial statements, free and clear of all encumbrances except those that
relate to the Assumed Liabilities (as defined below). The properties, business
and assets of the Division, or otherwise utilized by the Division, and to be
transferred hereunder shall be referred to as the "Transferred Assets."
1.2 Assumption of Liabilities. Upon the terms and subject to the
-------------------------
conditions of this Agreement, the Company agrees to assume at the Closing and
become responsible for all of the liabilities and obligations of Transferor set
forth on Schedule 1.2 and all liabilities and obligations of the Division
------------
accruing under or pursuant to each Non-Assignable Purchased Contract from and
after the date on which all consents required for the transfer and assignment of
such Non-Assignable Purchased Contract have been obtained and delivered to the
Company as contemplated by Section 8.14 hereto (the "Assumed Liabilities"). The
Company will not assume or have any responsibility, however, with respect to any
other obligation or liability of Transferor of any kind or nature whatsoever not
specifically included within the definition of Assumed Liabilities.
1.3 Time and Place of Closing. The consummation of the transactions
-------------------------
contemplated by this Agreement (the "Closing") shall take place at the offices
of Sutherland Asbill & Brennan, LLP, 999 Peachtree Street, N.E., Suite 2300,
Atlanta, Georgia 30309 at 10:00 a.m. on the first business day after all
conditions set forth in Article 9 have been met or at such other place and time
---------
as the Company and Transferor may agree (the "Closing Date"). At the Closing,
the parties shall execute and deliver the certificates, opinions and other
instruments and documents referred to in Article 9.
---------
ARTICLE 2
[Reserved]
ARTICLE 3
CONSIDERATION AND PAYMENT OF CONSIDERATION
3.1 Consideration. Subject to the terms of this Agreement and the related
-------------
agreements and documents, the consideration for all of the Transferred Assets
and Assumed Liabilities (the "Consideration") shall be 1,361,000 shares of
common stock, no par value, of the Company ("Company Common Stock").
Asset Purchase Agreement - Page 2
<PAGE>
3.2 Payment of Consideration. At the Closing, the Company shall deliver
------------------------
(or cause to be delivered) and InterCept shall cause to be delivered the
Consideration to Transferor in the form of a certificate or certificates for
Company Common Stock in the name of the Transferor or its assigns.
3.3 Adjustment of Company Common Stock.
----------------------------------
In addition to any adjustments made pursuant to the Antidilution Agreement,
in the event that at any time after the date hereof and prior to the Closing
Date, the Company shall effect (i) a dividend or other distribution with respect
to Company Common Stock, payable in Company Common Stock or other property
(other than cash), (ii) a combination or conversion of outstanding Company
Common Stock into a smaller number of shares of such Company Common Stock, (iii)
a split or subdivision of outstanding Company Common Stock into a greater number
of shares of Company Common Stock, or (iv) any reorganization or
reclassification, or any consolidation or merger of the Company with another
corporation where the Company is not the surviving corporation, or the sale of
all or substantially all of its assets to another corporation, in such a way
that holders of outstanding Company Common Stock shall be entitled to receive
(either directly or upon subsequent liquidation) stock, securities or other
property with respect to or in exchange for Company Common Stock (any such event
described in clauses (i) through (iv) above referred to as a "Diluting Event"),
then, as a condition of such Diluting Event, lawful and adequate provision shall
be made whereby the Transferor shall thereafter be entitled to receive (under
the same terms otherwise applicable to its receipt of Company Common Stock
hereunder), in addition to or in lieu of (as the case may be) the number of
shares of Company Common Stock, to which the Transferor is entitled immediately
prior to such Diluting Event, such shares of stock, securities or other property
as may be issued or payable with respect to or in exchange for that number of
shares of Company Common Stock to which the Transferor was so entitled, and in
any case appropriate provision shall also be made with respect to the
Transferor's rights and interests to the end that the provisions of this Section
-------
3.3 shall thereafter be applicable in relation to any shares of stock,
- ---
securities or other property thereafter deliverable to the Transferor pursuant
to the provisions hereof.
3.4 Legending of Securities.
-----------------------
(a) The shares of Company Common Stock to be delivered in connection
with this Agreement will be issued in a transaction exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act") by reason of
Section 4(2) thereof, Regulation D promulgated thereunder, or other private
offering exemptions, and similar exemptions under applicable state securities
laws (the "State Acts"), and the Company is relying on the representations of
the Transferor with respect to such exemptions. The Transferor understands and
agrees that stop transfer instructions with respect to the shares of Company
Common Stock received by the Transferor pursuant to this Agreement will be given
to the Company's transfer agent and that there will be placed on the
certificates for such shares a legend stating in substance as follows:
The securities represented hereby have not been registered
under the Securities Act of 1933, as amended, or any state
securities laws and may not be offered, sold, transferred or
otherwise disposed of unless registered with the United
Asset Purchase Agreement - Page 3
<PAGE>
States Securities and Exchange Commission and the securities
regulatory authorities of applicable states or unless an
exemption from such registration is available.
(b) The foregoing legend will also be placed on any certificate
representing securities issued subsequent to the original issuance of the
Company Common Stock pursuant to this Agreement as a result of any transfer of
such shares or any stock dividend, stock split or other recapitalization as long
as the Company Common Stock issued to the Transferor pursuant to this Agreement
has not been transferred in such manner to justify the removal of the legend
therefrom.
(c) Removal of Legends. Notwithstanding the foregoing provisions of
------------------
this Section 3.4, the Company agrees to notify the Company's transfer agent to
-----------
remove all stop transfer instructions with respect to the shares of Company
Common Stock received by the Transferor and to issue to the holder thereof a new
certificate or certificates for such shares not bearing the restrictive legend
set forth in Section 3.4(a) when (i) any such shares are sold or otherwise
-------------
disposed of pursuant to an effective registration statement under the Securities
Act, (ii) the holder of such shares has met the requirements for transfer of
such shares pursuant to subparagraph (k) of Rule 144 under the Securities Act,
or (iii) in the opinion of counsel reasonably acceptable to the Company,
registration of any future transfer of such shares is not required by the
Securities Act or applicable State Acts.
ARTICLE 4
RULES OF CONSTRUCTION
In the interpretation of this Agreement, unless otherwise provided or
the context otherwise requires:
(a) The singular includes the plural and vice versa and, in
particular (but without limiting the generality of the foregoing), any word or
expression defined in the singular has the corresponding meaning used in the
plural and vice versa;
(b) Any reference to any gender includes the other gender;
(c) Any reference to an Article, Section, Exhibit, clause, subclause,
paragraph, subparagraph, Schedule or recital is a reference to an Article,
Section, Exhibit, clause, subclause, paragraph, subparagraph, Schedule or
recital of this Agreement;
(d) Any reference to any agreement, instrument or other document (i)
shall include all appendices, exhibits and schedules thereto and all agreements,
documents or other writings incorporated by reference therein, and (ii) shall be
a reference to such agreement, instrument or other document as amended,
supplemented, modified, suspended, restated or novated from time to time;
(e) Any reference to any statute shall be construed as including all
statutory provisions consolidating, amending or replacing such statute and all
governmental regulations and rules promulgated thereunder;
Asset Purchase Agreement - Page 4
<PAGE>
(f) Any reference to "writing" includes printing, typing, lithography
and other means of reproducing words in a visible form;
(g) Any reference to a time or date or to a local time or date is a
reference to the time and date in Atlanta, Georgia;
(h) The headings and Article, Section and paragraph numbering
contained in this Agreement are used solely for convenience and do not
constitute a part of this Agreement, nor shall such headings and numbering be
used in any manner to aid in the construction of this Agreement;
(i) References herein to the "Transferor Disclosure Schedules" mean
the disclosure schedules, dated as of the date hereof, which have been delivered
by the Transferor to InterCept and the Company and all other documents,
agreements, and other items disclosed by Transferor in writing to InterCept and
the Company and attached to such schedules in connection with this Agreement,
and references to a numbered Transferor Disclosure Schedule shall mean that
portion of the Transferor Disclosure Schedules that refers to the specific
section or subsection of Article 5 of this Agreement;
---------
(j) The terms "disclosed by InterCept" and "disclosed by the Company"
mean and include, unless the context indicates otherwise, with respect to
information concerning any event, fact or circumstance, information contained in
the Company's Disclosure Schedules in this Agreement and the other Contribution
Agreements (defined in Section 12.4).
------------
(k) The term "including" means "including, without limitation";
(l) The term "Governmental Authority" means any United States
federal, state or local, or foreign, governmental, regulatory or administrative
authority, agency, department, board, investigative body or commission or any
court, tribunal, or judicial or arbitral body;
(m) The term "Knowledge" as used with respect to the Transferor
(including anyreferences to the Transferor being aware of a particular matter)
means the actual knowledge of Bruce P. Leonard and Kevin M. Tweddle and
information which any of them reasonably should have known given the nature of
the disclosure, and the term "Knowledge" as used with respect to the Company
(including any references to the Company being aware of a particular matter)
means the actual knowledge of John Collins, Glenn Sturm and Scott Meyerhoff and
information which any of them reasonably should have known given the nature of
the disclosure;
(n) The term "Material Adverse Effect" with respect to a person means
any circumstance of, change in, or effect on the business and affairs of such
person or any of its Subsidiaries thereof that, individually or in the aggregate
with any other circumstance of change in, or effect on, the business and affairs
of such person and its Subsidiaries: (i) is, or would reasonably be expected to
be, materially adverse to the business, operations, assets, liabilities, results
of operations or financial condition of such person and its Subsidiaries, taken
as a whole, or (ii) would reasonably be expected to materially adversely affect
the ability of such person and its Subsidiaries to operate or conduct its or
their business and affairs in the manner in which it is currently operated or
conducted or contemplated by such person, to be operated or conducted;
Asset Purchase Agreement - Page 5
<PAGE>
provided, however, that a Material Adverse Effect with respect to the Division
shall not include any change or developments attributable to (a) this Agreement
or the transactions contemplated hereby, (b) events which adversely affect the
general economy of the United States of America, or the region, state or county
in which the Division conducts its business operations, (c) events which
adversely affect the banking industry generally or (d) any change in Law
applicable to the Division's business as presently conducted;
(o) The term "person" means any individual, partnership, limited
liability company, firm, corporation, association, trust, joint venture,
unincorporated organization or other entity, as well as any syndicate or group
that would be deemed to be a person under Section 13(d)(3) of the Exchange Act
(as defined herein);
(p) References herein to the "Company Disclosure Schedules" mean the
disclosure schedules, dated as of the date hereof, which have been delivered by
the Company to the Transferor and all other documents, agreements and other
items disclosed by the Company in writing to the Transferor and attached to such
schedules in connection with this Agreement, and references to a numbered
Company Disclosure Schedule shall mean that portion of the Company Disclosure
Schedules that refers to the specific section or subsection of Article 7;
---------
(q) The term "Subsidiary" means any corporation, partnership, joint
venture or other legal entity in which a specified person, directly or
indirectly, owns or controls the voting of at least a 50% share or other equity
interest or for which such person, directly or indirectly, acts as a general
partner or managing member; and
(r) Each of the Parties acknowledges that it has had the opportunity
to negotiate the terms and provisions of this Agreement, with the assistance and
review of its counsel. This Agreement, therefore, shall be construed without
regard to any presumption or other rule requiring construction against the party
causing the Agreement to be drafted.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR
To induce InterCept and the Company to enter into this Agreement and the
other Contribution Agreements, the Transferor hereby represents and warrants to
InterCept and the Company as follows:
5.1 Organization.
------------
(a) The Transferor is a banking association duly organized, validly
existing and in good standing under the laws of the State of Texas. The
Transferor has the power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted.
(b) Transferor Disclosure Schedule 5.1(b) sets forth true and correct
------------------------------------
copies of the Articles of Association and Bylaws of the Transferor and all
amendments thereto.
Asset Purchase Agreement - Page 6
<PAGE>
5.2 Authority; No Violation.
-----------------------
(a) Except as disclosed on Transferor Disclosure Schedule 5.2(a)
-------------------------------------
(collectively, the "Transferor Approvals"), no consents, approvals,
authorizations, clearances or orders of, filings or registrations with or
notices to any third party or any Governmental Authority (collectively
"Authorizations") are necessary on behalf of the Transferor in connection with
(i) the execution and delivery by the Transferor of this Agreement and the other
Contribution Agreements to which it is a party, (ii) the consummation by the
Transferor of the transactions contemplated hereby and thereby and (iii) the
performance of the Transferor's obligations under this Agreement and the other
Contribution Agreements. The Transferor has the full power and authority to
execute and deliver this Agreement and the other Contribution Agreements to
which it is a party and to consummate the transactions contemplated hereby and
thereby in accordance with the terms hereof and thereof. The execution and
delivery of this Agreement and the other Contribution Agreements to which the
Transferor is a party and the consummation of the transactions contemplated
hereby and thereby have been duly and validly approved by the Board of Directors
of the Transferor in accordance with the Articles of Association and Bylaws of
the Transferor and with applicable Laws (as defined below). Except for the
Transferor Approvals, no other corporate proceedings on the part of the
Transferor are necessary for the Transferor to execute and deliver this
Agreement and the other Contribution Agreements to which it is a party and for
the Transferor to be bound by the terms hereof and thereof. This Agreement and
the other Contribution Agreements to which the Transferor is a party have been
duly and validly executed and delivered by the Transferor and constitute the
valid and binding obligation of the Transferor enforceable against the
Transferor in accordance with its and their terms, subject to receipt of the
Transferor Approvals and except to the extent that enforceability may be limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium, or other
similar Laws affecting the rights of creditors, generally, and (ii) general
principles of equity (collectively, the "Enforceability Exceptions").
(b) Neither the execution and delivery by the Transferor of this
Agreement and the other Contribution Agreements to which it is a party, nor the
consummation by the Transferor of the transactions contemplated hereby and
thereby in accordance with the other terms hereof and thereof, nor compliance by
the Transferor with any of the terms or provisions hereof or thereof, will: (i)
violate any provision of the Transferor's Articles of Association or Bylaws;
(ii) assuming that the Transferor Approvals are duly obtained, violate any
United States federal, state or local or foreign statute, code, ordinance, rule,
regulation, judgment, order, writ, ruling, decree or injunction of any
Governmental Authority (collectively, "Laws") applicable to the Transferor or
any of its properties or assets; or (iii) violate, conflict with, result in a
breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in the
creation of any lien, mortgage, security interest, pledge, charge, other right
of third parties or other encumbrance (collectively, "Liens") upon any of the
Transferred Assets under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which the Transferor is a party, or by which it or
any of the Transferred Assets may be bound or affected except, with respect to
clauses (ii) and (iii) above, such as individually or in the aggregate will not
have a Material Adverse Effect on the Division or the Transferred Assets, and
which will not prevent or materially delay the consummation of the transactions
contemplated hereby.
Asset Purchase Agreement - Page 7
<PAGE>
5.3 Financial Statements.
--------------------
(a) Transferor Disclosure Schedule 5.3(a) sets forth copies of: (i)
-------------------------------------
the balance sheets of the Division as of December 31, 1998 and July 31, 1999,
and (ii) the statements of income for the periods from inception through
December 31, 1998 and for the seven months ended July 31, 1999 (collectively,
the "Division Financial Statements");
(b) The Division Financial Statements have been prepared on a
modified cash basis applied consistently during the periods involved (except as
may be indicated therein or in the notes thereto), and present fairly, the
financial position of the Division as of the respective dates set forth therein,
and the results of the Division's operations for the respective periods set
forth therein.
(c) The books and records of the Division have been maintained in
material compliance with applicable legal and accounting requirements.
(d) Since July 31, 1999 (the "Balance Sheet Date"), there has not
been any change, occurrence or circumstance affecting the business, results of
operations or financial condition of the Division that has had, individually or
in the aggregate, a Material Adverse Effect on the Division or which is
reasonably likely to have a Material Adverse Effect on the Division, other than
changes, occurrences and circumstances disclosed by the Transferor on the
Transferor Disclosure Schedules.
5.4 Broker's and Other Fees. Except as disclosed in Transferor Disclosure
----------------------- ---------------------
Schedule 5.4, Transferor has not employed any broker or finder or incurred any
- ------------
liability for any broker's or finder's fees or commissions in connection with
any of the transactions contemplated by this Agreement and the other
Contribution Agreements.
5.5 Absence of Certain Changes or Events. Except as set forth in
------------------------------------
Transferor Disclosure Schedule 5.5, the Transferor has not taken or permitted
- ----------------------------------
any of the actions set forth in Section 8.2 since the Balance Sheet Date and,
-----------
except for execution of this Agreement and the other Contribution Agreements,
the Transferor has conducted the business of the Division only in the ordinary
course, consistent with past practice. Prior to the Balance Sheet Date, the
Transferor did not take or permit any of the actions set forth in Section 8.2
-----------
that are not reflected in the Division Financial Statements.
5.6 Legal Proceedings. Except as disclosed in Transferor Disclosure
----------------- ---------------------
Schedule 5.6, the Transferor is not a party to any, and there are no pending or,
- ------------
to the Transferor's Knowledge, threatened legal, administrative, arbitral or
other proceedings, claims, actions or governmental investigations of any nature
against the Division. Except as disclosed in Transferor Disclosure Schedule 5.6,
----------------------------------
the Transferor is not a party to any order, judgment or decree entered in any
lawsuit or proceeding that relates to or would have an adverse effect on the
Transferred Assets or the Division. Without limiting the foregoing, except as
disclosed in Transferor Disclosure Schedule 5.6, no actions, suits, demands,
----------------------------------
notices, claims, investigations or proceedings are pending or, to the
Transferor's Knowledge, threatened against or otherwise involving, directly or
indirectly, any officer, director, employee or agent of the Transferor (in
connection with such officer's, director's, employee's or agent's activities on
behalf of the Transferor that relate,
Asset Purchase Agreement - Page 8
<PAGE>
directly or indirectly to the Division or the Transferred Assets) including
without limitation any notices, demand letters or requests from any Governmental
Authority relating to such potential liabilities, nor, to the Transferor's
Knowledge, are there any circumstances which are reasonably likely to lead to
such actions, suits, demands, notices, claims, investigations or proceedings.
5.7 Taxes and Tax Returns. Transferor has no Liabilities related to any
---------------------
Taxes which affect the Transferred Assets or otherwise act as an encumbrance,
liability or Lien with respect to the Transferred Assets. As used herein,
"Taxes" means and includes any and all taxes, fees, levies, assessments, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Governmental Authority, including, without
limitation: foreign, domestic, central, local, state or other jurisdictional
taxes or other charges on or with respect to income, estimated income,
franchises, business, occupation, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation, or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer, value
added, or gains taxes; license, registration and documentation fees; and customs
duties, tariffs, and similar charges.
5.8 Employee Benefit Plans and Relations. Transferor has no liabilities
------------------------------------
regarding any form of employee benefit plan that will become the responsibility
or liability of the Company upon or after Closing.
5.9 Compliance with Applicable Laws. Except as set forth in Transferor
------------------------------- ----------
Disclosure Schedule 5.9 the Transferor holds all licenses, franchises, permits,
- -----------------------
consents and authorizations ("Licenses") necessary for the lawful conduct of the
Division except to the extent a failure to hold such Licenses would not have a
Material Adverse Effect on the Division. No proceeding is pending or, to the
Knowledge of the Transferor, threatened seeking the revocation or suspension of
any License. Except as set forth on Transferor Disclosure Schedule 5.9, the
----------------------------------
Transferor is and has been in compliance in all material respects with all
applicable Laws related to the Division, and the Transferor has not received any
notices of any allegation of any violation by the Transferor of any Laws or
Licenses related to the Division.
5.10 Certain Contracts.
-----------------
(a) Transferor Disclosure Schedule 5.10(a) lists or describes the
--------------------------------------
material terms and conditions of the following agreements related to and in
respect of the Division (collectively, the "Material Contracts"), including,
without limitation, leases, purchase contracts and commitments, to which the
Transferor is a party or by which the Transferor or any of the Transferred
Assets is bound:
(i) all agreements involving an annual commitment or payment by
any party thereto of more than $10,000 individually or $25,000 in the aggregate
or which have a fixed term extending more than 12 months from the date hereof;
(ii) all joint venture, sales agency, sales representative,
distributorship, broker, franchise, license or similar agreements;
Asset Purchase Agreement - Page 9
<PAGE>
(iii) all leases of real and personal property that are material
to the Transferor's business and operations;
(iv) all notes, bonds, mortgages, security agreements,
guarantees and other agreements and instruments for or relating to any lending
or borrowing by the Transferor in any amount (exclusive of advances to employees
for expenses or trade payables in the ordinary course of business);
(v) all powers of attorney, guarantees, suretyships or similar
agreements;
(vi) all employment agreements; and
(vii) all other agreements to which the Transferor is a party and
either (1) which is material to the Division or (2) the breach of or default
under which could have a Material Adverse Effect on the Division.
(b) Except as set forth on Transferor Disclosure Schedule 5.10(b),
--------------------------------------
each of the Material Contracts is valid, binding and enforceable on the
Transferor, and to the Knowledge of the Transferor, the other parties thereto,
in accordance with its terms, subject to the Enforceability Exceptions. The
Transferor has provided a true and complete copy of each Material Contract to
InterCept and Company.
(c) Except as disclosed in Transferor Disclosure Schedule 5.10(c), no
--------------------------------------
agreement or understanding to which the Transferor is a party or by which it is
bound limits the freedom of the Division to compete in any line of business or
with any person.
(d) Except as disclosed in Transferor Disclosure Schedule 5.10(d),
--------------------------------------
the Transferor, nor to the Knowledge of the Transferor, any other party thereto,
is in default under any of the Material Contracts; to the Transferor's
Knowledge, no event has occurred which (whether with or without notice, lapse of
time or the happening or occurrence of any other event) would constitute a
default thereunder entitling any party to terminate a Material Contract or other
such agreement or to otherwise claim or collect damages the impact of which
would have a Material Adverse Effect on the Division; and the continuation,
validity and effectiveness of all such Material Contracts and agreements under
the current terms thereof and the current rights and obligations of the
Transferor thereunder will in no way be materially affected, altered or impaired
by the consummation of the transactions contemplated hereby and by the other
Contribution Agreements. Except as disclosed in Transferor Disclosure Schedule
------------------------------
5.10(d), upon consummation of the transactions contemplated by this Agreement
- -------
and the other Contribution Agreements, the Division will be entitled to continue
to enjoy the material advantages and benefits of the business arrangements,
agreements, opportunities and relationships of the Division as it enjoyed prior
to the date hereof without interference or interruption.
5.11 Properties and Insurance.
------------------------
(a) Except as disclosed in Transferor Disclosure Schedule 5.11(a),
--------------------------------------
the Transferred Assets are in good operating condition and repair, ordinary wear
and tear excepted, and are suitable for the purposes for which they are used in
the Division. The Transferor has
Asset Purchase Agreement - Page 10
<PAGE>
good and marketable title to, or holds by valid and existing lease or license,
all of the Transferred Assets and all of the Transferred Assets are reflected on
the Division Financial Statements, or under GAAP are not required to be
reflected therein. None of the Transferred Assets is subject to any Lien, except
in any of the foregoing cases for such imperfections of title or Liens as (i)
are set forth in Transferor Disclosure Schedule 5.11, (ii) are reflected or
-----------------------------------
reserved against in the Division Financial Statements, (iii) arise out of Taxes
which are not yet due and payable or are not in default and payable without
penalty or interest, or (iv) arise out of the Assumed Liabilities.
(b) The business operations and insurable material properties
and assets of the Division are insured for their benefit against all risks
which, in the reasonable judgment of the Transferor, should be insured against,
in each case under policies or bonds issued by insurers of recognized
responsibility, in such amounts, with such deductibles and against such risks
and losses as are in the opinion of the Transferor adequate for the business
engaged in by the Division. Transferor has not received any written notice of
cancellation or written notice of a material amendment of any such insurance
policy or bond and the Transferor is not in default under any such policy or
bond, no coverage thereunder is being disputed and all material claims
thereunder have been filed in a timely fashion.
(c) No person other than the Transferor is currently entitled to
possession of any of the Transferred Assets or the loss of use of which would
have a Material Adverse Effect on the Division, whether owned or leased by the
Transferor. The Transferred Assets constitute all of the property and assets
that the Transferor uses or may reasonably need in connection with the operation
of the Division as conducted on the Closing Date.
5.12 Environmental Matters. Upon or after Closing, the Company shall
---------------------
have no liability from Transferor's failure to comply with environmental Laws
prior to Closing.
5.13 Intellectual Property. With respect to the Division, the Transferor
---------------------
develops, markets and licenses certain proprietary application software products
and systems to financial institutions and other customers (the "Software
Programs"), and in connection therewith the Transferor has developed certain
related technical documentation and user reference manuals (the
"Documentation"). The Software Programs and the Documentation are collectively
referred to as the "Software." The Software Programs are listed on Transferor
----------
Disclosure Schedule 5.13.
- ------------------------
(a) Ownership. Except as set forth in Transferor Disclosure
--------- ---------------------
Schedule 5.13(a), the Transferor owns or licenses all trademarks, service marks,
- ----------------
trade names and copyrights (including registrations, licenses and applications
pertaining thereto) and all other proprietary information used (with a
designation as to whether owned or used) by the Transferor in the conduct of the
Division. Transferor Disclosure Schedule 5.13(a) sets forth all domestic and
--------------------------------------
foreign patents, trademarks, service marks, trade names and copyrights owned or
used (with a designation as to whether owned or used) by the Transferor with
respect to the Division and all applications therefor and registrations thereof.
(b) Procedures for Copyright Protection. In no instance has the
-----------------------------------
eligibility of the Software for protection under copyright law been forfeited to
the public domain.
Asset Purchase Agreement - Page 11
<PAGE>
(c) Procedures for Trade Secret Protection. The Transferor has
--------------------------------------
never disclosed source code for any of the Software to a third party other than
the persons identified in Transferor Disclosure Schedule 5.13(c). The Transferor
--------------------------------------
discloses its source code to employees only on a need-to-know basis in
connection with the performance of their duties to the Transferor. The source
code and system documentation comprising the Software have at all times been
maintained by the Transferor in confidence and the Transferor has not taken (nor
has it failed to take) any action which would be reasonably likely to result in
such source code and system documentation not being protectable as a trade
secret under applicable Laws.
(d) Absence of Claims. Except as set forth in Transferor
----------------- ----------
Disclosure Schedule 5.13(d), to the Knowledge of the Transferor, no claims have
- ---------------------------
been asserted by any person to rights in the Software, and no valid basis for
any such claim exists. The use of the Software by the Transferor and its
licensees does not infringe on the rights of any person (whether arising under
copyright, trade secret, patent, unfair competition or other Laws that protect
intellectual property rights). The use by the Transferor of the patents,
trademarks, service marks, trade names and copyrights identified in Transferor
----------
Disclosure Schedule 5.13(a) does not infringe the rights of any person, and no
- ---------------------------
written claim has been asserted that the use by the Transferor of any of the
foregoing infringes the rights of any person. The Transferor has not received
written notice of any claim asserted by any person to the effect that any
current or former employee of the Transferor has violated the provisions of any
noncompete or nondisclosure agreement with such person, or has disclosed any
proprietary information of such person to the Transferor or any third party.
5.14 Adequacy of Technical Documentation. Except as set forth on
-----------------------------------
Transferor Disclosure Schedule 5.14, the Software includes the source code,
- -----------------------------------
system documentation and schematics for all Software Programs, as well as any
programmer comments for documentation and pertinent commentary or explanation
that may be reasonably necessary to render such materials understandable and
usable by a trained computer programmer. The Software also includes the
programs (including compilers), workbenches, tools and higher level language, if
any, used for the development, maintenance and implementation of the Software
Programs.
5.15 Third-Party Components in Software. The Transferor has validly
----------------------------------
obtained the right and license to use, copy, modify and distribute any third-
party programming and materials contained in the Software pursuant to the
contracts identified in Transferor Disclosure Schedule 5.15, subject to no
-----------------------------------
further license fee, royalty or other payment obligations not identified in
Transferor Disclosure Schedule 5.15, other than software maintenance payments
- -----------------------------------
customarily associated therewith. The Software contains no other programming or
materials in which any third party may claim superior, joint or common
ownership, including any right or license. The Software does not contain
derivative works of any programming or materials not owned in their entirety by
the Transferor.
5.16 Third-Party Interests or Marketing Rights in Software. The
-----------------------------------------------------
Transferor has not granted, transferred or assigned any right or interest in the
Software to any person except pursuant to the contracts identified on Transferor
----------
Disclosure Schedule 5.16. There are no contracts, agreements, licenses,
- -------------------------
commitments or arrangements in effect with respect to the marketing,
distribution, licensing or promotion of the Software by any independent
salesperson,
Asset Purchase Agreement - Page 12
<PAGE>
distributor, sublicensor or other remarketer or sales organization except as set
forth on Transferor Disclosure Schedule 5.16.
-----------------------------------
5.17 Absence of Certain Agreements and Practices. Except as set forth in
-------------------------------------------
Transferor Disclosure Schedule 5.17, or in connection with customary
- -----------------------------------
transactions in the ordinary course of business, no present or former officer,
director or shareholder of the Transferor:
(i) has made any claim (as defined in Section 101 of the United
States Bankruptcy Code) against the Division or, the Transferor's Knowledge, has
any basis for any such claim;
(ii) has any interest in any of the Transferred Assets; and
(iii) has any benefits that are contingent on the transactions
contemplated by this Agreement and the other Contribution Agreements, other than
as stated herein.
5.18 Major Vendors and Customers. Transferor Disclosure Schedule 5.18
--------------------------- -----------------------------------
sets forth a list of each licensor, developer, remarketer, distributor and
supplier of property or services to, and each licensee, end-user or customer of,
the Transferor with respect to the business of the Division, to whom the
Transferor paid or billed in the aggregate in excess of $25,000 during calendar
year 1998, or for the six months ended June 30, 1999.
5.19 Accounts Receivable. With respect to the business and operation of
-------------------
the Division, Transferor Disclosure Schedule 5.19 sets forth the accounts
-----------------------------------
receivable of the Transferor as of December 31, 1998, as reflected in the
Division Financial Statements as of that date, and the accounts receivable of
the Transferor as of the Balance Sheet Date, together with an aging of these
accounts. These accounts receivable, and all accounts receivable of the
Transferor created after the Balance Sheet Date with respect to the business and
operation of the Division, arose from valid transactions in the ordinary course
of business and are good and collectible at the recorded amounts thereof, except
for immaterial uncollectible amounts and except to the extent reserves therefor
have been made on the Division Financial Statements. To the Transferor's
Knowledge, no material portion of the accounts receivable is subject to
counterclaim or setoff.
5.20 Bank Accounts. Transferor Disclosure Schedule 5.20 lists all bank,
------------- -----------------------------------
money market, savings and similar accounts and safe deposit boxes of the
Transferor utilized with respect to the Division, specifying the account
numbers, the authorized signatories or persons having access to them.
5.21 Combinations Involving the Division. As it relates to the Division,
-----------------------------------
all mergers, consolidations or other business combinations involving the
Transferor and all liquidations, purchases or other transactions by which the
Transferor or any of its Subsidiaries acquired or disposed of any of the
business and property of the Division were conducted in compliance with
applicable charter documents, bylaws, any other applicable agreements,
instruments and documents and applicable Laws.
Asset Purchase Agreement - Page 13
<PAGE>
5.22 Labor Relations. Except as disclosed on Transferor Disclosure
--------------- ---------------------
Schedule 5.22, with respect to the Division, the Transferor is in material
- -------------
compliance with all federal and state Laws respecting employment and employment
practices, terms and conditions of employment, wages and hours. With respect to
the Division, there is no unlawful employment practice or discrimination charge
pending before the United States Equal Employment Opportunity Commission
("EEOC") or any EEOC recognized state "referral agency." There is no unfair
labor practice charge or complaint against the Division pending before the
National Labor Relations Board ("NLRB"). There is no labor strike, dispute,
slowdown or stoppage actually pending or, to the Transferor's Knowledge,
threatened against the Division and no NLRB representation question exists
respecting any of its employees with respect to the Division. No grievance or
arbitration proceeding is pending against the Division and no written claim
therefor exists with respect to the foregoing.
5.23 Year 2000 Matters. Except as provided on Transferor Disclosure
----------------- ---------------------
Schedule 5.23, the Software is "Millennium Compliant." For purposes of this
- -------------
Agreement "Millennium Compliant" means: (a) the functions, calculations, and
other computing processes of the Software (collectively, "Processes") perform as
designed regardless of the date in time on which the Processes are actually
performed and regardless of the date input to the Software, whether or not the
dates include leap years; (b) the Software can accept, store, sort, extract,
sequence, and otherwise manipulate date inputs and date values, and return and
display date values, as designed and in a materially accurate manner, regardless
of the dates used or format of the date input; (c) the Software will function
without interruptions caused by the date in time on which the Processes are
actually performed or by the date input to the Software; (d) the Software
accepts and responds to four digit year date input in a manner that resolves any
material ambiguities as to the century in an accurate manner; and (e) the
Software displays, prints and provides electronic output of date information in
ways that are unambiguous as to the determination of the century.
5.24 Securities Act Compliance. The Transferor acknowledges that none of
-------------------------
the shares of Company Common Stock to be delivered to the Transferor pursuant to
this Agreement will, at the time of delivery, be registered under the Securities
Act or any State Acts (collectively the "Securities Laws"). The Transferor
represents and warrants that it is acquiring the Company Common Stock for
investment, and not with a view toward, or for resale in connection with, a
distribution of Company Common Stock except to its Affiliates or as required by
Governmental Authorities. The Transferor acknowledges that Company Common Stock
may be sold, pledged, hypothecated, disposed of, or otherwise transferred or
distributed only (i) pursuant to an effective registration statement covering
the Company Common Stock under the Securities Laws, or (ii) pursuant to an
exemption from the registration requirements of the Securities Laws.
5.25 Access to Information. The Transferor has had access to the books
---------------------
and records of the Company and has otherwise had access to sufficient
information about InterCept and the Company upon which to analyze the
transactions contemplated by this Agreement. The Transferor has been given the
opportunity to ask questions and receive answers from the officers of InterCept
and the Company concerning the terms and conditions of the transactions
contemplated by this Agreement and the business and financial condition of each
of InterCept and the Company. The Transferor has had the opportunity to obtain
any additional information it deems necessary to verify the accuracy and
completeness of information provided by InterCept and the Company in connection
with this Agreement and the transactions contemplated hereby.
Asset Purchase Agreement - Page 14
<PAGE>
5.26 Experience; Investment. The Transferor has such knowledge and
----------------------
experience in financial and business matters as to enable it (a) to utilize the
information made available to it in connection with the transactions
contemplated by this Agreement and the other Contribution Agreements, (b) to
evaluate the merits and risks associated with the acquisition of Company Common
Stock pursuant hereto, and (c) to make an informed decision with respect
thereto. The Transferor's business and financial experience is such that
InterCept and the Company could reasonably assume the Transferor has the
capacity to protect its own interests in connection with the offer, sale and
issuance of the Company Common Stock. The Transferor is financially capable of
bearing the risk of loss of the Consideration surrendered in exchange for the
Company Common Stock, and acknowledges that an investment in the Company Common
Stock involves a high degree of risk, including a possible total loss of
investment, and the Consideration may not be indicative of the future value of
the securities. The Transferor represents that it is an "accredited investor"
within the meaning of Regulation D promulgated by the Commission under the
Securities Act, by reason of the fact the Transferor is a bank as defined in
Section 3(a)(2) of the Securities Act. The Transferor understands that the
officers, directors, attorneys and other advisors of InterCept and the Company
will rely upon the representations and warranties made by the Transferor in this
Agreement in order to establish any necessary exemption from the registration
provisions of the Securities Act and applicable state securities laws.
5.27 Tax Advice. The Transferor has reviewed with its tax advisor the
----------
United States federal, state, local and foreign tax consequences of an
investment in the Company Common Stock and the transactions contemplated by this
Agreement and the other Contribution Agreements. The Transferor understands that
it (and not InterCept or the Company or any other person or entity) shall be
responsible for its own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement and the other
Contribution Agreements. Nothing in this Section 5.27 shall affect the
Transferor's rights to recover for breaches of the Company's or InterCept's
representations and warranties in this Agreement.
5.28 Disclosure. No representation, warranty or statement made by the
----------
Transferor in this Agreement, the other Contribution Agreements or in any
document or certificate furnished or to be furnished to InterCept or the Company
pursuant to this Agreement or the other Contribution Agreements contains or will
contain any untrue or incomplete statement of a material fact or omits or will
omit to state any material fact necessary to make the statements contained
herein or thereon not misleading. The Transferor has completely and accurately
responded in all material respects to all diligence inquiries made by InterCept,
the Company and their officers, directors, attorneys, accountants and other
representatives in connection with this Agreement and the other Contribution
Agreements.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF INTERCEPT
To induce the Transferor to enter into this Agreement and the other
Contribution Agreements, InterCept hereby represents and warrants to the
Transferor as follows:
6.1 Corporate Organization. InterCept is a corporation duly
----------------------
incorporated, validly existing and in good standing under the laws of the State
of Georgia. InterCept has the corporate power and authority to own or lease all
of its properties and assets and to carry on its business as
Asset Purchase Agreement - Page 15
<PAGE>
it is now being conducted, and is duly licensed or qualified to do business and
is in good standing in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets owned
or leased by it makes such licensing or qualification necessary, except where
the failure to be so licensed, qualified or in good standing would not have a
Material Adverse Effect on InterCept.
6.2 Authority; No Violation.
-----------------------
(a) No Authorizations (the "InterCept Approvals") are necessary on
behalf of InterCept in connection with (i) the execution and delivery by
InterCept of this Agreement, (ii) the consummation by InterCept of the
transactions contemplated hereby and thereby, (iii) the Exchange and the
documents, agreements and instruments executed or to be executed with respect to
the Exchange (the "Exchange Documents") to which InterCept is or will be a
party; (iv) the performance of InterCept's obligations under this Agreement, the
other Contribution Agreements and the Exchange Documents, other than such as
have been obtained or waived. InterCept has the full corporate power and
authority to execute and deliver this Agreement, the other Contribution
Agreements and the Exchange Documents to which it is a party, and to consummate
the transactions contemplated hereby and thereby in accordance with the terms
hereof and thereof. The execution and delivery of this Agreement, the
Contribution Agreements and the Exchange Documents and the consummation of the
transactions contemplated hereby and thereby have been duly and validly approved
by the Board of Directors of InterCept in accordance with the Articles of
Incorporation and Bylaws of InterCept and with applicable Laws. No corporate
proceedings on the part of InterCept are necessary for InterCept to execute and
deliver this Agreement, the other Contribution Agreements and the Exchange
Documents to which it is a party, and for InterCept to be bound by the terms
hereof and thereof. This Agreement, the other Contribution Agreements and the
Exchange Documents to which InterCept is a party have been duly and validly
executed and delivered by InterCept and constitute the valid and binding
obligation of InterCept enforceable against InterCept in accordance with its and
their terms, except to the extent that enforceability may be limited by the
Enforceability Exceptions.
(b) Neither the execution and delivery of this Agreement, the other
Contribution Agreements and the Exchange Documents by InterCept, nor the
consummation by InterCept of the transactions contemplated hereby or thereby in
accordance with the terms hereof or thereof, nor compliance by InterCept with
any of the terms or provisions hereof or thereof, will (i) violate any provision
of InterCept's Articles of Incorporation or Bylaws, or (ii) violate any Laws
applicable to InterCept or any of its properties or assets.
6.3 Broker's and Other Fees. Neither InterCept nor any of its directors
-----------------------
or officers has employed any broker or finder or incurred any liability for any
broker's or finder's fees or commissions in connection with any of the
transactions contemplated by this Agreement, the other Contribution Agreements
or the Exchange Documents.
6.4 Legal Proceedings. Except as disclosed by InterCept to the
-----------------
Transferor, there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending or, to the
knowledge of InterCept's chief executive officer, chief operating officer and
chief financial officer, threatened against or affecting InterCept, or any of
its
Asset Purchase Agreement - Page 16
<PAGE>
properties, which could reasonably be expected to materially and adversely
affect the ability of InterCept to perform its obligations pursuant to this
Agreement.
6.5 Disclosure. No representation or warranty of InterCept in this
----------
Agreement or the other Contribution Agreements, nor any financial statements or
other written statements or certificates furnished by InterCept to the
Transferor in connection with the transactions contemplated by this Agreement,
contains or as of the Closing Date will contain, any untrue statement of a
material fact, or omit or as of the Closing Date will omit to state a material
fact necessary to make the statements herein or therein not misleading.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
To induce the Transferor to enter into this Agreement and the other
Contribution Agreements, the Company hereby represents and warrants to the
Transferor as follows:
7.1 Corporate Organization.
----------------------
(a) Each of Direct Access and the Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Georgia. Each of Direct Access and the Company has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed, qualified or in good standing would
not have a Material Adverse Effect on Direct Access or the Company.
(b) Company Disclosure Schedule 7.1 sets forth true and complete
-------------------------------
copies of the Articles of Incorporation and Bylaws of each of Direct Access and
the Company and all amendments thereto.
7.2 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of
70,000,000 shares of common stock, without par value (the "Company Common
Stock") none of which are issued and outstanding and 5,000,000 shares of
preferred stock, none of which are issued and outstanding. Company Disclosure
------------------
Schedule 7.2(a) sets forth the number of shares of Company Common Stock owned by
- ---------------
each shareholder and the number of shares of Company Common Stock which may be
acquired by each holder of warrants and options to purchase Company Common Stock
Company Disclosure Schedule 7.2(a) sets forth the name of each person and the
- ----------------------------------
number of shares of Company Common Stock or other capital stock of the Company
such person will acquire or has the right to acquire upon consummation of the
Exchange. Other than as disclosed on Company Disclosure Schedule 7.2(a), there
----------------------------------
are no options, warrants, or other rights to acquire Company Common Stock. All
issued and outstanding shares of Company Common
Asset Purchase Agreement - Page 17
<PAGE>
Stock have been duly authorized and validly issued and are fully paid and
nonassessable, were not issued in violation of any preemptive rights and were
issued pursuant to effective registration statements or under available
exemptions from the registration requirements of the federal and state
securities laws. Except as set forth on Company Disclosure Schedule 7.2(a), the
----------------------------------
Company has not granted any outstanding subscriptions, options, warrants, calls,
commitments, registration rights or agreements of any character calling for the
transfer, purchase, subscription, issuance or registration under the Securities
Act of any shares of capital stock of the Company or any securities representing
the right to purchase, subscribe or otherwise receive any shares of such capital
stock or any securities convertible into any such shares, and, except as set
forth on Company Disclosure Schedule 7.2(a), there are no agreements or
----------------------------------
understanding with respect to voting any such shares.
(b) The authorized capital stock of Direct Access consists of
70,000,000 shares of common stock, without par value (the "Direct Access Common
Stock"), 12,185,000 of which are issued and outstanding and 5,000,000 shares of
preferred stock, none of which are issued and outstanding. Company Disclosure
------------------
Schedule 7.2(b) sets forth the number of shares of Direct Access Common Stock
- ---------------
owned by each shareholder and the number of shares of Direct Access Common Stock
which may be acquired by each holder of warrants and options to purchase Direct
Access Common Stock. Other than as disclosed on Company Disclosure Schedule
---------------------------
7.2(b), there are no options, warrants, or other rights to acquire Direct Access
- ------
Common Stock. All issued and outstanding shares of Direct Access Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable, were not issued in violation of any preemptive rights and were
issued pursuant to effective registration statements or under available
exemptions from the registration requirements of the federal and state
securities laws. Except as set forth on Company Disclosure Schedule 7.2(b),
----------------------------------
Direct Access has not granted any outstanding subscriptions, options, warrants,
calls, commitments, registration rights or agreements of any character calling
for the transfer, purchase, subscription, issuance or registration under the
Securities Act of any shares of capital stock of Direct Access or any securities
representing the right to purchase, subscribe or otherwise receive any shares of
such capital stock or any securities convertible into any such shares, and,
except as set forth on Company Disclosure Schedule 7.2(b), there are no
----------------------------------
agreements or understandings with respect to voting any such shares.
7.3 Authority; No Violation.
-----------------------
(a) Except as disclosed on Company Disclosure Schedule 7.3(a)
----------------------------------
(collectively, "Company Approvals"), no Authorizations are necessary on behalf
of the Company or Direct Access in connection with (i) the execution and
delivery by the Company of this Agreement, the other Contribution Agreements and
the Exchange Documents, (ii) the consummation by the Company of the transactions
contemplated hereby and thereby and (iii) the performance of the Company's
obligations under this Agreement, the other Contribution Agreements and the
Exchange Documents. The Company has the full corporate power and authority to
execute and deliver this Agreement, the other Contribution Agreements and the
Exchange Documents to which it is a party and the consummation by the Company of
the other transactions contemplated hereby and thereby in accordance with the
terms hereof and thereof. The execution and delivery of this Agreement, the
other Contribution Agreements and the Exchange Documents and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
Asset Purchase Agreement - Page 18
<PAGE>
approved by the Board of Directors of the Company in accordance with the
Articles of Incorporation and Bylaws of the Company and applicable Laws. No
other corporate proceedings on the part of the Company or Direct Access are
necessary to consummate the transactions so contemplated. This Agreement, the
other Contribution Agreements and the Exchange Documents have been duly and
validly executed and delivered by the Company and constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except to the extent that the availability of the remedy of
specific performance may be limited by the Enforceability Exceptions.
(b) Neither the execution and delivery of this Agreement and the
other Contribution Agreements and the Exchange Documents to which the Company is
a party, nor the consummation by the Company of the transactions contemplated
hereby and thereby in accordance with the terms hereof and thereof, nor
compliance by the Company with any of the terms or provisions hereof and
thereof, will (i) violate any provision of the Company's Articles of
Incorporation or Bylaws, (ii) violate any Laws applicable to the Company or any
of its properties or assets, or (iii) except where a waiver or consent had been
obtained or will be obtained prior to Closing, violate, conflict with, result in
a breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in the
creation of any Lien upon any of the respective properties or assets of the
Company under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which the Company is a party, or by which it or any
of its properties or assets may be bound or affected except, with respect to
clauses (ii) and (iii) above, such as individually or in the aggregate will not
have a Material Adverse Effect on the Company, and which will not prevent or
delay the consummation of the transactions contemplated hereby.
7.4 Financial Statements.
--------------------
(a) Attached hereto as Company Disclosure Schedule 7.4 is a true
-------------------------------
and complete copy of the financial statements of Direct Access at and for the
periods ending December 31, 1998 and 1997 and March 31, 1999 (collectively, the
"Direct Access Financial Statements"). The Direct Access Financial Statements
have been prepared from, and are in accordance with, the books and records of
Direct Access and fairly present the financial position and results of
operations of Direct Access as of and for the periods set forth therein.
(b) Other than as shown on Company Disclosure Schedule 7.4 or
-------------------------------
reserved against in the Direct Access Financial Statements, since March 31, 1999
Direct Access has not incurred material liabilities other than pursuant to this
Agreement and the other Contribution Agreements and except for liabilities
incurred in the ordinary course of business.
(c) Since March 31, 1999, there has not been any change, occurrence
or circumstance affecting the business, results of operations or financial
condition of Direct Access
Asset Purchase Agreement - Page 19
<PAGE>
that has had, individually or in the aggregate, a Material Adverse Effect on the
Company, other than changes, occurrences and circumstances disclosed by the
Company to the Transferor on the Company Disclosure Schedules.
7.5 Broker's and Other Fees. Neither the Company, Direct Access nor
-----------------------
any of the directors or officers has employed any broker or finder or incurred
any liability for any broker's or finder's fees or commissions in connection
with any of the transactions contemplated by this Agreement, the other
Contribution Agreements or the Exchange Documents.
7.6 Absence of Certain Changes or Events. Except (i) as set forth in
------------------------------------
Company Disclosure Schedule 7.6, (ii) as pertaining to the former SBS
- -------------------------------
corporation or its business, and (iii) in connection with or in contemplation of
the Exchange, Direct Access has not taken or permitted any of the actions of the
nature described in Section 8.2 since March 31, 1999 and, except for execution
of this Agreement, the other Contribution Agreements, the Exchange Documents and
the documents executed in connection with the SBS acquisition and all matters
related thereto or resulting therefrom, each of Direct Access and the Company
has conducted its respective businesses only in the ordinary course, consistent
with past practice.
7.7 Legal Proceedings. Except as disclosed in Company Disclosure
----------------- ------------------
Schedule 7.7, and except as relates to the former SBS Corporation and its
- ------------
operations and business, neither Direct Access or the Company is a party to any,
nor are there pending or to the Company's Knowledge threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
investigations of any nature against either Direct Access or the Company. Except
as disclosed in Company Disclosure Schedule 7.7 and as relates to the former
-------------------------------
SBS Corporation and its operations and business, neither Direct Access or the
Company is a party to any order, judgment or decree entered in a lawsuit or
proceeding that relates to or would have a material adverse effect on Direct
Access or the Company. Except as disclosed in Company Disclosure Schedule 7.7
--------------------------------
and as relates to the former SBS Corporation and its operations and business, to
the Company's Knowledge, no actions, suits, demands, notices, claims,
investigations or proceedings are pending or, to the Company's Knowledge,
threatened against or otherwise involving, directly or indirectly, any officer,
director, employee or agent of Direct Access or the Company, including without
limitation any notices, demand letters or requests from any Governmental
Authority relating to such potential liabilities, nor, to the Company's
Knowledge, are there any circumstances which are reasonably likely to lead to
such actions, suits, demands, notices, claims, investigations or proceedings.
7.8 Properties and Insurance.
------------------------
(a) Except as disclosed in Company Disclosure Schedule 7.8, and
-------------------------------
except for assets of the former SBS corporation, the Company's and Direct
Access' assets are in good operating condition and repair, ordinary wear and
tear excepted, and are suitable for the purposes for which they are used in the
Company or Direct Access, as the case may be. Each of the Company and Direct
Access has good and marketable title to, or holds by valid and existing lease or
license, free and clear of all Liens, each piece of real and personal property
used in their respective businesses as now conducted, except in any of the
foregoing cases for such imperfections of title or Liens as (i) are set forth in
Company Disclosure Schedule 7.8 hereof, (ii) are reflected or reserved against
- -------------------------------
in the Direct Access Financial Statements, or (c) arise out of
Asset Purchase Agreement - Page 20
<PAGE>
Taxes which are not yet due and payable or are not in default and payable
without penalty or interest.
(b) The business operations and insurable material properties and
assets of the Company are insured for their benefit against all risks which, in
the reasonable judgment of the Company, should be insured against, in each case
under policies or bonds issued by insurers of recognized responsibility, in such
amounts with such deductibles and against such risks and losses as are in the
opinion of the Company adequate for the business engaged in by the Company. The
Company has not received any notice of cancellation or notice of a material
amendment of any such insurance policy or bond and the Company is not in default
under any such policy or bond, no coverage thereunder is being disputed and all
material claims thereunder have been filed in a timely fashion.
7.9 Intellectual Property. All of the representations in Sections 7.9
---------------------
through 7.12 expressly exclude any representations with respect to the former
SBS Corporation, its operations or business. Direct Access conducts an active
business using proprietary application software products and systems and
provides internet banking and integrated voice response (telephone banking)
services utilizing such products and systems (the "Company's Software
Programs"), and in connection therewith the Company has developed certain
related technical documentation and user reference manuals (the "Company's
Documentation"). The Company's Software Programs and the Company's Documentation
are collectively referred to as the "Company's Software."
(a) Ownership. The Company owns all patents, trademarks, service
---------
marks, trade names and copyrights (including registrations, licenses and
applications pertaining thereto) and all other proprietary information used by
the Company and material to the conduct of its business, including, without
limitation, the Company's Software.
(b) Procedures for Copyright Protection. To the Knowledge of the
-----------------------------------
Company, in no instance has the eligibility of the Company's Software for
protection under copyright law been forfeited to the public domain.
(c) Procedures for Trade Secret Protection. To the Knowledge of the
--------------------------------------
Company, Direct Access has never disclosed source code for any of the Company's
Software to a third party other than the persons identified in Company
-------
Disclosure Schedule 7.9(c). Direct Access discloses its source code to
- --------------------------
employees only on a need-to-know basis in connection with the performance of
their duties to Direct Access. The source code and system documentation
comprising the Company Software have at all times been maintained by Direct
Access in confidence and Direct Access has not taken (nor has it failed to take)
any action which would be reasonably likely to result in such source code and
system documentation not being protectable as a trade secret under applicable
Laws.
(d) Absence of Claims. To the Knowledge of the Company, no claims
-----------------
have been asserted by any person to rights in the Company's Software (other than
pursuant to licenses executed with customers in the ordinary course of
business), and no valid basis for any such claim exists. To the Company's
Knowledge, the use of the Company's Software by the Company or Direct Access and
its licensees does not infringe on the rights of any person
Asset Purchase Agreement - Page 21
<PAGE>
(whether arising under copyright, trade secret, patent, unfair competition or
other state or federal laws which protect intellectual property rights). To the
Company's Knowledge, the use by the Company or Direct Access of its patents,
trademarks, service marks, trade names and copyrights does not infringe the
rights of any person, and no written claim has been asserted that the use by the
Company or Direct Access of any of the foregoing infringes the rights of any
person. No written claim has been asserted by any person to the effect that any
current or former employee of the Company or Direct Access has violated the
provisions of any noncompete or nondisclosure agreement with such person, or has
disclosed any proprietary information of such person to the Company or Direct
Access or any third party.
(e) Third Party Interests in Software. Neither the Company nor
---------------------------------
Direct Access has granted, transferred, or assigned any right or interest in the
Company's Software to any person, other than pursuant to licenses granted in the
ordinary course of business.
7.10 Adequacy of Technical Documentation. The Company's Software
-----------------------------------
includes the source code, system documentation and schematics for all Company's
Software Programs, as well as any programmer comments for documentation and
pertinent commentary or explanation that may be reasonably necessary to render
such materials understandable and usable by a trained computer programmer. The
Company's Software also includes the programs (including compilers),
workbenches, tools and higher level language, if any, used for the development,
maintenance and implementation for the Company's Software Programs.
7.11 Third-Party Components in Company's Software. Direct Access has
--------------------------------------------
validly obtained the right and license to use, copy , modify and distribute any
third-party programming and materials contained in the Company's Software
pursuant to the contracts identified in Company Disclosure Schedule 7.11,
--------------------------------
subject to no further license fee, royalty or other payment obligations not
identified in Company Disclosure Schedule 7.11, other than software maintenance
--------------------------------
payments customarily associated therewith. The Company's Software contains no
other programming or materials in which any third party may claim superior,
joint or common ownership, including any right or license. The Company's
Software does not contain derivative works of any programming or materials not
owned in their entirety by the Transferor.
7.12 Third-Party Interests or Marketing Rights in Software. Direct
-----------------------------------------------------
Access has not granted, transferred or assigned any right or interest in the
Company's Software to any person except pursuant to the contracts identified on
Company Disclosure Schedule 7.12. There are no contracts, agreements,
- --------------------------------
licenses, commitments or arrangements in effect with respect to the marketing,
distribution, licensing or promotion of the Company's Software by any
independent salesperson, distributor, sublicensor or other remarketer or sales
organization except as set forth on Company Disclosure Schedule 7.12.
--------------------------------
7.13 Compliance with Applicable Laws. Each of Direct Access and the
-------------------------------
Company has all Licenses required for its business as currently conducted,
except to the extent a failure to hold such Licenses would not have a Material
Adverse Effect on the Company or Direct Access. No proceeding is pending or
threatened seeking the revocation or suspension of any material License. Except
as disclosed by the Company on Company Disclosure Schedule 7.13, Direct Access'
--------------------------------
business has been operated and maintained in all material respects in compliance
with
Asset Purchase Agreement - Page 22
<PAGE>
applicable Laws. Neither Direct Access nor the Company has received any notices
of any allegation of any violation of any Laws or Licenses.
7.14 Taxes and Tax Returns. Except as disclosed in Company Disclosure
--------------------- ------------------
Schedule 7.14, since March 9, 1999:
- -------------
(a) Direct Access has duly filed (and until the Closing Date will so
file) all Returns required to be filed by it in respect of any United States
federal, state or local, or foreign, Taxes and has duly paid (and until the
Closing Date will so pay) all such Taxes due and payable, other than Taxes which
are being contested in good faith (and disclosed by the Company to the
Transferor in writing). Each of the Company and Direct Access has established
(and until the Closing Date will establish) on its books and records reserves
that are adequate for the payment of all Taxes not yet due and payable, but are
incurred in respect of Direct Access or the Company through the date of this
Agreement.
(b) There are no audits or other Governmental Authority proceedings
presently pending, nor, to the Knowledge of the Company, any other disputes
pending with respect to, or claims asserted for, Taxes upon Direct Access or the
Company, nor has Direct Access or the Company given any currently outstanding
waivers or comparable consents regarding the application of any statute of
limitations with respect to any Taxes or Returns. There are no Liens filed of
record publicly for Taxes upon the assets of Direct Assets or the Company,
except Liens for Taxes not yet due. Each of Direct Access and the Company has
complied (and until the Closing Date will comply) in all respects with all
applicable Laws relating to the payment and withholding of Taxes.
(c) Neither Direct Access nor the Company (1) has requested any
extension of time within which to file any return which Return has not since
been filed (2) is a party to any agreement providing for the indemnification,
allocation or sharing of Taxes; (3) is required to include in income any
adjustment by reason of a voluntary change in accounting method initiated by
Direct Access or the Company (nor to the Company's Knowledge has any
Governmental Authority proposed any such adjustment or change of accounting
method): or (4) has filed a consent with any Governmental Authority pursuant to
which Direct Access or the Company has agreed to recognize gain (in any manner)
relating to or as a result of this Agreement or the transactions contemplated
hereby.
(d) Neither the Company nor Direct Access is liable for any Taxes of
any consolidated, combined, unitary or similar group of which the Company and/or
Direct Access has been a member. Except for that certain Tax Indemnity
Agreement between Intercept and Direct Access dated as of the date hereof (the
"Tax Indemnification Agreement"), neither the Company nor Direct Access is a
party to, or bound by, any tax indemnity, tax sharing or tax allocation
agreement.
7.15 Corporate Records. The corporate record books (including the share
-----------------
records) of Direct Access and the Company are materially complete, accurate and
up to date with all necessary signatures and set forth all meetings and actions
taken by the shareholders and directors of Direct Access and the Company and all
transactions involving the shares of Direct Access and the Company.
Asset Purchase Agreement - Page 23
<PAGE>
7.16 Combinations Involving the Company. The mergers, consolidations or
----------------------------------
other business combinations involving Direct Access and/or the Company and all
liquidations, purchases or other transactions by which Direct Access or the
Company has acquired or disposed of any of its business and property since such
time were conducted in material compliance with applicable charter documents,
bylaws, any other applicable agreements, instruments and documents and
applicable Laws.
7.17 No Prior Operations. The Company was incorporated on August 25,
-------------------
1999. Other than actions taken to consummate the Exchange, the Company has not
conducted any operations or business and has not taken any other actions.
7.18 Diligence. The Company has conducted reasonable and customary legal,
---------
accounting, financial and other "due diligence" reviews of Dyad Corporation and
CMB. As of the date hereof, nothing has come to the attention of the Company,
and the Company is unaware of any information with respect to Dyad or CMB that
is likely to have a Material Adverse Effect on (i) the Company, (ii) the Company
Common Stock, or (iii) the ability to have the Exchange qualify for treatment
under Section 351 of the Code.
7.19 SBS Corporation. To the Knowledge of the Company, the
---------------
representations and warranties of SBS Corporation and its Shareholders contained
in that certain Agreement and Plan of Merger dated August 6, 1999 were true and
correct in all material respects.
7.20 Disclosure. No representation or warranty of the Company in this
----------
Agreement and the other Contribution Agreements, nor any financial statements or
other written statements or certificates furnished to the Transferor in
connection with the transactions contemplated by this Agreement, contains or as
of the Closing Date will contain, any untrue or incomplete statement of a
material fact, or omits or as of the Closing Date will omit to state a material
fact necessary to make the statements herein or therein not misleading. The
Company has completely and accurately responded in all material respects to the
diligence inquiries made by the Transferor in connection with this Agreement and
the other Contribution Agreements.
ARTICLE 8
COVENANTS AND AGREEMENTS OF THE PARTIES
8.1 Conduct of Business. The Transferor agrees that from the date hereof
-------------------
to the Closing Date, the Transferor shall conduct its business with respect to
the Division only in the ordinary course and consistent with prudent business
practice and past practice, except for transactions permitted hereunder or with
the prior written consent of InterCept and the Company. Without limiting the
generality of the foregoing, the Transferor agrees that, with respect to the
Division, the Transferor shall use all commercially reasonable efforts to:
(a) maintain its existence and status in good standing in all
jurisdictions in which the properties of the Division or the conduct of the
Division's business requires it to be qualified or registered to conduct its
business, except where the failure to do so would not have a Material Adverse
Effect on the Division;
Asset Purchase Agreement - Page 24
<PAGE>
(b) maintain all of its tangible assets in good operating condition
and maintain the protection of all intellectual property in substantially the
same standing as exists on the date hereof;
(c) continue performance in the ordinary course of its obligations
under its contracts and agreements;
(d) preserve its business organization intact, use all commercially
reasonable efforts to keep available its present officers and employees and
preserve its present relationships with suppliers, customers and others having
business relationships with it; and
(e) maintain its existing insurance, subject to variations in amount
required by the ordinary operations of its business.
8.2 Negative Covenants. The Transferor agrees that from the date hereof
------------------
to the Closing Date, except as otherwise approved by InterCept and the Company
in writing, or as permitted or required by this Agreement, the Transferor will
not with respect to the Division or the Transferred Assets:
(i) sell or dispose of any assets other than in the ordinary
course of business consistent with past practices;
(ii) make any capital expenditures outside the ordinary course
of business;
(iii) make any change in its accounting methods or practices,
except as required by GAAP or applicable Governmental Authorities;
(iv) incur, create, assume or guarantee any liabilities except
in the ordinary course of business and as would not have a Material Adverse
Effect;
(v) increase, or make any change in any assumptions
underlying the method of calculating any bad debt, contingency or other reserves
from those reflected in the Division Financial Statements;
(vi) make any change in the method of valuing assets included
in the Division Financial Statements;
(vii) permit or allow any of the Transferred Assets (real,
personal or mixed, tangible or intangible) to be subjected to any Lien, except
for Liens which are in existence on the date hereof and which are disclosed on
the Transferor Disclosure Schedules or reflected in the Division Financial
Statements, and Liens for amounts not yet due and payable or which are contested
in good faith and for which adequate reserves have been or will be made;
(viii) write down the value of any inventory or write off as
uncollectible any notes or accounts receivable, except for write-downs and
write-offs in the ordinary course of business;
Asset Purchase Agreement - Page 25
<PAGE>
(ix) cancel or waive any claims or rights, or sell, transfer,
distribute or otherwise dispose of any assets or properties, except in the
ordinary course of business;
(x) declare, file or permit to be filed any voluntary or
involuntary bankruptcy, receivership, insolvency or other similar proceeding or
petition with any Governmental Authority with respect to the Transferor;
(xi) fail to perform its obligations under any Material
Contract (except those being contested in good faith) or enter into, assume or
amend any agreement that would be a Material Contract other than agreements to
provide services entered into in the ordinary and usual course of business;
(xii) take any action that would or could reasonably be
expected to result in (A) a Material Adverse Effect on the Division or (B) any
of its representations and warranties contained in Article 5 not being true and
---------
correct in any material respect at the Closing Date, or that would cause any of
the conditions to Closing not to be satisfied; or
(xiii) directly or indirectly agree to do any of the foregoing.
8.3 No Solicitation. From the date hereof to the Closing Date or the
---------------
earlier termination of this Agreement in accordance with its terms, the
Transferor:
(a) agrees that neither the Transferor nor any of its present or
future subsidiaries or other affiliates, nor any of its or their directors,
officers, shareholders, employees, representatives or other agents
(collectively, the "Transferor Affiliates") shall, directly or indirectly, (i)
enter into any agreement (or agree to do so), or solicit, initiate or knowingly
encourage the invitation of inquiries or proposals or offers from any person
(other than InterCept, the Company or its or their directors, officers,
employees, representatives and agents) concerning: (A) any sale of the
Transferred Assets or the Division or transfer of Assumed Liabilities of the
Division (other than any such sale or transfer in the ordinary course of
business) or (B) any merger, consolidation, restructuring, recapitalization or
other significant transaction involving the Transferor or any of its present or
future subsidiaries, divisions or other affiliates (unless such transaction does
not adversely affect the transactions contemplated by this Agreement); or (ii)
provide any confidential information to, participate in discussions or
negotiations relating to any such transaction with, or otherwise cooperate with
or assist or participate in any effort to take such action by any person or
entity (other than InterCept, the Company or its or their directors, officers,
shareholders, employees, representatives and agents). The Transferor shall
immediately advise InterCept and the Company if any such inquiry, offer or
proposal is made or received by the Transferor or any of the Transferor
Affiliates;
(b) will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing, and the Transferor will take the necessary
steps to inform the individuals or entities referred to above of the obligations
undertaken in this Section 8.3; and
-----------
(c) will notify InterCept and the Company immediately of the
identity of any potential acquirer and the terms of any proposal or offer
(including, without limitation, any proposal or offer to any of the shareholders
of the Transferor) with respect to a proposed or
Asset Purchase Agreement - Page 26
<PAGE>
potential merger, acquisition, consolidation, business combination, transfer or
similar transaction involving, or any purchase of all or any significant portion
of the assets, equity securities of or rights with respect to any assets or
securities of, the Transferor (which would adversely affect the transactions
contemplated hereby) not permitted by this Section 8.3.
-----------
8.4 Current Information. During the period from the date of this
-------------------
Agreement to the Closing Date or the earlier termination of this Agreement in
accordance with its terms, on a frequent basis:
(a) The Transferor will cause one or more of the Transferor's
representatives to confer with representatives of InterCept and the Company
regarding the Division's business, operations, properties, assets and financial
condition; each of the Parties will cause one or more of its representatives to
confer with representatives of the other Parties regarding matters relating to
the completion of the transactions contemplated herein; and
(b) Each of the Parties will notify the other Parties as soon as
practicable after any determination or discovery by it of any fact or
circumstance relating to any Party which it has discovered through the course of
investigation and which represents, or is reasonably likely to represent, a
material breach of any representation, warranty, covenant or agreement of any
Party or which has or is reasonably likely to have a Material Adverse Effect on
any Party. Notwithstanding the foregoing, for the purpose of determining
satisfaction of the condition set forth in Article 9, no such notification shall
---------
be deemed to amend such Disclosure Schedules or shall be deemed to be a part
thereof unless agreed to by the other Parties.
8.5 Access to Properties and Records; Confidentiality. The Transferor
-------------------------------------------------
shall permit InterCept, the Company and their representatives reasonable access
during normal business hours to its properties and shall disclose and make
available to InterCept, the Company and their representatives all books, papers
and records and information relating to the Division, the Transferred Assets and
the Assumed Liabilities, including, but not limited to, all books of account
(including the general ledger), tax records, minute books of directors' and
shareholders' meetings, organizational documents, agreements, filings with any
Governmental Authority, accountants' work papers, litigation files, plans
affecting employees, and any other records and information in which InterCept,
the Company and their representatives may have a reasonable interest; provided
that such investigation shall be reasonably related to the transactions
contemplated by this Agreement and shall not interfere unnecessarily with the
normal business operations of the Transferor.
8.6 Regulatory Matters; Consents; Cooperation, etc.
----------------------------------------------
(a) To the extent permitted by Law, each of the Parties will
promptly furnish each other with copies of written communications received by
them or any of their respective Subsidiaries or representatives from, or
delivered by any of the foregoing to, any Governmental Authorities in respect of
the transactions contemplated hereby.
(b) As soon as practicable following the date hereof, each of the
Parties will use its commercially reasonable efforts to obtain all consents,
waivers and other Approvals under
Asset Purchase Agreement - Page 27
<PAGE>
any of its or its Subsidiaries' agreements, contracts, licenses or leases
required to be obtained by such Party in connection with the consummation of the
transactions contemplated hereby.
8.7 Parties' Efforts; Further Assurances; Cooperation. Subject to the
-------------------------------------------------
other provisions in this Agreement, the Parties shall in good faith perform
their obligations under this Agreement before, at and after the Closing Date,
and shall each use all commercially reasonable efforts to do, or cause to be
done, all things necessary, proper or advisable under applicable Laws to obtain
all Authorizations and satisfy all conditions to the obligations of the Parties
under this Agreement and to cause the transactions contemplated by this
Agreement to be carried out promptly in accordance with the terms hereof and
shall cooperate fully with each other and their respective officers, directors,
employees, agents, counsel, accountants and other designees in connection with
any steps required to be taken as part of their respective obligations under
this Agreement. Upon the execution of this Agreement and thereafter, each party
shall take such actions and execute and deliver such documents as may be
reasonably requested by the other Parties in order to consummate the
transactions contemplated by this Agreement.
8.8 Public Announcements. Prior to the Closing Date or the earlier
--------------------
termination of this Agreement in accordance with its terms, the Parties shall
consult and cooperate with each other as to the timing, content and form of any
press release or other public disclosure related to this Agreement or the
transactions contemplated herein, and will not issue a press release or make any
such public disclosure without the prior consent of the other party, which shall
not be unreasonably withheld, conditioned or delayed. After the Closing Date,
the Transferor shall not make any public announcement regarding any aspect of
this Agreement without InterCept's and the Company's prior written consent.
Nothing in this Section 8.8 shall be deemed to prohibit any Party from making
-----------
any disclosure which its counsel deems necessary in order to satisfy such
Party's disclosure obligations imposed by Law or Governmental Authority.
8.9 Noncompetition, Nonsolicitation and Confidentiality Agreement. The
-------------------------------------------------------------
Parties shall negotiate in good faith within seven (7) days of Closing the terms
and conditions of a Noncompetition, Nonsolicitation and Confidentiality
agreement among InterCept and the Company.
8.10 Disclosure Supplements. From time to time prior to the Closing Date,
----------------------
each Party hereto will promptly notify the other Party of any inaccuracy in its
respective Disclosure Schedules delivered pursuant hereto including, without
limitation, any matter which, if existing, occurring or known at the date of
this Agreement, would have been required to be set forth or described in such
Schedule or which is necessary to correct any information in such Schedule that
has been rendered inaccurate. Notwithstanding the foregoing, no such
notification shall be deemed to amend such Disclosure Schedules or shall be
deemed to be part hereof unless agreed to by the other Parties.
8.11 Cooperation and Exchange of Information. The Parties agree to
---------------------------------------
furnish, or to cause to be furnished in good faith to each other, such
cooperation and assistance as is reasonably necessary to file any future
Returns, to respond to audits, to negotiate settlements with Tax authorities and
to prosecute and defend against Tax claims.
Asset Purchase Agreement - Page 28
<PAGE>
8.12 Customer Contacts. The Transferor shall permit the Company to
-----------------
conduct a survey or otherwise inquire of certain or all of the Division's key
customers, as selected by the Company, regarding the relationship between such
customer and the Transferor and the impact of a change in control on such
relationship. The Transferor shall assist the Company in making such survey or
inquiries and shall have the right to have a representative of its choice
participate therein.
8.13 Employees
---------
(a) All employees of the Division on the Closing Date shall be
employed by the Company and shall receive salaries no less favorable than the
salaries currently paid such employees as set forth on Schedule 8.13, provided,
-------------
however, that the provisions of this Section shall not change the employment
status of such employees.
(b) All employees of the Division who remain employed by the Company
after the Closing Date shall participate in all benefit plans generally
available to employees of the Company.
8.14 Non-Assignable Purchased Contracts.
----------------------------------
(a) In the case of any Transferred Assets which are contracts or
agreements which are not assignable or transferable, either by their terms or
otherwise without the prior consent of any third party thereto (such contracts
or agreements being the "Non-Assignable Purchased Contracts") the Transferor
shall use commercially reasonable efforts to obtain at its cost, or cause to be
obtained, prior to the Closing Date, any written consents or waivers necessary
for the assignment of such Transferred Assets to the Company as contemplated by
this Agreement, and InterCept and the Company shall cooperate with the
Transferor, at no additional cost to InterCept or the Company, in such manner as
may be reasonably requested in connection therewith. In the event the Transferor
shall be unable to obtain any such consent or waiver to the assignment or
transfer of a Transferred Asset to the Company prior to the Closing Date (i) the
Transferor shall continue to use such commercially reasonable efforts after the
Closing Date at its cost, (ii) the Transferor shall provide to the Company, from
and after the Closing Date, at a cost to the Company no greater than the cost of
the Company would have otherwise paid under the terms of such Non-Assignable
Purchased Contract (the "Contract Costs"), benefits substantially equivalent to
each such Non-Assignable Purchased Contract, as fully as if such consent had
been obtained, to the extent the Transferor is reasonably capable of providing
such benefits and (iii) at the Company's option, the Company may procure such
equivalent benefits from third parties during the final 90 days of the current
term of any such Non-Assignable Purchased Contract (or at any time within 90
days of the date on which the non-Assignable Purchased Contract which such
equivalent benefits replace would have by its terms terminated or entitled the
other party thereto to terminate or renegotiate the costs of such benefits)
without any further liability to the Transferor; provided however, that (A) the
Company shall provide the Transferor prior written notice of procuring any such
equivalent benefits 30 days (or, if 30 days' notice is not practicable,
Asset Purchase Agreement - Page 29
<PAGE>
such notice, if any, which is practicable) prior to obtaining such equivalent
benefits pursuant to clause (iii), above, and (B) in the event the Company
procures equivalent benefits pursuant to clause (iii) the Transferor shall be
relieved of its obligations under this Section 8.14(a) with respect to the Non-
Assignable Purchased Contracts with respect to which such equivalent benefits
have been so procured by the Company and may take any and all action available
to the Transferor to terminate its obligation under such Non-Assignable
Purchased Contracts.
(b) The Company agrees to pay, or reimburse the Transferor for, the
Transferor's direct out-of-pocket costs, fees and expenses (excluding attorneys'
fees and fees and expenses of other professionals and employees of the
Transferor), actually incurred by the Transferor in fulfilling its obligations
to the Company under Section 8.14(a), provided, that the amount of such costs,
fees and expenses, shall not exceed $10,000. The Company shall make such
payments to the Transferor within 30 days after the Transferor's submission of
an itemized invoice therefor in detail reasonably sufficient to the Company.
ARTICLE 9
CLOSING CONDITIONS
9.1 Conditions of Each Party's Obligations Under this Agreement. The
-----------------------------------------------------------
respective obligations of each party under this Agreement shall be subject to
the satisfaction, or, where permissible under applicable Law, waiver at or prior
to the Closing Date of the following conditions:
(a) Approvals and Regulatory Filings. All necessary Authorizations
--------------------------------
of Governmental Authorities required to consummate the transactions contemplated
hereby shall have been obtained without any term or condition which would
materially impair the value of the Transferor, the Company or InterCept. All
conditions required to be satisfied prior to the Closing Date by the terms of
such approvals and consents shall have been satisfied, and all statutory waiting
periods in respect thereof shall have expired.
(b) Suits and Proceedings. The consummation of the transactions
---------------------
contemplated hereby will not violate the provisions of any injunction, order,
judgment, decree or Law applicable or effective with respect to InterCept, the
Company or the Transferor or their respective officers and directors. No suit or
proceeding shall have been instituted by any person, or, to the Knowledge of
InterCept, the Company or the Transferor, shall have been threatened by any
Governmental Authority, and not subsequently withdrawn, dismissed or otherwise
eliminated, which seeks (i) to prohibit, restrict or delay consummation of the
transactions contemplated hereby or to limit in any material respect the right
of InterCept or the Company to control any material aspect of the business of
InterCept, the Company or the Division after the Closing Date, or (ii) to
subject InterCept, the Company or the Transferor or their respective directors
or officers to material liability on the ground that it or they have breached
any Law or otherwise acted improperly in relation to the transactions
contemplated by this Agreement.
9.2 Conditions to the Obligations of InterCept and the Company under this
---------------------------------------------------------------------
Agreement. The obligations of InterCept and the Company under this Agreement
- ---------
shall be
Asset Purchase Agreement - Page 30
<PAGE>
further subject to the satisfaction or waiver, at or prior to the Closing Date
(and continued until the Closing Date), of the following conditions:
(a) Representations and Warranties; Covenants and Agreements;
--------------------------------------------------------
Consents. The representations and warranties of the Transferor contained in this
- --------
Agreement shall be true and correct in all material respects as of the date
hereof and shall also be true and correct in all material respects on the
Closing Date as though made on and as of the Closing Date, except that those
representations and warranties which are confined to a particular date shall
speak only as of such date, and the Transferor shall have performed in all
material respects the agreements, covenants and obligations to be performed by
it at or prior to the Closing Date. All Authorizations of or with any
Governmental Authority or other third party that are required for or in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby by the Transferor shall have been
obtained or made.
(b) Certificates. The Transferor shall have furnished InterCept and
------------
the Company with such certificates of the Transferor and such other documents to
evidence fulfillment of the conditions set forth in this Article 9 and otherwise
---------
to consummate the transactions contemplated pursuant to this Agreement, in
substantially the form attached hereto as Exhibit 9.2(b).
--------------
(c) Noncompetition, Nonsolicitation and Confidentiality Agreement.
-------------------------------------------------------------
The Transferor, as reasonably requested by the Company, shall have executed and
delivered to the Company a Noncompetition, Nonsolicitation and Confidentiality
Agreement substantially in the form attached hereto as Exhibit 9.2(c).
--------------
(d) Work Product Agreements. The Transferor shall have delivered to
-----------------------
the Company an Assignment of Work Product Agreement in the form attached hereto
as Exhibit 9.2(d), signed by all persons who have developed, modified or
--------------
otherwise had access to the source code for the Software.
(e) No Material Adverse Effect on the Division. No event shall have
------------------------------------------
occurred and no fact or circumstance shall have arisen which, in the judgment of
InterCept and the Company, is reasonably likely to have a Material Adverse
Effect on the Division or materially and adversely affect the value of this
transaction to InterCept or the Company, since the Balance Sheet Date except (i)
the announcement of this Agreement or (ii) conditions affecting global economy
or regional economy in which InterCept and the Company operate any part of its
or their business.
(f) Lease. The Company and Transferor shall have entered into a lease
-----
for the office space presently used by Transferor for the Division on
substantially the same terms as Transferor presently makes the space available
to the Division.
9.3 Conditions to the Obligations of the Transferor under this Agreement.
--------------------------------------------------------------------
The obligations of the Transferor under this Agreement shall be further subject
to the satisfaction or waiver, at or prior to the Closing Date, of the following
conditions:
(a) Representations and Warranties; Covenants and Agreements;
--------------------------------------------------------
Consents. The representations and warranties of InterCept and the Company
- --------
contained in this Agreement
Asset Purchase Agreement - Page 31
<PAGE>
shall be true and correct in all material respects as of the date hereof and
shall also be true and correct in all material respects on the Closing Date as
though made on and as of the Closing Date, and InterCept and the Company shall
have performed in all material respects the agreements, covenants and
obligations to be performed by them at or prior to the Closing Date. All
Authorizations of or with any Governmental Authority or other third party that
are required for or in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby by
InterCept and the Company shall have been obtained or made, except where the
failure to obtain any such Authorizations would not have a Material Adverse
Effect on InterCept or the Company.
(b) Certificates. InterCept and the Company shall have furnished the
------------
Transferor with such certificates of InterCept and the Company and such other
documents to evidence fulfillment of the conditions set forth in this Article 9
---------
and otherwise to consummate the transactions contemplated pursuant to this
Agreement substantially in the form attached hereto as Exhibit 9.3(b).
--------------
(c) Noncompetition, Nonsolicitation and Confidentiality Agreement.
-------------------------------------------------------------
Intercept shall have executed and delivered to the Company a Noncompetition,
Nonsolicitation and Confidentiality Agreement substantially in the form attached
hereto as Exhibit 9.3(c).
--------------
(d) No Material Adverse Effect. No Material Adverse Effect on
--------------------------
InterCept or the Company since the date of this Agreement shall have occurred
except (i) the announcement of this Agreement, and (ii) conditions affecting the
global economy or regional economy in which InterCept and the Company operate
any part of its or their business.
(e) Approvals. This Agreement and the transactions contemplated
---------
hereby shall have received all required Government Authorizations and other
consents or approvals from third parties (including lenders, licensees and
lessors) required to consummate the transactions contemplated hereby which,
either individually or in the aggregate, if not obtained would have a Material
Adverse Effect.
(f) Registration Rights Agreement. The Company shall have executed
-----------------------------
and delivered a Registration Rights Agreement (herein so called) in the form of
Exhibit 9.3(f) attached hereto.
- --------------
(g) Marketing Agreement. Each of the Company and Transferor shall
-------------------
have executed and delivered the Marketing Agreement.
(h) Company's Board. The Company and its Board of Directors shall
---------------
have taken all actions necessary so that upon the Closing of this Agreement
Bruce Leonard, Kevin Tweddle, or such other individual as the Transferor may
designate prior to Closing and that is reasonably acceptable to the Company,
shall become a director of the Company with a term ending not earlier than three
years following the Closing and such person shall be a member of the Nominating
Committee of the Company's Board of Directors.
(i) Completion of Due Diligence on Company. The Transferor shall have
--------------------------------------
completed its review of the Company, the results of which shall be acceptable to
the Transferor in its reasonable discretion.
Asset Purchase Agreement - Page 32
<PAGE>
(j) The Indemnity Agreement shall be in full force and effect.
(k) The Autidilution Agreement shall have been executed.
(l) Lease. The Company and Transferor shall have entered into a
-----
lease for the office space presently used by Transferor for the Division on
substantially the same terms as Transferor presently makes the space available
to the Division.
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated prior to the Closing
-----------
Date, whether before or after approval of this Agreement by the Company,
InterCept and the Transferor:
(a) by mutual written consent of InterCept, the Company and the
Transferor;
(b) by InterCept, the Company or the Transferor if the Closing Date
shall not have occurred on or prior to the Deadline Date; provided, however,
that the right to terminate this Agreement under this Section 10.1(b) shall not
---------------
be available to any Party whose action or failure to act has been a principal
cause of or resulted in the failure of the transaction contemplated by this
Agreement to occur on or before such date and such action or failure to act
constitutes a willful and material breach of this Agreement;
(c) by InterCept or the Company, if there has been a material breach
of any representation, warranty, covenant, agreement or obligation of the
Transferor hereunder in each case which either is not capable of being remedied,
or, if capable of being remedied, shall not have been remedied within 10 days
after receipt by the Transferor of notice in writing from InterCept or the
Company specifying the nature of such breach and requesting that it be remedied;
(d) by the Transferor, if there has been a material breach in any
representation, warranty, covenant, agreement or obligation of InterCept or the
Company hereunder in each case which either is not capable of being remedied,
or, if capable of being remedied, shall not have been remedied within 10 days
after receipt by InterCept or the Company, as the case may be, of notice in
writing from the Transferor specifying the nature of such breach and requesting
that it be remedied;
(e) by InterCept or the Company if any of the conditions set forth
in Section 9.1 or 9.2 is not satisfied and is no longer capable of being
------------------
satisfied by the Closing Date; or
(f) by the Transferor if any of the conditions set forth in Section
-------
9.1 or 9.3 is not satisfied and is no longer capable of being satisfied by the
- ----------
Closing Date;
10.2 Effect of Termination. If any Party terminates and abandons this
---------------------
Agreement pursuant to Section 10.1, this Agreement, other than Section 8.5(b),
------------ --------------
this Section 10.2, Section
------------ -------
Asset Purchase Agreement - Page 33
<PAGE>
10.3, Article 11 and Section 12.1 (each of which shall survive termination),
- ---- ---------- ------------
shall forthwith become void and have no effect, without any liability on the
part of any Party or its officers, directors or shareholders; provided, however,
that nothing contained in this Section 10.2 shall relieve any Party from any
------------
liability for any breach of this Agreement or the Confidentiality Agreement.
10.3 Specific Performance. The Parties acknowledge that the rights of each
--------------------
Party to consummate the transactions contemplated hereby are special, unique,
and of extraordinary character, and that, in the event any Party either violates
or fails or refuses to perform any covenant made by it herein, the other Party
or Parties will be without adequate remedy at law. Each Party agrees, therefore,
that in the event that it violates, fails or refuses to perform any covenant or
agreement made by it herein, the other Party or Parties, so long as it or they
are not in breach hereof, may, in addition to the remedies at law, institute and
prosecute an action in a court of competent jurisdiction to enforce specific
performance of such covenant or agreement or seek any other equitable relief.
10.4 Amendment. This Agreement may not be amended except by an instrument
---------
in writing signed on behalf of all the Parties hereto.
10.5 Extension; Waiver. The Parties may, at any time prior to the Closing
-----------------
Date, (a) extend the time for the performance of any of the obligations or other
acts of the other Parties; (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant thereto; or
(c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of any Party to any extension or waiver shall be valid
only if it is set forth in an instrument in writing signed on behalf of the
Party against which the waiver is sought to be enforced and shall apply only to
the specific condition, representation or warranty identified by the writing as
being waived, extended or modified.
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification by the Transferor. Subject to the terms of this
---------------------------------
Article 11, the Transferor shall indemnify, defend, save and hold harmless
InterCept, the Company, and their respective Subsidiaries, predecessors,
successors, directors, officers, employees, agents, representatives and assigns
(collectively, the "InterCept Indemnified Parties"), from and against any Claims
(including, without limitation, reasonable attorneys' and accountants' fees and
expenses), together with interest and penalties, if any, awarded by court order
or otherwise agreed to (collectively, "Indemnifiable Damages"), suffered by
InterCept Indemnified Parties that arise out of or result from any of the
following (whether or not a third party initiates the proceeding or claim giving
rise to such Indemnifiable Damages):
(a) any breach of any of the representations, warranties, covenants
or agreements made by the Transferor in this Agreement or in the other
Contribution Agreements; or
(b) any breach of any representation, warranty, covenant or
agreement in a document, certificate or affidavit delivered by the Transferor at
the Closing.
Asset Purchase Agreement - Page 34
<PAGE>
11.2 Indemnification by InterCept. Subject to the terms of this Article
---------------------------- -------
11, InterCept shall indemnify, defend, save and hold harmless the Transferor,
- --
and its shareholders, officers, directors, employees, agents, representatives
and assigns (collectively, the "Transferor Indemnified Parties"), from and
against any Indemnifiable Damages suffered by the Transferor Indemnified Parties
that arise out of or result from any of the following (whether or not a third
party initiates the proceeding or claim giving rise to such Indemnifiable
Damages):
(a) any breach of any of the representations, warranties, covenants
and agreements made by InterCept in this Agreement or in the other Contribution
Agreements; or
(b) any breach of any representation, warranty, covenant or
agreement in a document, certificate or affidavit delivered by InterCept at the
Closing.
11.3 Indemnification by Company. Subject to the terms of this Article 11,
-------------------------- ----------
the Company shall indemnify, defend, save and hold harmless the Transferor
Indemnified Parties, from and against any Indemnifiable Damages suffered by the
Transferor Indemnified Parties that arise out of or result from any of the
following (whether or not a third party initiates the proceeding or claim giving
rise to such Indemnifiable Damages):
(a) any breach of any of the representations, warranties, covenants
and agreements made by the Company in this Agreement or in the other
Contribution Agreements;
(b) any breach of any representation, warranty, covenant or
agreement in a document, certificate or affidavit delivered by the Company at
the Closing; or
(c) those contracts set forth on Schedule 11.3(c).
----------------
11.4 Claims for Indemnification. The Party seeking indemnification (the
--------------------------
"Indemnified Party") shall give the Party from whom indemnification is sought
(the "Indemnifying Party") a written notice ("Notice of Claim") within sixty
(60) days of the discovery of any loss, liability, claim or expense in respect
of which the right to indemnification contained in this Article 11 may be
----------
claimed; provided, however, that the failure to give such notice within such
sixty (60) day period shall not result in the waiver or loss of any right to
bring such claim hereunder after such period unless, and only to the extent
that, the other Party is actually prejudiced by such failure. In the event a
claim is pending or threatened or the Indemnified Party has a reasonable belief
as to the validity of the basis for such claim, the Indemnified Party may give
written notice (a "Notice of Possible Claim") of such claim to the Indemnifying
Party, regardless of whether a loss has arisen from such claim. A Party shall
have no liability under this Article 11 for breach of a representation or
----------
warranty, unless a Notice of Claim or Notice of Possible Claim therefor is
delivered by the Indemnified Party prior to March 31, 2001; provided, however,
that the limitations set forth in this Section 11.4 shall not apply to liability
------------
under this Article 11 for any intentional breach of a representation or warranty
----------
in this Agreement. Any Notice of Claim or Notice of Possible Claim shall set
forth the representations, warranties, covenants and agreements with respect to
which the claim is made, the specific facts giving rise to an alleged basis for
the claim and the amount of liability asserted or anticipated to be asserted by
reason of the claim.
Asset Purchase Agreement - Page 35
<PAGE>
11.5 Defense of Claim by Third Parties. If any claim is made by a third
---------------------------------
party against a Party to this Agreement that, if sustained, would give rise to a
liability of another Party under this Agreement, the Party against whom the
claim is made shall promptly cause Notice of Claim to be delivered to the other
Party and shall afford the other Party and its counsel, at the other Party's
sole expense, the opportunity to join in the defense and settlement of the
claim. The failure to provide such notice will not relieve the Indemnifying
Party of liability under this Agreement unless, and only to the extent that, the
Indemnifying Party is actually prejudiced by such failure.
11.6 Third Party Claim Assistance. From time to time after the Closing,
----------------------------
InterCept, Company and the Transferor shall provide or cause their appropriate
employees or representatives to provide the other Parties with information or
data in connection with the handling and defense of any third party claim or
litigation (including counterclaims filed by the parties) in respect to which a
Party may be required to indemnify another Party under this Agreement. The
Party receiving such information or data shall reimburse the other Parties for
all of their reasonable costs and expenses in providing these services,
including, without limitation, (i) all out of pocket, travel and similar
expenses incurred by their personnel in rendering these services; and (ii) all
fees and expenses for services performed by third parties engaged by or at the
request of such other Parties.
11.7 Settlement of Indemnification Claims. If a recipient of a Notice of
------------------------------------
Claim desires to dispute such claim, it shall, within thirty (30) days after
receipt of the Notice of Claim, give counter-notice, setting forth the basis for
disputing such claim, to InterCept, the Company or the Transferor, as the case
may be. If no such counter-notice is given within such thirty (30) day period,
or if InterCept, Company or the Transferor, as the case may be, acknowledges
liability for indemnification, then the amount claimed shall be promptly
satisfied as provided in Section 11.8. If, within thirty (30) days after the
receipt of counter-notice by InterCept, Company or the Transferor, as the case
may be, the Transferor, Company and InterCept shall not have reached agreement
as to the claim in question, then the Party disputing the claim shall satisfy
any undisputed amount as specified in Section 11.8 and the disputed amount of
the claim of indemnification shall be submitted to and settled by arbitration in
accordance with the then prevailing commercial arbitration rules of the American
Arbitration Association. Such arbitration shall be held in the Atlanta, Georgia
area before a panel of three (3) arbitrators, one selected by each of the
Parties and the third selected by mutual agreement of the first two, and all of
whom shall be independent and impartial under the rules of the American
Arbitration Association. The decision of the arbitrators shall be final and
binding as to any matter submitted under this Agreement. To the extent the
decision of the arbitrators is that a Party shall be indemnified hereunder, the
amount shall be satisfied as provided in Section 11.8. Judgment upon any award
rendered by the arbitrators may be entered in any court of competent
jurisdiction. The date of the arbitrator's decision or the date a claim
otherwise becomes payable pursuant to this Section 11.7 is referred to as the
"Determination Date."
11.8 Certain Limitations. Notwithstanding the foregoing in this Article
-------------------
11, the indemnification obligations of the parties shall not be affected by any
investigation made by the parties hereto prior to the date hereof or the Closing
Date and shall be subject to the following limitations.
Asset Purchase Agreement - Page 36
<PAGE>
(a) No indemnification shall be made for breaches of representations
and warranties pursuant to this Article 11 until the total Indemnifiable Damages
for which the Indemnifying Party would be liable exceeds $50,000, in which event
the Indemnifying Party shall indemnify to the full amount of such Indemnifiable
Damages.
(b) No indemnification shall be made for breaches of representations
and warranties pursuant to this Article 11 to the extent Indemnifiable Damages
to be paid by the Transferor, on the one hand, or Company or Intercept,
collectively on the other hand, exceed $4,500,000.
(c) An Indemnifying Party shall be obligated to indemnify an
Indemnified Party pursuant to this Article 11 for breaches of representations
and warranties only for those Indemnifiable Damages as to which the Indemnified
Party has given the Indemnifying Party written notice thereof by March 31, 2001.
(d) The limitations set forth in Sections 11.8(a), (b) and (c) shall
not apply to Indemnifiable Damages arising out of (a) fraud, (b) intentional
breaches or (c) breaches of the representations and warranties in Sections 5.1,
5.2, 5.7, 6.1, 6.2, 7.1, 7.2, 7.3 and 7.14.
ARTICLE 12
MISCELLANEOUS
12.1 Expenses.
--------
(a) Except as otherwise expressly stated herein, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including legal and accounting fees and expenses) shall be
borne by the Party incurring such costs and expenses and shall be paid by such
Party prior to or on the Closing Date.
(b) Notwithstanding any provision in this Agreement to the contrary,
if any of the Parties shall willfully default in its obligations hereunder, the
non-defaulting Party may pursue any remedy available at law or in equity to
enforce its rights and shall be paid by the willfully defaulting Party for all
damages, costs and expenses, including without limitation reasonable legal and
accounting expenses incurred or suffered by the non-defaulting Party in
connection herewith or in the enforcement of its rights hereunder.
12.2 Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered personally
or by reputable overnight or express courier, sent by registered or certified
mail, postage prepaid, or by telefax (with subsequent delivery via one of the
two previous methods) as follows:
Asset Purchase Agreement - Page 37
<PAGE>
(a) If to InterCept or Company, to:
The InterCept Group, Inc.
Netzee, Inc.
3150 Holcomb Bridge Road, Suite 200
Norcross, Georgia 30071
Attn: President and Chief Financial Officer
Telefax: (770) 248-9600
Copy (which shall not constitute notice) to:
Sutherland Asbill & Brennan LLP
999 Peachtree Street, N.E.
Suite 2300
Atlanta, Georgia 30309
Attn: Mark D. Wasserman
Telefax: (404) 853-8398
(b) If to the Transferor (prior to Closing) or the Shareholders, to:
The Bankers Bank
2410 Paces Ferry Road
600 Paces Summit
Atlanta, Georgia 30339-4098
Attn: Kevin Tweddle
Telefax: (770) 805-2164
Copy (which shall not constitute notice) to:
Morris, Manning & Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
Attn: Larry W. Shackelford
Telefax: (404) 365-9532
or such other addresses and telefax numbers as shall be furnished in writing by
any Party, and any such notice or communications shall be deemed to have been
given as of three business days after the date actually sent via overnight or
express courier, eight days after mailed and upon telefax confirmation of
receipt to addressee by the sender.
12.3 Parties in Interest. This Agreement shall be binding on and shall
-------------------
inure to the benefit of the Parties hereto and their respective successors,
representatives and assigns. This Agreement (and the rights and interests
herein) may not be assigned by any Party without the written consent of the
other Parties; provided, however, InterCept and the Company each may assign its
interests herein to an entity controlling, controlled by or under common control
with InterCept or the Company, as the case may be; provided, that InterCept or
the Company, as the
Asset Purchase Agreement - Page 38
<PAGE>
case may be, irrevocably and unconditionally guarantees the performance of all
the assignee's obligations under this Agreement, subject only to the terms and
conditions of this Agreement. Any attempted assignment in contravention of the
foregoing shall be null and void. Nothing in this Agreement is intended to
confer, expressly or by implication, upon any other Person any rights or
remedies under or by reason of this Agreement.
12.4 Entire Agreement. This Agreement and the Disclosure Schedules,
----------------
Exhibits and the other documents, agreements (including, without limitation, the
Registration Rights Agreement, Marketing Agreement, Antidilution Agreement and
the Agreement, certificates and instruments executed and delivered pursuant to
or in connection with this Agreement (collectively, the "Contribution
Agreements"), contains the entire agreement among the Parties with respect to
the transactions contemplated by this Agreement and supersedes all prior
negotiations, arrangements or understandings, written or oral, with respect
thereto.
12.5 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original, and each of which shall
constitute one and the same agreement. Any Party may deliver an executed copy of
this Agreement and any documents contemplated hereby by facsimile transmission
to another Party, and such delivery shall have the same force and effect as any
other delivery of a manually signed copy of this Agreement or of such other
documents.
12.6 Governing Law.
-------------
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF GEORGIA,
EXCLUDING CHOICE OF LAW PRINCIPLES.
(b) InterCept, the Company and the Transferor consent to the
exclusive jurisdiction and venue of the courts of the United States Federal
District Courts of Georgia, in any judicial proceeding brought to enforce this
Agreement.
12.7 Arbitration.
-----------
(a) Any dispute, controversy or claim arising out of or relating to
this Agreement or any other related documents, agreements, certificates or other
writing, or the breach, termination, construction, validity or enforceability
hereof or thereof, shall be settled by binding arbitration in accordance with
the rules of the American Arbitration Association (except as otherwise provided
in this Section 12.7).
(b) Termination or limitation of InterCept's or Company's rights in
any of its software, products, or any associated intellectual property rights or
documents may not be awarded under any circumstances. The right to demand
arbitration and to receive damages and obtain other available remedies as
provided hereunder shall be the exclusive remedy in the event an arbitration
demand is made, except that InterCept and Company shall be entitled to obtain
equitable relief, such as injunctive relief, from any court of competent
jurisdiction to protect its rights in any of its software products or any
associated intellectual property rights or documents while such proceeding is
pending or in support of any award made pursuant to such arbitration.
Asset Purchase Agreement - Page 39
<PAGE>
12.8 Invalidity of any Part. If any provision or part of this Agreement
----------------------
shall for any reason be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Agreement and shall be construed as if such invalid, illegal
or unenforceable provision or part thereof had never been contained herein, but
only to the extent of its invalidity, illegality, or unenforceability. Upon any
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the Parties hereto will negotiate in good faith to
modify this Agreement so as to effect the original intent of the Parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated by this Agreement are consummated to the extent possible.
12.9 Time of the Essence; Computation of Time. Time is of the essence of
----------------------------------------
each and every provision of this Agreement. Whenever the last day for the
exercise of any right or the discharge of any duty under this Agreement shall
fall upon Saturday, Sunday or a federal, public or legal holiday, the Party
having such right or duty shall have until 5:00 p.m., Atlanta, Georgia time on
the next succeeding regular business day to exercise such right or to discharge
such duty.
[Remainder of Page Intentionally Left Blank.]
Asset Purchase Agreement - Page 40
<PAGE>
IN WITNESS WHEREOF, InterCept, Company and the Transferor have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
INTERCEPT:
The InterCept Group, Inc.
By: /s/ Scott R. Meyerhoff
--------------------------
Name: Scott R. Meyerhoff
--------------------------
Title: CFO
--------------------------
COMPANY:
NETZEE, INC.
By: /s/ Glen W. Sturm
--------------------------
Name: Glenn W. Sturm
--------------------------
Title Chief Executive Officer
--------------------------
THE TRANSFEROR
The Bankers Bank
By: /s/ Kevin Tweddle
--------------------------
Name: Kevin Tweddle
--------------------------
Title: SVP/CFO
--------------------------
Asset Purchase Agreement - Page 41
<PAGE>
EXHIBIT 2.4
ASSET CONTRIBUTION AGREEMENT
September 3, 1999
By and Among
THE INTERCEPT GROUP, INC.
(A Georgia Corporation)
NETZEE, INC.
(A Georgia Corporation)
And
TIB THE INDEPENDENT BANKER'S BANK
(A Texas Banking Association)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
THE CONTRIBUTION 2
Contribution of Assets 2
Assumption of Liabilities 2
Time and Place of Closing 2
[RESERVED] 2
CONSIDERATION AND PAYMENT OF CONSIDERATION 3
Consideration 3
Payment of Consideration 3
Adjustment of Company Common Stock 3
Legending of Securities 3
RULES OF CONSTRUCTION 4
REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR 7
Organization 7
Authority; No Violation 7
Financial Statements 8
Broker's and Other Fees 9
Absence of Certain Changes or Events 9
Legal Proceedings 9
Taxes and Tax Returns 9
Employee Benefit Plans and Relations 10
Compliance with Applicable Laws 10
Certain Contracts 10
Properties and Insurance 11
Environmental Matters 12
Intellectual Property 12
Adequacy of Technical Documentation 13
Third-Party Components in Software 13
Third-Party Interests or Marketing Rights in Software 13
Absence of Certain Agreements and Practices 14
Major Vendors and Customers 14
Accounts Receivable 14
Bank Accounts 14
Combinations Involving the Division 14
Labor Relations 15
Year 2000 Matters 15
Securities Act Compliance 15
Access to Information 15
---------------------
Experience; Investment 16
Tax Advice 16
Disclosure 16
Corporate Organization 17
Authority; No Violation 17
Broker's and Other Fees 18
Legal Proceedings 18
Disclosure 18
</TABLE>
Asset Purchase Agreement - Page i
<PAGE>
<TABLE>
<S> <C>
REPRESENTATIONS AND WARRANTIES OF THE COMPANY 18
Corporate Organization 18
CAPITALIZATION 18
Authority; No Violation 19
Financial Statements 20
Broker's and Other Fees 21
Absence of Certain Changes or Events 21
Legal Proceedings 21
Properties and Insurance 22
Intellectual Property 22
---------------------
ADEQUACY OF TECHNICAL DOCUMENTATION \F C \L 23
Third-Party Components in Company's Software 23
Third-Party Interests or Marketing Rights in Software 24
Compliance with Laws 24
Taxes and Tax Returns 24
Corporate Records 25
Combinations Involving the Company 25
No Prior Operations 25
Disclosure 25
COVENANTS AND AGREEMENTS OF THE PARTIES 26
Conduct of Business 26
Negative Covenants 26
No Solicitation 27
Current Information 28
Access to Properties and Records; Confidentiality 29
Regulatory Matters; Consents; Cooperation, etc. 29
Parties' Efforts; Further Assurances; Cooperation 29
Public Announcements 30
Failure to Fulfill Conditions
Disclosure Supplements 30
Cooperation and Exchange of Information 30
Customer Contacts 30
Employees 30
CLOSING CONDITIONS 32
Conditions of Each Party's Obligations Under this Agreement 32
Approvals and Regulatory Filings 32
Suits and Proceedings 32
Conditions to the Obligations of InterCept and Acquisition Sub under this Agreement 32
Representations and Warranties; Covenants and Agreements; Consents 32
Certificates 33
Noncompetition, Nonsolicitation and Confidentiality Agreement 33
Work Product Agreements 33
No Material Adverse Effect on the Division 33
Conditions to the Obligations of the Transferor under this Agreement 33
Representations and Warranties; Covenants and Agreements; Consents 33
Certificates 34
Noncompetition, Nonsolicitation and Confidentiality Agreement 34
No Material Adverse Effect on InterCept 34
Approvals 34
Registration Rights Agreement 34
Company's Board 34
</TABLE>
Asset Purchase Agreement - Page ii
<PAGE>
<TABLE>
<S> <C>
Completion of Due Diligence on Company 34
[Registration Rights Agreement] 34
TERMINATION, AMENDMENT AND WAIVER 35
Termination 35
Effect of Termination 36
Specific Performance 36
Amendment 36
Extension; Waiver 36
INDEMNIFICATION 36
Indemnification by the Transferor 36
Indemnification by InterCept 37
Indemnification by Company 37
Claims for Indemnification 37
Defense of Claim by Third Parties 38
Third Party Claim Assistance 38
Settlement of Indemnification Claims 38
Certain Limitations 39
MISCELLANEOUS 39
Expenses 39
Notices 40
Parties in Interest 41
Entire Agreement 41
Counterparts 41
Governing Law 41
Arbitration 42
Invalidity of any Part 42
Time of the Essence; Computation of Time 42
</TABLE>
Asset Purchase Agreement - Page iii
<PAGE>
ASSET CONTRIBUTION AGREEMENT
----------------------------
THIS ASSET CONTRIBUTION AGREEMENT (this "Agreement") is dated and effective
as of September 3, 1999, by and among THE INTERCEPT GROUP, INC., a Georgia
corporation ("InterCept"), NETZEE, Inc., a Georgia corporation (the "Company"),
and TIB THE INDEPENDENT BANKER'S BANK, a Texas banking association (the
"Transferor"). InterCept, the Company, and the Transferor are hereinafter
collectively called the "Parties."
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Transferor or The Bankers Bank (as defined below) owns, leases
or licenses all of the assets used in the Internet banking business conducted by
the Transferor (the "Division");
WHEREAS, the Transferor wishes to contribute to the Company, and the
Company wishes to acquire from the Transferor, certain assets of the Transferor,
as specified in Article 1, in exchange for shares of common stock of the
---------
Company;
WHEREAS, the contribution of the Transferred Assets (as defined below) by
the Transferor to the Company in exchange for Company Common Stock (as defined
below) (the "Contribution") will be effected pursuant to an overall plan of the
Company, which involves the following transactions:
a. The contribution of the Transferred Assets (as defined below);
b. The transfer by The Bankers Bank, a Georgia banking corporation
("The Bankers Bank"), of certain of its assets to the Company in exchange
for shares of Company Common Stock;
c. Direct Access Interactive, Inc., a Georgia corporation ("Direct
Access"), will be merged into the Company in exchange for shares of Company
Common Stock;
d. Dyad Corporation, a Georgia corporation ("Dyad") will be merged
into the Company in exchange for shares of Company Common Stock; and
e. The transfer of all of the membership interests in Call Me Bill,
LLC, a Kentucky limited liability company ("CMB"), to the Company in
exchange for cash.
WHEREAS, it is intended that the Contribution and above series of related
and integrated transactions (overall, the "Exchange") qualify for treatment
under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
WHEREAS, the Boards of Directors of InterCept and the Company have approved
the terms and conditions set forth herein.
Asset Purchase Agreement - Page 1 of 49
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
Parties agree as follows:
ARTICLE 1
THE CONTRIBUTION
1.1 Contribution of Assets. Upon the terms and subject to the conditions
----------------------
of this Agreement, the Transferor shall contribute, assign, deliver and transfer
to the Company and the Company shall receive from the Transferor, all of the
Transferor's right, title and interest in and to the Division, specified or
described on Schedule 1.1, wherever such assets are located and whether
------------
personal, tangible or intangible, in electronic form or otherwise, and whether
or not any of such assets have any value for accounting purposes or are carried
or reflected on or specifically referred to in the Transferor's books or
financial statements, free and clear of all encumbrances except those that
relate to the Assumed Liabilities (as defined below). The properties, business
and assets of the Division, or otherwise utilized by the Division, and to be
transferred hereunder shall be referred to as the "Transferred Assets."
1.2 Assumption of Liabilities. Upon the terms and subject to the
-------------------------
conditions of this Agreement, the Company agrees to assume at the Closing and
become responsible for all of the liabilities and obligations of Transferor set
forth on Schedule 1.2 and all liabilities and obligations of the Division
------------
accruing under or pursuant to each Non-Assignable Purchased Contract from and
after the date on which all consents required for the transfer and assignment of
such Non-Assignable Purchased Contract have been obtained and delivered to the
Company as contemplated by Section 8.14 hereto (the "Assumed Liabilities"). The
Company will not assume or have any responsibility, however, with respect to any
other obligation or liability of Transferor of any kind or nature whatsoever not
specifically included within the definition of Assumed Liabilities.
1.3 Time and Place of Closing. The consummation of the transactions
-------------------------
contemplated by this Agreement (the "Closing") shall take place at the offices
of Sutherland Asbill & Brennan, LLP, 999 Peachtree Street, N.E., Suite 2300,
Atlanta, Georgia 30309 at 10:00 a.m. on the first business day after all
conditions set forth in Article 9 have been met or at such other place and time
---------
as the Company and Transferor may agree (the "Closing Date"). At the Closing,
the parties shall execute and deliver the certificates, opinions and other
instruments and documents referred to in Article 9.
---------
ARTICLE 2
[Reserved]
Asset Purchase Agreement - Page 2 of 49
<PAGE>
ARTICLE 3
CONSIDERATION AND PAYMENT OF CONSIDERATION
3.1 Consideration. Subject to the terms of this Agreement and the related
-------------
agreements and documents, the consideration for all of the Transferred Assets
and Assumed Liabilities (the "Consideration") shall be 1,361,000 shares of
common stock, no par value, of the Company ("Company Common Stock").
3.2 Payment of Consideration. At the Closing, the Company shall deliver
------------------------
(or cause to be delivered) and InterCept shall cause to be delivered the
Consideration to Transferor in the form of a certificate or certificates for
Company Common Stock in the name of the Transferor or its assigns.
3.3 Adjustment of Company Common Stock.
----------------------------------
In addition to any adjustments made pursuant to the Antidilution
Agreement, in the event that at any time after the date hereof and prior to the
Closing Date, the Company shall effect (i) a dividend or other distribution with
respect to Company Common Stock, payable in Company Common Stock or other
property (other than cash), (ii) a combination or conversion of outstanding
Company Common Stock into a smaller number of shares of such Company Common
Stock, (iii) a split or subdivision of outstanding Company Common Stock into a
greater number of shares of Company Common Stock, or (iv) any reorganization or
reclassification, or any consolidation or merger of the Company with another
corporation where the Company is not the surviving corporation, or the sale of
all or substantially all of its assets to another corporation, in such a way
that holders of outstanding Company Common Stock shall be entitled to receive
(either directly or upon subsequent liquidation) stock, securities or other
property with respect to or in exchange for Company Common Stock (any such event
described in clauses (i) through (iv) above referred to as a "Diluting Event"),
then, as a condition of such Diluting Event, lawful and adequate provision shall
be made whereby the Transferor shall thereafter be entitled to receive (under
the same terms otherwise applicable to its receipt of Company Common Stock
hereunder), in addition to or in lieu of (as the case may be) the number of
shares of Company Common Stock, to which the Transferor is entitled immediately
prior to such Diluting Event, such shares of stock, securities or other property
as may be issued or payable with respect to or in exchange for that number of
shares of Company Common Stock to which the Transferor was so entitled, and in
any case appropriate provision shall also be made with respect to the
Transferor's rights and interests to the end that the provisions of this
Section 3.3 shall thereafter be applicable in relation to any shares of stock,
- -----------
securities or other property thereafter deliverable to the Transferor pursuant
to the provisions hereof.
3.4 Legending of Securities.
-----------------------
(a) The shares of Company Common Stock to be delivered in connection
with this Agreement will be issued in a transaction exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act") by reason of
Section 4(2) thereof,
Asset Purchase Agreement - Page 3 of 49
<PAGE>
Regulation D promulgated thereunder, or other private offering exemptions, and
similar exemptions under applicable state securities laws (the "State Acts"),
and the Company is relying on the representations of the Transferor with respect
to such exemptions. The Transferor understands and agrees that stop transfer
instructions with respect to the shares of Company Common Stock received by the
Transferor pursuant to this Agreement will be given to the Company's transfer
agent and that there will be placed on the certificates for such shares a legend
stating in substance as follows:
The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or any state securities laws and may
not be offered, sold, transferred or otherwise disposed of unless
registered with the United States Securities and Exchange Commission and
the securities regulatory authorities of applicable states or unless an
exemption from such registration is available.
(b) The foregoing legend will also be placed on any certificate
representing securities issued subsequent to the original issuance of the
Company Common Stock pursuant to this Agreement as a result of any transfer of
such shares or any stock dividend, stock split or other recapitalization as long
as the Company Common Stock issued to the Transferor pursuant to this Agreement
has not been transferred in such manner to justify the removal of the legend
therefrom.
(c) Removal of Legends. Notwithstanding the foregoing provisions of
------------------
this Section 3.4, the Company agrees to notify the Company's transfer agent to
-----------
remove all stop transfer instructions with respect to the shares of Company
Common Stock received by the Transferor and to issue to the holder thereof a new
certificate or certificates for such shares not bearing the restrictive legend
set forth in Section 3.4(a) when (i) any such shares are sold or otherwise
-----------
disposed of pursuant to an effective registration statement under the Securities
Act, (ii) the holder of such shares has met the requirements for transfer of
such shares pursuant to subparagraph (k) of Rule 144 under the Securities Act,
or (iii) in the opinion of counsel reasonably acceptable to the Company,
registration of any future transfer of such shares is not required by the
Securities Act or applicable State Acts.
ARTICLE 4
RULES OF CONSTRUCTION
In the interpretation of this Agreement, unless otherwise provided or
the context otherwise requires:
(a) The singular includes the plural and vice versa and, in
particular (but without limiting the generality of the foregoing), any word or
expression defined in the singular has the corresponding meaning used in the
plural and vice versa;
(b) Any reference to any gender includes the other gender;
Asset Purchase Agreement - Page 4 of 49
<PAGE>
(c) Any reference to an Article, Section, Exhibit, clause, subclause,
paragraph, subparagraph, Schedule or recital is a reference to an Article,
Section, Exhibit, clause, subclause, paragraph, subparagraph, Schedule or
recital of this Agreement;
(d) Any reference to any agreement, instrument or other document (i)
shall include all appendices, exhibits and schedules thereto and all agreements,
documents or other writings incorporated by reference therein, and (ii) shall be
a reference to such agreement, instrument or other document as amended,
supplemented, modified, suspended, restated or novated from time to time;
(e) Any reference to any statute shall be construed as including all
statutory provisions consolidating, amending or replacing such statute and all
governmental regulations and rules promulgated thereunder;
(f) Any reference to "writing" includes printing, typing, lithography
and other means of reproducing words in a visible form;
(g) Any reference to a time or date or to a local time or date is a
reference to the time and date in Atlanta, Georgia;
(h) The headings and Article, Section and paragraph numbering
contained in this Agreement are used solely for convenience and do not
constitute a part of this Agreement, nor shall such headings and numbering be
used in any manner to aid in the construction of this Agreement;
(i) References herein to the "Transferor Disclosure Schedules" mean
the disclosure schedules, dated as of the date hereof, which have been delivered
by the Transferor to InterCept and the Company and all other documents,
agreements, and other items disclosed by Transferor in writing to InterCept and
the Company and attached to such schedules in connection with this Agreement,
and references to a numbered Transferor Disclosure Schedule shall mean that
portion of the Transferor Disclosure Schedules that refers to the specific
section or subsection of Article 5 of this Agreement;
---------
(j) The terms "disclosed by InterCept" and "disclosed by the Company"
mean and include, unless the context indicates otherwise, with respect to
information concerning any event, fact or circumstance, information contained in
the Company's Disclosure Schedules in this Agreement and the other Contribution
Agreements (defined in Section 12.4).
------------
(k) The term "including" means "including, without limitation";
(l) The term "Governmental Authority" means any United States
federal, state or local, or foreign, governmental, regulatory or administrative
authority, agency, department, board, investigative body or commission or any
court, tribunal, or judicial or arbitral body;
Asset Purchase Agreement - Page 5 of 49
<PAGE>
(m) The term "Knowledge" as used with respect to the Transferor
(including any references to the Transferor being aware of a particular matter)
means the actual knowledge of Gayle M. Earls, A. Mackey Harral, Steve Simpson
and T. Patrick Gray and information which any of them reasonably should have
known given the nature of the disclosure, and the term "Knowledge" as used with
respect to the Company (including any references to the Company being aware of a
particular matter) means the actual knowledge of John Collins, Glenn Sturm and
Scott Meyerhoff and information which any of them reasonably should have known
given the nature of the disclosure;
(n) The term "Material Adverse Effect" with respect to a person means
any circumstance of, change in, or effect on the business and affairs of such
person or any of its Subsidiaries thereof that, individually or in the aggregate
with any other circumstance of change in, or effect on, the business and affairs
of such person and its Subsidiaries: (i) is, or would reasonably be expected to
be, materially adverse to the business, operations, assets, liabilities, results
of operations or financial condition of such person and its Subsidiaries, taken
as a whole, or (ii) would reasonably be expected to materially adversely affect
the ability of such person and its Subsidiaries to operate or conduct its or
their business and affairs in the manner in which it is currently operated or
conducted or contemplated by such person, to be operated or conducted; provided,
however, that a Material Adverse Effect with respect to the Division shall not
include any change or developments attributable to (a) this Agreement or the
transactions contemplated hereby, (b) events which adversely affect the general
economy of the United States of America, or the region, state or county in which
the Division conducts its business operations, (c) events which adversely affect
the banking industry generally or (d) any change in Law applicable to the
Division's business as presently conducted;
(o) The term "person" means any individual, partnership, limited
liability company, firm, corporation, association, trust, joint venture,
unincorporated organization or other entity, as well as any syndicate or group
that would be deemed to be a person under Section 13(d)(3) of the Exchange Act
(as defined herein);
(p) References herein to the "Company Disclosure Schedules" mean the
disclosure schedules, dated as of the date hereof, which have been delivered by
the Company to the Transferor and all other documents, agreements and other
items disclosed by the Company in writing to the Transferor and attached to such
schedules in connection with this Agreement, and references to a numbered
Company Disclosure Schedule shall mean that portion of the Company Disclosure
Schedules that refers to the specific section or subsection of Article 7;
---------
(q) The term "Subsidiary" means any corporation, partnership, joint
venture or other legal entity in which a specified person, directly or
indirectly, owns or controls the voting of at least a 50% share or other equity
interest or for which such person, directly or indirectly, acts as a general
partner or managing member; and
(r) Each of the Parties acknowledges that it has had the opportunity
to negotiate the terms and provisions of this Agreement, with the assistance and
review of its
Asset Purchase Agreement - Page 6 of 49
<PAGE>
counsel. This Agreement, therefore, shall be construed without regard to any
presumption or other rule requiring construction against the party causing the
Agreement to be drafted.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR
To induce InterCept and the Company to enter into this Agreement and the
other Contribution Agreements, the Transferor hereby represents and warrants to
InterCept and the Company as follows:
5.1 Organization.
------------
(a) The Transferor is a banking association duly organized, validly
existing and in good standing under the laws of the State of Texas. The
Transferor has the power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted.
(b) Transferor Disclosure Schedule 5.1(b) sets forth true and correct
-------------------------------------
copies of the Articles of Association and Bylaws of the Transferor and all
amendments thereto.
5.2 Authority; No Violation.
-----------------------
(a) Except as disclosed on Transferor Disclosure Schedule 5.2(a)
-------------------------------------
(collectively, the "Transferor Approvals"), no consents, approvals,
authorizations, clearances or orders of, filings or registrations with or
notices to any third party or any Governmental Authority (collectively
"Authorizations") are necessary on behalf of the Transferor in connection with
(i) the execution and delivery by the Transferor of this Agreement and the other
Contribution Agreements to which it is a party, (ii) the consummation by the
Transferor of the transactions contemplated hereby and thereby and (iii) the
performance of the Transferor's obligations under this Agreement and the other
Contribution Agreements. The Transferor has the full power and authority to
execute and deliver this Agreement and the other Contribution Agreements to
which it is a party and to consummate the transactions contemplated hereby and
thereby in accordance with the terms hereof and thereof. The execution and
delivery of this Agreement and the other Contribution Agreements to which the
Transferor is a party and the consummation of the transactions contemplated
hereby and thereby have been duly and validly approved by the Board of Directors
of the Transferor in accordance with the Articles of Association and Bylaws of
the Transferor and with applicable Laws (as defined below). Except for the
Transferor Approvals, no other corporate proceedings on the part of the
Transferor are necessary for the Transferor to execute and deliver this
Agreement and the other Contribution Agreements to which it is a party and for
the Transferor to be bound by the terms hereof and thereof. This Agreement and
the other Contribution Agreements to which the Transferor is a party have been
duly and validly executed and delivered by the Transferor and constitute the
valid and binding obligation of the Transferor enforceable against the
Transferor in accordance with its and their terms, subject to receipt of the
Transferor Approvals and except to the extent that enforceability may be limited
Asset Purchase Agreement - Page 7 of 49
<PAGE>
by (i) applicable bankruptcy, insolvency, reorganization, moratorium, or other
similar Laws affecting the rights of creditors, generally, and (ii) general
principles of equity (collectively, the "Enforceability Exceptions").
(b) Neither the execution and delivery by the Transferor of this
Agreement and the other Contribution Agreements to which it is a party, nor the
consummation by the Transferor of the transactions contemplated hereby and
thereby in accordance with the other terms hereof and thereof, nor compliance by
the Transferor with any of the terms or provisions hereof or thereof, will: (i)
violate any provision of the Transferor's Articles of Association or Bylaws;
(ii) assuming that the Transferor Approvals are duly obtained, violate any
United States federal, state or local or foreign statute, code, ordinance, rule,
regulation, judgment, order, writ, ruling, decree or injunction of any
Governmental Authority (collectively, "Laws") applicable to the Transferor or
any of its properties or assets; or (iii) violate, conflict with, result in a
breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in the
creation of any lien, mortgage, security interest, pledge, charge, other right
of third parties or other encumbrance (collectively, "Liens") upon any of the
Transferred Assets under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which the Transferor is a party, or by which it or
any of the Transferred Assets may be bound or affected except, with respect to
clauses (ii) and (iii) above, such as individually or in the aggregate will not
have a Material Adverse Effect on the Division or the Transferred Assets, and
which will not prevent or materially delay the consummation of the transactions
contemplated hereby.
5.3 Financial Statements.
--------------------
(a) Transferor Disclosure Schedule 5.3(a) sets forth copies of: (i)
-------------------------------------
the balance sheets of the Division as of December 31, 1998 and June 30, 1999,
and (ii) the statements of income for the fiscal year ending December 31, 1998
and for the six months ended June 30, 1999 (collectively, the "Division
Financial Statements");
(b) The Division Financial Statements have been prepared on a modified
cash basis applied consistently during the periods involved (except as may be
indicated therein or in the notes thereto), and present fairly, the financial
position of the Division as of the respective dates set forth therein, and the
results of the Division's operations for the respective periods set forth
therein.
(c) The books and records of the Division have been maintained in
material compliance with applicable legal and accounting requirements.
(d) Since June 30, 1999 (the "Balance Sheet Date"), there has not been
any change, occurrence or circumstance affecting the business, results of
operations or financial condition of the Division that has had, individually or
in the aggregate, a Material Adverse Effect on the Division or which is
reasonably likely to have a Material Adverse Effect on the Division,
Asset Purchase Agreement - Page 8 of 49
<PAGE>
other than changes, occurrences and circumstances disclosed by the Transferor on
the Transferor Disclosure Schedules.
5.4 Broker's and Other Fees. Except as disclosed in Transferor Disclosure
----------------------- ---------------------
Schedule 5.4, Transferor has not employed any broker or finder or incurred any
- ------------
liability for any broker's or finder's fees or commissions in connection with
any of the transactions contemplated by this Agreement and the other
Contribution Agreements.
5.5 Absence of Certain Changes or Events. Except as set forth in
------------------------------------
Transferor Disclosure Schedule 5.5, the Transferor has not taken or permitted
- ----------------------------------
any of the actions set forth in Section 8.2 since the Balance Sheet Date and,
-----------
except for execution of this Agreement and the other Contribution Agreements,
the Transferor has conducted the business of the Division only in the ordinary
course, consistent with past practice. Prior to the Balance Sheet Date, the
Transferor did not take or permit any of the actions set forth in Section 8.2
-----------
that are not reflected in the Division Financial Statements.
5.6 Legal Proceedings. Except as disclosed in Transferor Disclosure
----------------- ---------------------
Schedule 5.6, the Transferor is not a party to any, and there are no pending or,
- ------------
to the Transferor's Knowledge, threatened legal, administrative, arbitral or
other proceedings, claims, actions or governmental investigations of any nature
against the Division. Except as disclosed in Transferor Disclosure Schedule 5.6,
----------------------------------
the Transferor is not a party to any order, judgment or decree entered in any
lawsuit or proceeding that relates to or would have an adverse effect on the
Transferred Assets or the Division. Without limiting the foregoing, except as
disclosed in Transferor Disclosure Schedule 5.6, no actions, suits, demands,
----------------------------------
notices, claims, investigations or proceedings are pending or, to the
Transferor's Knowledge, threatened against or otherwise involving, directly or
indirectly, any officer, director, employee or agent of the Transferor (in
connection with such officer's, director's, employee's or agent's activities on
behalf of the Transferor that relate, directly or indirectly to the Division or
the Transferred Assets) including without limitation any notices, demand letters
or requests from any Governmental Authority relating to such potential
liabilities, nor, to the Transferor's Knowledge, are there any circumstances
which are reasonably likely to lead to such actions, suits, demands, notices,
claims, investigations or proceedings.
5.7 Taxes and Tax Returns. Transferor has no liabilities related to any
---------------------
Taxes which affect the Transferred Assets or otherwise act as an encumbrance,
liability or Lien with respect to the Transferred Assets. As used herein,
"Taxes" means and includes any and all taxes, fees, levies, assessments, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Governmental Authority, including, without
limitation: foreign, domestic, central, local, state or other jurisdictional
taxes or other charges on or with respect to income, estimated income,
franchises, business, occupation, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation, or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer, value
added, or gains taxes; license, registration and documentation fees; and customs
duties, tariffs, and similar charges.
Asset Purchase Agreement - Page 9 of 49
<PAGE>
5.8 Employee Benefit Plans and Relations. Transferor has no liabilities
------------------------------------
regarding any form of employee benefit plan that will become the responsibility
or liability of the Company upon or after Closing.
5.9 Compliance with Applicable Laws. Except as set forth in Transferor
------------------------------- ----------
Disclosure Schedule 5.9 the Transferor holds all licenses, franchises, permits,
- -----------------------
consents and authorizations ("Licenses") necessary for the lawful conduct of the
Division except to the extent a failure to hold such Licenses would not have a
Material Adverse Effect on the Division. No proceeding is pending or, to the
Knowledge of the Transferor, threatened seeking the revocation or suspension of
any License. Except as set forth on Transferor Disclosure Schedule 5.9, the
----------------------------------
Transferor is and has been in compliance in all material respects with all
applicable Laws related to the Division, and the Transferor has not received any
notices of any allegation of any violation by the Transferor of any Laws or
Licenses related to the Division.
5.10 Certain Contracts.
-----------------
(a) Transferor Disclosure Schedule 5.10(a) lists or describes the
--------------------------------------
material terms of the Division (collectively, the "Material Contracts"),
including, without limitation, leases, purchase contracts and commitments, to
which the Transferor is a party or by which the Transferor or any of the
Transferred Assets is bound:
(i) all agreements involving an annual commitment or payment by
any party thereto of more than $10,000 individually or $25,000 in the aggregate
or which have a fixed term extending more than 12 months from the date hereof;
(ii) all joint venture, sales agency, sales representative,
distributorship, broker, franchise, license or similar agreements;
(iii) all leases of real and personal property that are material
to the Transferor's business and operations;
(iv) all notes, bonds, mortgages, security agreements,
guarantees and other agreements and instruments for or relating to any lending
or borrowing by the Transferor in any amount (exclusive of advances to employees
for expenses or trade payables in the ordinary course of business);
(v) all powers of attorney, guarantees, suretyships or similar
agreements;
(vi) all employment agreements; and
(vii) all other agreements to which the Transferor is a party and
either (1) which is material to the Division or (2) the breach of or default
under which could have a Material Adverse Effect on the Division.
Asset Purchase Agreement - Page 10 of 49
<PAGE>
(b) Except as set forth on Transferor Disclosure Schedule 5.10(b),
--------------------------------------
each of the Material Contracts is valid, binding and enforceable on the
Transferor, and to the Knowledge of the Transferor, the other parties thereto,
in accordance with its terms, subject to the Enforceability Exceptions. The
Transferor has provided a true and complete copy of each Material Contract to
InterCept and Company.
(c) Except as disclosed in Transferor Disclosure Schedule 5.10(c), no
--------------------------------------
agreement or understanding to which the Transferor is a party or by which it is
bound limits the freedom of the Division to compete in any line of business or
with any person.
(d) Except as disclosed in Transferor Disclosure Schedule 5.10(d), the
--------------------------------------
Transferor, nor to the Knowledge of the Transferor, any other party thereto, is
in default under any of the Material Contracts; to the Transferor's Knowledge,
no event has occurred which (whether with or without notice, lapse of time or
the happening or occurrence of any other event) would constitute a default
thereunder entitling any party to terminate a Material Contract or other such
agreement or to otherwise claim or collect damages the impact of which would
have a Material Adverse Effect on the Division; and the continuation, validity
and effectiveness of all such Material Contracts and agreements under the
current terms thereof and the current rights and obligations of the Transferor
thereunder will in no way be materially affected, altered or impaired by the
consummation of the transactions contemplated hereby and by the other
Contribution Agreements. Except as disclosed in Transferor Disclosure Schedule
------------------------------
5.10(d), upon consummation of the transactions contemplated by this Agreement
- -------
and the other Contribution Agreements, the Division will be entitled to continue
to enjoy the material advantages and benefits of the business arrangements,
agreements, opportunities and relationships of the Division as it enjoyed prior
to the date hereof without interference or interruption.
5.11 Properties and Insurance.
------------------------
(a) Except as disclosed in Transferor Disclosure Schedule 5.11(a), the
--------------------------------------
Transferred Assets are in good operating condition and repair, ordinary wear and
tear excepted, and are suitable for the purposes for which they are used in the
Division. The Transferor has good and marketable title to, or holds by valid and
existing lease or license, all of the Transferred Assets and all of the
Transferred Assets are reflected on the Division Financial Statements, or under
GAAP are not required to be reflected therein. None of the Transferred Assets is
subject to any Lien, except in any of the foregoing cases for such imperfections
of title or Liens as (i) are set forth in Transferor Disclosure Schedule 5.11,
-----------------------------------
(ii) are reflected or reserved against in the Division Financial Statements,
(iii) arise out of Taxes which are not yet due and payable or are not in default
and payable without penalty or interest, or (iv) arise out of the Assumed
Liabilities.
(b) The business operations and insurable material properties and
assets of the Division are insured for their benefit against all risks which, in
the reasonable judgment of the Transferor, should be insured against, in each
case under policies or bonds issued by insurers of recognized responsibility, in
such amounts, with such deductibles and against such
Asset Purchase Agreement - Page 11 of 49
<PAGE>
risks and losses as are in the opinion of the Transferor adequate for the
business engaged in by the Division. Transferor has not received any written
notice of cancellation or written notice of a material amendment of any such
insurance policy or bond and the Transferor is not in default under any such
policy or bond, no coverage thereunder is being disputed and all material claims
thereunder have been filed in a timely fashion.
(c) No person other than the Transferor is currently entitled to
possession of any of the Transferred Assets or the loss of use of which would
have a Material Adverse Effect on the Division, whether owned or leased by the
Transferor. The Transferred Assets constitute all of the property and assets
that the Transferor uses or may reasonably need in connection with the operation
of the Division as conducted on the Closing Date.
5.12 Environmental Matters. Upon or after Closing, the Company shall have
---------------------
no liability from Transferor's failure to comply with environmental Laws prior
to Closing.
5.13 Intellectual Property. With respect to the Division, the Transferor
---------------------
develops, markets and licenses certain proprietary application software products
and systems to financial institutions and other customers (the "Software
Programs"), and in connection therewith the Transferor has developed certain
related technical documentation and user reference manuals (the
"Documentation"). The Software Programs and the Documentation are collectively
referred to as the "Software." The Software Programs are listed on Transferor
----------
Disclosure Schedule 5.13.
- ------------------------
(a) Ownership. Except as set forth in Transferor Disclosure Schedule
--------- ------------------------------
5.13(a), the Transferor owns or licenses, trademarks, service marks, trade names
- -------
and copyrights (including registrations, licenses and applications pertaining
thereto) and all other proprietary information used (with a designation as to
whether owned or used) by the Transferor in the conduct of the Division.
Transferor Disclosure Schedule 5.13(a) sets forth all domestic and foreign
- -------------------------------------
patents, trademarks, service marks, trade names and copyrights owned or used
(with a designation as to whether owned or used) by the Transferor with respect
to the Division and all applications therefor and registrations thereof.
(b) Procedures for Copyright Protection. In no instance has the
-----------------------------------
eligibility of the Software for protection under copyright law been forfeited to
the public domain.
(c) Procedures for Trade Secret Protection. The Transferor has never
--------------------------------------
disclosed source code for any of the Software to a third party other than the
persons identified in Transferor Disclosure Schedule 5.13(c). The Transferor
--------------------------------------
discloses its source code to employees only on a need-to-know basis in
connection with the performance of their duties to the Transferor. The source
code and system documentation comprising the Software have at all times been
maintained by the Transferor in confidence and the Transferor has not taken (nor
has it failed to take) any action which would be reasonably likely to result in
such source code and system documentation not being protectable as a trade
secret under applicable Laws.
(d) Absence of Claims. Except as set forth in Transferor Disclosure
----------------- ---------------------
Schedule 5.13(d), to the Knowledge of the Transferor, no claims have been
- ----------------
asserted by any
Asset Purchase Agreement - Page 12 of 49
<PAGE>
person to rights in the Software, and no valid basis for any such claim exists.
The use of the Software by the Transferor and its licensees does not infringe on
the rights of any person (whether arising under copyright, trade secret, patent,
unfair competition or other Laws that protect intellectual property rights). The
use by the Transferor of the patents, trademarks, service marks, trade names and
copyrights identified in Transferor Disclosure Schedule 5.13(a) does not
--------------------------------------
infringe the rights of any person, and no written claim has been asserted that
the use by the Transferor of any of the foregoing infringes the rights of any
person. The Transferor has not received written notice of any claim asserted by
any person to the effect that any current or former employee of the Transferor
has violated the provisions of any noncompete or nondisclosure agreement with
such person, or has disclosed any proprietary information of such person to the
Transferor or any third party.
5.14 Adequacy of Technical Documentation. Except as set forth on Transferor
----------------------------------- ----------
Disclosure Schedule 5.14, the Software includes the source code, system
- ------------------------
documentation and schematics for all Software Programs, as well as any
programmer comments for documentation and pertinent commentary or explanation
that may be reasonably necessary to render such materials understandable and
usable by a trained computer programmer. The Software also includes the programs
(including compilers), workbenches, tools and higher level language, if any,
used for the development, maintenance and implementation of the Software
Programs.
5.15 Third-Party Components in Software. The Transferor has validly
----------------------------------
obtained the right and license to use, copy, modify and distribute any third-
party programming and materials contained in the Software pursuant to the
contracts identified in Transferor Disclosure Schedule 5.15, subject to no
-----------------------------------
further license fee, royalty or other payment obligations not identified in
Transferor Disclosure Schedule 5.15, other than software maintenance payments
- -----------------------------------
customarily associated therewith. The Software contains no other programming or
materials in which any third party may claim superior, joint or common
ownership, including any right or license. The Software does not contain
derivative works of any programming or materials not owned in their entirety by
the Transferor.
5.16 Third-Party Interests or Marketing Rights in Software. The Transferor
-----------------------------------------------------
has not granted, transferred or assigned any right or interest in the Software
to any person except pursuant to the contracts identified on Transferor
----------
Disclosure Schedule 5.16. There are no contracts, agreements, licenses,
- ------------------------
commitments or arrangements in effect with respect to the marketing,
distribution, licensing or promotion of the Software by any independent
salesperson, distributor, sublicensor or other remarketer or sales organization
except as set forth on Transferor Disclosure Schedule 5.16.
-----------------------------------
Asset Purchase Agreement - Page 13 of 49
<PAGE>
5.17 Absence of Certain Agreements and Practices. Except as set forth in
-------------------------------------------
Transferor Disclosure Schedule 5.17, or in connection with customary
- -----------------------------------
transactions in the ordinary course of business, no present or former officer,
director or shareholder of the Transferor:
(i) has made any claim (as defined in Section 101 of the United
States Bankruptcy Code) against the Division or, the Transferor's Knowledge, has
any basis for any such claim;
(ii) has any interest in any of the Transferred Assets; and
(iii) has any benefits that are contingent on the transactions
contemplated by this Agreement and the other Contribution Agreements, other than
as stated herein.
5.18 Major Vendors and Customers. Transferor Disclosure Schedule 5.18 sets
--------------------------- -----------------------------------
forth a list of each licensor, developer, remarketer, distributor and supplier
of property or services to, and each licensee, end-user or customer of, the
Transferor with respect to the business of the Division, to whom the Transferor
paid or billed in the aggregate in excess of $25,000 during calendar year 1998,
or for the six months ended June 30, 1999.
5.19 Accounts Receivable. With respect to the business and operation of the
-------------------
Division, Transferor Disclosure Schedule 5.19 sets forth the accounts receivable
-----------------------------------
of the Transferor as of December 31, 1998, as reflected in the Division
Financial Statements as of that date, and the accounts receivable of the
Transferor as of the Balance Sheet Date, together with an aging of these
accounts. These accounts receivable, and all accounts receivable of the
Transferor created after the Balance Sheet Date with respect to the business and
operation of the Division, arose from valid transactions in the ordinary course
of business and are good and collectible at the recorded amounts thereof, except
for immaterial uncollectible amounts and except to the extent reserves therefor
have been made on the Division Financial Statements. To the Transferor's
Knowledge, no material portion of the accounts receivable is subject to
counterclaim or setoff.
5.20 Bank Accounts. Transferor Disclosure Schedule 5.20 lists all bank,
------------- -----------------------------------
money market, savings and similar accounts and safe deposit boxes of the
Transferor utilized with respect to the Division, specifying the account
numbers, the authorized signatories or persons having access to them.
5.21 Combinations Involving the Division. As it relates to the Division,
-----------------------------------
all mergers, consolidations or other business combinations involving the
Transferor and all liquidations, purchases or other transactions by which the
Transferor or any of its Subsidiaries acquired or disposed of any of the
business and property of the Division were conducted in compliance with
applicable charter documents, bylaws, any other applicable agreements,
instruments and documents and applicable Laws.
Asset Purchase Agreement - Page 14 of 49
<PAGE>
5.22 Labor Relations. Except as disclosed on Transferor Disclosure Schedule
--------------- ------------------------------
5.22, with respect to the Division, the Transferor is in material compliance
- ----
with all federal and state Laws respecting employment and employment practices,
terms and conditions of employment, wages and hours. With respect to the
Division, there is no unlawful employment practice or discrimination charge
pending before the United States Equal Employment Opportunity Commission
("EEOC") or any EEOC recognized state "referral agency." There is no unfair
labor practice charge or complaint against the Division pending before the
National Labor Relations Board ("NLRB"). There is no labor strike, dispute,
slowdown or stoppage actually pending or, to the Transferor's Knowledge,
threatened against the Division and no NLRB representation question exists
respecting any of its employees with respect to the Division. No grievance or
arbitration proceeding is pending against the Division and no written claim
therefor exists with respect to the foregoing.
5.23 Year 2000 Matters. Except as provided on Transferor Disclosure
----------------- ---------------------
Schedule 5.23, the Software is "Millennium Compliant." For purposes of this
- -------------
Agreement "Millennium Compliant" means: (a) the functions, calculations, and
other computing processes of the Software (collectively, "Processes") perform as
designed regardless of the date in time on which the Processes are actually
performed and regardless of the date input to the Software, whether or not the
dates include leap years; (b) the Software can accept, store, sort, extract,
sequence, and otherwise manipulate date inputs and date values, and return and
display date values, as designed and in a materially accurate manner, regardless
of the dates used or format of the date input; (c) the Software will function
without interruptions caused by the date in time on which the Processes are
actually performed or by the date input to the Software; (d) the Software
accepts and responds to four digit year date input in a manner that resolves any
material ambiguities as to the century in an accurate manner; and (e) the
Software displays, prints and provides electronic output of date information in
ways that are unambiguous as to the determination of the century.
5.24 Securities Act Compliance. The Transferor acknowledges that none of
-------------------------
the shares of Company Common Stock to be delivered to the Transferor pursuant to
this Agreement will, at the time of delivery, be registered under the Securities
Act or any State Acts (collectively the "Securities Laws"). The Transferor
represents and warrants that it is acquiring the Company Common Stock for
investment, and not with a view toward, or for resale in connection with, a
distribution of Company Common Stock except to its Affiliates or as required by
Governmental Authorities. The Transferor acknowledges that Company Common Stock
may be sold, pledged, hypothecated, disposed of, or otherwise transferred or
distributed only (i) pursuant to an effective registration statement covering
the Company Common Stock under the Securities Laws, or (ii) pursuant to an
exemption from the registration requirements of the Securities Laws.
5.25 Access to Information. The Transferor has had access to the books and
---------------------
records of the Company and has otherwise had access to sufficient information
about InterCept and the Company upon which to analyze the transactions
contemplated by this Agreement. The Transferor has been given the opportunity
to ask questions and receive answers from the officers of InterCept and the
Company concerning the terms and conditions of the transactions
Asset Purchase Agreement - Page 15 of 49
<PAGE>
contemplated by this Agreement and the business and financial condition of each
of InterCept and the Company. The Transferor has had the opportunity to obtain
any additional information it deems necessary to verify the accuracy and
completeness of information provided by InterCept and the Company in connection
with this Agreement and the transactions contemplated hereby.
5.26 Experience; Investment. The Transferor has such knowledge and
----------------------
experience in financial and business matters as to enable it (a) to utilize the
information made available to it in connection with the transactions
contemplated by this Agreement and the other Contribution Agreements, (b) to
evaluate the merits and risks associated with the acquisition of Company Common
Stock pursuant hereto, and (c) to make an informed decision with respect
thereto. The Transferor's business and financial experience is such that
InterCept and the Company could reasonably assume the Transferor has the
capacity to protect its own interests in connection with the offer, sale and
issuance of the Company Common Stock. The Transferor is financially capable of
bearing the risk of loss of the Consideration surrendered in exchange for the
Company Common Stock, and acknowledges that an investment in the Company Common
Stock involves a high degree of risk, including a possible total loss of
investment, and the Consideration may not be indicative of the future value of
the securities. The Transferor represents that it is an "accredited investor"
within the meaning of Regulation D promulgated by the Commission under the
Securities Act, by reason of the fact the Transferor is a bank as defined in
Section 3(a)(2) of the Securities Act. The Transferor understands that the
officers, directors, attorneys and other advisors of InterCept and the Company
will rely upon the representations and warranties made by the Transferor in this
Agreement in order to establish any necessary exemption from the registration
provisions of the Securities Act and applicable state securities laws.
5.27 Tax Advice. The Transferor has reviewed with its tax advisor the
----------
United States federal, state, local and foreign tax consequences of an
investment in the Company Common Stock and the transactions contemplated by this
Agreement and the other Contribution Agreements. The Transferor understands that
it (and not InterCept or the Company or any other person or entity) shall be
responsible for its own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement and the other
Contribution Agreements. Nothing in this Section 5.27 shall affect the
Transferor's rights to recover for breaches of the Company's or InterCept's
representations and warranties in this Agreement.
5.28 Disclosure. No representation, warranty or statement made by the
----------
Transferor in this Agreement, the other Contribution Agreements or in any
document or certificate furnished or to be furnished to InterCept or the Company
pursuant to this Agreement or the other Contribution Agreements contains or will
contain any untrue or incomplete statement of a material fact or omits or will
omit to state any material fact necessary to make the statements contained
herein or thereon not misleading. The Transferor has completely and accurately
responded in all material respects to all diligence inquiries made by InterCept,
the Company and their officers, directors, attorneys, accountants and other
representatives in connection with this Agreement and the other Contribution
Agreements.
Asset Purchase Agreement - Page 16 of 49
<PAGE>
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF INTERCEPT
To induce the Transferor to enter into this Agreement and the other
Contribution Agreements, InterCept hereby represents and warrants to the
Transferor as follows:
6.1 Corporate Organization. InterCept is a corporation duly
----------------------
incorporated, validly existing and in good standing under the laws of the State
of Georgia. InterCept has the corporate power and authority to own or lease all
of its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed, qualified or in good standing would not have a Material Adverse
Effect on InterCept.
6.2 Authority; No Violation.
-----------------------
(a) No Authorizations (the "InterCept Approvals") are necessary on
behalf of InterCept in connection with (i) the execution and delivery by
InterCept of this Agreement, (ii) the consummation by InterCept of the
transactions contemplated hereby and thereby, (iii) the Exchange and the
documents, agreements and instruments executed or to be executed with respect to
the Exchange (the "Exchange Documents") to which InterCept is or will be a
party; (iv) the performance of InterCept's obligations under this Agreement, the
other Contribution Agreements and the Exchange Documents, other than such as
have been obtained or waived. InterCept has the full corporate power and
authority to execute and deliver this Agreement, the other Contribution
Agreements and the Exchange Documents to which it is a party, and to consummate
the transactions contemplated hereby and thereby in accordance with the terms
hereof and thereof. The execution and delivery of this Agreement, the
Contribution Agreements and the Exchange Documents and the consummation of the
transactions contemplated hereby and thereby have been duly and validly approved
by the Board of Directors of InterCept in accordance with the Articles of
Incorporation and Bylaws of InterCept and with applicable Laws. No corporate
proceedings on the part of InterCept are necessary for InterCept to execute and
deliver this Agreement, the other Contribution Agreements and the Exchange
Documents to which it is a party, and for InterCept to be bound by the terms
hereof and thereof. This Agreement, the other Contribution Agreements and the
Exchange Documents to which InterCept is a party have been duly and validly
executed and delivered by InterCept and constitute the valid and binding
obligation of InterCept enforceable against InterCept in accordance with its and
their terms, except to the extent that enforceability may be limited by the
Enforceability Exceptions.
(b) Neither the execution and delivery of this Agreement, the
other Contribution Agreements and the Exchange Documents by InterCept, nor the
consummation by InterCept of the transactions contemplated hereby or thereby in
accordance with the terms hereof or thereof, nor compliance by InterCept with
any of the terms or provisions hereof or
Asset Purchase Agreement - Page 17 of 49
<PAGE>
thereof, will (i) violate any provision of InterCept's Articles of
Incorporation or Bylaws, or (ii) violate any Laws applicable to InterCept or any
of its properties or assets.
6.3 Broker's and Other Fees. Neither InterCept nor any of its directors
-----------------------
or officers has employed any broker or finder or incurred any liability for any
broker's or finder's fees or commissions in connection with any of the
transactions contemplated by this Agreement, the other Contribution Agreements
or the Exchange Documents.
6.4 Legal Proceedings. Except as disclosed by InterCept to the
-----------------
Transferor, there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending or, to the
knowledge of InterCept's chief executive officer, chief operating officer and
chief financial officer, threatened against or affecting InterCept, or any of
its properties, which could reasonably be expected to materially and adversely
affect the ability of InterCept to perform its obligations pursuant to this
Agreement.
6.5 Disclosure. No representation or warranty of InterCept in this
----------
Agreement or the other Contribution Agreements, nor any financial statements or
other written statements or certificates furnished by InterCept to the
Transferor in connection with the transactions contemplated by this Agreement,
contains or as of the Closing Date will contain, any untrue statement of a
material fact, or omit or as of the Closing Date will omit to state a material
fact necessary to make the statements herein or therein not misleading.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
To induce the Transferor to enter into this Agreement and the other
Contribution Agreements, the Company hereby represents and warrants to the
Transferor as follows:
7.1 Corporate Organization.
----------------------
(a) Each of Direct Access and the Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Georgia. Each of Direct Access and the Company has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed, qualified or in good standing would
not have a Material Adverse Effect on Direct Access or the Company.
(b) Company Disclosure Schedule 7.1 sets forth true and complete
-------------------------------
copies of the Articles of Incorporation and Bylaws of each of Direct Access and
the Company and all amendments thereto.
7.2 Capitalization.
--------------
Asset Purchase Agreement - Page 18 of 49
<PAGE>
(a) The authorized capital stock of the Company consists of 70,000,000
shares of common stock, without par value (the "Company Common Stock") none of
which are issued and outstanding and 5,000,000 shares of preferred stock, none
of which are issued and outstanding. Company Disclosure Schedule 7.2(a) sets
----------------------------------
forth the number of shares of Company Common Stock owned by each shareholder and
the number of shares of Company Common Stock which may be acquired by each
holder of warrants and options to purchase Company Common Stock Company
-------
Disclosure Schedule 7.2(a) sets forth the name of each person and the number of
- --------------------------
shares of Company Common Stock or other capital stock of the Company such person
will acquire or has the right to acquire upon consummation of the Exchange.
Other than as disclosed on Company Disclosure Schedule 7.2(a), there are no
----------------------------------
options, warrants, or other rights to acquire Company Common Stock. All issued
and outstanding shares of Company Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable, were not issued in
violation of any preemptive rights and were issued pursuant to effective
registration statements or under available exemptions from the registration
requirements of the federal and state securities laws. Except as set forth on
Company Disclosure Schedule 7.2(a), the Company has not granted any outstanding
- ----------------------------------
subscriptions, options, warrants, calls, commitments, registration rights or
agreements of any character calling for the transfer, purchase, subscription,
issuance or registration under the Securities Act of any shares of capital stock
of the Company or any securities representing the right to purchase, subscribe
or otherwise receive any shares of such capital stock or any securities
convertible into any such shares, and, except as set forth on Company Disclosure
------------------
Schedule 7.2(a), there are no agreements or understanding with respect to voting
- ---------------
any such shares.
(b) The authorized capital stock of Direct Access consists of
70,000,000 shares of common stock, without par value (the "Direct Access Common
Stock"), 12,185,000 of which are issued and outstanding and 5,000,000 shares of
preferred stock, none of which are issued and outstanding. Company Disclosure
------------------
Schedule 7.2(b) sets forth the number of shares of Direct Access Common Stock
- ---------------
owned by each shareholder and the number of shares of Direct Access Common Stock
which may be acquired by each holder of warrants and options to purchase Direct
Access Common Stock. Other than as disclosed on Company Disclosure Schedule
---------------------------
7.2(b), there are no options, warrants, or other rights to acquire Direct Access
- ------
Common Stock. All issued and outstanding shares of Direct Access Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable, were not issued in violation of any preemptive rights and were
issued pursuant to effective registration statements or under available
exemptions from the registration requirements of the federal and state
securities laws. Except as set forth on Company Disclosure Schedule 7.2(b),
----------------------------------
Direct Access has not granted any outstanding subscriptions, options, warrants,
calls, commitments, registration rights or agreements of any character calling
for the transfer, purchase, subscription, issuance or registration under the
Securities Act of any shares of capital stock of Direct Access or any securities
representing the right to purchase, subscribe or otherwise receive any shares of
such capital stock or any securities convertible into any such shares, and,
except as set forth on Company Disclosure Schedule 7.2(b), there are no
----------------------------------
agreements or understandings with respect to voting any such shares.
7.3 Authority; No Violation.
-----------------------
Asset Purchase Agreement - Page 19 of 49
<PAGE>
(a) Except as disclosed on Company Disclosure Schedule 7.3(a)
----------------------------------
(collectively, "Company Approvals"), no Authorizations are necessary on behalf
of the Company or Direct Access in connection with (i) the execution and
delivery by the Company of this Agreement, the other Contribution Agreements and
the Exchange Documents, (ii) the consummation by the Company of the transactions
contemplated hereby and thereby and (iii) the performance of the Company's
obligations under this Agreement, the other Contribution Agreements and the
Exchange Documents. The Company has the full corporate power and authority to
execute and deliver this Agreement, the other Contribution Agreements and the
Exchange Documents to which it is a party and the consummation by the Company of
the other transactions contemplated hereby and thereby in accordance with the
terms hereof and thereof. The execution and delivery of this Agreement, the
other Contribution Agreements and the Exchange Documents and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
approved by the Board of Directors of the Company in accordance with the
Articles of Incorporation and Bylaws of the Company and applicable Laws. No
other corporate proceedings on the part of the Company or Direct Access are
necessary to consummate the transactions so contemplated. This Agreement, the
other Contribution Agreements and the Exchange Documents have been duly and
validly executed and delivered by the Company and constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except to the extent that the availability of the remedy of
specific performance may be limited by the Enforceability Exceptions.
(b) Neither the execution and delivery of this Agreement and the other
Contribution Agreements and the Exchange Documents to which the Company is a
party, nor the consummation by the Company of the transactions contemplated
hereby and thereby in accordance with the terms hereof and thereof, nor
compliance by the Company with any of the terms or provisions hereof and
thereof, will (i) violate any provision of the Company's Articles of
Incorporation or Bylaws, (ii) violate any Laws applicable to the Company or any
of its properties or assets, or (iii) except where a waiver or consent had been
obtained or will be obtained prior to Closing, violate, conflict with, result in
a breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in the
creation of any Lien upon any of the respective properties or assets of the
Company under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which the Company is a party, or by which it or any
of its properties or assets may be bound or affected except, with respect to
clauses (ii) and (iii) above, such as individually or in the aggregate will not
have a Material Adverse Effect on the Company, and which will not prevent or
delay the consummation of the transactions contemplated hereby.
7.4 Financial Statements.
--------------------
(a) Attached hereto as Company Disclosure Schedule 7.4 is a true and
-------------------------------
complete copy of the financial statements of Direct Access at and for the
periods ending December 31, 1998 and 1997 and March 31, 1999 (collectively, the
"Direct Access Financial
Asset Purchase Agreement - Page 20 of 49
<PAGE>
Statements"). The Direct Access Financial Statements have been prepared from,
and are in accordance with, the books and records of Direct Access and fairly
present the financial position and results of operations of Direct Access as of
and for the periods set forth therein.
(b) Other than as shown on Company Disclosure Schedule 7.4 or reserved
-------------------------------
against in the Direct Access Financial Statements, since March 31, 1999 Direct
Access has not incurred material liabilities other than pursuant to this
Agreement and the other Contribution Agreements and except for liabilities
incurred in the ordinary course of business.
(c) Since March 31, 1999, there has not been any change, occurrence or
circumstance affecting the business, results of operations or financial
condition of Direct Access that has had, individually or in the aggregate, a
Material Adverse Effect on the Company, other than changes, occurrences and
circumstances disclosed by the Company to the Transferor on the Company
Disclosure Schedules.
7.5 Broker's and Other Fees'. Neither the Company, Direct Access nor any
-----------------------
of the directors or officers has employed any broker or finder or incurred any
liability for any broker's or finder's fees or commissions in connection with
any of the transactions contemplated by this Agreement, the other Contribution
Agreements or the Exchange Documents.
7.6 Absence of Certain Changes or Events. Except (i) as set forth in
------------------------------------
Company Disclosure Schedule 7.6, (ii) as pertaining to the former SBS
- -------------------------------
corporation or its business, and (iii) in connection with or in contemplation of
the Exchange, Direct Access has not taken or permitted any of the actions of the
nature described in Section 8.2 since March 31, 1999 and, except for execution
of this Agreement, the other Contribution Agreements, the Exchange Documents and
the documents executed in connection with the SBS acquisition and all matters
related thereto or resulting therefrom, each of Direct Access and the Company
has conducted its respective businesses only in the ordinary course, consistent
with past practice.
7.7 Legal Proceedings. Except as disclosed in Company Disclosure Schedule
----------------- ---------------------------
7.7, and except as relates to the former SBS Corporation and its operations and
- ---
business, neither Direct Access or the Company is a party to any, nor are there
pending or to the Company's Knowledge threatened, legal, administrative,
arbitral or other proceedings, claims, actions or governmental investigations of
any nature against either Direct Access or the Company. Except as disclosed in
Company Disclosure Schedule 7.7 and as relates to the former SBS Corporation and
- -------------------------------
its operations and business, neither Direct Access or the Company is a party to
any order, judgment or decree entered in a lawsuit or proceeding that relates to
or would have a material adverse effect on Direct Access or the Company. Except
as disclosed in Company Disclosure Schedule 7.7 and as relates to the former SBS
-------------------------------
Corporation and its operations and business, to the Company's Knowledge, no
actions, suits, demands, notices, claims, investigations or proceedings are
pending or, to the Company's Knowledge, threatened against or otherwise
involving, directly or indirectly, any officer, director, employee or agent of
Direct Access or the Company, including without limitation any notices, demand
letters or requests from any Governmental Authority relating to such potential
liabilities, nor, to the
Asset Purchase Agreement - Page 21 of 49
<PAGE>
Company's Knowledge, are there any circumstances which are reasonably likely to
lead to such actions, suits, demands, notices, claims, investigations or
proceedings.
7.8 Properties and Insurance.
------------------------
(a) Except as disclosed in Company Disclosure Schedule 7.8, and except
-------------------------------
for assets of the former SBS corporation, the Company's and Direct Access'
assets are in good operating condition and repair, ordinary wear and tear
excepted, and are suitable for the purposes for which they are used in the
Company or Direct Access, as the case may be. Each of the Company and Direct
Access has good and marketable title to, or holds by valid and existing lease or
license, free and clear of all Liens, each piece of real and personal property
used in their respective businesses as now conducted, except in any of the
foregoing cases for such imperfections of title or Liens as (i) are set forth in
Company Disclosure Schedule 7.8 hereof, (ii) are reflected or reserved against
- -------------------------------
in the Direct Access Statements, or (c) arise out of Taxes which are not yet due
and payable or are not in default and payable without penalty or interest.
(b) The business operations and insurable material properties and
assets of the Company are insured for their benefit against all risks which, in
the reasonable judgment of the Company, should be insured against, in each case
under policies or bonds issued by insurers of recognized responsibility, in such
amounts with such deductibles and against such risks and losses as are in the
opinion of the Company adequate for the business engaged in by the Company. The
Company has not received any notice of cancellation or notice of a material
amendment of any such insurance policy or bond and the Company is not in default
under any such policy or bond, no coverage thereunder is being disputed and all
material claims thereunder have been filed in a timely fashion.
7.9 Intellectual Property. All of the representations in Sections 7.9
---------------------
through 7.12 expressly exclude any representations with respect to the former
SBS Corporation, its operations or business. Direct Access conducts an active
business using proprietary application software products and systems and
provides internet banking and integrated voice response (telephone banking)
services utilizing such products and systems (the "Company's Software
Programs"), and in connection therewith the Company has developed certain
related technical documentation and user reference manuals (the "Company's
Documentation"). The Company's Software Programs and the Company's Documentation
are collectively referred to as the "Company's Software."
(a) Ownership. The Company owns all patents, trademarks, service
---------
marks, trade names and copyrights (including registrations, licenses and
applications pertaining thereto) and all other proprietary information used by
the Company and material to the conduct of its business, including, without
limitation, the Company's Software.
(b) Procedures for Copyright Protection. To the Knowledge of the
-----------------------------------
Company, in no instance has the eligibility of the Company's Software for
protection under copyright law been forfeited to the public domain.
Asset Purchase Agreement - Page 22 of 49
<PAGE>
(c) Procedures for Trade Secret Protection. To the Knowledge of the
--------------------------------------
Company, Direct Access has never disclosed source code for any of the Company's
Software to a third party other than the persons identified in Company
-------
Disclosure Schedule 7.9(c). Direct Access discloses its source code to employees
- --------------------------
only on a need-to-know basis in connection with the performance of their duties
to Direct Access. The source code and system documentation comprising the
Company Software have at all times been maintained by Direct Access in
confidence and Direct Access has not taken (nor has it failed to take) any
action which would be reasonably likely to result in such source code and system
documentation not being protectable as a trade secret under applicable Laws.
(d) Absence of Claims. To the Knowledge of the Company, no claims have
-----------------
been asserted by any person to rights in the Company's Software (other than
pursuant to licenses executed with customers in the ordinary course of
business), and no valid basis for any such claim exists. To the Company's
Knowledge, the use of the Company's Software by the Company or Direct Access and
its licensees does not infringe on the rights of any person (whether arising
under copyright, trade secret, patent, unfair competition or other state or
federal laws which protect intellectual property rights). To the Company's
Knowledge, the use by the Company or Direct Access of its patents, trademarks,
service marks, trade names and copyrights does not infringe the rights of any
person, and no written claim has been asserted that the use by the Company or
Direct Access of any of the foregoing infringes the rights of any person. No
written claim has been asserted by any person to the effect that any current or
former employee of the Company or Direct Access has violated the provisions of
any noncompete or nondisclosure agreement with such person, or has disclosed any
proprietary information of such person to the Company or Direct Access or any
third party .
(e) Third Party Interests in Software. Neither the Company nor Direct
---------------------------------
Access has granted, transferred, or assigned any right or interest in the
Company's Software to any person, other than pursuant to licenses granted in the
ordinary course of business.
7.10 Adequacy of Technical Documentation. The Company's Software includes
-----------------------------------
the source code, system documentation and schematics for all Company's Software
Programs, as well as any programmer comments for documentation and pertinent
commentary or explanation that may be reasonably necessary to render such
materials understandable and usable by a trained computer programmer. The
Company's Software also includes the programs (including compilers),
workbenches, tools and higher level language, if any, used for the development,
maintenance and implementation for the Company's Software Programs.
7.11 Third-Party Components in Company's Software. Direct Access has
--------------------------------------------
validly obtained the right and license to use, copy , modify and distribute any
third-party programming and materials contained in the Company's Software
pursuant to the contracts identified in Company Disclosure Schedule 7.11,
--------------------------------
subject to no further license fee, royalty or other payment obligations not
identified in Company Disclosure Schedule 7.11, other than software maintenance
--------------------------------
payments customarily associated therewith. The Company's Software contains no
other programming or materials in which any third party may claim superior,
joint or common ownership, including any right or license. The Company's
Software does not contain
Asset Purchase Agreement - Page 23 of 49
<PAGE>
derivative works of any programming or materials not owned in their entirety by
the Transferor.
7.12 Third-Party Interests or Marketing Rights in Software. Direct Access
-----------------------------------------------------
has not granted, transferred or assigned any right or interest in the Company's
Software to any person except pursuant to the contracts identified on Company
-------
Disclosure Schedule 7.12. There are no contracts, agreements, licenses,
- ------------------------
commitments or arrangements in effect with respect to the marketing,
distribution, licensing or promotion of the Company's Software by any
independent salesperson, distributor, sublicensor or other remarketer or sales
organization except as set forth on Company Disclosure Schedule 7.12.
--------------------------------
7.13 Compliance with Applicable Laws. Each of Direct Access and the Company
-------------------------------
has all Licenses required for its business as currently conducted, except to the
extent a failure to hold such Licenses would not have a Material Adverse Effect
on the Company or Direct Access. No proceeding is pending or threatened seeking
the revocation or suspension of any material License. Except as disclosed by the
Company on Company Disclosure Schedule 7.13, Direct Access' business has been
--------------------------------
operated and maintained in all material respects in compliance with applicable
Laws. Neither Direct Access nor the Company has received any notices of any
allegation of any violation of any Laws or Licenses.
7.14 Taxes and Tax Returns. Except as disclosed in Company Disclosure
--------------------- ------------------
Schedule 7.14, since March 9, 1999:
- -------------
(a) Direct Access has duly filed (and until the Closing Date will so
file) all Returns required to be filed by it in respect of any United States
federal, state or local, or foreign, Taxes and has duly paid (and until the
Closing Date will so pay) all such Taxes due and payable, other than Taxes which
are being contested in good faith (and disclosed by the Company to the
Transferor in writing). Each of the Company and Direct Access has established
(and until the Closing Date will establish) on its books and records reserves
that are adequate for the payment of all Taxes not yet due and payable, but are
incurred in respect of Direct Access or the Company through the date of this
Agreement.
(b) There are no audits or other Governmental Authority proceedings
presently pending, nor, to the Knowledge of the Company, any other disputes
pending with respect to, or claims asserted for, Taxes upon Direct Access or the
Company, nor has Direct Access or the Company given any currently outstanding
waivers or comparable consents regarding the application of any statute of
limitations with respect to any Taxes or Returns. There are no Liens filed of
record publicly for Taxes upon the assets of Direct Assets or the Company,
except Liens for Taxes not yet due. Each of Direct Access and the Company has
complied (and until the Closing Date will comply) in all respects with all
applicable Laws relating to the payment and withholding of Taxes.
(c) Neither Direct Access nor the Company (1) has requested any
extension of time within which to file any return which Return has not since
been filed (2) is a party to any agreement providing for the indemnification,
allocation or sharing of Taxes; (3) is required
Asset Purchase Agreement - Page 24 of 49
<PAGE>
to include in income any adjustment by reason of a voluntary change in
accounting method initiated by Direct Access or the Company (nor to the
Company's Knowledge has any Governmental Authority proposed any such adjustment
or change of accounting method): or (4) has filed a consent with any
Governmental Authority pursuant to which Direct Access or the Company has agreed
to recognize gain (in any manner) relating to or as a result of this Agreement
or the transactions contemplated hereby.
(d) Neither the Company nor Direct Access is liable for any Taxes of
any consolidated, combined, unitary or similar group of which the Company and/or
Direct Access has been a member. Except for that certain Tax Indemnity Agreement
between Intercept and Direct Access dated as of the date hereof (the "Tax
Indemnification Agreement"), neither the Company nor Direct Access is a party
to, or bound by, any tax indemnity, tax sharing or tax allocation agreement.
7.15 Corporate Records. The corporate record books (including the share
-----------------
records) of Direct Access and the Company are materially complete, accurate and
up to date with all necessary signatures and set forth all meetings and actions
taken by the shareholders and directors of Direct Access and the Company and all
transactions involving the shares of Direct Access and the Company.
7.16 Combinations Involving the Company. The mergers, consolidations or
----------------------------------
other business combinations involving Direct Access and/or the Company and all
liquidations, purchases or other transactions by which Direct Access or the
Company has acquired or disposed of any of its business and property since such
time were conducted in material compliance with applicable charter documents,
bylaws, any other applicable agreements, instruments and documents and
applicable Laws.
7.17 No Prior Operations. The Company was incorporated on August 25, 1999.
-------------------
Other than actions taken to consummate the Exchange, the Company has not
conducted any operations or business and has not taken any other actions.
7.18 Diligence. The Company has conducted reasonable and customary legal,
---------
accounting, financial and other "due diligence" reviews of Dyad Corporation and
CMB. As of the date hereof, nothing has come to the attention of the Company,
and the Company is unaware of any information with respect to Dyad or CMB that
is likely to have a Material Adverse Effect on (i) the Company, (ii) the Company
Common Stock, or (iii) the ability to have the Exchange qualify for treatment
under Section 351 of the Code.
7.19 SBS Corporation. To the Knowledge of the Company, the representations
---------------
and warranties of SBS Corporation and its Shareholders contained in that certain
Agreement and Plan of Merger dated August 6, 1999 were true and correct in all
material respects.
7.20 Disclosure. No representation or warranty of the Company in this
----------
Agreement and the other Contribution Agreements, nor any financial statements or
other written statements or certificates furnished to the Transferor in
connection with the transactions contemplated by this Agreement, contains or as
of the Closing Date will contain, any untrue or
Asset Purchase Agreement - Page 25 of 49
<PAGE>
incomplete statement of a material fact, or omits or as of the Closing Date will
omit to state a material fact necessary to make the statements herein or therein
not misleading. The Company has completely and accurately responded in all
material respects to the diligence inquiries made by the Transferor in
connection with this Agreement and the other Contribution Agreements.
ARTICLE 8
COVENANTS AND AGREEMENTS OF THE PARTIES
8.1 Conduct of Business. The Transferor agrees that from the date hereof
-------------------
to the Closing Date, the Transferor shall conduct its business with respect to
the Division only in the ordinary course and consistent with prudent business
practice and past practice, except for transactions permitted hereunder or with
the prior written consent of InterCept and the Company. Without limiting the
generality of the foregoing, the Transferor agrees that, with respect to the
Division, the Transferor shall use all commercially reasonable efforts to:
(a) maintain its existence and status in good standing in all
jurisdictions in which the properties of the Division or the conduct of the
Division's business requires it to be qualified or registered to conduct its
business, except where the failure to do so would not have a Material Adverse
Effect on the Division;
(b) maintain all of its tangible assets in good operating condition
and maintain the protection of all intellectual property in substantially the
same standing as exists on the date hereof;
(c) continue performance in the ordinary course of its obligations
under its contracts and agreements;
(d) preserve its business organization intact, use all commercially
reasonable efforts to keep available its present officers and employees and
preserve its present relationships with suppliers, customers and others having
business relationships with it; and
(e) maintain its existing insurance, subject to variations in amount
required by the ordinary operations of its business.
8.2 Negative Covenants. The Transferor agrees that from the date hereof
-------------------
to the Closing Date, except as otherwise approved by InterCept and the Company
in writing, or as permitted or required by this Agreement, the Transferor will
not with respect to the Division or the Transferred Assets:
(i) sell or dispose of any assets other than in the ordinary
course of business consistent with past practices;
(ii) make any capital expenditures outside the ordinary course of
business;
Asset Purchase Agreement - Page 26 of 49
<PAGE>
(iii) make any change in its accounting methods or practices,
except as required by GAAP or applicable Governmental Authorities;
(iv) incur, create, assume or guarantee any liabilities except
in the ordinary course of business and as would not have a Material Adverse
Effect;
(v) increase, or make any change in any assumptions underlying
the method of calculating any bad debt, contingency or other reserves from those
reflected in the Division Financial Statements;
(vi) make any change in the method of valuing assets included
in the Division Financial Statements;
(vii) permit or allow any of the Transferred Assets (real,
personal or mixed, tangible or intangible) to be subjected to any Lien, except
for Liens which are in existence on the date hereof and which are disclosed on
the Transferor Disclosure Schedules or reflected in the Division Financial
Statements, and Liens for amounts not yet due and payable or which are contested
in good faith and for which adequate reserves have been or will be made;
(viii) write down the value of any inventory or write off as
uncollectible any notes or accounts receivable, except for write-downs and
write-offs in the ordinary course of business;
(ix) cancel or waive any claims or rights, or sell, transfer,
distribute or otherwise dispose of any assets or properties, except in the
ordinary course of business;
(x) declare, file or permit to be filed any voluntary or
involuntary bankruptcy, receivership, insolvency or other similar proceeding or
petition with any Governmental Authority with respect to the Transferor;
(xi) fail to perform its obligations under any Material
Contract (except those being contested in good faith) or enter into, assume or
amend any agreement that would be a Material Contract other than agreements to
provide services entered into in the ordinary and usual course of business;
(xii) take any action that would or could reasonably be expected
to result in (A) a Material Adverse Effect on the Division or (B) any of its
representations and warranties contained in Article 5 not being true and correct
---------
in any material respect at the Closing Date, or that would cause any of the
conditions to Closing not to be satisfied; or
(xiii) directly or indirectly agree to do any of the foregoing.
8.3 No Solicitation. From the date hereof to the Closing Date or the
---------------
earlier termination of this Agreement in accordance with its terms, the
Transferor :
Asset Purchase Agreement - Page 27 of 49
<PAGE>
(a) agrees that neither the Transferor nor any of its present or
future subsidiaries or other affiliates, nor any of its or their directors,
officers, shareholders, employees, representatives or other agents
(collectively, the "Transferor Affiliates") shall, directly or indirectly, (i)
enter into any agreement (or agree to do so), or solicit, initiate or knowingly
encourage the invitation of inquiries or proposals or offers from any person
(other than InterCept, the Company or its or their directors, officers,
employees, representatives and agents) concerning: (A) any sale of the
Transferred Assets or the Division or transfer of Assumed Liabilities of the
Division (other than any such sale or transfer in the ordinary course of
business) or (B) any merger, consolidation, restructuring, recapitalization or
other significant transaction involving the Transferor or any of its present or
future subsidiaries, divisions or other affiliates (unless such transaction does
not adversely affect the transactions contemplated by this Agreement); or (ii)
provide any confidential information to, participate in discussions or
negotiations relating to any such transaction with, or otherwise cooperate with
or assist or participate in any effort to take such action by any person or
entity (other than InterCept, the Company or its or their directors, officers,
shareholders, employees, representatives and agents). The Transferor shall
immediately advise InterCept and the Company if any such inquiry, offer or
proposal is made or received by the Transferor or any of the Transferor
Affiliates;
(b) will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing, and the Transferor will take the necessary
steps to inform the individuals or entities referred to above of the obligations
undertaken in this Section 8.3; and
-----------
(c) will notify InterCept and the Company immediately of the identity
of any potential acquirer and the terms of any proposal or offer (including,
without limitation, any proposal or offer to any of the shareholders of the
Transferor) with respect to a proposed or potential merger, acquisition,
consolidation, business combination, transfer or similar transaction involving,
or any purchase of all or any significant portion of the assets, equity
securities of or rights with respect to any assets or securities of, the
Transferor (which would adversely affect the transactions contemplated hereby)
not permitted by this Section 8.3.
-----------
8.4 Current Information. During the period from the date of this Agreement
-------------------
to the Closing Date or the earlier termination of this Agreement in accordance
with its terms, on a frequent basis:
(a) The Transferor will cause one or more of the Transferor's
representatives to confer with representatives of InterCept and the Company
regarding the Division's business, operations, properties, assets and financial
condition; each of the Parties will cause one or more of its representatives to
confer with representatives of the other Parties regarding matters relating to
the completion of the transactions contemplated herein; and
(b) Each of the Parties will notify the other Parties as soon as
practicable after any determination or discovery by it of any fact or
circumstance relating to any Party which it has discovered through the course of
investigation and which represents, or is
Asset Purchase Agreement - Page 28 of 49
<PAGE>
reasonably likely to represent, a material breach of any representation,
warranty, covenant or agreement of any Party or which has or is reasonably
likely to have a Material Adverse Effect on any Party. Notwithstanding the
foregoing, for the purpose of determining satisfaction of the condition set
forth in Article 9, no such notification shall be deemed to amend such
Disclosure Schedules or shall be deemed to be a part thereof unless agreed to by
the other Parties.
8.5 Access to Properties and Records; Confidentiality. The Transferor
-------------------------------------------------
shall permit InterCept, the Company and their representatives reasonable access
during normal business hours to its properties and shall disclose and make
available to InterCept, the Company and their representatives all books, papers
and records and information relating to the Division, the Transferred Assets and
the Assumed Liabilities, including, but not limited to, all books of account
(including the general ledger), tax records, minute books of directors' and
shareholders' meetings, organizational documents, agreements, filings with any
Governmental Authority, accountants' work papers, litigation files, plans
affecting employees, and any other records and information in which InterCept,
the Company and their representatives may have a reasonable interest; provided
that such investigation shall be reasonably related to the transactions
contemplated by this Agreement and shall not interfere unnecessarily with the
normal business operations of the Transferor.
8.6 Regulatory Matters; Consents; Cooperation, etc.
----------------------------------------------
(a) To the extent permitted by Law, each of the Parties will promptly
furnish each other with copies of written communications received by them or any
of their respective Subsidiaries or representatives from, or delivered by any of
the foregoing to, any Governmental Authorities in respect of the transactions
contemplated hereby.
(b) As soon as practicable following the date hereof, each of the
Parties will use its commercially reasonable efforts to obtain all consents,
waivers and other Approvals under any of its or its Subsidiaries' agreements,
contracts, licenses or leases required to be obtained by such Party in
connection with the consummation of the transactions contemplated hereby.
8.7 Parties' Efforts; Further Assurances; Cooperation. Subject to the
-------------------------------------------------
other provisions in this Agreement, the Parties shall in good faith perform
their obligations under this Agreement before, at and after the Closing Date,
and shall each use all commercially reasonable efforts to do, or cause to be
done, all things necessary, proper or advisable under applicable Laws to obtain
all Authorizations and satisfy all conditions to the obligations of the Parties
under this Agreement and to cause the transactions contemplated by this
Agreement to be carried out promptly in accordance with the terms hereof and
shall cooperate fully with each other and their respective officers, directors,
employees, agents, counsel, accountants and other designees in connection with
any steps required to be taken as part of their respective obligations under
this Agreement. Upon the execution of this Agreement and thereafter, each party
shall take such actions and execute and deliver such documents as may be
reasonably
Asset Purchase Agreement - Page 29 of 49
<PAGE>
requested by the other Parties in order to consummate the transactions
contemplated by this Agreement.
8.8 Public Announcements. Prior to the Closing Date or the earlier
--------------------
termination of this Agreement in accordance with its terms, the Parties shall
consult and cooperate with each other as to the timing, content and form of any
press release or other public disclosure related to this Agreement or the
transactions contemplated herein, and will not issue a press release or make any
such public disclosure without the prior consent of the other party, which shall
not be unreasonably withheld, conditioned or delayed. After the Closing Date,
the Transferor shall not make any public announcement regarding any aspect of
this Agreement without InterCept's and the Company's prior written consent.
Nothing in this Section 8.8 shall be deemed to prohibit any Party from making
any disclosure which its counsel deems necessary in order to satisfy such
Party's disclosure obligations imposed by Law or Governmental Authority.
8.9 Noncompetition, Nonsolicitation and Confidentiality Agreement. The
-------------------------------------------------------------
Parties shall negotiate in good faith within seven (7) days of Closing the terms
and conditions of a Noncompetition, Nonsolicitation and Confidentiality
agreement among InterCept and the Company.
8.10 Disclosure Supplements. From time to time prior to the Closing Date,
----------------------
each Party hereto will promptly notify the other Party of any inaccuracy in its
respective Disclosure Schedules delivered pursuant hereto including, without
limitation, any matter which, if existing, occurring or known at the date of
this Agreement, would have been required to be set forth or described in such
Schedule or which is necessary to correct any information in such Schedule that
has been rendered inaccurate. Notwithstanding the foregoing, no such
notification shall be deemed to amend such Disclosure Schedules or shall be
deemed to be part hereof unless agreed to by the other Parties.
8.11 Cooperation and Exchange of Information. The Parties agree to furnish,
---------------------------------------
or to cause to be furnished in good faith to each other, such cooperation and
assistance as is reasonably necessary to file any future Returns, to respond to
audits, to negotiate settlements with Tax authorities and to prosecute and
defend against Tax claims.
8.12 Customer Contacts. The Transferor shall permit the Company to conduct
-----------------
a survey or otherwise inquire of certain or all of the Division's key customers,
as selected by the Company, regarding the relationship between such customer and
the Transferor and the impact of a change in control on such relationship. The
Transferor shall assist the Company in making such survey or inquiries and shall
have the right to have a representative of its choice participate therein.
8.13 Employees
---------
(a) All employees of the Division on the Closing Date shall be
employed by the Company and shall receive salaries no less favorable than the
salaries currently paid such
Asset Purchase Agreement - Page 30 of 49
<PAGE>
employees as set forth on Schedule 8.13, provided, however, that the provisions
-------------
of this Section shall not change the employment status of such employees.
(b) All employees of the Division who remain employed by the
Company after the Closing Date shall participate in all benefit plans generally
available to employees of the Company.
8.14 Non-Assignable Purchased Contracts.
-----------------------------------
(a) In the case of any Transferred Assets which are contracts or
agreements which are not assignable or transferable, either by their terms or
otherwise without the prior consent of any third party thereto (such contracts
or agreements being the "Non-Assignable Purchased Contracts") the Transferor
shall use commercially reasonable efforts to obtain at its cost, or cause to be
obtained, prior to the Closing Date, any written consents or waivers necessary
for the assignment of such Transferred Assets to the Company as contemplated by
this Agreement, and InterCept and the Company shall cooperate with the
Transferor, at no additional cost to InterCept or the Company, in such manner as
may be reasonably requested in connection therewith. In the event the Transferor
shall be unable to obtain any such consent or waiver to the assignment or
transfer of a Transferred Asset to the Company prior to the Closing Date (i) the
Transferor shall continue to use such commercially reasonable efforts after the
Closing Date at its cost, (ii) the Transferor shall provide to the Company, from
and after the Closing Date, at a cost to the Company no greater than the cost of
the Company would have otherwise paid under the terms of such Non-Assignable
Purchased Contract (the "Contract Costs"), benefits substantially equivalent to
each such Non-Assignable Purchased Contract, as fully as if such consent had
been obtained, to the extent the Transferor is reasonably capable of providing
such benefits and (iii) at the Company's option, the Company may procure such
equivalent benefits from third parties during the final 90 days of the current
term of any such Non-Assignable Purchased Contract (or at any time within 90
days of the date on which the non-Assignable Purchased Contract which such
equivalent benefits replace would have by its terms terminated or entitled the
other party thereto to terminate or renegotiate the costs of such benefits)
without any further liability to the Transferor; provided however, that (A) the
Company shall provide the Transferor prior written notice of procuring any such
equivalent benefits 30 days (or, if 30 days' notice is not practicable, such
notice, if any, which is practicable) prior to obtaining such equivalent
benefits pursuant to clause (iii), above, and (B) in the event the Company
procures equivalent benefits pursuant to clause (iii) the Transferor shall be
relieved of its obligations under this Section 8.14(a) with respect to the Non-
Assignable Purchased Contracts with respect to which such equivalent benefits
have been so procured by the Company and may take any and all action available
to the Transferor to terminate its obligation under such Non-Assignable
Purchased Contracts.
(b) The Company agrees to pay, or reimburse the Transferor for,
the Transferor's direct out-of-pocket costs, fees and expenses (excluding
attorneys' fees and fees and expenses of other professionals and employees of
the Transferor), actually incurred by the Transferor in fulfilling its
obligations to the Company under Section 8.14(a), provided, that the amount of
such costs, fees and expenses, shall not exceed $10,000. The Company shall make
Asset Purchase Agreement - Page 31 of 49
<PAGE>
such payments to the Transferor within 30 days after the Transferor's submission
of an itemized invoice therefor in detail reasonably sufficient to the Company.
ARTICLE 9
CLOSING CONDITIONS
9.1 Conditions of Each Party's Obligations Under this Agreement. The
----------------------------------------------------------
respective obligations of each party under this Agreement shall be subject to
the satisfaction, or, where permissible under applicable Law, waiver at or prior
to the Closing Date of the following conditions:
(a) Approvals and Regulatory Filings. All necessary Authorizations of
--------------------------------
Governmental Authorities required to consummate the transactions contemplated
hereby shall have been obtained without any term or condition which would
materially impair the value of the Transferor, the Company or InterCept. All
conditions required to be satisfied prior to the Closing Date by the terms of
such approvals and consents shall have been satisfied, and all statutory waiting
periods in respect thereof shall have expired.
(b) Suits and Proceedings. The consummation of the transactions
---------------------
contemplated hereby will not violate the provisions of any injunction, order,
judgment, decree or Law applicable or effective with respect to InterCept, the
Company or the Transferor or their respective officers and directors. No suit or
proceeding shall have been instituted by any person, or, to the Knowledge of
InterCept, the Company or the Transferor, shall have been threatened by any
Governmental Authority, and not subsequently withdrawn, dismissed or otherwise
eliminated, which seeks (i) to prohibit, restrict or delay consummation of the
transactions contemplated hereby or to limit in any material respect the right
of InterCept or the Company to control any material aspect of the business of
InterCept, the Company or the Division after the Closing Date, or (ii) to
subject InterCept, the Company or the Transferor or their respective directors
or officers to material liability on the ground that it or they have breached
any Law or otherwise acted improperly in relation to the transactions
contemplated by this Agreement.
9.2 Conditions to the Obligations of InterCept and the Company under this
---------------------------------------------------------------------
Agreement. The obligations of InterCept and the Company under this Agreement
- ---------
shall be further subject to the satisfaction or waiver, at or prior to the
Closing Date (and continued until the Closing Date), of the following
conditions:
(a) Representations and Warranties; Covenants and Agreements;
--------------------------------------------------------
Consents. The representations and warranties of the Transferor contained in this
- --------
Agreement shall be true and correct in all material respects as of the date
hereof and shall also be true and correct in all material respects on the
Closing Date as though made on and as of the Closing Date, except that those
representations and warranties which are confined to a particular date shall
speak only as of such date, and the Transferor shall have performed in all
material respects the
Asset Purchase Agreement - Page 32 of 49
<PAGE>
agreements, covenants and obligations to be performed by it at or prior to the
Closing Date. All Authorizations of or with any Governmental Authority or other
third party that are required for or in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby by the Transferor shall have been obtained or made.
(b) Certificates. The Transferor shall have furnished InterCept and
------------
the Company with such certificates of the Transferor and such other documents to
evidence fulfillment of the conditions set forth in this Article 9 and otherwise
---------
to consummate the transactions contemplated pursuant to this Agreement, in
substantially the form attached hereto as Exhibit 9.2(b).
--------------
(c) Noncompetition, Nonsolicitation and Confidentiality Agreement.
-------------------------------------------------------------
The Transferor, as reasonably requested by the Company, shall have executed and
delivered to the Company a Noncompetition, Nonsolicitation and Confidentiality
Agreement substantially in the form attached hereto as Exhibit 9.2(c).
--------------
(d) Work Product Agreements. The Transferor shall have delivered to
-----------------------
the Company an Assignment of Work Product Agreement in the form attached hereto
as Exhibit 9.2(d), signed by all persons who have developed, modified or
--------------
otherwise had access to the source code for the Software.
(e) No Material Adverse Effect on the Division. No event shall have
------------------------------------------
occurred and no fact or circumstance shall have arisen which, in the judgment of
InterCept and the Company, is reasonably likely to have a Material Adverse
Effect on the Division or materially and adversely affect the value of this
transaction to InterCept or the Company, since the Balance Sheet Date except (i)
the announcement of this Agreement or (ii) conditions affecting global economy
or regional economy in which InterCept and the Company operate any part of its
or their business.
9.3 Conditions to the Obligations of the Transferor under this Agreement.
--------------------------------------------------------------------
The obligations of the Transferor under this Agreement shall be further subject
to the satisfaction or waiver, at or prior to the Closing Date, of the following
conditions:
(a) Representations and Warranties; Covenants and Agreements;
--------------------------------------------------------
Consents. The representations and warranties of InterCept and the Company
- --------
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and shall also be true and correct in all material
respects on the Closing Date as though made on and as of the Closing Date, and
InterCept and the Company shall have performed in all material respects the
agreements, covenants and obligations to be performed by them at or prior to the
Closing Date. All Authorizations of or with any Governmental Authority or other
third party that are required for or in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby by InterCept and the Company shall have been obtained or made, except
where the failure to obtain any such Authorizations would not have a Material
Adverse Effect on InterCept or the Company.
Asset Purchase Agreement - Page 33 of 49
<PAGE>
(b) Certificates. InterCept and the Company shall have furnished the
------------
Transferor with such certificates of InterCept and the Company and such other
documents to evidence fulfillment of the conditions set forth in this Article 9
---------
and otherwise to consummate the transactions contemplated pursuant to this
Agreement substantially in the form attached hereto as Exhibit 9.3(b)
--------------
(c) Noncompetition, Nonsolicitation and Confidentiality Agreement.
-------------------------------------------------------------
Intercept shall have executed and delivered to the Company a Noncompetition,
Nonsolicitation and Confidentiality Agreement substantially in the form attached
hereto as Exhibit 9.3(c).
--------------
(d) No Material Adverse Effect. No Material Adverse Effect on
--------------------------
InterCept or the Company since the date of this Agreement shall have occurred
except (i) the announcement of this Agreement, and (ii) conditions affecting the
global economy or regional economy in which InterCept and the Company operate
any part of its or their business.
(e) Approvals. This Agreement and the transactions contemplated
---------
hereby shall have received all required Government Authorizations and other
consents or approvals from third parties (including lenders, licensees and
lessors) required to consummate the transactions contemplated hereby which,
either individually or in the aggregate, if not obtained would have a Material
Adverse Effect.
(f) Registration Rights Agreement. The Company shall have executed
-----------------------------
and delivered a Registration Rights Agreement (herein so called) in the form of
Exhibit 9.3(f) attached hereto.
- --------------
(g) Marketing Agreement. Each of the Company and Transferor shall
-------------------
have executed and delivered the Marketing Agreement.
(h) Company's Board. The Company and its Board of Directors shall
---------------
have taken all actions necessary so that upon the Closing of this Agreement
Gayle M. Earls, or such other individual as the Transferor may designate prior
to Closing and that is reasonably acceptable to the Company, shall become a
director of the Company with a term ending not earlier than three years
following the Closing and such person shall be a member of the Nominating
Committee of the Company's Board of Directors.
(i) Completion of Due Diligence on Company. The Transferor shall have
--------------------------------------
completed its review of the Company, the results of which shall be acceptable to
the Transferor in its reasonable discretion.
(j) The Indemnity Agreement shall be in full force and effect.
(k) The Autidilution Agreement shall have been executed.
Asset Purchase Agreement - Page 34 of 49
<PAGE>
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated prior to the Closing
-----------
Date, whether before or after approval of this Agreement by the Company,
InterCept and the Transferor:
(a) by mutual written consent of InterCept, the Company and the
Transferor;
(b) by InterCept, the Company or the Transferor if the Closing Date
shall not have occurred on or prior to the Deadline Date; provided, however,
that the right to terminate this Agreement under this Section 10.1(b) shall not
---------------
be available to any Party whose action or failure to act has been a principal
cause of or resulted in the failure of the transaction contemplated by this
Agreement to occur on or before such date and such action or failure to act
constitutes a willful and material breach of this Agreement;
(c) by InterCept or the Company, if there has been a material breach
of any representation, warranty, covenant, agreement or obligation of the
Transferor hereunder in each case which either is not capable of being remedied,
or, if capable of being remedied, shall not have been remedied within 10 days
after receipt by the Transferor of notice in writing from InterCept or the
Company specifying the nature of such breach and requesting that it be remedied;
(d) by the Transferor, if there has been a material breach in any
representation, warranty, covenant, agreement or obligation of InterCept or the
Company hereunder in each case which either is not capable of being remedied,
or, if capable of being remedied, shall not have been remedied within 10 days
after receipt by InterCept or the Company, as the case may be, of notice in
writing from the Transferor specifying the nature of such breach and requesting
that it be remedied;
(e) by InterCept or the Company if any of the conditions set forth
in Section 9.1 or 9.2 is not satisfied and is no longer capable of being
------------------
satisfied by the Closing Date; or
(f) by the Transferor if any of the conditions set forth in Section
-------
9.1 or 9.3 is not satisfied and is no longer capable of being satisfied by the
- ----------
Closing Date;
Asset Purchase Agreement - Page 35 of 49
<PAGE>
10.2 Effect of Termination. If any Party terminates and abandons this
---------------------
Agreement pursuant to Section 10.1, this Agreement, other than Section 8.5(b),
------------ --------------
this Section 10.2, Section 10.3, Article 11 and Section 12.1 (each of which
------------ ------------ ---------- ------------
shall survive termination), shall forthwith become void and have no effect,
without any liability on the part of any Party or its officers, directors or
shareholders; provided, however, that nothing contained in this Section 10.2
------------
shall relieve any Party from any liability for any breach of this Agreement or
the Confidentiality Agreement.
10.3 Specific Performance. The Parties acknowledge that the rights of each
--------------------
Party to consummate the transactions contemplated hereby are special, unique,
and of extraordinary character, and that, in the event any Party either violates
or fails or refuses to perform any covenant made by it herein, the other Party
or Parties will be without adequate remedy at law. Each Party agrees, therefore,
that in the event that it violates, fails or refuses to perform any covenant or
agreement made by it herein, the other Party or Parties, so long as it or they
are not in breach hereof, may, in addition to the remedies at law, institute and
prosecute an action in a court of competent jurisdiction to enforce specific
performance of such covenant or agreement or seek any other equitable relief.
10.4 Amendment. This Agreement may not be amended except by an instrument
---------
in writing signed on behalf of all the Parties hereto.
10.5 Extension; Waiver. The Parties may, at any time prior to the Closing
-----------------
Date, (a) extend the time for the performance of any of the obligations or other
acts of the other Parties; (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant thereto; or
(c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of any Party to any extension or waiver shall be valid
only if it is set forth in an instrument in writing signed on behalf of the
Party against which the waiver is sought to be enforced and shall apply only to
the specific condition, representation or warranty identified by the writing as
being waived, extended or modified.
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification by the Transferor. Subject to the terms of this
---------------------------------
Article 11, the Transferor shall indemnify, defend, save and hold harmless
- ----------
InterCept, the Company, and their respective Subsidiaries, predecessors,
successors, directors, officers, employees, agents, representatives and assigns
(collectively, the "InterCept Indemnified Parties"), from and against any Claims
(including, without limitation, reasonable attorneys' and accountants' fees and
expenses), together with interest and penalties, if any, awarded by court order
or otherwise agreed to (collectively, "Indemnifiable Damages"), suffered by
InterCept Indemnified Parties that arise out of or result from any of the
following (whether or not a third party initiates the proceeding or claim giving
rise to such Indemnifiable Damages):
Asset Purchase Agreement - Page 36 of 49
<PAGE>
(a) any breach of any of the representations, warranties, covenants
or agreements made by the Transferor in this Agreement or in the other
Contribution Agreements; or
(b) any breach of any representation, warranty, covenant or
agreement in a document, certificate or affidavit delivered by the Transferor at
the Closing.
11.2 Indemnification by InterCept. Subject to the terms of this
----------------------------
Article 11, InterCept shall indemnify, defend, save and hold harmless the
- ----------
Transferor and its shareholders, officers, directors, employees, agents,
representatives and assigns (collectively, the "Transferor Indemnified
Parties"), from and against any Indemnifiable Damages suffered by the Transferor
Indemnified Parties that arise out of or result from any of the following
(whether or not a third party initiates the proceeding or claim giving rise to
such Indemnifiable Damages):
(a) any breach of any of the representations, warranties, covenants
and agreements made by InterCept in this Agreement or in the other Contribution
Agreements; or
(b) any breach of any representation, warranty, covenant or
agreement in a document, certificate or affidavit delivered by InterCept at the
Closing.
11.3 Indemnification by Company. Subject to the terms of this Article 11,
-------------------------- ----------
Company shall indemnify, defend, save and hold harmless the Transferor
Indemnified Parties, from and against any Indemnifiable Damages suffered by the
Transferor Indemnified Parties that arise out of or result from any of the
following (whether or not a third party initiates the proceeding or claim giving
rise to such Indemnifiable Damages):
(a) any breach of any of the representations, warranties, covenants
and agreements made by the Company in this Agreement or in the other
Contribution Agreements;
(b) any breach of any representation, warranty, covenant or
agreement in a document, certificate or affidavit delivered by the Company at
the Closing; or
(c) those contracts set forth on Schedule 11.3(c).
----------------
11.4 Claims for Indemnification. The Party seeking indemnification (the
--------------------------
"Indemnified Party") shall give the Party from whom indemnification is sought
(the "Indemnifying Party") a written notice ("Notice of Claim") within sixty
(60) days of the discovery of any loss, liability, claim or expense in respect
of which the right to indemnification contained in this Article 11 may be
---------------
claimed; provided, however, that the failure to give such notice within such
sixty (60) day period shall not result in the waiver or loss of any right to
bring such claim hereunder after such period unless, and only to the extent
that, the other Party is actually prejudiced by such failure. In the event a
claim is pending or threatened or the Indemnified Party has a reasonable belief
as to the validity of the basis for such claim, the Indemnified Party may give
written notice (a "Notice of Possible Claim") of such claim to the Indemnifying
Party, regardless of whether a loss has arisen from such claim.
Asset Purchase Agreement - Page 37 of 49
<PAGE>
A Party shall have no liability under this Article 11 for breach of a
----------
representation or warranty, unless a Notice of Claim or Notice of Possible Claim
therefor is delivered by the Indemnified Party prior to March 31, 2001;
provided, however, that the limitations set forth in this Section 11.4 shall not
------------
apply to liability under this Article 11 for any intentional breach of a
----------
representation or warranty in this Agreement. Any Notice of Claim or Notice of
Possible Claim shall set forth the representations, warranties, covenants and
agreements with respect to which the claim is made, the specific facts giving
rise to an alleged basis for the claim and the amount of liability asserted or
anticipated to be asserted by reason of the claim.
11.5 Defense of Claim by Third Parties. If any claim is made by a third
---------------------------------
party against a Party to this Agreement that, if sustained, would give rise to a
liability of another Party under this Agreement, the Party against whom the
claim is made shall promptly cause Notice of Claim to be delivered to the other
Party and shall afford the other Party and its counsel, at the other Party's
sole expense, the opportunity to join in the defense and settlement of the
claim. The failure to provide such notice will not relieve the Indemnifying
Party of liability under this Agreement unless, and only to the extent that, the
Indemnifying Party is actually prejudiced by such failure.
11.6 Third Party Claim Assistance. From time to time after the Closing,
----------------------------
InterCept, Company and the Transferor shall provide or cause their appropriate
employees or representatives to provide the other Parties with information or
data in connection with the handling and defense of any third party claim or
litigation (including counterclaims filed by the parties) in respect to which a
Party may be required to indemnify another Party under this Agreement. The
Party receiving such information or data shall reimburse the other Parties for
all of their reasonable costs and expenses in providing these services,
including, without limitation, (i) all out of pocket, travel and similar
expenses incurred by their personnel in rendering these services; and (ii) all
fees and expenses for services performed by third parties engaged by or at the
request of such other Parties.
11.7 Settlement of Indemnification Claims. If a recipient of a Notice of
------------------------------------
Claim desires to dispute such claim, it shall, within thirty (30) days after
receipt of the Notice of Claim, give counter-notice, setting forth the basis for
disputing such claim, to InterCept, the Company or the Transferor, as the case
may be. If no such counter-notice is given within such thirty (30) day period,
or if InterCept, Company or the Transferor, as the case may be, acknowledges
liability for indemnification, then the amount claimed shall be promptly
satisfied as provided in Section 11.8. If, within thirty (30) days after the
receipt of counter-notice by InterCept, Company or the Transferor, as the case
may be, the Transferor, Company and InterCept shall not have reached agreement
as to the claim in question, then the Party disputing the claim shall satisfy
any undisputed amount as specified in Section 11.8 and the disputed amount of
the claim of indemnification shall be submitted to and settled by arbitration in
accordance with the then prevailing commercial arbitration rules of the American
Arbitration Association. Such arbitration shall be held in the Atlanta, Georgia
area before a panel of three (3) arbitrators, one selected by each of the
Parties and the third selected by mutual agreement of the first two, and all of
whom shall be independent and impartial under the rules of the American
Arbitration Association. The decision of the arbitrators shall be final and
binding as
Asset Purchase Agreement - Page 38 of 49
<PAGE>
to any matter submitted under this Agreement. To the extent the decision of the
arbitrators is that a Party shall be indemnified hereunder, the amount shall be
satisfied as provided in Section 11.8. Judgment upon any award rendered by the
arbitrators may be entered in any court of competent jurisdiction. The date of
the arbitrator's decision or the date a claim otherwise becomes payable pursuant
to this Section 11.7 is referred to as the "Determination Date."
11.8 Certain Limitations. Notwithstanding the foregoing in this Article
-------------------
11, the indemnification obligations of the parties shall not be affected by any
investigation made by the parties hereto prior to the date hereof or the Closing
Date and shall be subject to the following limitations.
(a) No indemnification shall be made for breaches of representations
and warranties pursuant to this Article 11 until the total Indemnifiable Damages
for which the Indemnifying Party would be liable exceeds $50,000, in which event
the Indemnifying Party shall indemnify to the full amount of such Indemnifiable
Damages.
(b) No indemnification shall be made for breaches of representations
and warranties pursuant to this Article 11 to the extent Indemnifiable Damages
to be paid by the Transferor, on the one hand, or Company or Intercept,
collectively on the other hand, exceed $4,500,000.
(c) An Indemnifying Party shall be obligated to indemnify an
Indemnified Party pursuant to this Article 11 for breaches of representations
and warranties only for those Indemnifiable Damages as to which the Indemnified
Party has given the Indemnifying Party written notice thereof by March 31, 2001.
(d) The limitations set forth in Sections 11.8(a), (b) and (c) shall
not apply to Indemnifiable Damages arising out of (a) fraud, (b) intentional
breaches or (c) breaches of the representations and warranties in Sections 5.1,
5.2, 5.7, 6.1, 6.2, 7.1, 7.2, 7.3 and 7.14.
ARTICLE 12
MISCELLANEOUS
12.1 Expenses.
--------
(a) Except as otherwise expressly stated herein, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including legal and accounting fees and expenses) shall be
borne by the Party incurring such costs and expenses and shall be paid by such
Party prior to or on the Closing Date.
(b) Notwithstanding any provision in this Agreement to the contrary,
if any of the Parties shall willfully default in its obligations hereunder, the
non-defaulting Party may pursue any remedy available at law or in equity to
enforce its rights and shall be paid by the willfully defaulting Party for all
damages, costs and expenses, including without limitation
Asset Purchase Agreement - Page 39 of 49
<PAGE>
reasonable legal and accounting expenses incurred or suffered by the non-
defaulting Party in connection herewith or in the enforcement of its rights
hereunder.
12.2 Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered personally
or by reputable overnight or express courier, sent by registered or certified
mail, postage prepaid, or by telefax (with subsequent delivery via one of the
two previous methods) as follows:
(a) If to InterCept or Company, to:
The InterCept Group, Inc.
Netzee, Inc.
3150 Holcomb Bridge Road, Suite 200
Norcross, Georgia 30071
Attn: President and Chief Financial Officer
Telefax: (770) 248-9600
Copy (which shall not constitute notice) to:
Sutherland Asbill & Brennan LLP
999 Peachtree Street, N.E.
Suite 2300
Atlanta, Georgia 30309
Attn: Mark D. Wasserman
Telefax: (404) 853-8398
(b) If to the Transferor (prior to Closing) or the Shareholders,
to:
TIB The Independent Banker's Bank
350 Phelps Court, Suite 200
Attn: A. Mackey Harral
Executive Vice President
Telefax: (972) 541-0755
Copy (which shall not constitute notice) to:
Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 25270-2199
Attn: Valinda B. Wolfert
D. Forrest Brumbaugh
Telefax: (214) 745-5390
Asset Purchase Agreement - Page 40 of 49
<PAGE>
or such other addresses and telefax numbers as shall be furnished in writing by
any Party, and any such notice or communications shall be deemed to have been
given as of three business days after the date actually sent via overnight or
express courier, eight days after mailed and upon telefax confirmation of
receipt to addressee by the sender.
12.3 Parties in Interest. This Agreement shall be binding on and shall
-------------------
inure to the benefit of the Parties hereto and their respective successors, and
assigns. This Agreement (and the rights and interests herein) may not be
assigned by any Party without the written consent of the other Parties;
provided, however, InterCept and the Company each may assign its interests
herein to an entity controlling, controlled by or under common control with
InterCept or the Company, as the case may be; provided, that InterCept or the
Company, as the case may be, irrevocably and unconditionally guarantees the
performance of all the assignee's obligations under this Agreement, subject only
to the terms and conditions of this Agreement. Any attempted assignment in
contravention of the foregoing shall be null and void. Nothing in this Agreement
is intended to confer, expressly or by implication, upon any other Person any
rights or remedies under or by reason of this Agreement.
12.4 Entire Agreement. This Agreement and the Disclosure Schedules,
----------------
Exhibits and the other documents, agreements (including, without limitation, the
Registration Rights Agreement, Marketing Agreement, Antidilution Agreement and
the Agreement, certificates and instruments executed and delivered pursuant to
or in connection with this Agreement (collectively, the "Contribution
Agreements"), contains the entire agreement among the Parties with respect to
the transactions contemplated by this Agreement and supersedes all prior
negotiations, arrangements or understandings, written or oral, with respect
thereto.
12.5 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original, and each of which shall
constitute one and the same agreement. Any Party may deliver an executed copy of
this Agreement and any documents contemplated hereby by facsimile transmission
to another Party, and such delivery shall have the same force and effect as any
other delivery of a manually signed copy of this Agreement or of such other
documents.
12.6 Governing Law.
-------------
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF GEORGIA,
EXCLUDING CHOICE OF LAW PRINCIPLES.
(b) InterCept, the Company and the Transferor consent to the
exclusive jurisdiction and venue of the courts of the United States Federal
District Courts of Georgia, in any judicial proceeding brought to enforce this
Agreement.
Asset Purchase Agreement - Page 41 of 49
<PAGE>
12.7 Arbitration.
-----------
(a) Any dispute, controversy or claim arising out of or relating to
this Agreement or any other related documents, agreements, certificates or other
writing, or the breach, termination, construction, validity or enforceability
hereof or thereof, shall be settled by binding arbitration in accordance with
the rules of the American Arbitration Association (except as otherwise provided
in this Section 12.7).
(b) Termination or limitation of InterCept's or Company's rights in
any of its software, products, or any associated intellectual property rights or
documents may not be awarded under any circumstances. The right to demand
arbitration and to receive damages and obtain other available remedies as
provided hereunder shall be the exclusive remedy in the event an arbitration
demand is made, except that InterCept and Company shall be entitled to obtain
equitable relief, such as injunctive relief, from any court of competent
jurisdiction to protect its rights in any of its software products or any
associated intellectual property rights or documents while such proceeding is
pending or in support of any award made pursuant to such arbitration.
12.8 Invalidity of any Part. If any provision or part of this Agreement
----------------------
shall for any reason be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Agreement and shall be construed as if such invalid, illegal
or unenforceable provision or part thereof had never been contained herein, but
only to the extent of its invalidity, illegality, or unenforceability. Upon any
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the Parties hereto will negotiate in good faith to
modify this Agreement so as to effect the original intent of the Parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated by this Agreement are consummated to the extent possible.
12.9 Time of the Essence; Computation of Time. Time is of the essence of
----------------------------------------
each and every provision of this Agreement. Whenever the last day for the
exercise of any right or the discharge of any duty under this Agreement shall
fall upon Saturday, Sunday or a federal, public or legal holiday, the Party
having such right or duty shall have until 5:00 p.m., Atlanta, Georgia time on
the next succeeding regular business day to exercise such right or to discharge
such duty.
[Remainder of Page Intentionally Left Blank.]
Asset Purchase Agreement - Page 42 of 49
<PAGE>
IN WITNESS WHEREOF, InterCept, Company and the Transferor have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
INTERCEPT:
The InterCept Group, Inc.
By: /s/ Scott R. Meyerhoff
--------------------------
Name: Scott R. Meyerhoff
--------------------------
Title: CFO
--------------------------
COMPANY:
NETZEE, INC.
By: /s/ Glenn W. Sturm
--------------------------
Name: Glenn W. Sturm
--------------------------
Title Chief Executive Officer
--------------------------
THE TRANSFEROR
TIB The Independent Bankers Bank
By: /s/ Gayle M. Earls
--------------------------
Name: Gayle M. Earls
--------------------------
Title: President and
Chief Executive Officer
--------------------------
Asset Purchase Agreement - Page 43 of 49
<PAGE>
EXHIBIT 2.5
ACQUISITION AGREEMENT
dated
September 3, 1999
By and Among
NETZEE, INC.
(A Georgia Corporation)
And
CALL ME BILL, LLC
(A Kentucky Limited Liability Company)
And
THE EQUITY OWNERS OF CALL ME BILL, LLC
NAMED ON SCHEDULE I HERETO
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE 1 THE PURCHASE......................................................................... 1
Section 1.1 Purchase and Sale of Shares................................................... 1
Section 1.2 Time and Place of Closing..................................................... 1
ARTICLE 2 OFFICERS AND DIRECTORS OF THE COMPANY................................................ 1
Section 2.1 Resignations.................................................................. 1
ARTICLE 3 PURCHASE PRICE AND PAYMENT OF PURCHASE PRICE......................................... 2
Section 3.1 Purchase Price................................................................ 2
Section 3.2 Payment of Purchase Price..................................................... 2
Section 3.3 Surrender and Exchange of Certificates........................................ 2
ARTICLE 4 RULES OF CONSTRUCTION................................................................ 2
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS................... 5
Section 5.1 Organization.................................................................. 5
Section 5.2 Capitalization................................................................ 5
Section 5.3 Authority; No Violation....................................................... 6
Section 5.4 Financial Statements.......................................................... 7
Section 5.5 Broker's and Other Fees....................................................... 7
Section 5.6 Absence of Certain Changes or Events.......................................... 7
Section 5.7 Legal Proceedings............................................................. 8
Section 5.8 Taxes and Tax Returns......................................................... 8
Section 5.9 Employee Benefit Plans and Relations.......................................... 9
Section 5.10 Compliance with Applicable Laws............................................... 11
Section 5.11 Certain Contracts............................................................. 11
Section 5.12 Properties and Insurance...................................................... 12
Section 5.13 Environmental Matters......................................................... 14
Section 5.14 Intellectual Property......................................................... 14
Section 5.15 Adequacy of Technical Documentation........................................... 15
Section 5.16 Third-Party Components in Software............................................ 16
Section 5.17 Third-Party Interests or Marketing Rights in Software......................... 16
Section 5.18 No Parachute Payments......................................................... 16
Section 5.19 Absence of Certain Agreements and Practices................................... 16
Section 5.20 Major Vendors and Customers................................................... 17
Section 5.21 Accounts Receivable........................................................... 17
Section 5.22 Bank Accounts................................................................. 17
Section 5.23 Corporate Records............................................................. 17
Section 5.24 Combinations Involving the Company............................................ 17
</TABLE>
Stock Purchase Agreement - Page i
<PAGE>
<TABLE>
<S> <C>
Section 5.25 Labor Relations................................................................. 17
Section 5.26 Year 2000 Matters............................................................... 18
Section 5.27 Change in Control Provisions.................................................... 18
Section 5.28 No Prior Convictions............................................................ 19
Section 5.29 Tax Advice...................................................................... 19
Section 5.30 Shareholder's Additional Representations........................................ 19
Section 5.31 Disclosure...................................................................... 19
ARTICLE 6 Intentionally Deleted.................................................................. 20
ARTICLE 7 COVENANTS AND AGREEMENTS OF THE PARTIES................................................ 20
Section 7.1 Corporate Organization.......................................................... 20
Section 7.2 Authority; No Violation......................................................... 20
Section 7.3 Broker's and Other Fees......................................................... 21
Section 7.4 Legal Proceedings............................................................... 21
Section 7.5 Disclosure...................................................................... 22
ARTICLE 8 COVENANTS AND AGREEMENTS OF THE PARTIES................................................ 22
Section 8.1 Conduct of Business............................................................. 22
Section 8.2 Negative Covenants.............................................................. 22
Section 8.3 No Solicitation................................................................. 24
Section 8.4 Current Information............................................................. 25
Section 8.5 Access to Properties and Records; Confidentiality............................... 25
Section 8.6 Regulatory Matters; Consents; Cooperation, etc.................................. 26
Section 8.7 Parties' Efforts; Further Assurances; Cooperation............................... 26
Section 8.8 Public Announcements............................................................ 26
Section 8.9 Failure to Fulfill Conditions................................................... 26
Section 8.10 Disclosure Supplements.......................................................... 27
Section 8.11 Release; Covenant Not to Sue.................................................... 27
Section 8.12 Employment Agreements........................................................... 28
Section 8.13 Special Provisions with Respect to the Company.................................. 29
Section 8.14 Cooperation and Exchange of Information......................................... 29
Section 8.15 Customer Contacts............................................................... 29
Section 8.16 Post-Closing Expenses........................................................... 29
Section 8.17 Tax Returns..................................................................... 29
Section 8.18 Letter of Credit................................................................ 29
ARTICLE 9 CLOSING CONDITIONS..................................................................... 29
Section 9.1 Conditions of Each Party's Obligations Under this Agreement..................... 29
(a) Approvals and Regulatory Filings........................................ 30
(b) Suits and Proceedings................................................... 30
Section 9.2 Conditions to the Obligations of Purchaser under this Agreement................. 30
(a) Representations and Warranties; Covenants and
Agreements; Consents.................................................. 30
</TABLE>
Stock Purchase Agreement - Page ii
<PAGE>
<TABLE>
<S> <C>
(b) Intentionally Deleted................................................... 30
(c) Certificates............................................................ 30
(d) Noncompetition, Nonsolicitation and Confidentiality Agreements.......... 31
(e) Confidentiality and Assignment Agreements............................... 31
(f) Completion of Due Diligence on the Company.............................. 31
(g) No Material Adverse Effect on the Company............................... 31
(h) Customer Inquiries...................................................... 31
(i) Intentionally Deleted................................................... 31
(j) Termination or Assignment of Certain Agreements......................... 31
(k) Release of Obligations.................................................. 31
(l) Escrow Agreement........................................................ 31
(m) Releases................................................................ 31
Section 9.3 Conditions to the Obligations of the Company and the
Shareholders under this Agreement............................................. 32
(a) Representations and Warranties; Covenants and Agreements; Consents...... 32
(b) Certificates............................................................ 32
(c) No Material Adverse Effect on Purchaser................................. 32
(d) Approvals............................................................... 32
(e) Escrow Agreement........................................................ 32
ARTICLE 10 SURVIVAL............................................................................... 32
Section 10.1 Survival........................................................................ 32
ARTICLE 11 INDEMNIFICATION........................................................................ 33
Section 11.1 Indemnification by the Company and Shareholders................................. 33
Section 11.2 Indemnification by Purchaser.................................................... 33
Section 11.3 Claims for Indemnification...................................................... 33
(a) Procedure............................................................... 33
(b) Excluded Costs.......................................................... 34
(c) Insurance............................................................... 34
(d) Period to Settle........................................................ 34
Section 11.4 Defense of Claim by Third Parties............................................... 34
Section 11.5 Third Party Claim Assistance.................................................... 35
Section 11.6 Settlement of Indemnification Claims............................................ 35
Section 11.7 Manner of Indemnification by the Company and Shareholders....................... 35
Section 11.8 Certain Limitations............................................................. 35
ARTICLE 12 MISCELLANEOUS.......................................................................... 36
Section 12.1 Expenses........................................................................ 36
Section 12.2 Notices......................................................................... 36
Section 12.3 Parties in Interest............................................................. 37
Section 12.4 Entire Agreement................................................................ 38
Section 12.5 Counterparts.................................................................... 38
</TABLE>
Stock Purchase Agreement - Page iii
<PAGE>
<TABLE>
<S> <C>
Section 12.6 Governing Law.................................................................... 38
Section 12.7 Arbitration...................................................................... 38
Section 12.8 Invalidity of any Part........................................................... 39
Section 12.9 Time of the Essence; Computation of Time......................................... 39
Section 12.10 Members Representative........................................................... 39
Section 12.11 Contract Interpretation.......................................................... 40
</TABLE>
Stock Purchase Agreement - Page iv
<PAGE>
ACQUISITION AGREEMENT
---------------------
THIS ACQUISITION AGREEMENT (the "Agreement") is dated and effective as of
September 3, 1999, by and among NETZEE, INC., a Georgia corporation (the
"Purchaser"), CALL ME BILL, LLC, a Kentucky limited liability company (the
"Company"), and the equity owners of the Company named on Schedule I hereto,
----------
each a resident of the State designated on Schedule I (each a "Member" and
----------
collectively the "Members"). The Purchaser, the Company and the Members are
hereinafter collectively called the "Parties."
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Members own 100% of the issued and outstanding equity
interests of the Company (the "Company Equity");
WHEREAS, the Parties have agreed that it is in their best interests for the
Purchaser to purchase and for the Members to sell all of the Company Equity;
WHEREAS, the Board of Directors of Purchaser has approved the purchase of
the Company Equity upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
Parties agree as follows:
ARTICLE 1
THE PURCHASE
1.1 Purchase and Sale of Equity. Upon the terms and subject to the
---------------------------
conditions of this Agreement, the Members shall sell, assign, deliver and
transfer to the Purchaser and the Purchaser shall purchase from the Members, all
of the Company Equity free and clear of all liens, claims, options, proxies,
charges, pledges, security interests, adverse claims and other encumbrances.
1.2 Time and Place of Closing. The consummation of the transactions
-------------------------
contemplated by this Agreement (the "Closing") shall take place at the offices
of Sutherland Asbill & Brennan, LLP, 999 Peachtree Street, N.E., Suite 2300,
Atlanta, Georgia 30309 at 10:00 a.m. on August __, 1999, or at such other place
and time as Purchaser and the Company may agree (the "Closing Date"). At the
Closing, the parties shall execute and deliver the certificates, opinions and
other instruments and documents referred to in Article 9.
---------
ARTICLE 2
OFFICERS AND DIRECTORS OF THE COMPANY
2.1 Resignations. Effective immediately upon the Closing the current
------------
managers, officers and directors shall resign their current positions as
managers, officers and/or directors of the Company.
Stock Purchase Agreement
<PAGE>
ARTICLE 3
PURCHASE PRICE AND PAYMENT OF PURCHASE PRICE
3.1 Purchase Price. Subject to the terms of this Agreement and the related
--------------
agreements and documents, the purchase price ("Purchase Price") for all of the
Company Equity shall be $3,287,500.
3.2 Payment of Purchase Price. At the Closing, the Purchaser shall deliver
-------------------------
(or cause to be delivered) the Purchase Price as follows:
(a) to the escrow agent designated in the Escrow Agreement in the
form of Exhibit 3.2(a) hereto ("Escrow Agreement"), cash in the amount of
$100,000; and
(b) to the Members, cash in the amount of $3,187,500, in the
proportions indicated on Company Disclosure Schedule 3.2(b) hereto.
---------------------------------
3.3 Surrender of Certificates. At the Closing, Purchaser shall deliver
-------------------------
cash to the Members by wire transfer of immediately available funds, in the
manner provided in Section 3.2. Upon surrender to Purchaser of certificates, or
other appropriate evidence of ownership, representing Company Equity (the
"Certificates"), and subject to the Escrow Agreement, the holder of such
Certificates shall be entitled to receive at the Closing in exchange therefor,
such allocation of the Purchase Price as is set forth on Company Disclosure
------------------
Schedule 3.2(b) to which such holder is entitled pursuant to the provisions of
- --------------
Section 3.1. All payments in respect of Company Equity that are made in
- -----------
accordance with the terms hereof shall be deemed to have been made in full
satisfaction of all rights pertaining to such securities.
ARTICLE 4
RULES OF CONSTRUCTION
In the interpretation of this Agreement, unless otherwise provided or
the context otherwise requires:
(a) The singular includes the plural and vice versa and, in
particular (but without limiting the generality of the foregoing), any word or
expression defined in the singular has the corresponding meaning used in the
plural and vice versa;
(b) Any reference to any gender includes the other gender;
(c) Any reference to an Article, Section, Exhibit, clause, subclause,
paragraph, subparagraph, Schedule or recital is a reference to an Article,
Section, Exhibit, clause, subclause, paragraph, subparagraph, Schedule or
recital of this Agreement;
(d) Any reference to any agreement, instrument or other document (i)
shall include all appendices, exhibits and schedules thereto and all agreements,
documents or other writings incorporated by reference therein, and (ii) shall be
a reference to such agreement, instrument or other document as amended,
supplemented, modified, suspended, restated or novated from time to time;
Stock Purchase Agreement - Page 2
<PAGE>
(e) Any reference to any statute shall be construed as including all
statutory provisions consolidating, amending or replacing such statute and all
governmental regulations and rules promulgated thereunder;
(f) Any reference to "writing" includes printing, typing, lithography
and other means of reproducing words in a visible form;
(g) Any reference to a time or date or to a local time or date is a
reference to the time and date in Atlanta, Georgia;
(h) The headings and Article, Section and paragraph numbering
contained in this Agreement are used solely for convenience and do not
constitute a part of this Agreement, nor shall such headings and numbering be
used in any manner to aid in the construction of this Agreement;
(i) References herein to the "Company Disclosure Schedules" mean the
disclosure schedules, dated as of the date hereof, which have been delivered by
the Company or the Members to the Purchaser and all other documents, agreements,
and other items disclosed by the Company or the Members in writing to the
Purchaser and attached to such schedules in connection with this Agreement, and
references to a numbered Company Disclosure Schedule shall mean that portion of
the Company Disclosure Schedules that refers to the specific section or
subsection of Article 5 of this Agreement;
---------
(j) The term "disclosed by Purchaser" means and includes, with
respect to information concerning any event, fact or circumstance, information
contained in the Purchaser's Disclosure Schedules, in this Agreement and the
other Purchase Agreements (defined in Section 12.4), and in press releases of
------------
Purchaser disseminated to major news wire services;
(k) The term "including" means "including, without limitation";
(l) The term "Governmental Authority" means any United States
federal, state or local, or foreign, governmental, regulatory or administrative
authority, agency, department, board, investigative body or commission or any
court, tribunal, or judicial or arbitral body;
(m) The term "Knowledge" as used with respect to (i) the Members
(including any references to the Members being aware of a particular matter)
means the actual knowledge of any of the Members or the shareholders of such
Members (other than Cyrus Ansary or Matthew Clary, III as trustee of the Matthew
A. Clary, Jr. Trust) and information which any of them reasonably should have
known, without inquiry, given the nature of the disclosure and (ii) the Company
(including any references to the Company being aware of a particular matter)
means the actual knowledge of any of the officers of the Company and information
which any of them reasonably should have known, without inquiry, given the
nature of the disclosure;
(n) The term "Material Adverse Effect" with respect to a person or
entity means any circumstance of, change in, or effect on the business and
affairs of such person or entity or any of its Subsidiaries thereof that,
individually or in the aggregate with any other circumstance of, change in, or
effect on, the business and affairs of such person or entity and its
Stock Purchase Agreement - Page 3
<PAGE>
Subsidiaries: (i) is, or would reasonably be expected to be, materially adverse
to the business, operations, assets, liabilities, results of operations or
financial condition of such person or entity and its Subsidiaries, taken as a
whole, or (ii) would reasonably be expected to materially adversely affect the
ability of such person or entity and its Subsidiaries to operate or conduct its
or their business and affairs in the manner in which it is currently operated or
conducted or contemplated by such person or entity to be operated or conducted
provided, however, that a Material Adverse Effect shall not include any effect
to the extent resulting from (i) any change in generally applicable economic,
business or financial market conditions, (ii) any generally applicable change in
the Company's industry or (iii) any change in Laws or in generally accepted
accounting principles;
(o) The term "person" means any individual, partnership, limited
liability company, firm, corporation, association, trust, joint venture,
unincorporated organization or other entity, as well as any syndicate or group
that would be deemed to be a person under Section 13(d)(3) of the Exchange Act
(as defined herein);
(p) References herein to the "Purchaser Disclosure Schedules" mean
the disclosure schedules, dated as of the date hereof, which have been delivered
by the Purchaser to the Company and the Members and all other documents,
agreements and other items disclosed by the Purchaser in writing to the Company
and the Members and attached to such schedules in connection with this
Agreement, and references to a numbered Purchaser Disclosure Schedule shall mean
that portion of the Purchaser Disclosure Schedules that refers to the specific
section or subsection of Article 6;
---------
(q) The term "Subsidiary" means any corporation, partnership, limited
liability company, joint venture or other legal entity in which a specified
person or entity, directly or indirectly, owns or controls the voting of at
least a 50% share or other equity interest or for which such person or entity,
directly or indirectly, acts as a general partner or managing member; and
(r) Each of the Parties acknowledges that it has had the opportunity
to negotiate the terms and provisions of this Agreement, with the assistance and
review of its counsel. This Agreement, therefore, shall be construed without
regard to any presumption or other rule requiring construction against the party
causing the Agreement to be drafted.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDERS
To induce the Purchaser to enter into this Agreement and the other Purchase
Agreements, the Company and the Members, jointly and severally, hereby represent
and warrant to the Purchaser as follows:
5.1 Organization.
------------
(a) The Company is a Limited Liability Company duly organized,
validly existing and in good standing under the laws of the State of Kentucky.
The Company has the
Stock Purchase Agreement - Page 4
<PAGE>
requisite power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted and is duly licensed
or qualified to do business and is in good standing in each jurisdiction in
which the nature of the business conducted by it or the character or location of
the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure of the Company to be licensed,
qualified or in good standing would not have and is not reasonably likely to
have a Material Adverse Effect on the Company. Company Disclosure Schedule
---------------------------
5.1(a) lists all of the jurisdictions in which the Company does business and
- -----
separately identifies each of the jurisdictions in which the Company is
qualified to do business.
(b) Company Disclosure Schedule 5.1(b) sets forth true and correct
---------------------------------
copies of the Articles of Organization and Operating Agreement of the Company
and all amendments thereto.
(c) Except as set forth on Company Disclosure Schedule 5.1(c), the
----------------------------------
Company has no subsidiaries; and except as disclosed on Company Disclosure
------------------
Schedule 5.1(c), the Company does not own or control, directly or indirectly,
- ---------------
any equity interest in any corporation, company, association, partnership, joint
venture or other entity.
5.2 Capitalization. As of the date hereof, there are 1,000 interests of
--------------
Company Equity issued and outstanding. Company Disclosure Schedule 5.2 sets
-------------------------------
forth the quantity of interests of Company Equity owned by each Member. Other
than as disclosed on Company Disclosure Schedule 5.2, there are no options,
-------------------------------
warrants, or other rights to acquire Company Equity. All issued and outstanding
interests of Company Equity have been validly issued and are fully paid and
nonassessable, were not issued in violation of any preemptive rights and were
issued pursuant to effective registration statements or under available
exemptions from the registration requirements of the federal and state
securities laws. Except as set forth on Company Disclosure Schedule 5.2,
-------------------------------
neither the Company nor any Member has granted or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the transfer, purchase, registration, subscription or
issuance of any equity interests in the Company or any securities representing
the right to purchase, subscribe or otherwise receive any equity interests in
the Company or any securities convertible into any such equity interests, and,
except as set forth on Company Disclosure Schedule 5.2, there are no agreements
-------------------------------
or understandings with respect to voting any such equity interests. All
outstanding Company Equity are owned free and clear of all liens, claims,
options, charges, pledges, security interests, adverse claims and encumbrances.
5.3 Authority; No Violation.
-----------------------
(a) Except as disclosed on Company Disclosure Schedule 5.3(a)
----------------------------------
(collectively, the "Company Approvals"), no consents, approvals, authorizations,
clearances or orders of, filings or registrations with or notices to
(collectively "Authorizations") any third party or any Governmental Authority
are necessary on behalf of the Company or any of the Members in connection with
(i) the execution and delivery by the Company and the Members of this Agreement
and the other Purchase Agreements, (ii) the consummation by the Company and the
Members of the transactions contemplated hereby and thereby and (iii) the
performance of the Company's and the Member's obligations under this Agreement
and the other Purchase
Stock Purchase Agreement - Page 5
<PAGE>
Agreements. The Company has the full requisite power and authority to execute
and deliver this Agreement and the other Purchase Agreements and to consummate
the transactions contemplated hereby and thereby in accordance with the terms
hereof and thereof. The execution and delivery of this Agreement and the other
Purchase Agreements and the consummation of the transactions contemplated hereby
and thereby have been duly and validly approved by the managing body and Members
of the Company in accordance with the governing instruments of the Company and
with applicable Laws (as defined below). Except for the Company Approvals, no
other requisite proceedings on the part of the Company or the Members are
necessary for the Company and the Members to execute and deliver this Agreement
and the other Purchase Agreements to which they are a party and for the Company
and the Members to be bound by the terms hereof and thereof. This Agreement and
the other Purchase Agreements to which they are a party have been duly and
validly executed and delivered by the Company and the Members and constitute the
valid and binding obligation of the Company and the Members enforceable against
the Company and the Members in accordance with its and their terms, subject to
bankruptcy, insolvency and similar laws of general application relating to or
affecting creditors rights and to general equitable principles.
(b) Neither the execution and delivery by the Company and the Members
of this Agreement and the other Purchase Agreements to which they are a party,
nor the consummation by the Company and the Members of the transactions
contemplated hereby and thereby in accordance with the other terms hereof and
thereof, nor compliance by the Company and the Members with any of the terms or
provisions hereof or thereof, will: (i) violate any provision of the Company's
governing instruments; (ii) assuming that the Company Approvals are duly
obtained, violate any United States federal, state or local or foreign statute,
code, ordinance, rule, regulation, judgment, order, writ, ruling, decree or
injunction of any Governmental Authority (collectively, "Laws") applicable to
the Company, the Members or any of its or their respective properties or assets;
or (iii) violate, conflict with, result in a breach of any provisions of,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of, accelerate the
performance required by, or result in the creation of any lien, mortgage,
security interest, pledge, charge, other right of third parties or other
encumbrance (collectively, "Liens") upon any of the respective properties or
assets of the Company or the Members under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which the Company or the
Members is a party, or by which they or any of their respective properties or
assets may be bound or affected except, with respect to (ii) or (iii) above,
such as individually or in the aggregate will not have a Material Adverse Effect
on the Company, and which will not prevent or delay the consummation of the
transactions contemplated hereby.
5.4 Financial Statements.
--------------------
(a) Company Disclosure Schedule 5.4(a) sets forth copies of: (i) the
----------------------------------
balance sheets of the Company as of March 31, 1999, June 30, 1999, December 31,
1998 and December 31, 1997, and (ii) the statements of income for the periods
ended March 31, 1999, June 30, 1999, December 31, 1998 and December 31, 1997
(together with the related notes and the financial statements to be delivered
pursuant to Section 8.17, collectively, the "Company Financial Statements").
------------
Stock Purchase Agreement - Page 6
<PAGE>
(b) The Company Financial Statements have been prepared in accordance
with generally accepted accounting principles and practices ("GAAP") applied
consistently during the periods involved (except as may be indicated therein or
in the notes thereto), and present fairly, the financial position of the Company
as of the respective dates set forth therein, and the results of the Company's
operations and its cash flows for the respective periods set forth therein, in
accordance with GAAP.
(c) Intentionally Deleted.
(d) Except as and to the extent reflected, disclosed or reserved
against in the Company Financial Statements, or as disclosed in Company
-------
Disclosure Schedule 5.4(d), since June 30, 1999, the Company has not incurred
- --------------------------
any liabilities or obligations of any kind, whether absolute, accrued,
contingent or otherwise ("Liabilities"), except in the ordinary course of
business and consistent with past practice (which, in the aggregate, are not
material) and except for this Agreement and the other Purchase Agreements.
(e) Except as disclosed in Company Disclosure Schedule 5.4(e), since
----------------------------------
June 30, 1999, there has not been any change, occurrence or circumstance
affecting the business, results of operations or financial condition of the
Company that has had, individually or in the aggregate, a Material Adverse
Effect on the Company or which is reasonably likely to have a Material Adverse
Effect on the Company, other than changes, occurrences and circumstances
disclosed by the Company on the Company Disclosure Schedules.
5.5 Broker's and Other Fees. Except as disclosed in Company Disclosure
----------------------- ------------------
Schedule 5.5, neither Company nor any of the Members have employed any broker or
- ------------
finder or incurred any liability for any broker's or finder's fees or
commissions in connection with any of the transactions contemplated by this
Agreement and the other Purchase Agreements.
5.6 Absence of Certain Changes or Events.
------------------------------------
(a) Except as disclosed in Company Disclosure Schedule 5.6(a) and
----------------------------------
except for changes in the economy and other factors generally affecting the
market for the Company's services, the Company and the Members do not have
Knowledge of any existing facts or conditions which they reasonably believe to
be likely to cause a Material Adverse Effect on the Company in the next twelve
months from that reflected in the Company Financial Statements.
(b) Except as set forth in Company Disclosure Schedule 5.6(b),
----------------------------------
neither the Company nor the Members has taken or permitted any of the actions
set forth in Section 8.2(a) since June 30, 1999 and, except for execution of
------
this Agreement, the Company has conducted its business only in the ordinary
course, consistent with past practice. Prior to June 30, 1999, neither the
Company nor the Members has taken or permitted any of the actions set forth in
Section 8.2(a) that are not reflected in the Company Financial Statements.
- --------------
5.7 Legal Proceedings. Except as disclosed in Company Disclosure Schedule
----------------- ---------------------------
5.7, neither the Company nor any of the Members is a party to any, and there are
- ---
no pending or, to the Company's or the Members' Knowledge, threatened legal,
administrative, arbitral or other proceedings, claims or actions of any nature
against the Company or any of the Members (relating to the Company). To the
Knowledge of the Company or the Members, there are no
Stock Purchase Agreement - Page 7
<PAGE>
pending or threatened governmental investigations of any nature against the
Company or any of the Members (relating to the Company). Except as disclosed in
Company Disclosure Schedule 5.7, the Company is not a party to any order,
- -------------------------------
judgment or decree entered in any lawsuit or proceeding. Without limiting the
foregoing, except as disclosed in Company Disclosure Schedule 5.7, no actions,
-------------------------------
suits, demands, notices, claims or proceedings or, to the Knowledge of the
Company or the Members, investigations, are pending or, to the Company's or the
Members' Knowledge, threatened against or otherwise involving, directly or
indirectly, any officer, director, employee or agent of the Company (in
connection with such officer's, director's, employee's or agent's activities on
behalf of the Company or that otherwise relate, directly or indirectly to the
Company or its properties or securities) including without limitation any
notices, demand letters or requests from any Governmental Authority relating to
such potential Liabilities.
5.8 Taxes and Tax Returns. Except as disclosed in Company Disclosure
--------------------- ------------------
Schedule 5.8:
- ------------
(a) The Company has duly and timely filed (and until the Closing Date
will so file) all returns, declarations, reports, information returns and
statements ("Returns") required to be filed by it in respect of any United
States federal, state or local, or foreign, Taxes and has duly and timely paid
(and until the Closing Date will so pay) all Taxes due and payable, other than
Taxes which are being contested in good faith (and disclosed by the Company and
the Members to Purchaser in writing). As used herein, "Tax" or "Taxes" means and
includes any and all taxes, fees, levies, assessments, duties, tariffs, imposts,
and other charges of any kind (together with any and all interest, penalties,
additions to tax and additional amounts imposed with respect thereto) imposed by
any Governmental Authority, including, without limitation: foreign, domestic,
central, local, state or other jurisdictional taxes or other charges on or with
respect to income, estimated income, franchises, business, occupation, windfall
or other profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation,
or net worth; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value added, or gains taxes; license, registration and
documentation fees; and customs duties, tariffs, and similar charges. The
Company has established (and until the Closing Date will establish) on its books
and records reserves that are adequate for the payment of all Taxes not yet due
and payable, but are incurred in respect of the Company through such date.
(b) None of the Returns of the Company have been examined by the
Internal Revenue Service (the "IRS"), or any other United States federal, state
or local or any foreign Governmental Authority within the past six years. There
are no audits or other Governmental Authority proceedings presently pending nor,
to the Knowledge of the Company and the Members, any other disputes pending with
respect to, or claims asserted for, Taxes upon the Company, nor has the Company
given any currently outstanding waivers or comparable consents regarding the
application of any statute of limitations with respect to any Taxes or Returns.
There are no Liens for Taxes upon the assets of the Company, except Liens for
Taxes not yet due. The Company and the Members have complied (and until the
Closing Date will comply) in all respects with all applicable Laws relating to
the payment and withholding of Taxes.
Stock Purchase Agreement - Page 8
<PAGE>
(c) The Company (i) has not requested any extension of time within
which to file any Return which Return has not since been filed (ii) is not a
party to any agreement providing for the indemnification, allocation or sharing
of Taxes; (iii) is not required to include in income any adjustment by reason of
a voluntary change in accounting method initiated by the Company (nor to the
Company's or the Members' Knowledge has any Governmental Authority proposed any
such adjustment or change of accounting method); (iv) has not filed a consent
with any Governmental Authority pursuant to which the Company has agreed to
recognize gain (in any manner) relating to or as a result of this Agreement or
the transactions contemplated hereby; or (v) has not been a member of an
affiliated group of corporations within the meaning of Section 1504 of the Code.
5.9 Employee Benefit Plans and Relations. Except as disclosed in Company
------------------------------------ -------
Disclosure Schedule 5.9:
- -----------------------
(a) The Company does not maintain or contribute to any "employee
pension benefit plan" (the "Company Pension Plans"), as such term is defined in
Section 3 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including any pension, profit-sharing, retirement, thrift or stock
bonus plan, or "employee welfare benefit plan" (the "Company Welfare Plans"), as
such term is defined in Section 3 of ERISA, or any other stock option plan,
stock purchase plan, restricted stock plan, deferred compensation plan,
severance plan, phantom stock plan, bonus plan or other similar plan, program or
arrangement (collectively the "Employee Plans"). The Company has not contributed
to, or been required to contribute to, any "Multiemployer Plan," as such term is
defined in Section 3(37) of ERISA.
(b) Each of the Company Pension Plans is intended to be a qualified
plan within the meaning of Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), and neither the Company nor the Members are aware of
any fact or circumstance that would adversely affect the qualified status of any
such plan.
(c) To the Knowledge of Company or the Members, each of the Company
Pension Plans, Company Welfare Plans and other Employee Plans has been operated
in compliance in all material respects with the provisions of ERISA, the Code,
and all other applicable Laws. The Company will not have any liability after the
Closing arising from the operation of such Company Pension Plans, Company
Welfare Plans and other Employee Plans prior to the Closing that will cause a
Material Adverse Effect on the Company.
(d) Neither the Company nor, to the Company's or the Members'
Knowledge, any trustee, fiduciary or administrator of any Company Pension Plan
or Company Welfare Plan or any trust created thereunder, has engaged in a
"prohibited transaction" as such term is defined in Section 4975 of the Code,
which could subject the Company or any such trustee, fiduciary or administrator
thereof, to the tax or penalty on prohibited transactions imposed by said
Section 4975.
(e) No Company Pension Plan or any trust created thereunder has been
terminated, nor have there been any "reportable events" for which the 30 day
notice has not been waived with respect to any Company Pension Plan, as that
term is defined in Section
Stock Purchase Agreement - Page 9
<PAGE>
4043(b) of ERISA (excluding any reportable event resulting from the
effectiveness of this Agreement or any other Purchase Agreement).
(f) There are no pending or, to the Company's or the Members'
Knowledge, threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of the Company Pension Plans or the
Company Welfare Plans or any trusts related thereto.
(g) Accruals; Funding.
-----------------
(i) Pension Plans. None of the Employee Plans is a Pension
-------------
Plan subject to ERISA Title IV (including those for retired, terminated or other
former employees and agents).
(ii) Other Plans. Company Disclosure Schedule 5.9(g) fully and
----------- ----------------------------------
accurately sets forth any funding liability under each Employee Plan not subject
to ERISA Title IV, whether insured or otherwise, specifically setting forth any
liabilities under any retiree medical arrangement and specifically designating
any insured plan which provides for retroactive premium or other adjustments.
The levels of insurance reserves and accrued liabilities with regard to each
such Employee Plan are reasonable and are sufficient to provide for all incurred
but unreported claims and any retroactive premium adjustments.
(iii) Contributions. Except as set forth on Company Disclosure
------------- ------------------
Schedule 5.9(g): (A) the Company and each trade or business (whether or not
- ---------------
incorporated), which together with the Company is treated as a single employer
pursuant to Code Section 414(b), (c), (m) or (o) (an "ERISA Affiliate"), has
made full and timely payment of all amounts required to be contributed under the
terms of each Employee Plan and applicable Law, or required to be paid as
expense under such Employee Plan, including the Pension Benefit Guaranty
Corporation ("PBGC") premiums and amounts required to be contributed under Code
Section 412; (B) where applicable, all contributions have been made in
accordance with the actuarial recommendations; and (C) no excise taxes are
assessable as a result of any nondeductible or other contributions made or not
made to an Employee Plan.
(h) Summary plan descriptions and all other returns, reports,
registration statements, prospectuses, documents, statements and communications
required to have been filed, published or disseminated under ERISA or other Laws
and the rules and regulations promulgated by the Department of Labor under ERISA
and the Treasury Department or by the Securities and Exchange Commission ("SEC")
with respect to the Employee Plans have been so filed, published or
disseminated.
5.10 Compliance with Applicable Laws. Except as set forth in Company
------------------------------- -------
Disclosure Schedule 5.10, the Company holds all licenses, franchises, permits,
- ------------------------
consents and authorizations ("Licenses") necessary for the lawful conduct of its
business, except to the extent a failure to hold such Licenses would not have a
Material Adverse Effect. No proceeding is pending or, to the Knowledge of
Company or the Members, threatened seeking the revocation or suspension of any
License. Except as set forth on Company Disclosure Schedule 5.10, the Company
--------------------------------
is and has been in compliance in all material respects with all applicable Laws,
and neither the Company
Stock Purchase Agreement - Page 10
<PAGE>
nor any Member has received any notices of any allegation of any violation by
the Company of any Laws or Licenses.
5.11 Certain Contracts.
-----------------
(a) Company Disclosure Schedule 5.11(a) lists the following
-----------------------------------
agreements (collectively, the "Material Contracts"), including, without
limitation, leases, purchase contracts and commitments, to which the Company is
a party or by which the Company or any of its properties or assets is bound:
(i) all agreements involving an annual commitment or payment
by any party thereto of more than $10,000 individually or $25,000 in the
aggregate or which have a fixed term extending more than 12 months from the date
hereof;
(ii) all joint venture, sales agency, sales representative or
distributorship, broker, franchise, license or similar agreements;
(iii) all leases of real and personal property that is material
to the Company's business and operations;
(iv) all notes, bonds, mortgages, security agreements,
guarantees and other agreements and instruments for or relating to any lending
or borrowing by the Company in any amount (exclusive of advances to employees
for expenses in the ordinary course of business);
(v) all powers of attorney, guarantees, suretyships or similar
agreements;
(vi) all employment agreements; and
(vii) all other agreements to which the Company or any Member is
a party and either (1) which is material to the Company's business or (2) the
breach of or default under which could have a Material Adverse Effect on the
Company.
(b) Except as set forth on Company Disclosure Schedule 5.11(b), each
-----------------------------------
of the Material Contracts is valid, binding and enforceable on the Company, and
to the knowledge of the Company and the Members, the other parties thereto, in
accordance with its terms. The Company has provided a true and complete copy of
each Material Contract to Purchaser.
(c) Except as disclosed in Company Disclosure Schedule 5.11(c), (i)
-----------------------------------
the Company is not a party to or bound by any agreement or understanding
(whether written or oral) with respect to the employment of any officers,
employees, directors or consultants, and (ii) the consummation of the
transactions contemplated by this Agreement and the other Purchase Agreements
will not (either alone or upon the occurrence of any additional acts or events)
result in any payment (whether of severance pay or otherwise) or other
obligation becoming due from the Company to any officer, employee, director,
shareholder or consultant thereof. Company Disclosure Schedule 5.11(c) sets
-----------------------------------
forth true and correct copies of all severance or employment
Stock Purchase Agreement - Page 11
<PAGE>
agreememts with officers, directors, employees, agents or consultants to which
the Company is a party.
(d) Except as disclosed in Company Disclosure Schedule 5.11(d), no
-----------------------------------
agreement or understanding to which the Company is a party or by which it is
bound limits the freedom of the Company to compete in any line of business or
with any person.
(e) Except as disclosed in Company Disclosure Schedule 5.11(e),
-----------------------------------
neither the Company nor, to the Knowledge of the Company or the Members, any
other party thereto, is in default under any of the Material Contracts or any
other agreement to which the Company is a party or to which its properties are
bound; to the Company's and the Members' Knowledge, no event has occurred which
(whether with or without notice, lapse of time or the happening or occurrence of
any other event) would constitute a default thereunder entitling any party to
terminate a Material Contract or other such agreement or to otherwise claim or
collect damages the impact of which would have a Material Adverse Effect on the
Company; and the continuation, validity and effectiveness of all such Material
Contracts and agreements under the current terms thereof and the current rights
and obligations of the Company thereunder will in no way be affected, altered or
impaired by the consummation of the transactions contemplated hereby and by the
other Purchase Agreements.
5.12 Properties and Insurance.
------------------------
(a) Except as disclosed in Company Disclosure Schedule 5.12(a), the
-----------------------------------
Company has good and marketable title to all assets and properties, whether real
or personal, tangible or intangible, reflected in the Company Financial
Statements as of June 30, 1999, or owned or acquired subsequent thereto (except
to the extent that such assets and properties have been disposed of for fair
value in the ordinary course of business since such date), subject to no Liens
except (i) statutory liens for amounts not yet delinquent or which are being
contested in good faith (and for which adequate reserves have been made) and
(ii) such Liens and title imperfections that do not in the aggregate have a
Material Adverse Effect on the Company or adversely affect the Company's use of
the property subject thereto. The Company as lessee has the right to occupy,
use, possess and control all real property leased by the Company as presently
occupied, used, possessed and controlled by the Company or necessary in the
operation of its businesses as currently conducted.
(b) The business operations and insurable material properties and
assets of the Company are insured for their benefit against all risks which, in
the reasonable judgment of the Company and the Members, should be insured
against, in each case under policies or bonds issued by insurers of recognized
responsibility, in such amounts with such deductibles and against such risks and
losses as are in the opinion of the Company and the Members adequate for the
business engaged in by the Company. Copies of all such policies as in effect on
the date hereof are attached hereto as Company Disclosure Schedule 5.12(b).
-----------------------------------
Company has not received any notice of cancellation or notice of a material
amendment of any such insurance policy or bond and the Company is not in default
under any such policy or bond, no coverage thereunder is being disputed and all
material claims thereunder have been filed in a timely fashion.
Stock Purchase Agreement - Page 12
<PAGE>
(c) No person other than the Company is currently entitled to
possession of any of the properties that are material to the business or
operations of the Company or the loss of use of which would have a Material
Adverse Effect on the Company, whether owned or leased by the Company. To the
Company's and the Members' Knowledge, the real property, buildings, structures
and improvements owned or leased by the Company conform to all applicable Laws,
including zoning regulations, none of which would upon consummation of the
transactions contemplated hereby adversely interfere with the use of such
properties, buildings, structures or improvements for the purposes for which
they are now utilized. The Company has not received notice of, and to the
Company's and the Members' Knowledge, there does not exist (i) any pending or
contemplated condemnation or eminent domain proceeding affecting the properties
owned or leased by the Company, (ii) any proposal for increasing the assessed
value of any such properties for state, county, local or other ad valorem Taxes
or (iii) any pending or contemplated proceedings or public improvements that
would result in the levy of any special Tax or assessment against any such
properties; and there are no outstanding requirements or recommendations by the
Company's insurance providers requiring or recommending any repairs or work to
be done with reference to any such properties or any basis for such. The
properties and assets owned or leased by the Company, and those assets used by
the Company listed on Company Disclosure Schedule 5.12, constitute all of the
--------------------------------
property and assets that the Company uses in connection with the operation of
its business as conducted on the Closing Date, and all such property and assets
are in good repair and operating condition, normal wear and tear excepted. The
consummation of the transactions contemplated by this Agreement and the other
Purchase Agreements will not impair the ability of the Company to continue to
use such properties and assets.
5.13 Environmental Matters.
---------------------
(a) The operations of the Company comply, and have complied, in all
material respects with all applicable Laws relating to pollution or protection
of the environment ("Environmental Laws").
(b) Except as set forth on Company Disclosure Schedule 5.13, no
--------------------------------
environmental, health or safety Licenses or other such authorizations are
necessary for the operation of the Company's business.
(c) Neither the Company nor any of the Members has received any
notice of any pending or threatened investigation, proceeding or claim to the
effect that the Company is or may be liable to any person or responsible or
potentially responsible for the costs of any remedial or removal action or other
cleanup costs, as a result of noncompliance with any Environmental Laws or
arising out of the presence, generation, storage or disposal of hazardous waste,
including liability under the United States Comprehensive Environmental
Response, Compensation and Liability Act, as amended, any state superfund law or
any Environmental Law, and there is no past or present action, or to the
Company's and the Members' Knowledge activity, condition or circumstance that
could be expected to give rise to any such liability on the part of the Company
to any person or entity or for any such cleanup costs.
5.14 Intellectual Property. The Company develops, markets and licenses
---------------------
certain proprietary application software products and systems to financial
institutions and other
Stock Purchase Agreement - Page 13
<PAGE>
customers (the "Software Programs"), and in connection therewith the Company has
obtained from third party contractors certain related technical documentation
and user reference manuals (the "Documentation"). The Software Programs and the
Documentation are collectively referred to as the "Software." The Software
Programs are listed on Company Disclosure Schedule 5.14.
--------------------------------
(a) Ownership. The Company has the right to use all patents,
---------
trademarks, service marks, trade names and copyrighted works which are the
subject of a copyright registration and all other proprietary information used
by the Company in the conduct of its business. Company Disclosure Schedule
---------------------------
5.14(a) sets forth all domestic and foreign patents, trademarks, service marks
- -------
and trade names owned or used by the Company (designated as owned or used) and
all applications therefor and registrations thereof, and copyright registrations
or pending applications for registrations owned by the Company.
(b) Procedures for Copyright Protection. In no instance has the
-----------------------------------
eligibility of the Software for protection under copyright law been forfeited to
the public domain.
(c) Procedures for Trade Secret Protection. Neither the Company
--------------------------------------
nor any Member has ever disclosed source code for any of the Software to a third
party other than the persons identified in Company Disclosure Schedule 5.14(c),
-----------------------------------
each of which has executed an appropriate nondisclosure agreement in favor of
the Company. The Company discloses its source code for the Software to employees
only on a need-to-know basis in connection with the performance of their duties
to the Company and except as described in Company Disclosure Schedule 5.14, each
---------------------------------
such current employee of the Company has executed and delivered to the Company
an employment or other agreement containing provisions for the protection of
trade secrets and confidential information of the Company which would include
the Software from the date of delivery to the Company. The source code and
system documentation (from the date of delivery to the Company) comprising the
Software have at all times been maintained by the Company in confidence and the
Company has not taken (nor has it failed to take) any action which would be
reasonably likely to result in such source code and system documentation not
being protectable as a trade secret under applicable Laws.
(d) Ownership of Software. Except for certain contractors
---------------------
("Contractors") on Company Disclosure Schedule 5.14(d), all persons who have to
-----------------------------------
or participated in the conception and development of the Software on behalf of
the Company have been full-time employees of the Company hired to prepare such
works within the scope of employment. All Contractors have executed an
assignment agreement substantially in the form attached to Company Disclosure
------------------
Schedule 5.14(c). As a consequence, the Company has all ownership interests in
- ----------------
the Software.
(e) Absence of Claims. Except as set forth in Company Disclosure
----------------- ------------------
Schedule 5.14(e), no claims have been asserted by any person to rights in the
- ----------------
Software, and to the knowledge of the Company and the Members, no valid basis
for any such claim exists. The use of the Software by the Company and its
licensees does not infringe on the rights of any person (whether arising under
copyright, trade secret, patent, unfair competition or other Laws that protect
intellectual property rights). The use by the Company of the patents,
trademarks, service marks, trade names and works which are the subject of
copyright registration identified in
Stock Purchase Agreement - Page 14
<PAGE>
Company Disclosure Schedule 5.14(a) does not infringe the rights of any person,
- -----------------------------------
and no claim has been asserted that the use by the Company of any of the
foregoing infringes the rights of any person. Neither the Company nor the
Members has received notice of any claim asserted by any person to the effect
that any current or former employee of the Company has violated the provisions
of any noncompete or nondisclosure agreement with such person, or has disclosed
any proprietary information of such person to the Company or any third party.
(f) Disclaimer of Certain Warranties. EXCEPTING THE EXPRESS
--------------------------------
WARRANTIES CONTAINED IN THIS SECTION 5.14 OR SECTIONS 5.15, 5.16 AND 5.17 AND
------------ ----------------------------
THE STATEMENTS CONTAINED IN SECTION 5.26 OF THIS AGREEMENT, COMPANY MAKES NO
------------
REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO THE SOFTWARE, INCLUDING
(BUT NOT BY WAY OF LIMITATION) ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
5.15 Adequacy of Technical Documentation. The Software includes
-----------------------------------
the source code, system documentation and schematics for all Software Programs
provided by the Contractors, as well as any programmer comments for
documentation and commentary or explanation.
5.16 Third-Party Components in Software. The Software contains no
----------------------------------
programming or materials in which any third party may claim superior, joint or
common ownership, including any right or license. The Software does not contain
derivative works of any programming or materials not owned in their entirety by
the Company.
5.17 Third-Party Interests or Marketing Rights in Software.
-----------------------------------------------------
The Company has not granted, transferred or assigned any right or interest in
the Software to any person except pursuant to the contracts identified on
Company Disclosure Schedule 5.17. There are no contracts, agreements, licenses,
- --------------------------------
commitments or arrangements in effect with respect to the marketing,
distribution, licensing or promotion of the Software by any independent
salesperson, distributor, sublicensor or other remarketer or sales organization
except as set forth on Company Disclosure Schedule 5.17.
--------------------------------
5.18 Intentionally Deleted.
---------------------
5.19 Absence of Certain Agreements and Practices.
-------------------------------------------
(a) Except as set forth in Company Disclosure Schedule
--------------------------------------------------
5.19(a) or in connection with customary transactions in the ordinary course of
- ----
business, no present or former officer, director or shareholder of the Company:
(i) owes money to the Company;
(ii) has made any claim (as defined in Section 101 of the
United States Bankruptcy Code) against the Company or, the Company's and the
Members' Knowledge, has any basis for any such claim;
Stock Purchase Agreement - Page 15
<PAGE>
(iii) has any interest in any material property or assets
used by the Company in its business;
(iv) has any benefits that are contingent on the
transactions contemplated by this Agreement and the other Purchase Agreements,
other than as stated herein;
(v) has any agreement with the Company that is not
terminable by the Company without penalty or notice;
(vi) has any agreement providing severance benefits or
other benefits after the termination of employment of such employee (before or
after a change in control) regardless of the reason for such termination of
employment; or
(vii) has any agreement or plan, any of the benefits of
which will be increased, vested or accelerated by the occurrence of any of the
transactions contemplated by this Agreement and the other Purchase Agreements.
(b) Neither the Company nor any of its directors, officers,
agents, affiliates or employees, nor any other person acting on behalf of the
Company or the Members has (i) given or agreed to give any gift or similar
benefit having a value of $1,000 or more to any customer, supplier or
governmental employee or official or any other person, for the purpose of
directly or indirectly furthering the business of the Company, (ii) used any
corporate funds for contributions, payments, gifts or entertainment, or made any
expenditures relating to political activities to government officials or others
in violation of any applicable Laws or (iii) received any unlawful
contributions, payments, gifts or expenditures in connection with the business
of the Company.
5.20 Major Vendors and Customers. Company Disclosure Schedule
--------------------------- ---------------------------
5.20 sets forth a list of each licensor, developer, remarketer, distributor and
- ----
supplier of property or services to, and each licensee, end-user or customer of,
the Company, to whom the Company paid or billed in the aggregate in excess of
$25,000 during calendar year 1996, 1997, or 1998, or for the six months ended
June 30, 1999.
5.21 Accounts Receivable. Company Disclosure Schedule 5.21 sets
------------------- --------------------------------
forth the accounts receivable of the Company as of June 30, 1999, as reflected
in the Company Financial Statements as of that date, together with an aging of
these accounts. These accounts receivable, and all accounts receivable of the
Company created after June 30, 1999, arose from valid transactions in the
ordinary course of business and are, to the Company's and Member's knowledge,
and except as listed on Company Disclosure Schedule 5.21, good and collectible
--------------------------------
at the recorded amounts thereof, except to the extent adequate reserves therefor
have been made on the Company Financial Statements in accordance with GAAP. To
the Company's and the Members' knowledge, no portion of the accounts receivable
is subject to counterclaim or setoff.
5.22 Bank Accounts. Company Disclosure Schedule 5.22 lists all
------------- --------------------------------
bank, money market, savings and similar accounts and safe deposit boxes of the
Company, specifying the account numbers, the authorized signatories or persons
having access to them, and the passwords used to access such accounts, including
through voice response and internet services.
Stock Purchase Agreement - Page 16
<PAGE>
5.23 Company Records. The Company record books (including the
---------------
equity records) of the Company are materially complete, accurate and up to date
with all necessary signatures and set forth all meetings and actions taken by
the Members and any committees of the Members and all transactions involving the
equity interests of the Company (and contain any canceled certificates
representing interests in the equity of the Company).
5.24 Combinations Involving the Company. There have been no mergers
----------------------------------
consolidations or other business combinations involving the Company and no
liquidations, purchases or other transactions by which the Company or any of its
Subsidiaries acquired or disposed of substantially all of its business or
property.
5.25 Labor Relations. Except as disclosed on Company Disclosure
--------------- ------------------
Schedule 5.25, the Company is in material compliance with all federal and
- -------------
state Laws respecting employment and employment practices, terms and conditions
of employment, wages and hours, and is not engaged in any unfair labor or
unlawful employment practice. There is no unlawful employment practice or
discrimination charge pending before the United States Equal Employment
Opportunity Commission ("EEOC") or any EEOC recognized state "referral agency."
There is no unfair labor practice charge or complaint against the Company
pending before the National Labor Relations Board ("NLRB"). There is no labor
strike, dispute, slowdown or stoppage actually pending or, to the Company's or
the Members' Knowledge, threatened against or involving or affecting the Company
and no NLRB representation question exists respecting any of its employees. No
grievance or arbitration proceeding is pending and no written claim therefor
exists. There is no collective bargaining agreement that is binding on the
Company. Except for any Material Contract disclosed pursuant to Section 5.11,
------------
the Company is not a party to or bound by any agreement, arrangement or
understanding with any employee or consultant that cannot be terminated on
notice of ninety (90) or fewer days without liability to the Company or that
entitles the employee or consultant to receive any salary continuation or
severance payment or retain any specified position with the Company.
5.26 Year 2000 Readiness Disclosure. This `Year 2000 Readiness
------------------------------
Disclosure' is made pursuant to Public Law 105-271 (effective October 19, 1998),
the Year 2000 Information and Readiness Disclosure Act ("Year 2000 Act"), and is
issued by Company with respect to "Year 2000 Processing" of Company or of
products or services offered by Company. For purposes of this Agreement, "Year
2000 Processing" is defined as the processing (including calculating, comparing,
sequencing, displaying, or storing), transmitting, or receiving of date data
from, into, and between the 20/th and 21/st centuries, and during the years 1999
and 2000, and leap year calculations. Company makes the following Year 2000
Readiness Disclosure: To the best knowledge of Company and except as provided on
Company Disclosure Schedule 5.26, the Software and the Company's internal
- --------------------------------
systems are each "Millennium Compliant"; for the purposes of this Agreement
"Millennium Compliant" means: (a) the functions, calculations, and other
computing processes of the Software (collectively, "Processes") perform as
designed regardless of the date in time on which the Processes are actually
performed and regardless of the date input to the Software, whether or not the
dates include leap years; (b) the Software can accept, store, sort, extract,
sequence, and otherwise manipulate date inputs and date values, and return and
display date values, as designed and in a materially accurate manner, regardless
of the dates used or format of the date input; (c) the Software will function
without interruptions caused by the date in time on which the Processes are
actually performed or by the date input to the
Stock Purchase Agreement - Page 17
<PAGE>
Software; (d) the Software accepts and responds to four digit year date input in
a manner that resolves any material ambiguities as to the century in an accurate
manner; and (e) the Software displays, prints and provides electronic output of
date information in ways that are unambiguous as to the determination of the
century.
Notwithstanding the provisions of Section 5.14(f) of this Agreement,
---------------
the parties agree that the foregoing Year 2000 Readiness Disclosure shall not be
construed as a warranty or other contractually binding statement, and agree that
the Company shall be entitled to all legal benefits and defenses available to it
under the Year 2000 Act, as if such Year 2000 Readiness Disclosure had been made
not in connection with the making of a contract.
5.27 Change in Control Provisions. There are no agreements in
----------------------------
effect to which the Company is a party and which contain any provisions which
become effective or are accelerated or contingent upon a change in control,
merger, consolidation, sale of assets or stock or other business combination
involving the Company or otherwise require any payment or performance by the
Company or any officer or director thereof, now or in the future, in connection
with or as a result of any of the transactions contemplated by this Agreement or
any of the other Purchase Agreements.
5.28 No Prior Convictions. No Member has been convicted of,
--------------------
arrested for, or has any action pending for, a crime involving fraud,
embezzlement or theft or any similar crime.
5.29 Tax Advice. Each Member has reviewed with his tax advisor the
----------
United States federal, state, local and foreign tax consequences of the
transactions contemplated by this Agreement and the other Purchase Agreements.
Such Member is relying solely on such advisor and not on any statements or
representations of the Purchaser or any of its agents, and understands that he
(and not the Purchaser or any other person or entity) shall be responsible for
his own tax liability that may arise as a result of this investment or the
transactions contemplated by this Agreement and the other Purchase Agreements.
5.30 Members' Additional Representations. To induce the Purchaser
-----------------------------------
to enter into this Agreement, each Member also represents and warrants to the
Purchaser as follows:
(a) The Member has the right, power, capacity and authority to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby; this Agreement has been duly and validly executed and
delivered by the Member and is entered into voluntarily without promise or
benefit other than as set forth herein; and this Agreement constitutes the
Member's legal, valid and binding obligation, enforceable in accordance with its
terms.
(b) The Member owns, of record and beneficially, valid title to
his or her Company Equity, and such interests are free and clear of all Liens,
Claims (as defined below) and encumbrances. Other than the Company Equity owned
by the Member, the Member does not own, beneficially or of record, or have any
right to acquire, now or in the future, any equity interest or other securities
of any kind of the Company. The execution, delivery and performance of this
Agreement by the Member will not conflict with or result in a breach of any
agreement, instrument, order, injunction, decree, statute, rule or regulation
applicable to the
Stock Purchase Agreement - Page 18
<PAGE>
Member or any of his or her assets. The execution, delivery and performance of
this Agreement by the Member does not require the consent or approval of any
third party or governmental agency or authority which has not been obtained (and
a copy of which is attached hereto).
5.31 Disclosure. No representation or warranty of the Company and/or
----------
the Members in this Agreement, the other Purchase Agreements or in any document
or certificate furnished or to be furnished to the Purchaser pursuant to this
Agreement or the other Purchase Agreements contains any untrue or incomplete
statement or omits to state any material fact necessary to make the statements
contained herein or therein not misleading. The Company and the Members have
completely and accurately responded in all material respects to all diligence
inquiries made by Purchaser and its officers, directors, attorneys, accountants
and other representatives in connection with this Agreement and the other
Purchase Agreements. All facts known or reasonably available to the Company or
the Members that are material to the financial condition or operation, of the
business and assets of the Company have been disclosed or made available by the
Company and the Members to the Purchaser.
ARTICLE 6
[Intentionally Deleted.]
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
To induce the Company and the Members to enter into this Agreement and the
other Purchase Agreements, the Purchaser hereby represents and warrants to the
Company and the Members as follows:
7.1 Corporate Organization.
----------------------
(a) Purchaser is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Georgia. Purchaser has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted, and is duly licensed
or qualified to do business and is in good standing in each jurisdiction in
which the nature of the business conducted by it or the character or location of
the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed, qualified
or in good standing would not have a Material Adverse Effect on Purchaser.
(b) Direct Access Interactive, Inc. ("DAI") is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Georgia. DAI has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not have a Material Adverse Effect
on DAI.
Stock Purchase Agreement - Page 19
<PAGE>
(c) Purchaser Disclosure Schedule 7.1 sets forth true and complete
---------------------------------
copies of the Articles of Incorporation and Bylaws of Purchaser and DAI and all
amendments thereto.
7.2 Authority; No Violation.
-----------------------
(a) Except as disclosed on Purchaser Disclosure Schedule 7.2(a)
------------------------------------
(collectively, "Purchaser Approvals"), no Authorizations to any third party or
Governmental Authority are necessary on behalf of the Purchaser in connection
with (i) the execution and delivery by the Purchaser of this Agreement and the
other Purchase Agreements, (ii) the consummation by the Purchaser of the
transactions contemplated hereby and thereby and (iii) the performance of the
Purchaser's obligations under this Agreement and the other Purchase Agreements.
The Purchaser has the requisite power and authority to execute and deliver this
Agreement and the other Purchase Agreements to which it is a party and the
consummation by the Purchaser of the other transactions contemplated hereby and
thereby in accordance with the terms hereof and thereof. The execution and
delivery of this Agreement and the other Purchase Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly approved by the Board of Directors of the Purchaser in accordance
with the Articles of Incorporation and Bylaws of the Purchaser and applicable
Laws. No other corporate proceedings on the part of the Purchaser are necessary
to consummate the transactions so contemplated. This Agreement and the other
Purchase Agreements have been duly and validly executed and delivered by the
Purchaser and constitute the valid and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with its terms, subject to
bankruptcy, insolvency and similar laws of general application relating to or
affecting creditors rights and to general equitable principles.
(b) Neither the execution and delivery of this Agreement and the
other Purchase Agreements to which it is a Party by the Purchaser, nor the
consummation by the Purchaser of the transactions contemplated hereby and
thereby in accordance with the terms hereof and thereof, nor compliance by the
Purchaser with any of the terms or provisions hereof and thereof, will (i)
violate any provision of the Purchaser's Articles of Incorporation or Bylaws,
(ii) violate any Laws applicable to the Purchaser or any of its properties or
assets, or (iii) except where a waiver or consent had been obtained or will be
obtained prior to Closing, violate, conflict with, result in a breach of any
provisions of, constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in the creation of any Lien
upon any of the respective properties or assets of the Purchaser under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to which
the Purchaser is a party, or by which it or any of its properties or assets may
be bound or affected except, with respect to (ii) and (iii) above, such as
individually or in the aggregate will not have a Material Adverse Effect on the
Purchaser, and which will not prevent or delay the consummation of the
transactions contemplated hereby.
7.3 Broker's and Other Fees. Neither the Purchaser nor any of its
-----------------------
directors or officers has employed any broker or finder or incurred any
liability for any broker's or finder's fees or commissions in connection with
any of the transactions contemplated by this Agreement.
Stock Purchase Agreement - Page 20
<PAGE>
7.4 Legal Proceedings. Except as set forth on Purchaser Disclosure
----------------- --------------------
Schedule 7.4, there is no action, suit or proceeding before or by any court or
- ------------
governmental agency or body, domestic or foreign, now pending or, to the
knowledge of the Purchaser's president and chief financial officer, threatened,
against or affecting the Purchaser, or any of its properties, which could
reasonably be expected to materially and adversely affect the ability of the
Purchaser to perform its obligations pursuant to this Agreement and the other
Purchase Agreements.
7.5 Disclosure. No representation or warranty of the Purchaser in this
----------
Agreement and the other Purchase Agreements, nor any other written statements or
certificates furnished to the Company or the Members in connection with the
transactions contemplated by this Agreement, contains any untrue or incomplete
statement or omits to state a material fact necessary to make the statements
herein or therein not misleading. The Purchaser has completely and accurately
responded in all material respects to the diligence inquiries made by the
Company and the Members in connection with this Agreement and the other Purchase
Agreements. All facts known to the Purchaser that are material to the financial
condition, operation, or prospects of the business and assets of the Purchaser
have been disclosed by the Purchaser to the Company and the Members.
ARTICLE 8
COVENANTS AND AGREEMENTS OF THE PARTIES
8.1 Conduct of Business. The Company and the Members agree that from
-------------------
the date hereof to the Closing Date, the Company shall conduct its business only
in the ordinary course and consistent with prudent business practice and past
practice, except for transactions permitted hereunder or with the prior written
consent of Purchaser. Without limiting the generality of the foregoing, the
Members and the Company agree that the Company shall use all commercially
reasonable efforts to:
(a) maintain its existence and status in good standing in all
jurisdictions in which it is required to be qualified or registered to conduct
its business, except where the failure to do so would not have a Material
Adverse Effect on the Company;
(b) maintain all of its tangible assets in good operating condition
and maintain the protection of all intellectual property in substantially the
same standing as exists on the date hereof;
(c) continue performance in the ordinary course of its obligations
under its contracts and agreements;
(d) preserve its business organization intact, use all commercially
reasonable efforts to keep available its present officers and employees and
preserve its present relationships with suppliers, customers and others having
business relationships with it; and
(e) maintain its existing insurance, subject to variations in amount
required by the ordinary operations of its business.
Stock Purchase Agreement - Page 21
<PAGE>
8.2 Negative Covenants. The Company and the Members agree that from the
------------------
date hereof to the Closing Date, except as otherwise approved by Purchaser in
writing, or as permitted or required by this Agreement, the Company will not:
(i) change any provision of its Articles of Organization
or Operating Agreement;
(ii) issue any additional interests of Company Equity or
other securities or change the number of interests of Company Equity or issue or
grant any option, warrant, call, commitment, subscription, right to purchase or
agreement of any character relating to Company Equity or any securities
convertible into Company Equity, or split, combine or reclassify any of its
Company Equity, or declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its Company Equity;
(iii) directly or indirectly redeem, purchase or otherwise
acquire any equity of the Company;
(iv) grant any severance or termination pay to, or enter
into or amend any employment or severance agreement with, any of its directors,
officers or employees; adopt any new employee benefit plan or arrangement of any
type; or award any increase in compensation or benefits to its directors,
officers or employees except with respect to employee increases in the ordinary
course of business and consistent with past practices and policies and, with
regard to bonuses in amounts that do not result in a material variance from the
amounts reserved for such payments through the date of the most recent balance
sheet included in the Company Financial Statements;
(v) sell or dispose of any assets other than in the
ordinary course of business consistent with past practices;
(vi) make any capital expenditures outside the ordinary
course of business;
(vii) acquire in any manner whatsoever any business or
entity;
(viii) enter into, terminate, modify or amend any agreement
or arrangement with any officer or director of the Company or any "affiliate" of
any such officer or director, as that term is defined in Regulation 14A of the
Exchange Act (an "Affiliate");
(ix) make any change in its accounting methods or
practices;
(x) incur, create, assume or guarantee any Liabilities
except in the ordinary course of business and as would not have a Material
Adverse Effect on the Company;
(xi) increase, or make any change in any assumptions
underlying the method of calculating any bad debt, contingency or other reserves
from those reflected in the Company Financial Statements;
Stock Purchase Agreement - Page 22
<PAGE>
(xii) make any change in the method of valuing assets included
in the Company Financial Statements;
(xiii) pay, discharge or satisfy any Liabilities, other than by
payment, discharge or satisfaction in the ordinary course of business;
(xiv) permit or allow any of its assets (real, personal or
mixed, tangible or intangible) to be subjected to any Lien, except for Liens
which are in existence on the date hereof and which are disclosed on the Company
Disclosure Schedules and Liens for amounts not yet due and payable which Liens
are contested in good faith and for which adequate reserves have been made;
(xv) write down the value of any inventory or write off as
uncollectible any notes or accounts receivable, except for write-downs and
write-offs in the ordinary course of business;
(xvi) cancel or waive any claims or rights, or sell, transfer,
distribute or otherwise dispose of any assets or properties, except in the
ordinary course of business;
(xvii) declare, file or permit to be filed any voluntary or
involuntary bankruptcy, receivership, insolvency or other similar proceeding or
petition with any Governmental Authority with respect to the Company or any of
the Members;
(xviii) fail to perform its obligations under any Material
Contract (except those being contested in good faith) or enter into, assume or
amend any agreement that would be a Material Contract other than agreements to
provide services entered into in the ordinary and usual course of business;
(xix) take any action that would or could reasonably be
expected to result in (A) a Material Adverse Effect on the Company or (B) any of
his or their representations and warranties contained in Article 5 not being
true and correct in any material respect at the Closing Date, or that would
cause any of the conditions to Closing not to be satisfied; or
(xx) directly or indirectly agree to do any of the foregoing.
8.3 No Solicitation. From the date hereof to the Closing Date or the earlier
---------------
termination of this Agreement in accordance with its terms, the Company and the
Members:
(a) agree that neither the Company nor any of its present or future
subsidiaries or other affiliates, nor any of its or their directors, officers,
shareholders, employees, representatives or other agents (collectively, the
"Company Affiliates") shall, directly or indirectly, (i) enter into any
agreement (or agree to do so), or solicit, initiate or knowingly encourage the
invitation of inquiries or proposals or offers from any person (other than the
Purchaser or its or their directors, officers, employees, representatives and
agents) concerning: (A) any sale of assets or transfer or liabilities of the
Company or any of its present or future subsidiaries, divisions or other
affiliates (other than any such sale or transfer in the ordinary course of
business); (B) any issuance, purchase or sale of equity or debt or other
securities of the Company or any of its present or future subsidiaries,
divisions or other affiliates; or (C) any
Stock Purchase Agreement - Page 23
<PAGE>
merger, consolidation, restructuring, recapitalization or other significant
transaction involving the Company or any of its present or future subsidiaries,
divisions or other affiliates; or (ii) provide any confidential information to,
participate in discussions or negotiations relating to any such transaction
with, or otherwise cooperate with or assist or participate in any effort to take
such action by any person or entity (other than Purchaser or its directors,
officers, shareholders, employees, representatives and agents). The Company
shall immediately advise Purchaser if any such inquiry, offer or proposal is
made or received by the Company or any of the Company Affiliates;
(b) will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing, and the Company and the Members will take
the necessary steps to inform the individuals or entities referred to above of
the obligations undertaken in this Section 8.3; and
-----------
(c) will notify Purchaser immediately of the identity of any
potential acquiror and the terms of any proposal or offer (including, without
limitation, any proposal or offer to any of the Members) with respect to a
proposed or potential merger, acquisition, consolidation, business combination,
transfer or similar transaction involving, or any purchase of all or any
significant portion of the assets, equity securities of or rights with respect
to any assets or securities of, the Company whether or not permitted by this
Section 8.3.
- -----------
8.4 Current Information.
-------------------
(a) During the period from the date of this Agreement to the Closing
Date or the earlier termination of this Agreement in accordance with its terms,
on a frequent basis:
(b) The Company and the Members will cause one or more of the
Company's representatives to confer with representatives of Purchaser regarding
its business, operations, properties, assets and financial condition; each of
the Parties will cause one or more of its representatives to confer with
representatives of the other Parties regarding matters relating to the
completion of the transactions contemplated herein; and
(c) Each of the Parties will notify the other Parties as soon as
practicable after any determination or discovery by it of any fact or
circumstance relating to any Party which it has discovered through the course of
investigation and which represents, or is reasonably likely to represent, a
material breach of any representation, warranty, covenant or agreement of any
Party or which has or is reasonably likely to have a Material Adverse Effect on
any Party. Notwithstanding the foregoing, for the purpose of determining
satisfaction of the condition set forth in Article 8, no such notification shall
---------
be deemed to amend such Disclosure Schedules or shall be deemed to be a part
thereof unless agreed to by the other parties.
8.5 Access to Properties and Records; Confidentiality. The Company
-------------------------------------------------
and the Members shall permit Purchaser and its representatives reasonable access
to its properties and shall disclose and make available to Purchaser and its
representatives all books, papers and records and information relating to it,
its assets, stock ownership, properties, operations, obligations and
liabilities, including, but not limited to, all books of account (including the
general ledger), tax records, minute books of meetings of Members and any
committees thereof,
Stock Purchase Agreement - Page 24
<PAGE>
organizational documents, agreements, filings with any Governmental Authority,
accountants' work papers, litigation files, plans affecting employees, and any
other records and information in which Purchaser and its representatives may
have a reasonable interest; provided that such investigation shall be reasonably
related to the transactions contemplated by this Agreement and shall not
interfere unnecessarily with the normal business operations of the Company.
8.6 Regulatory Matters; Consents; Cooperation, etc.
----------------------------------------------
(a) Each of the Parties will promptly furnish each other with copies
of written communications received by them or any of their respective
Subsidiaries from, or delivered by any of the foregoing to, any Governmental
Authorities in respect of the transactions contemplated hereby.
(b) As soon as practicable following the date hereof, each of the
Parties will use its commercially reasonable efforts to obtain all consents,
waivers and other Approvals under any of its or its Subsidiaries' agreements,
contracts, licenses or leases required to be obtained by such Party in
connection with the consummation of the transactions contemplated hereby.
8.7 Parties' Efforts; Further Assurances; Cooperation. Subject to the
-------------------------------------------------
other provisions in this Agreement, the Parties shall in good faith perform
their obligations under this Agreement before, at and after the Closing Date,
and shall each use all commercially reasonable efforts to do, or cause to be
done, all things necessary, proper or advisable under applicable Laws to obtain
all Authorizations and satisfy all conditions to the obligations of the Parties
under this Agreement and to cause the transactions contemplated by this
Agreement to be carried out promptly in accordance with the terms hereof and
shall cooperate fully with each other and their respective officers, directors,
employees, agents, counsel, accountants and other designees in connection with
any steps required to be taken as part of their respective obligations under
this Agreement. Upon the execution of this Agreement and thereafter, each party
shall take such actions and execute and deliver such documents as may be
reasonably requested by the other Parties in order to consummate the
transactions contemplated by this Agreement.
8.8 Public Announcements. Prior to the Closing Date or the earlier
--------------------
termination of this Agreement in accordance with its terms, the Parties shall
consult and cooperate with each other as to the timing, content and form of any
press release or other public disclosure related to this Agreement or the
transactions contemplated herein, and will not issue a press release or make any
such public disclosure without the prior consent of the other party, which shall
not be unreasonably withheld, conditioned or delayed. After the Closing Date,
none of the Members shall make any public announcement regarding any aspect of
this Agreement without Purchaser's prior written consent. Nothing in this
Section 8.8 shall be deemed to prohibit any Party from making any disclosure
- -----------
which its counsel deems necessary in order to satisfy such Party's disclosure
obligations imposed by Law or Governmental Authority.
8.9 Failure to Fulfill Conditions. In the event that any Party determines
-----------------------------
that a material condition to its or the other's obligation to consummate the
transactions contemplated hereby cannot be fulfilled on or prior to August 31,
1999 (the "Deadline Date"), it will promptly notify the other Party. Except for
any acquisition or merger discussions Purchaser may enter into with other
persons, each Party will promptly inform the other Parties of any facts
applicable to it
Stock Purchase Agreement - Page 25
<PAGE>
that would be likely to prevent or materially delay consummation of the
transactions contemplated by this Agreement.
8.10 Disclosure Supplements. From time to time prior to the Closing Date,
----------------------
each Party hereto will promptly notify the other Party of any inaccuracy in its
respective Disclosure Schedules delivered pursuant hereto including, without
limitation, any matter which, if existing, occurring or known at the date of
this Agreement, would have been required to be set forth or described in such
Schedule or which is necessary to correct any information in such Schedule that
has been rendered inaccurate. Notwithstanding the foregoing, no such
notification shall be deemed to amend such Disclosure Schedules or shall be
deemed to be part hereof unless agreed to by the other Parties.
8.11 Release; Covenant Not to Sue.
----------------------------
(a) If the Closing occurs, then the Members and each of them hereby
permanently release the Purchaser and its agents, representatives, assigns and
affiliates (collectively, the "Purchaser Released Parties") from any and all
Claims (as defined herein), rights and causes of action that any of the Members
may have, may have had or may, at any time, claim to have had against any
Purchaser Released Party, arising out of or in connection with any transactions
between any or all of the Members and any or all of the Purchaser Released
Parties occurring prior to the Closing Date, or arising with respect to any
fact, circumstance, act or omission occurring prior to the Closing Date;
provided, however, that such release shall not apply to any breach by any
Purchaser Released Party of its representations, warranties and agreements set
forth in this Agreement and the other Purchase Agreements to which it is a
party.
(b) If the Closing occurs, the Members and each of them covenant not
to sue or otherwise institute, cause to be instituted or in any way participate
in, any legal or administrative proceeding against any of the Purchaser Released
Parties with respect to any claims (as defined by Section 101 of the United
States Bankruptcy Code, as amended), debts, demands, actions, causes of action,
suits, accounts, damages and liabilities of every name and nature, both at law
and in equity, whether known or unknown (collectively, the "Claims"), that the
Members, or any of them, now has, ever had or may, at any time, claim to have
had against any of the Purchaser Released Parties arising out of or in
connection with any transactions between any or all of the Members and any or
all of the Purchaser Released Parties occurring prior to the Closing Date, or
arising with respect to any fact, circumstance, act or omission occurring prior
to the Closing Date; provided, however, that such covenant not to sue shall not
apply to a suit or action based solely upon any breach by the Members or any of
them of their representations, warranties and agreements set forth in this
Agreement and the other Purchase Agreements to which they are a party. The
Members represent and warrant that they have not voluntarily or involuntarily
assigned or suffered any transfer of any of such Claims to any other person or
entity, and they agree to indemnify and hold harmless each Purchaser Released
Party from and against any loss, damage, liability, cost and expense (including,
but not limited to, attorneys' fees incurred in connection therewith or in
connection with enforcing this indemnity) asserted against, imposed on or
incurred by any of the Purchaser Released Parties by reason of any such Claims
arising out of or in connection with any transactions between any or all of the
Members and any or all of the Purchaser Released Parties occurring prior to the
Closing Date, or
Stock Purchase Agreement - Page 26
<PAGE>
arising with respect to any fact, circumstance, act or omission occurring prior
to the Closing Date, which were effectively or purportedly assigned or
transferred by any or all of the Members.
(c) If the Closing occurs, then the Purchaser hereby permanently
releases the Members and their agents, representatives and assigns
(collectively, the "Member Released Parties") from any and all Claims, rights
and causes of action that the Purchaser may have, may have had or may, at any
time, claim to have had against any or all of the Member Released Parties,
arising out of or in connection with any transactions between the Purchaser and
any or all of the Member Released Parties occurring prior to the Closing Date,
or arising with respect to any fact, circumstance, act or omission occurring
prior to the Closing Date; provided, however, that such release shall not apply
to any breach by the Company or the Members of their representations, warranties
and agreements set forth in this Agreement and the other Purchase Agreements to
which they are a party.
(d) If the Closing occurs, the Purchaser covenants not to sue or
otherwise institute, cause to be instituted or in any way participate in, any
legal or administrative proceeding against any of the Member Released Parties
with respect to any Claims that the Purchaser now has, ever had or may, at any
time, claim to have had against any of the Member Released Parties arising out
of or in connection with any transactions between any or all of the Members and
any or all of the Purchaser Released Parties occurring prior to the Closing
Date, or arising with respect to any fact, circumstance, act or omission
occurring prior to the Closing Date; provided, however, that such covenant not
to sue shall not apply to a suit or action based solely upon any breach by
Purchaser of its representations, warranties and agreements set forth in this
Agreement and the other Purchase Agreements to which it is a party. Purchaser
represents and warrants that it has not voluntarily or involuntarily assigned or
suffered any transfer of any of such Claims to any other person or entity, and
it agrees to indemnify and hold harmless the Member Released Parties from and
against any loss, damage, liability, cost and expense (including, but not
limited to, attorneys' fees incurred in connection therewith or in connection
with enforcing this indemnity) asserted against, imposed on or incurred by any
Member Released Parties by reason of any such Claims arising out of or in
connection with any transactions between any or all of the Members and any or
all of the Purchaser Released Parties occurring prior to the Closing Date, or
arising with respect to any fact, circumstance, act or omission occurring prior
to the Closing Date; which were effectively or purportedly assigned or
transferred by the Purchaser.
8.12 Employment Agreements and Member Agreements. On or prior to the
-------------------------------------------
Closing Date, all agreements between the Company and any of its employees or
shareholders (other than agreements relating to confidentiality, ownership of
inventions and materials and similar agreements benefiting the Company) shall
have been canceled at no cost to the Company. On or prior to the Closing Date,
Employment Agreements substantially in the form attached here as Exhibit 8.12
------------
shall be executed and delivered to Purchaser by any employees of the Company
deemed by Purchaser to be necessary or important to the continued business of
the Company, as contemplated by Purchaser.
8.13 Special Provisions with Respect to the Company. If the Closing occurs
----------------------------------------------
as provided herein, then at that time all representations, warranties, covenants
and agreements to the
Stock Purchase Agreement - Page 27
<PAGE>
extent made or adopted by the Company (and only to such extent) shall expire and
be of no further force and effect, and the Company's having made
representations, warranties, covenants and agreements shall in no way limit the
liability of the Members for those representations, warranties, covenants and
agreements pursuant to this Agreement.
8.14 Cooperation and Exchange of Information. The Parties agree to
---------------------------------------
furnish, or to cause to be furnished in good faith to each other, such
cooperation and assistance as is reasonably necessary to file any future
returns, to respond to audits, to negotiate settlements with Tax authorities and
to prosecute and defend against Tax claims.
8.15 Customer Contacts. The Company shall permit Purchaser to conduct a
-----------------
survey or otherwise inquire of certain or all of the Company's key customers, as
selected by Purchaser, regarding the relationship between such customer and the
Company and the impact of a change in control on such relationship. The Company
shall assist Purchaser in making such survey or inquiries and shall have the
right to have a representative of its choice participate therein.
8.16 Post-Closing Expenses. Any expenses relating to any audit of the
---------------------
Company, or other accounting services rendered to the Company, prior to or after
the Closing rendered on behalf of Purchaser, and any professional fees relating
to the Company incurred in connection with an initial public offering of
Purchaser, shall be borne and paid by Purchaser.
8.17 Tax Returns. The Members shall be responsible for preparing and
-----------
filing the federal and state partnership income tax returns for the Company (and
the Members) for the period ending on the Closing Date.
8.18 Letter of Credit. As soon as practicable after the Closing, Purchaser
----------------
shall release the Members from that certain letter of credit with Bank One,
N.A., for the benefit of MasterCard International, and the Members shall
establish a letter of credit in favor of Purchaser in the amount of $100,000 to
be drawn upon in connection with the Members' indemnification obligations
pursuant to Article 11 of this Agreement.
ARTICLE 9
CLOSING CONDITIONS
9.1 Conditions of Each Party's Obligations Under this Agreement'. The
-----------------------------------------------------------
respective obligations of each party under this Agreement shall be subject to
the satisfaction, or, where permissible under applicable Law, waiver at or prior
to the Closing Date of the following conditions:
(a) Approvals and Regulatory Filings. All necessary Authorizations of
--------------------------------
Governmental Authorities required to consummate the transactions contemplated
hereby shall have been obtained without any term or condition which would
materially impair the value of the Company or Purchaser. All conditions required
to be satisfied prior to the Closing Date by the terms of such approvals and
consents shall have been satisfied; and all statutory waiting periods in respect
thereof shall have expired.
Stock Purchase Agreement - Page 28
<PAGE>
(b) Suits and Proceedings. The consummation of the transactions
---------------------
contemplated hereby will not violate the provisions of any injunction, order,
judgment, decree or Law applicable or effective with respect to Purchaser or the
Company or their officers and directors. No suit or proceeding shall have been
instituted by any person, or, to the knowledge of Purchaser, Company or the
Members, shall have been threatened by any Governmental Authority, and not
subsequently withdrawn, dismissed or otherwise eliminated, which seeks (i) to
prohibit, restrict or delay consummation of the transactions contemplated hereby
or to limit in any material respect the right of Purchaser to control any
material aspect of the business of Purchaser or the Company after the Closing
Date, or (ii) to subject Purchaser or the Company or their respective directors
or officers to material liability on the ground that it or they have breached
any Law or otherwise acted improperly in relation to the transactions
contemplated by this Agreement.
9.2 Conditions to the Obligations of Purchaser under this Agreement. The
---------------------------------------------------------------
obligations of the Purchaser under this Agreement shall be further subject to
the satisfaction or waiver, at or prior to the Closing Date (and continued until
the Closing Date), of the following conditions:
(a) Representations and Warranties; Covenants and Agreements;
--------------------------------------------------------
Consents. The representations and warranties of the Company and the Members
- --------
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and shall also be true and correct in all material
respects on the Closing Date as though made on and as of the Closing Date,
except that those representations and warranties which are confined to a
particular date shall speak only as of such date, and the Company and the
Members shall have performed in all material respects the agreements, covenants
and obligations to be performed by it or them at or prior to the Closing Date.
All Authorizations of or with any Governmental Authority or other third party
that are required for or in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby by the
Company and the Members shall have been obtained or made.
(b) Intentionally Deleted.
(c) Certificates. The Members shall have furnished Purchaser with
------------
such certificates of the Company and its authorized officers, Members or others
and such other documents to evidence fulfillment of the conditions set forth in
this Article 9 and otherwise to consummate the transactions contemplated
---------
pursuant to this Agreement as Purchaser may reasonably request, including
certificates in the form attached hereto as Exhibit 9.2(c).
--------------
(d) Noncompetition, Nonsolicitation and Confidentiality Agreements.
--------------------------------------------------------------
The Members and the employees of Company as reasonably requested by Purchaser
shall have executed and delivered to Purchaser Noncompetition, Nonsolicitation
and Confidentiality Agreements substantially in the form attached hereto as
Exhibit 9.2(d).
- --------------
(e) Confidentiality and Assignment Agreements. The Members shall have
-----------------------------------------
delivered to Purchaser a Confidentiality and Assignment Agreement in the form
attached hereto as Exhibit 9.2(e), signed by all persons who have developed,
--------------
modified or otherwise had access to the source code for the Software.
Stock Purchase Agreement - Page 29
<PAGE>
(f) Completion of Due Diligence on the Company. Purchaser shall have
------------------------------------------
completed its review of the Company, the results of which shall be acceptable to
Purchaser in its reasonable discretion.
(g) No Material Adverse Effect on the Company. No event shall have
-----------------------------------------
occurred and no fact or circumstance shall have arisen which, in the judgment of
Purchaser, is reasonably likely to have a Material Adverse Effect on the Company
or materially and adversely affect the value of this transaction to Purchaser,
since the date of the most recent Company Financial Statements except (i) the
announcement of this Agreement or (ii) conditions effecting global economy or
regional economy in which Purchaser operates any part of its business.
(h) Customer Inquiries. Purchaser shall be reasonably satisfied with
------------------
the results of their inquiries of the Company's customers with respect to the
impact of a change in control on their relationship with the Company.
(i) Intentionally Deleted.
---------------------
(j) Termination or Assignment of Certain Agreements. The Company
-----------------------------------------------
shall have terminated the agreements and contracts listed on Schedule 9.2(j)
---------------
hereto.
(k) Release of Obligations. All obligations of the Company pursuant
----------------------
to any loan, lease, guaranty, commitment or other undertaking of the Company,
the Members or any of its or their Subsidiaries and other Affiliates, except
service agreements and other similar agreements with customers and vendors
entered into in the ordinary course of business, except for the lease between
the Company and Military Services, Inc. executed contemporaneously with this
Agreement, and except for obligations incurred pursuant to this Agreement or
other Purchase Agreements, whether entered into as maker, guarantor or
otherwise, shall have been fully and permanently released or satisfied pursuant
to documents and agreements satisfactory in all respects to Purchaser and its
counsel.
(l) Escrow Agreement. The Members shall have executed and delivered
----------------
to Purchaser the Escrow Agreement.
(m) Releases. Except for Cyrus A. Ansary and Matthew Clary, III, as
--------
trustee of the Matthew Clary, Jr. Trust, each of the shareholders of the Members
shall sign a release in the form attached as Exhibit 9.2(m) hereto.
--------------
9.3 Conditions to the Obligations of the Company and the Members under
------------------------------------------------------------------
this Agreement. The obligations of the Company and the Members under this
- --------------
Agreement shall be further subject to the satisfaction or waiver, at or prior to
the Closing Date, of the following conditions:
(a) Representations and Warranties; Covenants and Agreements;
--------------------------------------------------------
Consents. The representations and warranties of the Purchaser contained in this
- --------
Agreement shall be true and correct in all material respects as of the date
hereof and shall also be true and correct in all material respects on the
Closing Date as though made on and as of the Closing Date, and Purchaser shall
have performed in all material respects the agreements, covenants and
obligations to be performed by it at or prior to the Closing Date. All
Authorizations of or with
Stock Purchase Agreement - Page 30
<PAGE>
any Governmental Authority or other third party that are required for or in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby by the Purchaser shall have been
obtained or made.
(b) Certificates. Purchaser shall have furnished the Company and the
------------
Members with such certificates of its officers or others and such other
documents to evidence fulfillment of the conditions set forth in this Article 9
---------
and otherwise to consummate the transactions contemplated pursuant to this
Agreement as the Company and the Members may reasonably request.
(c) No Material Adverse Effect on Purchaser. No Material Adverse
---------------------------------------
Effect with respect to Purchaser shall have occurred since the date of this
Agreement except (i) the announcement of this Agreement, and (ii) conditions
effecting global economy or regional economy in which Purchaser operates any
part of its business.
(d) Approvals. This Agreement and the transactions contemplated
---------
hereby shall have received all required Government Authorizations and other
consents or approvals from third parties (including lenders, licensees and
lessors) required to consummate the transactions contemplated hereby which,
either individually or in the aggregate, if not obtained would have a Material
Adverse Effect.
(e) Escrow Agreement. Purchaser shall have executed and delivered the
----------------
Escrow Agreement.
(f) Employment Agreement. Purchaser shall have executed and delivered
--------------------
an employment agreement with Dana Smolenksi.
ARTICLE 10
SURVIVAL
10.1 Survival. The representations and warranties of the Company, Members
--------
and Purchaser set forth herein shall survive the Closing for a period of one (1)
year.
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification by the Company and Members. Subject to the terms of
------------------------------------------
this Article 11, the Company and the Members other than Priscilla S. Capes (but
----------
after the consummation of the transactions contemplated by this Agreement,
solely the Members, and not the Company) shall, jointly and severally,
indemnify, defend, save and hold harmless the Purchaser and its subsidiaries,
predecessors, successors, directors, officers, employees, agents,
representatives and assigns (collectively, the "Purchaser Indemnified Parties"),
from and against any Claims (including, without limitation, reasonable
attorneys' and accountants' fees and expenses), together with interest and
penalties, if any, awarded by court order or otherwise agreed to (collectively,
"Indemnifiable Damages"), suffered by Purchaser Indemnified Parties that arise
out of or result from any of the following (whether or not a third party
initiates the proceeding or claim giving rise to such Indemnifiable Damages):
Stock Purchase Agreement - Page 31
<PAGE>
(a) any breach of any of the representations, warranties, covenants
or agreements made by the Company or the Members in this Agreement or in the
other Purchase Agreements; or
(b) any breach of any representation, warranty, covenant or agreement
in a document, certificate or affidavit delivered by the Company or the Members
at the Closing.
(c) The Members, other than Priscilla S. Capes, acknowledge that they
are jointly and severally liable for all Indemnifiable Damages (to the extent
any Purchaser Indemnified Party would otherwise be entitled to recover under
this Agreement) notwithstanding the elimination of Priscilla S. Capes'
indemnification obligations hereunder.
11.2 Indemnification by Purchaser. Subject to the terms of this
----------------------------
Article 11, Purchaser shall indemnify, defend, save and hold harmless the
- ----------
Company and the Members (but after consummation of the transactions contemplated
by this Agreement, solely the Members and not the Company) (collectively, the
"Company Indemnified Parties") from and against any Indemnifiable Damages
suffered by the Company Indemnified Parties that arise out of or result from any
of the following (whether or not a third party initiates the proceeding or claim
giving rise to such Indemnifiable Damages):
(a) any breach of any of the representations, warranties, covenants
and agreements made by Purchaser in this Agreement or in the other Purchase
Agreements; or
(b) any breach of any representation, warranty, covenant or agreement
in a document, certificate or affidavit delivered by Purchaser at the Closing.
11.3 Claims for Indemnification.
--------------------------
(a) Procedure. The Party seeking indemnification (the "Indemnified
---------
Party") shall give the Party from whom indemnification is sought (the
"Indemnifying Party") a written notice ("Notice of Claim") within sixty (60)
days of the discovery of any loss, liability, claim or expense in respect of
which the right to indemnification contained in this Article 11 may be claimed;
----------
provided, however, that the failure to give such notice within such sixty (60)
day period shall not result in the waiver or loss of any right to bring such
claim hereunder after such period unless, and only to the extent that, the other
Party is actually prejudiced by such failure. In the event a claim is pending or
threatened or the Indemnified Party has a reasonable belief as to the validity
of the basis for such claim, the Indemnified Party may give written notice (a
"Notice of Possible Claim") of such claim to the Indemnifying Party, regardless
of whether a loss has arisen from such claim. A Party shall have no liability
under this Article 11 for breach of a representation or warranty, unless a
Notice of Claim or Notice of Possible Claim therefor is delivered by the
Indemnified Party prior to the Distribution Date (as defined in the Escrow
Agreement); provided, however, that the limitations set forth in this Section
-------
11.4 shall not apply to liability under this Article 11 for any fraudulent
- ---- ----------
breach of a representation or warranty in this Agreement. Any Notice of Claim or
Notice of Possible Claim shall set forth the representations, warranties,
covenants and agreements with respect to which the claim is made, the specific
facts giving rise to an alleged basis for the claim and the amount of liability
asserted or anticipated to be asserted by reason of the claim.
Stock Purchase Agreement - Page 32
<PAGE>
(b) Excluded Costs. Indemnifiable Damages shall not include expenses
--------------
and costs, including without limitation the cost of unrelated third party
retained services, incurred by the Purchaser Indemnified Parties for purposes of
determining whether a Claim exists, to the extent that no Claim is made as a
result of such investigation; provided, however, that such costs and expenses
shall be Indemnifiable Damages to the extent any Purchaser Indemnified Party
successfully makes a Claim based on information resulting from such
investigation. In no event shall staff time and associated overhead and expenses
be considered Indemnifiable Damages.
(c) Insurance. In the event insurance coverage maintained and paid
---------
for by any of the Indemnifying Parties prior to Closing is available with
respect to any Claim for which the Indemnified Party recovers Indemnifiable
Damages, the Indemnified Party shall assign any claims under such policy to the
Indemnifying Parties for recovery of such insurance proceeds. To the extent any
Indemnified Party obtains proceeds from an insurer, no duplicate recovery by
such Indemnified Party shall be permitted.
(d) Period to Settle. The Indemnifying Party shall be afforded a
----------------
reasonable opportunity to collect, settle or mitigate any Claim following
receipt of the Notice of Claim, provided that the Indemnifying Party
acknowledges in writing that the Claim is indemnifiable, in full, hereunder.
11.4 Defense of Claim by Third Parties. If any claim is made by a third
---------------------------------
party against a Party to this Agreement that, if sustained, would give rise to a
liability of another Party under this Agreement, the Party against whom the
claim is made shall promptly cause notice of the claim to be delivered to the
other Party and shall afford the other Party and its counsel, at the other
Party's sole expense, the opportunity to join in the defense and settlement of
the claim. The failure to provide such notice will not relieve the Indemnifying
Party of liability under this Agreement unless, and only to the extent that, the
Indemnifying Party is actually prejudiced by such failure.
11.5 Third Party Claim Assistance. From time to time after the Closing,
----------------------------
Purchaser, the Company and the Members shall provide or cause their appropriate
employees or representatives to provide the other Parties with information or
data and otherwise assist as reasonably requested in connection with the
handling and defense of any third party claim or litigation (including
counterclaims filed by the parties) in respect to which a Party may be required
to indemnify another Party under this Agreement. The Party receiving such
information or data shall reimburse the other Parties for all of their
reasonable costs and expenses in providing these services, including, without
limitation, (i) all out of pocket, travel and similar expenses incurred by their
personnel in rendering these services; and (ii) all fees and expenses for
services performed by third parties engaged by or at the request of such other
Parties.
11.6 Settlement of Indemnification Claims. If a recipient of a Notice of
------------------------------------
Claim desires to dispute such claim, it shall, within thirty (30) days after
receipt of the Notice of Claim, give counter-notice, setting forth the basis for
disputing such claim, to Purchaser or the Members, as the case may be. If no
such counter-notice is given within such thirty (30) day period, or if Purchaser
or the Members, as the case may be, acknowledge liability for indemnification,
then the amount claimed shall be promptly satisfied as provided in Section 11.8.
------------
If, within thirty (30) days after the receipt of counter-notice by Purchaser or
the Members, as the
Stock Purchase Agreement - Page 33
<PAGE>
case may be, the Members and Purchaser shall not have reached agreement as to
the claim in question, then the Party disputing the claim shall satisfy any
undisputed amount as specified in Section 11.6 and the disputed amount of the
------------
claim of indemnification shall be submitted to and settled by arbitration in
accordance with the then prevailing commercial arbitration rules of the American
Arbitration Association. Such arbitration shall be held in the Atlanta, Georgia
area before a panel of three (3) arbitrators, one selected by each of the
Parties and the third selected by mutual agreement of the first two, and all of
whom shall be independent and impartial under the rules of the American
Arbitration Association. The decision of the arbitrators shall be final and
binding as to any matter submitted under this Agreement. To the extent the
decision of the arbitrators is that a Party shall be indemnified hereunder, the
amount shall be satisfied as provided in Section 11.6. Judgment upon any award
------------
rendered by the arbitrators may be entered in any court of competent
jurisdiction. The date of the arbitrator's decision or the date a claim
otherwise becomes payable pursuant to this Section 11.6 is referred to as the
------------
"Determination Date."
11.7 Manner of Indemnification by the Company and Members. Where the
----------------------------------------------------
Members are obligated to indemnify the Purchaser Indemnified Parties under
Section 11.1 after the Closing Date, such indemnity obligation must be satisfied
- ------------
first pursuant to the Escrow Agreement by the Members. Thereafter, or if the
Closing Date fails to occur for any reason, such indemnity obligation must be
satisfied by the Members (or the Company, if the Closing fails to occur) by
paying to that Purchaser Indemnified Party cash in an amount equal to the
applicable Indemnified Damages.
11.8 Certain Limitations. Notwithstanding the foregoing in this Article
------------------- -------
11, the indemnification obligations of the parties shall not be affected by any
- --
investigation made by the parties hereto prior to the date hereof or the Closing
Date and shall be subject to the following limitations.
(a) No indemnification shall be made for breaches of representations
and warranties pursuant to this Article 11 until the total Indemnifiable Damages
----------
for which the Indemnifying Party would be liable exceeds $50,000, in which event
the Indemnifying Party shall indemnify to the full amount of any excess.
(b) No indemnification shall be made for breaches of representation
and warranties pursuant to this Article 11 to the extent Indemnifiable Damages
----------
to be paid by the Members, on the one hand, or Purchaser, on the other hand,
exceed $2,500,000.
(c) An Indemnifying Party shall be obligated to indemnify an
Indemnified Party pursuant to this Article 11 for breaches of representations
----------
and warranty only for those Damages as to which the Indemnified Party has given
the Indemnifying Party written notice thereof within one (1) year after the
Closing Date.
(d) The limitations set forth in Sections 11.8(a), (b) and (c) shall
-----------------------------
not apply to Damages arising out of fraud.
Stock Purchase Agreement - Page 34
<PAGE>
ARTICLE 12
MISCELLANEOUS
12.1 Expenses.
--------
(a) Except as otherwise expressly stated herein, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including legal and accounting fees and expenses) shall be
borne by the Party incurring such costs and expenses and shall be paid by such
Party prior to or on the Closing Date.
(b) Notwithstanding any provision in this Agreement to the contrary,
if any of the Parties shall willfully default in its obligations hereunder, the
non-defaulting Party may pursue any remedy available at law or in equity to
enforce its rights and shall be paid by the willfully defaulting Party for all
damages, costs and expenses, including without limitation reasonable legal and
accounting expenses incurred or suffered by the non-defaulting Party in
connection herewith or in the enforcement of its rights hereunder.
12.2 Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered personally
or by reputable overnight or express courier, sent by registered or certified
mail, postage prepaid, or by telefax (with subsequent delivery via one of the
two previous methods) as follows:
(a) If to Purchaser, to:
Netzee, Inc.
2410 Paces Ferry Road
Atlanta, Georgia 30330
Attn: President
Telefax: _____________________
Copy (which shall not constitute notice) to:
Sutherland Asbill & Brennan LLP
999 Peachtree Street, N.E.
Suite 2300
Atlanta, Georgia 30309
Attn: Mark D. Wasserman
Telefax: (404) 853-8398
(b) If to the Company (prior to Closing) or the Members, to:
Call Me Bill, LLC
232 Poplar Street
Elizabethtown, Kentucky 42701
Attn: President
Telefax: (502) 737-1182
Stock Purchase Agreement - Page 35
<PAGE>
Copy (which shall not constitute notice) to:
Middleton & Reutlinger
2500 Brown & Williamson Tower
Louisville, Kentucky 40202
Attn: Kent Hatfield
Telefax: (502) 561-0442
(c) If to the Members, to the addresses identified on Schedule 1
----------
hereto:
Copy (which shall not constitute notice) to:
Middleton & Reutlinger
2500 Brown & Williamson Tower
Louisville, Kentucky 40202
Attn: Kent Hatfield
Telefax: (502) 561-0442
or such other addresses and telefax numbers as shall be furnished in writing by
any Party, and any such notice or communications shall be deemed to have been
given (i) when personally delivered, (ii) as of three business days after the
date actually sent by mail, (iii) the next business day after the date actually
sent via overnight mail or express courier and (iv) upon telefax confirmation of
receipt to addressee by the sender.
12.3 Parties in Interest. This Agreement shall be binding on and shall
-------------------
inure to the benefit of the Parties hereto and their respective successors,
representatives and assigns. This Agreement (and the rights and interests
herein) may not be assigned by any Party without the written consent of the
other Parties; provided, however, Purchaser may assign its interests herein to
(a) an entity controlling, controlled by or under common control with Purchaser
or (b) a purchaser or transferee of all or substantially all of the business or
assets of Purchaser, whether by sale of stock or assets, merger or otherwise.
Any attempted assignment in contravention of the foregoing shall be null and
void. Nothing in this Agreement is intended to confer, expressly or by
implication, upon any other person or entity any rights or remedies under or by
reason of this Agreement.
12.4 Entire Agreement. This Agreement, which includes the Disclosure
----------------
Schedules, Exhibits and the other documents, agreements, certificates and
instruments executed and delivered pursuant to or in connection with this
Agreement (collectively, the "Purchase Agreements"), contains the entire
agreement among the Parties with respect to the transactions contemplated by
this Agreement and supersedes all prior negotiations, arrangements or
understandings, written or oral, with respect thereto.
12.5 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original, and each of which shall
constitute one and the same agreement. Any Party may deliver an executed copy of
this Agreement and any documents contemplated hereby by facsimile transmission
to another Party, and such delivery shall have the
Stock Purchase Agreement - Page 36
<PAGE>
same force and effect as any other delivery of a manually signed copy of this
Agreement or of such other documents.
12.6 Governing Law.
-------------
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF GEORGIA,
EXCLUDING CHOICE OF LAW PRINCIPLES.
(b) Purchaser, the Company and the Members consent to the exclusive
jurisdiction and venue of the courts of any county in the State of Georgia and
the United States Federal District Courts of Georgia, in any judicial proceeding
brought to enforce this Agreement. The Parties agree that any forum other than
the State of Georgia is an inconvenient forum and that a lawsuit (or non-
compulsory counterclaim) brought by one Party against another Party, in a court
of any jurisdiction other than the State of Georgia should be forthwith
dismissed or transferred to a court located in the State of Georgia.
12.7 Arbitration.
-----------
(a) Any dispute, controversy or claim arising out of or relating to
this Agreement or any other related documents, agreements, certificates or other
writing, or the breach, termination, construction, validity or enforceability
hereof or thereof, shall be settled by binding arbitration in accordance with
the rules of the American Arbitration Association (except as otherwise provided
in this Section 12.7).
------------
(b) Termination or limitation of Purchaser's rights in any of its
software, products, or any associated intellectual property rights or documents
may not be awarded under any circumstances. The right to demand arbitration and
to receive damages and obtain other available remedies as provided hereunder
shall be the exclusive remedy in the event an arbitration demand is made, except
that Purchaser shall be entitled to obtain equitable relief, such as injunctive
relief, from any court of competent jurisdiction to protect its rights in any of
its software products or any associated intellectual property rights or
documents while such proceeding is pending or in support of any award made
pursuant to such arbitration.
12.8 Invalidity of any Part. If any provision or part of this Agreement
----------------------
shall for any reason be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Agreement and shall be construed as if such invalid, illegal
or unenforceable provision or part thereof had never been contained herein, but
only to the extent of its invalidity, illegality, or unenforceability. Upon any
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the Parties hereto will negotiate in good faith to
modify this Agreement so as to effect the original intent of the Parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated by this Agreement are consummated to the extent possible.
12.9 Time of the Essence; Computation of Time. Time is of the essence of
----------------------------------------
each and every provision of this Agreement. Whenever the last day for the
exercise of any right or the discharge of any duty under this Agreement shall
fall upon Saturday, Sunday or a federal, public
Stock Purchase Agreement - Page 37
<PAGE>
or legal holiday, the Party having such right or duty shall have until 5:00
p.m., Atlanta, Georgia time on the next succeeding regular business day to
exercise such right or to discharge such duty.
12.10 Members Representative. By executing this Agreement, each of the
----------------------
Members (notwithstanding any Member's current or future mental or physical
disability or incompetency) hereby irrevocably constitutes and appoints D.
Michael Coyle and his successors, acting as hereinafter provided, as his
attorney-in-fact and agent in his name, place and stead in connection with the
transactions and agreements contemplated by this Agreement with respect to
matters subsequent to the Closing Date (the "Members' Representative"), and
acknowledges that such appointment is coupled with an interest. By executing
this Agreement under the heading "Members' Representative," D. Michael Coyle
hereby (i) accepts his appointment and authorization to act as Members'
Representative as attorney-in-fact and agent on behalf of the Members in
accordance with the terms of this Agreement, and (ii) agrees to perform his
obligations under, and otherwise comply with, this Section 12.10.
-------------
(a) Each Member by this Agreement fully and completely, with respect
to matters subsequent to the Closing Date, hereby: (a) authorizes the Members'
Representative (i) to dispute or to refrain from disputing any claim made by
Purchaser under this Agreement or the other Purchase Agreements, (ii) to
negotiate and compromise any dispute which may arise under, and to exercise or
refrain from exercising remedies available under this Agreement or the other
Purchase Agreements and to sign any release or other document with respect to
such dispute or remedy, and (iii) to give such instructions and to do such other
things and refrain from doing such other things as the Members' Representative
shall deem necessary or appropriate to carry out the provisions of this
Agreement or the other Purchase Agreements; and (b) agrees to be bound by all
agreements and determinations made by and documents executed and delivered by
the Members' Representative under this Agreement or the other Purchase
Agreements.
(b) Each of the Members hereby expressly acknowledges and agrees that
the Members' Representative is authorized to act on his behalf, notwithstanding
any dispute or disagreement between the Members, and that Purchaser and any
other person or entity shall be entitled to rely on any and all actions taken by
the Members' Representative under this Agreement or the other Purchase
Agreements without any liability to, or obligation to inquire of, any of the
Members. Purchaser and any other person or entity is hereby expressly authorized
to rely on the genuineness of the signatures of both members of the Members'
Representative, and upon receipt of any writing which reasonably appears to have
been signed by Members' Representative, Purchaser and any other person or entity
may act upon the same without any further duty of inquiry as to the genuineness
of the writing.
(c) If D. Michael Coyle ceases to function in his capacity as the
Members' Representative for any reason whatsoever, then the Members shall
appoint, within thirty (30) days after such occurrence, a successor Members'
Representative.
(d) The authorizations of the Members' Representative shall be
effective until his rights and obligations under this Agreement terminate by
virtue of the termination of any and all obligations of the Members to the
Purchaser under this Agreement.
Stock Purchase Agreement - Page 38
<PAGE>
12.11 Contract Interpretation. Notwithstanding any other provision of this
-----------------------
Agreement that may be interpreted to the contrary, if the effective date of this
Agreement and the Closing occur concurrently, then all sections or provisions of
this Agreement, or any part thereof, that contemplate the Closing to be held
subsequent to the effective date of this Agreement shall be inapplicable, non-
binding on the parties and of no force or effect.
[Remainder of Page Intentionally Left Blank.]
Stock Purchase Agreement - Page 39
<PAGE>
IN WITNESS WHEREOF, Purchaser, the Company and the Members have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
PURCHASER:
Netzee, Inc.
By: /s/ [SIGNATURE ILLEGIBLE]^^
--------------------------------------
Its: Secretary and Chief Financial Officer
-------------------------------------
THE COMPANY:
Call Me Bill, LLC, by its Members:
MILITARY SERVICES, INC.
By: /s/ Dana Smolenski
-------------------------------------
Its: President
-------------------------------------
FORT KNOX NATIONAL COMPANY
By: /s/ James Fugitte
-------------------------------------
Its: President
-------------------------------------
/s/ Priscilla S. Capes
------------------------------------------
Priscilla S. Capes
MEMBERS:
MILITARY SERVICES, INC.
By: /s/ Dana Smolenski
-------------------------------------
Its: President
-------------------------------------
Stock Purchase Agreement - Page 40
<PAGE>
FORT KNOX NATIONAL COMPANY
By: /s/ James Fugitte
------------------------------------
Its: President
-----------------------------------
/s/ Priscilla S. Capes
----------------------------------------
Priscilla S. Capes
Stock Purchase Agreement - Page 41
<PAGE>
EXHIBIT 2.7
AGREEMENT AND PLAN OF MERGER
BY WHICH
DIRECT ACCESS INTERACTIVE, INC.
MERGES WITH AND INTO
NETZEE, INC.
THIS IS AN AGREEMENT AND PLAN OF MERGER (the "Agreement and Plan of
Merger") by and between Direct Access Interactive, Inc., a Georgia corporation
("Direct Access" or the "Merging Corporation"), and Netzee, Inc., a Georgia
corporation ("Netzee" or the "Surviving Corporation") (the Merging Corporation
and the Surviving Corporation are referred to collectively as the "Constituent
Corporations") and by which Direct Access and Netzee, in consideration of the
mutual promises and the terms and conditions set forth below (the mutuality,
adequacy and sufficiency of which are hereby acknowledged), hereby agree as
follows with respect to the merger of Direct Access with and into Netzee (the
"Merger"):
1. Background; Corporate Approvals. The Board of Directors of each
-------------------------------
Constituent Corporation has determined that it is in the best interests of such
corporation and its respective shareholders that the Merging Corporation merge
with and into the Surviving Corporation and each has adopted this Agreement and
Plan of Merger, and the Merging Corporation's shareholders have approved the
Merger and this Agreement and Plan of Merger. No approval of the Surviving
Corporation's shareholders was required because (a) the articles of
incorporation of the Surviving Corporation will not differ from its articles of
incorporation before the Merger, (b) each Surviving Corporation shareholder
whose shares were outstanding immediately prior to the effective date of the
Merger will hold the same number of shares with identical designations,
preferences, limitations, and relative rights, immediately after the Merger, and
(c) the number and kind of shares outstanding immediately after the Merger plus
the number and kind of shares issuable as a result of the Merger and by the
conversion of securities or exercise of rights issued pursuant to the Merger
will not exceed the total number and kind of shares of the Surviving Corporation
authorized by its articles of incorporation immediately before the Merger.
2. The Merger and Surviving Corporation. In accordance with the terms of
------------------------------------
this Agreement and Plan of Merger and the applicable law of the State of
Georgia: (a) the Constituent Corporations shall make appropriate filings with
the Secretary of State of the State of Georgia, and (b) at the Merger Effective
Time (as hereinafter defined), the Merging Corporation shall be merged with and
into Netzee, Inc., which shall be the Surviving Corporation after the Merger and
which shall continue to exist as a corporation created and governed by the laws
of the State of Georgia under the name of "Netzee, Inc."
<PAGE>
3. Merger Effective Time. The Merger shall be effective upon the filing
---------------------
of a certificate of merger for the Merger with the Secretary of State of the
State of Georgia (the "Merger Effective Time").
4. Effect of Merger. At the Merger Effective Time: (a) the Merging
----------------
Corporation shall merge with and into the Surviving Corporation; (b) the
separate existence of the Merging Corporation shall cease; (c) the shares of the
Merging Corporation shall be converted as provided in this Agreement and Plan of
Merger; (d) the former holders of such shares are entitled only to the rights
provided in this Agreement and Plan of Merger or to their rights under Georgia
Business Corporation Code Article 13; and (e) the Merger shall otherwise have
the effect provided under the applicable laws of the State of Georgia (including
Georgia Business Corporation Code (S)14-2-1106).
5. Manner and Basis of Converting Shares. The manner and basis of
-------------------------------------
converting shares is as follows:
(a) Merging Corporation Shares. At the Merger Effective Time, each
--------------------------
issued and outstanding no par value common Merging Corporation share ("Merging
Corporation Common Shares") shall be converted into one (1) no par value common
Surviving Corporation share ("Surviving Corporation Common Shares"). Any
Merging Corporation Common Shares held as treasury shares by the Merging
Corporation shall be cancelled and retired, and no consideration shall be issued
or given in exchange for such shares.
(b) No Fractional Shares. No fraction of a Surviving Corporation
--------------------
Common Share shall be issued, but in lieu of such, each holder of a certificate
for Merging Corporation Common Shares who would otherwise have been entitled to
a fraction of a Surviving Corporation Common Share shall be entitled to cash
payments based upon a value of $10.50 per Surviving Corporation Common Share.
(c) Deemed Surviving Corporation Shareholders. Subject to subsection
-----------------------------------------
(e) below with respect to dissenting Merging Corporation shareholders, at the
Merger Effective Time: (i) each Merging Corporation shareholder shall be deemed
a Surviving Corporation shareholder to the extent of the number of Surviving
Corporation Common Shares to which he is entitled pursuant to this Agreement and
Plan of Merger, whether or not certificates for Merging Corporation Common
Shares are surrendered as provided in this Agreement and Plan of Merger, and
(ii) until surrendered as provided below, each certificate representing Merging
Corporation Common Shares shall be deemed, for all corporate purposes (including
the payment of any dividends), to evidence ownership of the number of Surviving
Corporation Common Shares to which the holder of such certificate has become
entitled to receive pursuant to this Agreement and Plan of Merger.
(d) Surrender of Merging Corporation Share Certificates. Subject to
---------------------------------------------------
subsection (e) below with respect to dissenting Merging Corporation
shareholders: (i) at or immediately following the Merger Effective Time, each
holder of a certificate representing
-2-
<PAGE>
Merging Corporation Common Shares shall surrender such certificate, together
with a duly endorsed transfer power, to the Surviving Corporation, and the
Surviving Corporation shall deliver to each such holder of Merging Corporation
Common Shares that so surrenders his certifi cate representing Merging
Corporation Common Shares, a Surviving Corporation share certificate in the
name of such holder, representing the Surviving Corporation Common Shares for
which such Merging Corporation Common Shares shall have been converted as
described in subsection (a) above; and (ii) if a holder of a Merging Corporation
share certificate does not surrender it in accordance with subsection (d)(i)
above at or immediately following the Merger Effective Time, then until such
share certificate is so surrendered, no Surviving Corporation Common Shares
shall be delivered with respect to such shares represented by such share
certificate; but upon receipt of such share certificate by the Surviving
---
Corporation, the Surviving Corporation shall deliver to such holder a Surviving
Corporation share certificate representing the whole number of shares of
Surviving Corporation Common Shares into which such Merging Corporation Common
Shares were converted and shall pay to such holder, without interest, the amount
of any dividends or distributions previously payable with respect to the whole
shares of Surviving Corporation Common Shares into which the Merging Corporation
Common Shares previously evidenced by such share certificate were converted.
(e) Dissenting Merging Corporation Shareholders. Notwithstanding the
-------------------------------------------
other provisions of this Agreement and Plan of Merger, Merging Corporation
Common Shares with respect to which a Merging Corporation shareholder has made a
proper demand in accordance with Georgia Business Corporation Code Article 13
shall not be converted into Surviving Corporation Common Shares in the Merger,
unless the holder of such Merging Corporation Common Shares shall have failed to
perfect or shall have waived, rescinded or otherwise lost (in each such
instance, to the reasonable satisfaction of the Surviving Corporation) his
status as a "dissenting shareholder" pursuant to Georgia Business Corporation
Code Article 13 prior to the Merger Effective Time.
(f) No Interest. No interest shall be accrued or paid on any portion
-----------
of the consideration paid or payable pursuant to this Agreement and Plan of
Merger.
(g) Surviving Corporation Shares. Each Surviving Corporation share
----------------------------
outstanding immediately prior to the Merger Effective Time shall remain an
identical outstanding Surviving Corporation share after the Merger Effective
Time; no shares or other securities of, or obligations convertible into shares
or other securities of, the Surviving Corporation are to be issued or delivered
under or pursuant to the Merger Agreement with respect to such Surviving
Corporation shares.
6. Stock Options and Rights. All options and other rights for the
------------------------
purchase or other acquisition of Merging Corporation Common Shares which are
outstanding immediately prior to the Merger Effective Time shall continue
without impairment or alteration following the Merger Effective Time as
outstanding options or other rights for the purchase or other acquisition of the
number of Surviving Corporation Common Shares that the holder of any such option
or other
-3-
<PAGE>
right would have been entitled to receive in the Merger if such holder exercised
the option or other right immediately prior to the Merger Effective Time.
7. Articles of Incorporation. The articles of incorporation of Netzee,
-------------------------
Inc., the Surviving Corporation, as in effect immediately prior to the Merger
Effective Time, shall continue to be the Surviving Corporation's articles of
incorporation at and after the Merger Effective Time, until amended in
accordance with applicable law.
8. Bylaws. The bylaws of Netzee, Inc., the Surviving Corporation, as in
------
effect immediately prior to the Merger Effective Time shall continue to be the
Surviving Corporation's bylaws at and after the Merger Effective Time, until
amended in accordance with applicable law.
9. Directors and Officers. The persons who are the officers of Netzee,
----------------------
Inc., the Surviving Corporation, immediately prior to the Merger Effective Time
shall continue to be the Surviving Corporation's officers at and after the
Merger Effective Time, until changed in accordance with the Surviving
Corporation's bylaws and applicable law. The persons who are the directors of
Direct Access Interactive, Inc., the Merging Corporation, immediately prior to
the Merger Effective Time shall become the Surviving Corporation's directors at
and after the Merger Effective Time, until changed in accordance with the
Surviving Corporation's bylaws and applicable law. Upon the Merger Effective
Time, the directors of the Surviving Corporation shall be classified as follows:
Scott Meyerhoff, Boone Knox and Jon Burke shall be deemed Class I directors;
Bruce Leonard and Donny R. Jackson shall be deemed Class II directors; and John
W. Collins and Glenn W. Sturm shall be deemed Class III directors.
10. Amendment; Termination and Abandonment. This Agreement and Plan of
--------------------------------------
Merger may be supplemented or amended in any manner at any time and from time to
time prior to the Merger Effective Time by the Surviving Corporation and the
Merging Corporation without any action by the shareholders of the Surviving
Corporation or the Merging Corporation; provided, however, that no supplement or
amendment that reduces or changes the form or composition of the consideration
to which the holders of the Merging Corporation Common Shares shall be entitled
at the Merger Effective Time may be made after approval of this Agreement by the
Merging Corporation shareholders without such shareholders' further approval.
Any variation, modification or amendment to this Agreement and Plan of Merger
must be made in writing and executed by the Constituent Corporations. This
Agreement and Plan of Merger may be terminated and the Merger abandoned at any
time prior to the filing of the certificate of merger with the Secretary of
State of the State of Georgia by action taken by the respective Boards of
Directors of the Constituent Corporations.
11. Further Assurances. Upon the execution of this Agreement and Plan of
------------------
Merger and thereafter, the Merging Corporation and the Surviving Corporation
each agree to do such things as may be reasonably requested by the other in
order more effectively to consummate or document the transactions contemplated
by this Agreement and Plan of Merger. If at any time the Surviving Corporation
shall consider or be advised that any further assignments or assurances or any
other things are necessary or desirable to vest in the Surviving Corporation, in
accordance
-4-
<PAGE>
with the terms of this Agreement and Plan of Merger, the title of any property
or rights of the Merging Corporation, then the last acting officers and
directors of the Merging Corporation or the corresponding officers and directors
of the Surviving Corporation shall execute and make all such proper assignments
and assurances and do all things necessary or proper to vest title in such
property or rights in the Surviving Corporation, or otherwise to carry out the
purposes of this Agreement and Plan of Merger or the Merger.
12. Number; Gender; Captions; Certain Definitions. Whenever the context
---------------------------------------------
so requires, the singular number includes the plural, the plural includes the
singular, and the gender of any pronoun includes the other genders. Titles and
captions of or in this Agreement and Plan of Merger are inserted only as a
matter of convenience and for reference and in no way affect the scope of this
Agreement and Plan of Merger or the intent of its provisions.
13. Governing Law. This Agreement and Plan of Merger is governed by, and
-------------
shall be construed and enforced in accordance with, the laws of the State of
Georgia.
14. Copies. This Agreement and Plan of Merger may be executed in two or
------
more copies, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement and Plan of Merger or its terms to
produce or account for more than one of such copies.
-5-
<PAGE>
DULY EXECUTED and delivered, under seal, by each of the Constituent
Corporations, through actions of their duly authorized officers, on September 3,
1999.
THE MERGING CORPORATION: DIRECT ACCESS INTERACTIVE, INC.
- -----------------------
By: /s/ Donny R. Jackson
------------------------------
Name: Donny R. Jackson
Title: President
THE SURVIVING CORPORATION: NETZEE, INC.
- -------------------------
By: /s/ Glenn W. Sturm
-------------------------------
Name: Glenn W. Sturm
Title: Chief Executive Officer
-6-
<PAGE>
EXHIBIT 3.1
-----------
ARTICLES OF INCORPORATION
OF
NETZEE, INC.
ARTICLE I.
The name of the Corporation is Netzee, Inc.
ARTICLE II.
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Georgia Business Corporation
Code (the "GBCC").
ARTICLE III.
The total number of shares of stock that the Corporation is authorized to
issue is Seventy-Five Million (75,000,000) shares, of which Seventy Million
(70,000,000) shares are Common Stock (the "Common Stock") and Five Million
(5,000,000) shares are Preferred Stock (the "Preferred Stock"), all of which
shares are without par value. The designations, preferences, limitations and
relative rights of or on the Common Stock and the Preferred Stock are as set
forth below and are otherwise subject to applicable law. The Common Stock (a)
shall be one and the same class, (b) subject to the rights of the holders of
Preferred Stock, if any, shall have full and unlimited voting rights (with each
share having one vote on each matter submitted to shareholders for vote), and
(c) subject to the rights of the holders of Preferred Stock, if any, shall have
equal rights of participation in dividends and distributions and shall be
entitled to receive the net assets of the Corporation ratably upon the voluntary
or involuntary liquidation, dissolution or winding up of the Corporation. The
Board of Directors is authorized, by causing appropriate articles of amendment
to be filed pursuant to the applicable law of the State of Georgia, to divide
the Preferred Stock into series and to determine the preferences, limitations
and relative rights thereof, including but not limited to dividend rights,
dividend rates, conversion rights, voting rights (including, without limitation,
the election of a specified number of directors by the holders of one or more
such series), redemption rights, and liquidation preferences; to fix the number
of shares constituting any such series and the designation thereof; and to
increase or decrease the number of shares of any such series (but not below the
number of shares thereof then issued).
ARTICLE IV.
The street address of the initial registered office of the Corporation is
3150 Holcomb Bridge Road, Suite 310, Norcross, Gwinnett County, Georgia 30071,
and the initial registered agent of the Corporation at such address is C.
Michael Bowers.
<PAGE>
ARTICLE V.
The name and address of the incorporator are:
Mark D. Wasserman
Sutherland Asbill & Brennan LLP
999 Peachtree Street, N.E., Suite 2300
Atlanta, Georgia 30309-3996
ARTICLE VI.
The mailing address of the Corporation's initial principal office will be:
3150 Holcomb Bridge Road, Suite 310
Norcross, Georgia 30071
ARTICLE VII.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, amend or repeal the
Bylaws of the Corporation.
ARTICLE VIII.
A director of the Corporation shall not be personally liable to the
Corporation or to its shareholders for monetary damages for any action taken, or
any failure to take any action, as a director, except liability: (a) for any
appropriation, in violation of his or her duties, of any business opportunity of
the Corporation, (b) for acts or omissions that involve intentional misconduct
or a knowing violation of law, (c) for the types of liability set forth in
Section 14-2-832 of the GBCC, or (d) for any transaction from which the director
received an improper personal benefit. If the GBCC is hereafter amended to
further eliminate or limit the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the GBCC, as so amended, without further action by
the shareholders. Any repeal or modification of this Article VIII shall not
adversely affect the elimination or limitation of liability or alleged liability
pursuant hereto of a director of the Corporation for or with respect to any
alleged act or omission of the director occurring prior to such repeal or
modification.
ARTICLE IX.
The Board of Directors shall consist of such number of directors as fixed
or changed from time to time by the Board of Directors and shall be divided into
three classes: Class I, Class II and Class III, which shall be as nearly equal
in number as possible. Each director shall serve for a term ending on the date
of the third annual meeting of shareholders following the annual meeting at
which such director was elected; provided, however, that each initial director
in Class I shall hold office until the first annual meeting of shareholders
after his election; each initial
2
<PAGE>
director in Class II shall hold office until the second annual meeting of
shareholders after his election; and each initial director in Class III shall
hold office until the third annual meeting of shareholders after his election.
Despite the expiration of a director's term, each director shall serve until his
successor is elected and qualified or until his earlier death, resignation or
removal. The number of directors may be increased or decreased from time to time
by resolution of the Board of Directors; provided, however, that the total
number of directors at any time shall not be less than three unless these
Articles of Incorporation are amended to delete the classification of the Board
of Directors. Any vacancies in the Board of Directors for any reason, and any
directorships resulting from any increase in the authorized number of directors,
may be filled by the Board of Directors, acting by a majority of the directors
then in office, although less than a quorum, and any directors chosen to fill a
vacancy shall hold office until the next election of the class for which such
directors shall have been chosen and until their successors shall be elected and
qualified, and any directors chosen by reason of an increase in the number of
directors shall hold office until the next election of directors by the
shareholders and until their successors shall be elected and qualified. Subject
to the foregoing and the GBCC, at each annual meeting of shareholders the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting.
ARTICLE X.
In discharging the duties of their respective positions and in determining
what is believed to be in the best interests of the Corporation, the Board of
Directors, committees of the Board of Directors and individual directors, in
addition to considering the effects of any action on the Corporation or its
shareholders, may consider the interests of the employees, customers, suppliers
and creditors of the Corporation and its subsidiaries, the communities in which
offices or other establishments of the Corporation and its subsidiaries are
located, and all other factors such directors consider pertinent; provided,
however, that this Article X shall be deemed solely to grant discretionary
authority to the directors and shall not be deemed to provide any constituency
any right to be considered.
ARTICLE XI.
The shareholders of the Corporation shall have the right to take action in
lieu of a meeting only by one or more consents in writing signed by all of the
shareholders entitled to vote on such action.
ARTICLE XII.
Any shares of the Corporation reacquired by the Corporation shall become
treasury shares.
ARTICLE XIII.
The affirmative vote of at least 66 2/3% of the directors is required for
the following actions by the Corporation to be submitted to a vote of the
shareholders:
3
<PAGE>
(a) a sale of all or substantially all of the assets of the Corporation;
(b) a liquidation or dissolution of the Corporation; or
(c) the merger, consolidation or reorganization of the Corporation, unless
the shareholders of the Corporation immediately prior to such
transaction own at least a majority of the combined voting power of
the corporation resulting from such merger, consolidation or
reorganization;
provided, further, that the affirmative vote of the holders of 66 2/3% of the
- -------- -------
outstanding Common Stock is required for shareholder approval of any action
outlined in the clauses above.
ARTICLE XIV.
The undersigned incorporator does hereby undertake to publish a notice of
the filing with the Secretary of State of the State of Georgia of these Articles
of Incorporation as required by O.C.G.A. (S) 14-2-201.1(b).
DULY EXECUTED and delivered by the undersigned incorporator on August
25, 1999.
- --
/s/ Mark Wasserman
----------------------------------
Mark D. Wasserman, as Incorporator
* * * * *
4
<PAGE>
ARTICLES OF AMENDMENT
OF
NETZEE, INC.
I.
The name of the Corporation, which was incorporated under the Georgia
Business Corporation Code, is Netzee, Inc.
II.
The first amendment adopted is to delete Article XIII of the Articles of
Incorporation of the Corporation in its entirety.
III.
The second amendment adopted is to amend Article XI of the Articles of
Incorporation of the Corporation by deleting the text of Article XI in its
entirety and substituting therefor the following text:
"The shareholders of the Corporation shall have the right to take
action without a meeting by one or more consents in writing
signed by persons entitled to vote at a meeting shares having
voting power to cast not less than the minimum number (or
numbers, in the case of voting by groups) of votes that would be
necessary to authorize or take the action at a meeting at which
all shareholders entitled to vote were present and voted."
IV.
Such amendment was adopted by the sole incorporator on September 1, 1999.
V.
No shares of the Corporation having been issued, the amendments were
adopted by the sole incorporator without shareholder action, which action was
not required pursuant to O.C.G.A. (S) 14-2-1005.
DULY EXECUTED and delivered by the sole incorporator on September 1, 1999.
/s/ Mark Wasserman
------------------------------------
Mark D. Wasserman, Esq.
As Incorporator
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
NETZEE, INC.
(a Georgia corporation)
References in these Bylaws to "Articles of Incorporation" are to the
Articles of Incorporation of NETZEE, INC., a Georgia corporation (the
"Corporation"), as amended and restated from time to time.
All of these Bylaws are subject to contrary provisions, if any, of the
Articles (including provisions designating the preferences, limitations, and
relative rights of any class or series of shares), the Georgia Business
Corporation Code (the "Code"), and other applicable law, as in effect on and
after the effective date of these Bylaws. References in these Bylaws to
"Sections" shall refer to sections of the Bylaws, unless otherwise indicated.
ARTICLE I
Section 1. Registered Office and Agent. The Corporation shall maintain
---------------------------
a registered office and shall have a registered agent whose business office is
the same as the registered office.
Section 2. Principal Office. The principal office of the Corporation
----------------
shall be at the place designated in the Corporation's annual registration with
the Georgia Secretary of State.
Section 3. Other Offices. In addition to its registered office and
-------------
principal office, the Corporation may have offices at other locations either in
or outside the State of Georgia.
ARTICLE II
Shareholders
------------
Section 1. Annual Meeting. The annual meeting of the shareholders
--------------
shall be held on such date, at such time and at such place as shall be set by
the Board of Directors of the Corporation (the "Board of Directors") for the
purpose of electing directors and for the transaction of such other business as
may come before the meeting.
Section 2. Special Meetings. Special meetings of the shareholders, for
----------------
any purpose, unless otherwise prescribed by statute, may be called by the
Chairman of the Board and Chief
<PAGE>
Executive Officer, the President, the Board of Directors or by holders of
outstanding stock having not less than twenty-five percent (25%) of the votes
entitled to be cast by all of the outstanding shares of the Corporation.
Section 3. Place of Meeting. The Board of Directors may designate any
----------------
place as the place for an annual meeting or special meeting of shareholders. If
no designation is made, the place of the meeting shall be the principal office
of the Corporation.
Section 4. Notice of Meeting. Written or printed notice stating the
-----------------
place, day and hour of the meeting, and, in case of a special meeting, the
purpose for which the meeting is called, shall be delivered no fewer than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the Chairman of the Board and
Chief Executive Officer, the President, or the Secretary, to each shareholder of
record entitled to vote at such meeting. If mailed, the notice shall be deemed
to be delivered when deposited in the United States mail addressed to the
shareholder at his address as it appears on the stock transfer books of the
Corporation, with postage thereon prepaid. A shareholder may waive any notice
required by the Code, the Corporation's Articles of Incorporation (the "Articles
of Incorporation"), or these Bylaws, before or after the date and time of the
matter to which the notice relates, by delivering to the Corporation a written
waiver of notice signed by the shareholder entitled to the notice. In addition,
a shareholder's attendance at a meeting shall be (a) a waiver of objection to
lack of notice or defective notice of the meeting unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting, and (b) a waiver of objection to consideration of a particular
matter at the meeting that is not within the purpose stated in the meeting
notice, unless the shareholder objects to considering the matter when it is
presented. Except as otherwise required by the Code, neither the purpose of,
nor the business transacted at, the meeting must be specified in any waiver.
Section 5. Quorum. Except as otherwise provided by the Articles of
------
Incorporation or the Code, a majority of the votes entitled to be cast on a
matter by the shareholders, represented in person or by proxy, shall constitute
a quorum at a meeting of shareholders. If less than a quorum is represented at
a meeting, the meeting may be adjourned without further notice if the time and
place thereof are announced at the meeting at which the adjournment is taken,
provided, however, that the period shall not exceed thirty days (30) for any one
adjournment. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted that might have been transacted at
the meeting as originally called. If a quorum is present, action on a matter
(other than the election of directors) by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the Articles of Incorporation, a bylaw adopted by
the shareholders under Section 14-2-1021 of the Code, or the Code requires a
greater number of affirmative votes. Unless otherwise provided in the Articles
of Incorporation, directors of the Corporation shall be elected by a plurality
of the votes cast by the shares entitled to vote in the election at a meeting at
which a quorum is present.
2
<PAGE>
Section 6. Proxies. At all meetings of shareholders, a shareholder may
-------
vote by proxy authorized by the shareholder or his duly authorized attorney in
fact in the manner authorized by the Code. Such proxy shall be filed with the
Secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after eleven (11) months from the date of its execution, unless
otherwise provided in the proxy.
Section 7. Voting of Shares. Each outstanding share shall be entitled
----------------
to one vote on each matter submitted to a vote at a meeting of the shareholders
except as otherwise provided in the Articles of Incorporation or the Code. In
the election of directors, each record holder of stock entitled to vote at such
election shall have the right to vote the number of shares owned by him for as
many persons as there are directors to be elected, and for whose election he has
the right to vote. Cumulative voting shall not be allowed.
Section 8. Presiding Officer. Except as otherwise provided herein, the
-----------------
Chairman of the Board of Directors, and in his absence or disability the
President, shall preside at every shareholders' meeting (and any adjournment
thereof) as its chairman, if either of them is present and willing to serve. If
neither the Chairman of the Board of Directors, nor the President is present and
willing to serve as chairman of the meeting, and if the Chairman of the Board of
Directors, has not designated another person who is present and willing to
serve, then a majority of the Corporation's directors present at the meeting
shall be entitled to designate a person to serve as chairman. If no director of
the Corporation is present at the meeting or if a majority of the directors who
are present cannot be established, then a chairman of the meeting shall be
selected by a majority vote of the shares present at the meeting that would be
entitled to vote in an election of directors. The chairman of the meeting may
designate other persons to assist with the meeting.
Section 9. Action Without a Meeting. Unless otherwise provided in the
------------------------
Articles of Incorporation, any action required to be taken or that may be taken
at a meeting of shareholders may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by persons entitled to vote at a meeting
shares having voting power to cast not less than the minimum number (or numbers,
in the case of voting by groups) of votes that would be necessary to authorize
or take the action at a meeting at which all shareholders entitled to vote were
present and voted. Where required by Section 14-2-704 or other applicable
provision of the Code, the Corporation shall provide shareholders with written
notice of actions taken without a meeting.
ARTICLE III
Board of Directors
------------------
Section 1. General Powers. All corporate powers shall be exercised by
--------------
or under the authority of, and the business and affairs of the Corporation shall
be managed by, the Board of
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Directors, subject to any limitation set forth in the Articles, in bylaws
approved by the shareholders, or in agreements among all the shareholders that
are otherwise lawful.
Section 2. Number and Election of Board. The Board of Directors shall
----------------------------
consist of such number of directors as fixed or changed from time to time by the
Board of Directors and shall be divided into three classes: Class I, Class II
and Class III, which shall be as nearly equal in number as possible. Each
director shall serve for a term ending on the date of the third annual meeting
of shareholders following the annual meeting at which such director was elected;
provided, however, that each initial director in Class I shall hold office until
the first annual meeting of shareholders after his election; each initial
director in Class II shall hold office until the second annual meeting of
shareholders after his election; and each initial director in Class III shall
hold office until the third annual meeting of shareholders after his election.
Despite the expiration of a director's term, each director shall serve until his
successor is elected and qualified or until his earlier death, resignation or
removal. The number of directors may be increased or decreased from time to
time by resolution of the Board of Directors; provided, however, that the total
number of directors at any time shall not be less than three unless these Bylaws
are amended to delete the classification of the Board of Directors. Any
vacancies on the Board of Directors for any reason, and any directorships
resulting from any increase in the authorized number of directors, may be filled
by the Board of Directors, acting by a majority of the directors then in office,
although less than a quorum. Any directors chosen to fill a vacancy shall hold
office until the next election of the class for which such directors shall have
been chosen and until their successors shall be elected and qualified, and any
directors chosen by reason of an increase in the number of directors shall hold
office until the next election of directors by the shareholders and until their
successors shall be elected and qualified. Subject to the foregoing and the
Code, at each annual meeting of shareholders the successors to the class of
directors whose term shall then expire shall be elected to hold office for a
term expiring at the third succeeding annual meeting.
Section 3. Resignation and Removal.
-----------------------
(a) Resignation. Any director may resign at any time by giving
-----------
written notice to the Board of Directors, the Chairman of the Board, or to the
Secretary of the Corporation. Such resignation shall take effect at the time
delivered unless a later date is specified therein and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
(b) Removal. Any director or the entire Board of Directors may
-------
be removed by the shareholders at any time, with or without cause, except as
otherwise provided by law. Removal action may be taken only at a shareholders'
meeting for which notice of the removal action has been given. A removed
director's successor, if any, may be elected at the same meeting to serve the
unexpired them.
Section 4. Compensation. Directors may receive such compensation for
------------
their services as directors as may be fixed by the Board of Directors from time
to time. A director may also
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serve the Corporation in one or more capacities other than that of director and
receive compensation for services rendered in those other capacities.
Section 5. Qualification of Directors. No person elected to serve as a
--------------------------
director of the Corporation shall assume office and begin serving unless and
until duly qualified to serve, as determined by reference to the Code, the
Articles of Incorporation and any further eligibility requirements established
in these Bylaws.
Section 6. Regular Meetings. A regular meeting of the Board of
----------------
Directors shall be held without notice immediately after and at the same place
as the annual meeting of shareholders. The Board of Directors may adopt a
resolution as to the time and place for the holding of additional regular
meetings without notice other than such resolution. The failure to hold the
annual meeting does not affect the validity of any corporate action.
Section 7. Special Meetings. Special meetings of the Board of
----------------
Directors may be called by or at the request of the Chairman of the Board and
Chief Executive Officer, the President or any director. The person or persons
authorized to call special meetings of the Board of Directors may fix any place
as the place for holding any special meeting of the Board of Directors called by
him or them.
Section 8. Notice. Notice of any special meeting shall be given at
------
least twenty-four (24) hours prior thereto by written notice delivered
personally or mailed (first class mail) to each director at his business address
or by notice given by telecopy to such address. If mailed, such notice shall be
deemed to be delivered three days following the deposit of such notice in the
United States mail so addressed, with postage thereon prepaid. If notice is
given by telecopy, such notice shall be deemed to be delivered upon printed
confirmation of receipt by the transmitting telecopier. Any director may waive
notice of any meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting unless the director at the
beginning of the meeting (or promptly upon his arrival) objects to holding the
meeting or transacting business at the meeting and does not thereafter vote for
or assent to action taken at the meeting. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice or waiver of notice of such meeting.
Section 9. Quorum. A majority of the total number of directors shall
------
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, but if less than a majority is present at a meeting, a majority of
the directors present may adjourn the meeting from time to time without further
notice.
Section 10. Manner of Action. Except as otherwise provided in the
----------------
Articles of Incorporation, the vote of the majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors.
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Section 11. Expenses. The Corporation shall pay the actual out-of-
--------
pocket expenses incurred by each director in connection with attending the
meetings of the Board of Directors and any committee thereof; provided, that the
Corporation shall not be obligated to pay for any of such expenses that are
significantly in excess of the customary out-of-pocket expenses that would have
been incurred for travel to such meetings from such director's home or office.
Section 12. Presumption of Assent. A director of the Corporation who is
---------------------
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent or abstention shall be entered in the minutes of the meeting or
unless he files his written notice of dissent or abstention to such action with
the presiding officer of the meeting before the adjournment thereof or shall
forward such dissent to the Corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
Section 13. Meeting by Conference Telephone. Members of the Board of
-------------------------------
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment by which all persons participating in a meeting
can hear each other during the meeting. Such participation shall constitute
presence in person at the meeting.
Section 14. Action Without a Meeting. Any action required or permitted
------------------------
to be taken at a meeting of the Board of Directors may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors entitled to vote with respect to the subject
matter thereof and filed with the minutes of the proceedings of the Board of
Directors. Such consent shall have the same force and effect as a unanimous
vote of the directors.
Section 15. Committees. The Board of Directors may, by resolution
----------
passed by a majority of the whole Board of Directors, appoint an executive
committee and any other committee of the Board of Directors, the composition of
each of which shall consist of one or more directors of the Corporation, and may
delegate to any such committee any of the authority of the Board of Directors,
however conferred, other than the power or authority to (i) approve or propose
to shareholders action that the Code requires be approved by shareholders; (ii)
fill vacancies on the Board of Directors or any of its committees; (iii) amend
the Articles of Incorporation pursuant to Section 14-2-1002 of the Code; (iv)
adopt, amend or repeal the Bylaws of the Corporation; or (v) approve a plan of
merger not requiring shareholder approval. Each such committee shall serve at
the pleasure of the Board of Directors. Any such committee shall keep written
minutes of its meetings and report the same to the Board of Directors at the
next regular meeting of the Board of Directors.
ARTICLE IV
Officers and Agents
-------------------
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Section 1. General. The officers of the Corporation shall be a
-------
Chairman of the Board and Chief Executive Officer, a President, a Secretary and
a Chief Financial Officer. The Board of Directors may appoint such other
officers, assistant officers and agents, including assistant secretaries and
assistant treasurers, as it may consider necessary, who shall be chosen in such
a manner, hold their offices for such terms and have such authority and duties
as from time to time may be determined by the Board of Directors. The
compensation for all the officers of the Corporation shall be fixed by the Board
of Directors. Any number of offices may be held by the same person. In all
cases in which duties of any officer, agent or employee are not prescribed by
the Bylaws or by the Board of Directors, such officer, agent or employee shall
follow the orders and instructions of the President.
Section 2. Election and Term of Office. The officers of the
---------------------------
Corporation shall be elected by the Board of Directors annually at the first
meeting of the Board held after each annual meeting of the shareholders. Each
officer shall hold office until his successor is elected and qualified or until
his earlier death, resignation or removal.
Section 3. Removal. All officers (regardless of how elected or
-------
appointed) may be removed, with or without cause, by the Board of Directors, and
any officer appointed by another officer may also be removed, with or without
cause, by any senior officer authorized to have appointed the officer to be
removed. Removal will be without prejudice to the contract rights, if any, of
the person removed but shall be effective notwithstanding any damage claim that
may result from infringement of such contract rights.
Section 4. Vacancies. A vacancy in any office, however occurring, may
---------
be filled by the Board of Directors.
Section 5. Chairman of the Board and Chief Executive Officer. The
-------------------------------------------------
Chairman of the Board shall be the chief executive officer of the Corporation
and shall be responsible for the administration of the Corporation (including
the general supervision of the policies of the Corporation, the general and
active management of the financial affairs of the Corporation and the
supervision and direction of the actions of the other officers of the
Corporation), shall have the authority to sign and deliver agreements,
certificates and other instruments on behalf of the Corporation and shall have
all such other duties and powers that are incident to his office or that are
from time to time assigned to him by the Board of Directors. He shall preside
at all meetings of the Board of Directors and of the shareholders and may
delegate such authority to any other director or officer of the Corporation.
The Chairman of the Board may exercise any powers, authorities or functions,
granted or designated, to be performed by the President under the Bylaws or by
law.
Section 6. President. The President, subject to the direction of the
---------
Board of Directors and the Chairman of the Board, shall be the chief operating
officer of the Corporation, shall have general supervision of the day-to-day
affairs of the Corporation and supervise and direct the actions of the other
officers of the Corporation, shall have the power to sign and deliver
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<PAGE>
agreements, certificates and other instruments on behalf of the Corporation and
shall have all such other duties and powers that are incident to his office or
that are from time to time assigned by the Board of Directors or the Chairman of
the Board. In the absence of the Chairman of the Board, the President shall
exercise all of the functions and perform all of the duties of the chief
executive officer of the Corporation. In the absence of the Chairman of the
Board, if the President has not delegated such authority, the President shall
preside at meetings of the shareholders and, if the President is a director, at
meetings of the Board of Directors.
Section 7. Secretary. The Secretary shall prepare minutes of all
---------
meetings of the shareholders of the Corporation and the Board of Directors,
shall have charge of the minute books, stock records and seal of the
Corporation, shall authenticate records of the Corporation and shall perform
such other duties and have such other powers as are from time to time assigned
by the Chairman of the Board, the President or the Board of Directors.
Section 8. Chief Financial Officer. The Chief Financial Officer shall
-----------------------
be charged with the management of the financial affairs of the Corporation. The
Chief Financial Officer shall perform all of the duties incident to the office
of a treasurer and financial officer and such other duties as are from time to
time assigned by the Chairman of the Board, the President or the Board of
Directors.
ARTICLE V
Distributions and Dividends
---------------------------
Section 1. Dividends. Unless the Articles of Incorporation provide
---------
otherwise, the Board of Directors may, from time to time in its discretion,
authorize or declare distributions or share dividends in accordance with the
Code.
ARTICLE VI
Stock
-----
Section 1. Stock Certificates. The interest of each shareholder of the
------------------
Corporation shall be evidenced by a certificate or certificates representing
shares of the Corporation. Stock certificates shall be issued in consecutive
order and shall be in a form or forms prescribed by the Board of Directors and
shall be numbered in the order in which they are issued. They shall be signed
by the Chairman of the Board or the President and the Secretary or an Assistant
Secretary, and if there is a seal of the Corporation, such seal (or a facsimile
of it) shall be affixed to such certificates. Signatures on a share certificate
may be facsimiles but in such case the certificate must be countersigned by a
transfer agent or registered by a registrar other than the Corporation or an
employee of the Corporation.
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Section 2. Rights of Corporation with Respect to Registered Owners.
-------------------------------------------------------
Prior to presentation for transfer of shares, the Corporation may treat the
registered owner of the shares (or the beneficial owner of the shares to the
extent of any rights granted by a nominee certificate on file with the
Corporation pursuant to any procedure that may be established by the Corporation
in accordance with the Code) as the person exclusively entitled to vote the
shares, to receive any dividend or other distribution with respect to the
shares, and for all other purposes; the Corporation shall not be bound to
recognize any equitable or other claim to or interest in the shares on the part
of any other person, whether or not it has express or other notice of such a
claim or interest, except as otherwise provided by law.
Section 3. Transfers of Shares. Transfers of shares shall be made upon
-------------------
the books of the Corporation only upon direction of the person named in the
certificate or by an attorney lawfully constituted in writing. Before a new
certificate is issued, the old certificate shall be surrendered for cancellation
or, in the case of a certificate alleged to have been lost, stolen, or
destroyed, the provisions of these Bylaws shall have been complied with.
Section 4. Duty of Corporation to Register Transfer. Notwithstanding
----------------------------------------
any of the provisions of Section 3 above, the Corporation is under a duty to
register the transfer of its shares only if: (a) the share certificate is
endorsed by the appropriate person or persons; (b) reasonable assurance is given
that each required endorsement is genuine and effective; (c) the Corporation has
no duty to inquire into adverse claims or has discharged any such duty; (d) any
applicable law relating to the collection of taxes has been complied with; and
(e) the transfer is in compliance with applicable provisions of any transfer
restrictions of which the Corporation shall have notice.
Section 5. Lost, Stolen, or Destroyed Certificates. Any person
---------------------------------------
claiming a share certificate to be lost, stolen, or destroyed shall make an
affidavit or affirmation of this claim in such a manner as the Corporation may
require and shall, if the Corporation requires, give the Corporation a bond of
indemnity in form and amount, and with one or more sureties satisfactory to the
Corporation, as the Corporation may require, whereupon an appropriate new
certificate may be issued in lieu of the one alleged to have been lost, stolen
or destroyed.
Section 6. Fixing of Record Date. For the purpose of determining
---------------------
shareholders (a) entitled to notice of or to vote at any meeting of shareholders
or, if necessary, any adjournment thereof, (b) entitled to receive payment of
any distribution or dividend, or (c) for any other proper purpose, the Board of
Directors may fix in advance a date as the record date. The record date may not
be more than seventy (70) days (and, in the case of a notice to shareholders of
a shareholders' meeting, not less than ten (10) days) prior to the date on which
the particular action requiring the determination of shareholders is to be
taken. A separate record date may be established for each voting group entitled
to vote separately on a matter at a meeting. A determination of shareholders of
record entitled to notice of or to vote at a meeting of shareholders shall apply
to any adjournment of the meeting, unless the Board of Directors shall fix a new
record date for the reconvened meeting, which it must do if the meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting. If no record date is fixed as
9
<PAGE>
provided in this Section, then the record date for any determination of
shareholders that may be proper or required by law shall be, as appropriate, the
date on which notice of a shareholders' meeting is mailed, the date on which the
Board of Directors adopts a resolution declaring a dividend or authorizing a
distribution, or the date on which any other action is taken that requires a
determination of shareholders.
Section 7. Regulations, Transfer Agents and Registrars. The Board of
-------------------------------------------
Directors may make all such rules and regulations as it may deem expedient
concerning the issuance, transfer, conversion, registration and cancellation of
share certificates not inconsistent with applicable law, the Articles of
Incorporation or the Bylaws of the Corporation. The Board of Directors may
appoint one or more transfer agents or registrars, or both, and may require all
share certificates to bear the signature of a transfer agent or registrar or
both.
ARTICLE VII
Indemnification of Officers and Directors
-----------------------------------------
Section 1. Indemnification of Directors. The Corporation shall
----------------------------
indemnify and hold harmless, and shall advance funds to pay for or reimburse
expenses to, any person (an "Indemnified Person") who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, whether formal or informal, including any action or suit by or in
the right of the Corporation (for purposes of this Article Seven, collectively,
a "Proceeding") because he is or was a director of the Corporation, against any
obligation to pay a judgment, settlement, penalty, fine, or reasonable expenses
(including, but not limited to, attorneys' fees and disbursements, court costs
and expert witness fees) incurred with respect to the Proceeding (for purposes
of this Article Seven, a "Liability"), if he conducted himself in good faith and
he reasonably believed that, in the case of conduct in his official capacity,
his conduct was in the best interests of the Corporation, in all other cases,
his conduct was at least not opposed to the best interests of the Corporation,
and, in the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful; provided, however, that no indemnification
shall be made for any Liability for which, under the Code, indemnification may
not be authorized by action of the Board of Directors, the shareholders, or
otherwise, including, but not limited to, any Liability of a director to the
Corporation for: (a) any appropriation by a director, in violation of the
director's duties, of any business opportunity of the Corporation; (b) any acts
or omissions of a director that involve intentional misconduct or a knowing
violation of law; (c) the types of liability set forth in Code Section 14-2-832;
or (d) any transaction from which the director received an improper personal
benefit. Indemnification in connection with a Proceeding brought by or in the
right of the Corporation is limited to reasonable expenses incurred in
connection with the Proceeding.
Section 2. Indemnification of Others. The Board of Directors shall
--------------------------
have the power to cause the Corporation to provide to officers, employees, and
agents of the Corporation all or any
10
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part of the right to indemnification and other rights of the type provided under
Sections 1 and 6 of this Article Seven (subject to the conditions, limitations,
and obligations specified in those sections) upon a resolution to that effect
identifying the officers, employees, or agents (by position or name) to be
indemnified and specifying the particular rights provided, which may be
different for each of the persons identified. Each officer, employee or agent of
the Corporation so identified shall be an "Indemnified Person" for purposes of
the provisions of this Article Seven.
Section 3. Other Organizations. The Board of Directors shall have the
-------------------
power to cause the Corporation to provide to any director, officer, employee or
agent of the Corporation who is or was serving at the Corporation's request as a
director, officer, partner, trustee, employee, or agent of another corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise,
all or any part of the right to indemnification and other rights of the type
provided under Sections 1 and 6 of this Article Seven (subject to the
conditions, limitations, and obligations specified in those sections) upon a
resolution to that effect identifying the persons to be indemnified and
specifying the particular rights provided, which may be different for each of
the persons identified. Each person so identified shall be an "Indemnified
Person" for purposes of the provisions of this Article Seven.
Section 4. Determination. Notwithstanding any judgment, order,
-------------
settlement, conviction, or plea in any Proceeding, an Indemnified Person shall
be entitled to indemnification as provided in Section 1 if a determination that
such Indemnified Person is entitled to such indemnification shall be made (a) if
there are two or more directors who are not at the time parties to the
Proceeding, by the Board of Directors by a majority vote of a quorum consisting
of directors who are not at the time parties to the Proceeding; (b) if a quorum
cannot be obtained under (a) above, by majority vote of a committee duly
designated by the Board of Directors (in which designated directors who are
parties may participate), consisting solely of two or more directors who are not
at the time parties to the Proceeding; (c) in a written opinion by special legal
counsel selected as required by the Code; or (d) by the shareholders; provided,
however, that shares owned by or voted under the control of directors who are at
the time parties to the Proceeding may not be voted on the determination.
Section 5. Advances. To the extent the Corporation has funds
--------
reasonably available to be used for this purpose, expenses (including, but not
limited to, attorneys' fees and disbursements, court costs and expert witness
fees) incurred by an Indemnified Person in defending any Proceeding of the kind
described in Section 1 (or in Sections 2 or 3, if the Board of Directors has
specified that advancement of expenses be made available to such Indemnified
Person) shall be paid by the Corporation in advance of the final disposition of
such Proceeding as set forth herein. The Corporation shall promptly pay the
amount of such expenses to the Indemnified Person, but in no event later than 10
days following the Indemnified Person's delivery to the Corporation of a written
request for an advance pursuant to this Section 6, together with a reasonable
accounting of such expenses; provided, however, that the Indemnified Person
shall furnish the Corporation a written affirmation of his good faith belief
that he has met the standard of conduct set forth in the Code and a written
undertaking and agreement to repay to the
11
<PAGE>
Corporation any advances made pursuant to this Section 6 if it shall be
determined that the Indemnified Person is not entitled to be indemnified by the
Corporation for such amounts. The Corporation may make the advances contemplated
by this Section 6 regardless of the Indemnified Person's financial ability to
make repayment. Any advances and undertakings to repay pursuant to this Section
6 may be unsecured and interest-free.
Section 6. Non-Exclusivity. Subject to any applicable limitation
---------------
imposed by the Code or the Articles of Incorporation, the indemnification and
advancement of expenses provided by or granted pursuant to this Article Seven
shall not be deemed exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any provision
of the Articles of Incorporation, or any Bylaw, resolution, or agreement
specifically or in general terms approved or ratified by the affirmative vote of
holders of a majority of the shares entitled to be voted thereon. Nothing
contained in this Article Seven shall be deemed to prohibit, and the Corporation
is specifically authorized to enter into, agreements which provide
indemnification rights and procedures permitted by the Code.
Section 7. Insurance. The Corporation shall have the power to purchase
---------
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or who, while serving in such a
capacity, is or was also serving at the request of the Corporation as a
director, officer, trustee, partner, employee or agent of any corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against any Liability that may be asserted against him or incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article Seven.
Section 8. Notice. If the Corporation indemnifies or advances expenses
------
to a director under any of Sections 14-2-851 through 14-2-854 of the Code (or
any equivalent provision of these Bylaws) in connection with a Proceeding by or
in the right of the Corporation, the Corporation shall, to the extent required
by Section 14-2-1621 or any other applicable provision of the Code, report the
indemnification or advance in writing to the shareholders with or before the
notice of the next shareholders' meeting.
Section 9. Security. The Corporation may designate certain of its
--------
assets as collateral, provide self-insurance, establish one or more
indemnification trust or otherwise secure or facilitate its ability to meet its
obligations under this Article Seven, or under any indemnification agreement or
plan of indemnification adopted and entered into in accordance with the
provisions of this Article Seven, as the Board of Directors deems appropriate.
Section 10. Amendment. Any amendment to this Article Seven that limits
---------
or otherwise adversely affects the right of indemnification, advancement of
expenses, or other rights of any Indemnified Person hereunder shall, as to such
Indemnified Person, apply only to Proceedings based on actions, events, or
omissions occurring after such amendment and after delivery of notice of such
amendment to the Indemnified Person so affected (collectively, "Post Amendment
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<PAGE>
Events"). Any Indemnified Person shall, as to any Proceeding based on actions,
events, or omissions occurring prior to the date of receipt of such notice, be
entitled to the right of indemnification, advancement of expenses, and other
rights under this Article Seven to the same extent as if such provisions had
continued as part of the Bylaws of the Corporation without such amendment. This
Section 10 cannot be altered, amended, or repealed in a manner effective as to
any Indemnified Person (except as to Post Amendment Events) without the prior
written consent of such Indemnified Person.
Section 11. Continuing Benefits. The rights of indemnification and
-------------------
advancement of expenses permitted or authorized by this Article Seven shall,
unless otherwise provided when such rights are granted or conferred, continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
Section 12. Successors. For purposes of this Article Seven, the term
----------
"Corporation" shall include any corporation, joint venture, trust, partnership
or unincorporated business association that is the successor to all or
substantially all of the business or assets of this Corporation, as a result of
merger, consolidation, sale, liquidation, or otherwise, and any such successor
shall be liable to the persons indemnified under this Article Seven on the same
terms and conditions and to the same extent as this Corporation.
Section 13. Severability. Each of the Sections of this Article Seven,
------------
and each of the clauses set forth herein, shall be deemed separate and
independent, and should any part of any such Section or clause be declared
invalid or unenforceable by any court of competent jurisdiction, such invalidity
or unenforceability shall in no way render invalid or unenforceable any other
part thereof or any separate Section or clause of this Article Seven that is not
declared invalid or unenforceable.
ARTICLE VIII
Miscellaneous
-------------
Section 1. Inspection of Books and Records. The Board of Directors
-------------------------------
shall have the power to determine which accounts, books, and records of the
Corporation shall be available for shareholders to inspect or copy, except for
those books and records required by the Code to be made available upon
compliance by a shareholder with applicable requirements, and shall have the
power to fix reasonable rules and regulations (including confidentiality
restrictions and procedures) not in conflict with applicable law for the
inspection and copying of such accounts, books, and records that by law or by
determination of the Board of Directors are made available. Unless required by
the Code or otherwise provided by the Board of Directors, a shareholder of the
Corporation holding less than two percent (2%) of the total shares of the
Corporation then outstanding shall have no right to inspect the books and
records of the Corporation.
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Section 2. Fiscal Year. The Board of Directors is authorized to fix
-----------
the fiscal year of the Corporation and to change the fiscal year from time to
time as it deems appropriate.
Section 3. Corporate Seal. The corporate seal will be in such form as
--------------
the Board of Directors may from time to time determine. The Board of Directors
may authorize the use of one or more facsimile forms of the corporate seal. The
corporate seal need not be used unless its use is required by law, by these
Bylaws, or by the Articles of Incorporation.
ARTICLE IX
Amendments
----------
Subject to the Articles of Incorporation, these Bylaws and the Code, these
Bylaws may be amended (or repealed and new bylaws adopted) by the Board of
Directors. Any Bylaws adopted by the Board of Directors may be altered, amended
or repealed, and new Bylaws adopted, by the shareholders. The shareholders of
the Corporation may provide expressly that any bylaws adopted, amended or
repealed by them shall not be amended or repealed by the Board of Directors.
* * * * *
14
<PAGE>
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), is dated and executed
---------
effective as of August 6, 1999, by Direct Access Interactive, Inc., a Georgia
corporation (the "Company"), and the persons named on the signature page hereto
-------
(collectively, the "Shareholders" and each, a "Shareholder"). The Company and
------------ -----------
the Shareholders are hereinafter collectively called the "Parties."
-------
WHEREAS, the Company, SBS Corporation, an Alabama corporation ("SBS"), and
the Shareholders have entered into an Agreement and Plan of Merger dated as of
August 6, 1999 (the "Merger Agreement"), pursuant to which, among other things,
----------------
the Company has agreed to issue to the Shareholders shares of the Company's
common stock, without par value (the "Common Stock"); and
------------
WHEREAS, the Shareholders will acquire a total of 2,600,000 shares of
Common Stock, subject to an escrow of 10% of such shares; and
WHEREAS, the Company and the Shareholders desire to provide for the rights
of the Shareholders with respect to the registration of the shares of Common
Stock to be received by the Shareholders pursuant to the Merger Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
1. Definitions. For purposes of this Agreement:
-----------
(a) "1933 Act" means the United States Securities Act of 1933, as
--------
amended, or any similar U.S. federal statute enacted hereafter, and the rules
and regulations of the Commission thereunder, all as the same shall be in effect
from time to time;
(b) "Commission" means the United States Securities and Exchange
----------
Commission or any other U.S. federal agency at the time administering the 1933
Act and 1934 Act;
(c) "Register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the 1933 Act and the declaration or ordering of effectiveness of
such registration statement by the Commission;
(d) "Registrable Securities" means shares of Common Stock issued or
----------------------
issuable to the Shareholders pursuant to the Merger Agreement and any Common
Stock issued as a dividend or other distribution with respect to, or in exchange
or replacement of, the foregoing, but shall not include any other shares of
Common Stock acquired by Shareholders other than the foregoing;
(e) "Holder" means a Shareholder if the Shareholder holds Registrable
------
Securities; provided, however, that any person who acquires any of the
Registrable Securities in a distribution or transfer pursuant to a registration
statement filed under the 1933 Act or pursuant
Registration Rights Agreement Page 1 of 13
<PAGE>
to a sale under Rule 144, Regulation S or any other exemption from registration
under the 1933 Act, shall not be considered a Holder;
(f) "1934 Act" means the United States Securities Exchange Act of
--------
1934, as amended, or any similar U.S. federal statute enacted hereafter, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect from time to time; and
(g) All other capitalized terms used herein but not otherwise defined
shall have the meanings ascribed to them in the Merger Agreement.
2. Piggyback Registration. Subject to the other provisions hereof, if at
----------------------
any time after consummation of its initial public offering, the Company proposes
to register any of its securities under the 1933 Act, either for its own account
or for the account of other holders of Common Stock (other than on a Form S-8,
Form S-4 or similar registration statement or registration for foreign issuance
or distribution), in connection with the public offering of such securities
solely for cash, on a registration form that would also permit the registration
of Registrable Securities, the Company shall, with respect to any such
registration, promptly give each Holder written notice of such proposal. Upon
the written request of any Holder given within 15 days after mailing of any such
notice by the Company, the Company shall use all commercially reasonable efforts
to cause to be included in such registration under the 1933 Act all the
Registrable Securities that each such Holder has requested be registered.
3. Obligations of the Company. Whenever required under this Agreement to
--------------------------
use all commercially reasonable efforts to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the Commission a registration statement
covering such Registrable Securities and use all commercially reasonable efforts
to cause such registration statement to be declared effective by the Commission
as expeditiously as possible and to keep such registration effective until the
earlier of (1) the date when all Registrable Securities covered by the
registration statement have been sold or (2) 45 days from the effective date of
the registration statement; provided, that before filing a registration
statement or prospectus or any amendments or supplements thereto, the Company
will furnish to each Holder of Registrable Securities covered by such
registration statement and the underwriters, if any, copies of all such
documents proposed to be filed (excluding exhibits, unless any such person shall
specifically request exhibits), which documents will be subject to the review of
such Holders and underwriters. The Company agrees that it will not file such
registration statement or any amendment thereto or any prospectus or any
supplement thereto (including any documents incorporated by reference therein)
with the Commission if the information in such registration statement or
prospectus concerning a particular selling Holder has changed and such Holder or
the underwriters, if any, shall reasonably object; provided, that the Company
may file and amend the registration statement under this clause if it removes
the Holder and any incorrect or outdated information from the registration
statement before such filing or amendment.
(b) Prepare and file with the Commission such amendments and post-
effective amendments to such registration statement as may be necessary to keep
such registration
Registration Rights Agreement Page 2 of 13
<PAGE>
statement effective during the period referred to in Section 3(a) and to comply
with the provisions of the 1933 Act with respect to the disposition of all
securities covered by such registration statement, and cause the prospectus to
be supplemented by any required prospectus supplement, and as so supplemented to
be filed with the Commission pursuant to Rule 424 under the 1933 Act.
(c) Furnish to the selling Holders such numbers of copies of such
registration statement, each amendment thereto, the prospectus included in such
registration statement (including each preliminary prospectus), each supplement
thereto and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use all commercially reasonable efforts to register and qualify
the Registrable Securities under such other securities laws of such
jurisdictions as shall be reasonably requested by any selling Holder and do any
and all other acts and things which may be reasonably necessary or advisable to
enable such selling Holder to consummate the disposition of the Registrable
Securities owned by such Holder in such jurisdictions; provided that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to transact business or to file a general consent to service of process
in any such counties, states or jurisdictions; and provided further that
(anything in this Agreement to the contrary notwithstanding with respect to the
bearing of expenses) if any jurisdiction in which the Registrable Securities
shall be qualified shall require that expenses incurred in connection with the
qualification of the Registrable Securities in that jurisdiction be borne by
selling shareholders, then such expenses shall be payable by the selling Holders
pro rata, to the extent required by such jurisdiction, including but not limited
to filing fees and expenses of counsel and other advisors and any commissions or
discounts related to the registration of Registrable Securities in such other
jurisdictions.
(e) Promptly notify each selling Holder of such Registrable Securities
at any time when a prospectus relating thereto is required to be delivered under
the 1933 Act of the happening of any event as a result of which the prospectus
included in such registration statement contains an untrue statement of a
material fact or omits any fact necessary to make the statements therein not
misleading and, at the request of any such Holder, the Company will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading.
(f) Provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement.
(g) Enter into such customary agreements (including underwriting
agreements in customary form for a secondary offering) and take all such other
actions as the Holders of a majority of the Registrable Securities being sold or
the underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities.
Registration Rights Agreement Page 3 of 13
<PAGE>
(h) Make available for inspection by any selling Holder of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such selling Holder or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
officers, directors, employees and independent accountants of the Company to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement.
(i) Promptly notify the Holders of Registrable Securities and the
underwriters, if any, of the following events and (if requested by any such
person) confirm such notification in writing: (1) the filing of the prospectus
or any prospectus supplement and the registration statement and any amendment or
post-effective amendment thereto and, with respect to the registration statement
or any post-effective amendment thereto, the declaration of the effectiveness of
such documents, (2) any requests by the Commission for amendments or supplements
to the registration statement or the prospectus or for additional information,
(3) the issuance or threat of issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or the initiation of
any proceedings for that purpose and (4) the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or threat
of initiation of any proceeding for such purpose.
(j) Cooperate with the selling Holders of Registrable Securities and
the underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends, and enable such Registrable Securities to be in such lots
and registered in such names as the underwriters may request at least two
business days prior to any delivery of Registrable Securities to the
underwriters.
(k) Provide a CUSIP number for all Registrable Securities not later
than the effective date of the registration statement.
(l) Prior to the effectiveness of the registration statement and any
post-effective amendment thereto and at each closing of an underwritten
offering, (1) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the selling
Holders of Registrable Securities and the underwriters, if any, such letters to
be in customary form and covering matters of the type customarily covered in
"cold comfort" letters to underwriters in connection with primary underwritten
offerings; and (2) deliver such documents and certificates as may be reasonably
requested by the Holders of a majority of the Registrable Securities being sold
and by the underwriters, if any, to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company and such Holder.
4. Termination of Registration. Notwithstanding any other provision in
---------------------------
this Agreement, at any time before or after the filing of a registration
statement, the Company may, in its sole discretion, abandon or terminate such
registration without the consent of the Holders with no liability to the Holders
or any third party arising therefrom.
Registration Rights Agreement Page 4 of 13
<PAGE>
5. Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Agreement that
the Holders shall furnish to the Company such information regarding them, the
Registrable Securities held by them, and the intended method of disposition of
such Registrable Securities as the Company shall reasonably request and as shall
be required or, in the opinion of the Company, reasonably necessary, in
connection with the action to be taken by the Company.
6. Suspension of Disposition of Registrable Securities. Each selling
---------------------------------------------------
Holder of Registrable Securities agrees by acquisition of such Registrable
Securities that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 3(e) hereof, such Holder will
forthwith discontinue disposition of Registrable Securities until such Holder's
receipt of copies of a supplemented or amended prospectus contemplated by
Section 3(e) hereof, or until it is advised in writing (the "Advice") by the
------
Company that the use of the prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference in
the prospectus, and, if so directed by the Company, such Holder will deliver to
the Company (at the expense of the Company) all copies, other than permanent
file copies then in such Holder's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the time periods mentioned in
Section 3(a) hereof shall be extended by the number of days during the period
from and including the date of the giving of such notice pursuant to Section
3(e) hereof to and including the date when each selling Holder of Registrable
Securities shall have received the copies of the supplemented or amended
prospectus contemplated by Section 3(e) hereof or the Advice.
7. Expenses of Registration. All expenses incurred in connection with a
------------------------
registration pursuant to this Agreement, including all registration and
qualification fees, printing and accounting fees, and fees and disbursements of
counsel for the Company, shall be borne by the Company. All other expenses
(including the underwriting discounts, commissions and costs, costs and expenses
described in Section 3(d), and expenses of counsel and other advisors to the
selling Holders) shall be borne by the Holders selling Registrable Securities.
8. Underwriting Requirements; Priorities.
-------------------------------------
(a) The Company shall select the investment banker(s) and manager(s)
to administer any offering required hereunder, if any. If the managing
underwriters advise the Company in writing that, in their opinion, the number of
securities requested to be included in such registration exceeds the number
which can be sold at the desired price in such offering, the Company will
include in such registration (1) first, the securities the Company proposes to
sell, (2) second, the number of securities requested to be included, which in
the opinion of such underwriters can be sold, pro rata among the respective
selling shareholders of Common Stock on the basis of the number of shares of
Common Stock owned by each selling shareholder and (3) third, all other
securities requested to be included in such registration.
(b) No person may participate in any underwritten registration
hereunder unless such person (1) agrees to sell such person's securities on the
basis provided in any underwriting arrangements approved by the Company and (2)
completes and executes all
Registration Rights Agreement Page 5 of 13
<PAGE>
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
9. Termination of the Company's Obligations.
----------------------------------------
(a) The Company shall not be obligated to register or include in any
registration Registrable Securities that any Holder has requested to be
registered if all Registrable Securities that such Holder holds may be publicly
offered, sold and distributed without registration under the 1933 Act pursuant
to Rule 144, Regulation S or other exemption from registration promulgated by
the Commission under the 1933 Act (whether or not subject to applicable volume
limitations thereunder).
(b) The Company shall not be obligated to register the Registrable
Securities of any Holder if, within the six months prior to the time of a
proposed registration, the Company has offered such Holder the opportunity to
register Registrable Securities under the terms hereof and either (1) the Holder
declined such offer or (2) Registrable Securities of such Holder were registered
by the Company.
(c) With a view to making available to the Holders the benefits of
Rule 144 promulgated under the 1933 Act and any other rule or regulation of the
Commission that may at any time permit a Holder to sell securities of the
Company to the public without registration, the Company agrees to use all
commercially reasonable efforts to:
(i) file with the Commission in a timely manner all reports and
other documents required of the Company under the 1933 Act and the 1934 Act
while it is subject to such registration requirements; and
(ii) furnish to any Holder so long as such Holder owns any of the
Registrable Securities forthwith upon request a written statement by the Company
that it has complied with the reporting requirements the 1934 Act (at any time
for which it remains subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as may be reasonably requested by any Holder
in availing any Holder of any rule or regulation of the Commission permitting
the selling of any such securities without registration.
10. Lockup Agreement. As a condition to the exercise of any registration
----------------
rights hereunder, each Holder hereby agrees in connection with any registration
of its Registrable Securities not to sell, make any short sale of, pledge, grant
any option for the purchase of or otherwise dispose of or reduce his or her risk
of ownership with respect to any Registrable Securities (other than those
included in the registration) without the prior written consent of the Company
or the underwriters, as the case may be, for 180 days following the offering.
Each holder agrees to execute and deliver a lock-up letter (setting forth the
above restrictions in greater detail) if requested by the underwriters or the
Company in connection with any offering of Registrable Securities.
Registration Rights Agreement Page 6 of 13
<PAGE>
11. Put Right.
---------
(a) If the Purchaser has not consummated its initial public offering of
Common Stock on or before the one (1) year anniversary of the date of this
Agreement (the "Anniversary Date"), each Holder of Registrable Securities shall
have the right (the "Put Right") to require the Company to purchase all (but not
less than all) Registrable Securities then held by such Holder at a price of
$____ per share (the "Purchase Price"). The Purchase Price shall be adjusted
appropriately to reflect changes in the number of Registrable Securities as a
result of the anti-dilution provisions in the Merger Agreement, as well as for
stock splits, dividends and other similar transactions with respect to the
Registrable Securities. Any holder who desires to exercise his Put Right shall
deliver to the Company within ten (10) business days after the Anniversary Date
written notice of the exercise of such right and a statement certifying the
number of Registrable Securities then owned by such Holder (the "Exercise
Notice").
(b) Provided the Holder exercises his Put Right in accordance with Section
11(a) above, the Company shall set a date for purchase which date must be
within sixty (60) days after the receipt by the Company of notice of exercise
of the Put Right. On such purchase date, upon the receipt of documentation from
the Holder reasonably satisfactory to the Company, including properly executed
stock powers and written representations and warranties from such Holder
regarding (1) such Holder's ownership, free of all liens and encumbrances, of
the Registrable Securities subject to the Put Right, (2) his capacity and
authority to sell the Registrable Securities and (3) other representations and
warranties substantially similar to those set forth in Article 6 of the Merger
Agreement, as appropriate, the Company shall pay to each Holder who exercises
his Put Right the aggregate Purchase Price to which such Holder is entitled in
exchange for such Holder's Registrable Securities. Such amount shall be payable,
at the option of the Company, either in cash or in shares of common stock of The
InterCept Group, Inc. ("InterCept"). In the event such payment is made by the
Company in shares of InterCept, the number of shares of InterCept common stock
to be delivered by the Company to each Holder shall equal (i) the aggregate
Purchase Price attributable to the Registrable Securities held by the Holder
divided by (ii) the average closing price of InterCept's common stock as
reported on the Nasdaq National Market for the five (5) consecutive trading days
ending at the end of the second business day prior to the date of issuance of
such shares, rounded to the nearest whole share amount.
(c) In no event shall the Put Right provided to the Holders pursuant to
this Section 11 be exercisable if the exercise of such rights would adversely
affect any transaction being contemplated by the Company that is intended to
be accounted for as a pooling of interest at the time the Put Right becomes
exercisable; provided, however, that any Put Rights so affected by a pooling
-----------------
transaction shall become exercisable in accordance with this Section 11 upon the
cessation of the restrictions imposed by such pooling transaction. The Company
shall notify the Holders of such cessation of pooling restrictions and provide
them no less than ten (10) business days to exercise the Put Right.
(d) To secure the obligations of the Purchaser in connection with the Put
Right, Purchaser hereby grants to the Holders a security interest and lien
on the properties and assets of Purchaser listed on Exhibit A hereto (the
---------
"Assets"), which is incorporated by reference.
------
Registration Rights Agreement Page 7 of 13
<PAGE>
The Purchaser agrees to execute and deliver to the Holders all financing
statements and other security documents necessary to perfect the Holders'
security interest within a reasonable period of time after Closing of the
transactions contemplated in the Merger Agreement. Upon expiration of the Put
Right described above, the Holders agree to execute and deliver to Purchaser
such release documents and termination statements as necessary to terminate the
security interests within a reasonable period of time after Purchaser delivers a
written request for such documents and agreements to the Holders. The security
interests granted herein are intended to be prior in right to all other security
interests in the Assets except for (1) purchase money security interests granted
or incurred in the ordinary course of the Company's business (2) the security
interest granted to First Union pursuant to a Loan and Security Agreement dated
April 28, 1998 between the Company, its subsidiaries and First Union, as
amended, restated and modified, which security interest will at all times be
superior to the Holders' security interest notwithstanding the time or filing of
any financing statement related thereto, and (3) Liens (as defined in the Merger
Agreement) on the Assets as described in the Merger Agreement.
12. Indemnification. In the event any Registrable Securities are included in
---------------
a registration statement under this Agreement:
(a) To the full extent permitted by law, the Company hereby agrees to
indemnify and hold harmless each Holder requesting or joining in a registration
and each person, if any, who controls such Holder within the meaning of the 1933
Act, against any losses, claims, damages or liabilities, joint or several, to
which they may become subject under the 1933 Act and applicable state securities
laws insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based on any untrue or alleged untrue
statement of any material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein in light of the circumstances under which they were made or
necessary to make the statements therein not misleading or arise out of any
violation by the Company of any rule or regulation promulgated under the 1933
Act applicable to the Company and relating to action or inaction required of
the Company in connection with any such registration; and will reimburse each
such person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this Section 12(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld)
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in connection with such registration statement, preliminary prospectus,
final prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by or on behalf of any such Holder or controlling person.
(b) To the full extent permitted by law, each Holder requesting or
joining in a registration under this Agreement hereby agrees to indemnify and
hold harmless the Company,
Registration Rights Agreement Page 8 of 13
<PAGE>
each of its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the meaning of
the 1933 Act, and any underwriter for the Company (within the meaning of the
1933 Act), each other selling Holder and each person, if any, who controls such
other selling Holder within the meaning of Section 15 of the 1933 Act against
any losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer, controlling person or underwriter may
become subject, under the 1933 Act and applicable state securities laws, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances, in each case to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission was made in such registration
statement, preliminary or final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information furnished
by such Holder expressly for use in connection with such registration; and each
such Holder will reimburse any legal or other expenses reasonably incurred by
the Company or any such director, officer, controlling person or underwriter
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 12(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of such Holder (which consent shall not be unreasonably withheld).
(c) In no event shall the liability of any selling Holder of
Registrable Securities or the Company hereunder be greater than the dollar
amount of the proceeds received by such Holder or, in the case of the Company,
the proceeds received by all Holders, upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(d) Promptly after receipt by an indemnified party under this Section
12 of notice of the commencement of any action or knowledge of a claim that
would, if asserted, give rise to a claim for indemnity hereunder, such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 12, notify the indemnifying party in
writing of the commencement thereof or knowledge thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties. The failure to notify an indemnifying party
promptly of the commencement of any such action or of the knowledge of any such
claim, if prejudicial to his ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
12, but the omission so to notify the indemnifying party will not relieve him of
any liability that he may have to any indemnified party otherwise than under
this Section 12.
13. Remedies. In addition to being entitled to exercise all rights provided
--------
in this Agreement and the Merger Agreement as well as all rights granted by law,
including recovery of damages, the Company and each Holder of Registrable
Securities will be entitled to specific performance of its rights under this
Agreement.
Registration Rights Agreement 9 of 13
<PAGE>
14. Amendments and Waivers. The provisions of this Agreement, including the
----------------------
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of Holders of at least a
majority of the outstanding Registrable Securities, voting together as a single
class.
15. Notices. All notices and other communications provided for or permitted
-------
hereunder shall be made in writing by personal delivery, by internationally
recognized overnight courier (with charges prepaid) or by telecopy (with
telephone confirmation) as follows:
(a) if to a Holder of Registrable Securities, at the most current
address given by such Holder to the Company in accordance with the provisions
of this Section 15, which address initially is, with respect to the
Shareholders, the address set forth in the Merger Agreement, with a copy (which
shall not constitute notice) to the Shareholders' respective counsel as
identified in the therein; and
(b) if to the Company, initially at its address set forth in the Merger
Agreement and thereafter at such other address, notice of which is given in
accordance with the provisions of this Section 15, with a copy (which shall not
constitute notice) to the Company's counsel as identified in the Merger
Agreement.
(c) All such notices and communications shall be deemed to have been
duly given or made when personally delivered, the day of guaranteed delivery by
such overnight courier service or when transmitted to the specified telecopy
number and confirmed by telephone, in each case addressed to the respective
parties as set forth above.
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
17. Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
18. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF
GEORGIA, EXCLUDING CHOICE OF LAW PRINCIPLES.
The Company and the Shareholders irrevocably consent to the exclusive
jurisdiction and venue of the courts of any county in the State of Georgia and
the United States Federal District Court of Georgia, in any judicial proceeding
brought to enforce this Agreement. The parties agree that any forum other than
the State of Georgia is an inconvenient forum and that a lawsuit (or non-
compulsory counterclaim) brought by one party against another party, in a court
of any jurisdiction other than the State of Georgia should be forthwith
dismissed or transferred to a court located in the State of Georgia.
19. Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the
Registration Rights Agreement Page 10 of 13
<PAGE>
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be affected
or impaired thereby.
20. Entire Agreement. This Agreement (together with the Merger Agreement and
----------------
such other agreements as specifically referred to in the Merger Agreement) is
intended by the parties as a final expression of their agreement and intended to
be a complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein with respect to the registration rights granted by the
Company with respect to the Common Stock held by the Holders. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
21. No Assignment; Parties Benefited. None of the Parties may assign its
--------------------------------
rights, duties or obligations under this Agreement without the express written
consent of the other Parties. Any attempted assignment without such written
consent shall be null and void. Nothing in this Agreement, express or implied,
-------------
is intended to confer upon any third party any rights, remedies, obligations or
liabilities.
The Parties have executed this Registration Rights Agreement as of the date
first above written.
DIRECT ACCESS INTERACTIVE, INC.
By: /s/ Donny R. Jackson
---------------------------
Name: Donny R. Jackson
Title: President
SHAREHOLDERS
/s/ David W. Brasfield
--------------------------------
David W. Brasfield
/s/ Robert D. Kirk, III
--------------------------------
Robert D. Kirk, III
/s/ Michael H. Vaughn
--------------------------------
Michael H. Vaughn
Registration Rights Agreement Page 11 of 13
<PAGE>
EXHIBIT "A"
-----------
All property of Debtor now or hereafter in the possession, custody, or
control of Secured Party, and all monies, collection items, deposits, savings
accounts, certificates, and other amounts now or hereafter due, owing or issued
by or from Secured Party to Debtor, whether matured or not (the "Miscellaneous
-------------
Property").
- --------
All accounts, accounts receivable, contract rights, general intangibles,
notes, documents, chattel paper, instruments, acceptances, drafts, whether or
not the same is subject to, or defined by, Article 9 of the Uniform Commercial
Code or whether or not the same constitutes by reason of one or more of the
foregoing clauses, a right to the payment of money or other form of
consideration of any kind at any time existing now or hereafter owing or to be
owing to Debtor, whether or not the same are listed on any scheduled assignments
or reports furnished to Secured Party from time to time, whether now existing or
created or acquired at any time hereafter; any and all liens securing the
foregoing, any and all guaranties and securities securing the foregoing and all
proceeds thereof (the "Receivables").
-----------
All inventory of Debtor, whether now owned or hereafter acquired,
including, without limitation, all goods held by Debtor for sale or lease or to
be furnished under contracts of service or so furnished, and all raw materials,
work in process, supplies and finished goods, and all materials used or consumed
in Debtor's business (the "Inventory").
---------
All equipment, machinery, furniture, leasehold improvements and fixtures
of Debtor, whether now owned or hereafter acquired, including, without
limitation, all replacements thereof and all accessions, parts and equipment now
or hereafter affixed thereto or used in connection therewith (the "Equipment").
---------
All presently existing and hereafter issued, filed, acquired or licensed
patents and patent applications, including, without limitation, divisional,
continuations and continuations-in-part, copyrights, trade names, trademarks and
service marks, as well as all registrations and applications for registration
thereof, all income, royalties, damages and payments now or hereafter due or
payable under and with respect to any of the foregoing, including without
limitation damages and payments for past or future infringements thereof, the
right to sue and recover for past, present and future infringements of any of
the foregoing, all rights throughout the world corresponding to any of the
foregoing, whether existing or granted under the laws of the United States or
any other domestic or foreign jurisdiction (all of the foregoing hereinafter
collectively called "Intellectual Property").
---------------------
All present and future books, records, customer lists, supplier lists,
ledgers, invoices, purchase orders, sales orders, and other evidence of Debtor's
business records, including, but not limited to, all cabinets, drawers, files,
correspondence, etc., that may hold same; computer records, lists, software,
programs, tapes and discs, all wherever located and all whether now existing or
hereafter arising or acquired which evidence or in any way relate to the
Miscellaneous Property, Receivables, Inventory, Equipment and Proceeds (the
"Records").
-------
Registration Rights Agreement Page 12 of 13
<PAGE>
All proceeds of any of the foregoing, including, but not limited to,
accounts, contract rights, chattel paper, notes, drafts, instruments, general
intangibles, inventory, equipment, fixtures, money deposit accounts, goods, the
proceeds of insurance or other tangible or intangible property, resulting from
the sale or other disposition of any of the foregoing or the rendition of
services by Debtor, and the proceeds thereof (the "Proceeds").
--------
Registration Rights Agreement Page 13 of 13
<PAGE>
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is dated and
---------
executed effective as of September 3, 1999, by and among Netzee, Inc., a Georgia
corporation (the "Company"), and The Bankers Bank, a Georgia banking corporation
-------
("GBB") and TIB the Independent BankersBank, a Texas banking association ("TIB"
--- ---
and along with GBB each a "Shareholder" and collectively the "Shareholders").
----------- ------------
The Company and the Shareholders are hereinafter collectively called the
"Parties."
-------
WHEREAS, the Company and The InterCept Group, Inc., a Georgia corporation,
have entered into those separate Asset Contribution Agreements dated as of
September __, 1999 with each of GBB and TIB (collectively the "Acquisition
-----------
Agreements"), pursuant to which, among other things, the Company has agreed to
- ----------
issue to each Shareholder shares of the Company's common stock, without par
value (the "Common Stock"); and
------------
WHEREAS, each Shareholder will acquire a total of 1,361,000 shares of
Common Stock, subject to adjustment to prevent dilution as provided in those
certain Antidilution Agreements entered into by and among each Shareholder and
the Company; and
WHEREAS, the Company and the Shareholder desire to provide for the rights
of the Shareholders with respect to the registration of the shares of Common
Stock to be received by the Shareholders pursuant to their respective
Acquisition Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Definitions. For purposes of this Agreement:
-----------
(a) "1933 Act" means the United States Securities Act of 1933, as
--------
amended, or any similar U.S. federal statute enacted hereafter, and the rules
and regulations of the Commission thereunder, all as the same shall be in effect
from time to time;
(b) "1934 Act" means the United States Securities Exchange Act of 1934,
--------
as amended, or any similar U.S. federal statute enacted hereafter, and the rules
and regulations of the Commission thereunder, all as the same shall be in effect
from time to time; and
(c) "Commission" means the United States Securities and Exchange
----------
Commission or any other U.S. federal agency at the time administering the 1933
Act and 1934 Act;
(d) "Holder" means the Shareholder, if the Shareholder holds Registrable
------
Securities, as well as any Person who becomes a Holder after the date of this
Agreement pursuant to Section 19; provided, however, that any Person who
----------
acquires any of the Registrable Securities form a Holder in a distribution or
transfer pursuant to a registration statement filed under the 1933 Act shall not
be considered a Holder;
Registration Rights Agreement Page 1
<PAGE>
(e) "Initiating Group" means TIB, GBB or their Affiliates, to the extent
----------------
such Affiliate is a Holder, provided such Person holds at least 5% of the
outstanding Common Stock;
(f) "NASD" means the National Association of Securities Dealers, Inc.;
----
(g) "Person" means an individual, partnership, corporation, limited
------
liability company, trust or unincorporated organization, or a government or
agency or political subdivision thereof, or any other entity of any kind;
(h) "Public Company" means a company reporting to the Commission under
--------------
sections 12(b), 12(g) or 15(d) of the 1934 Act or any successor provision.
(i) "Register," "registered" and "registration" refer to a registration
-------- ---------- ------------
effected by preparing and filing a registration statement in compliance with the
1933 Act and the declaration or ordering of effectiveness of such registration
statement by the Commission;
(j) "Registrable Securities" means (i) the Shares and (ii) the shares of
----------------------
Common Stock issued or issuable as dividends on, or other distributions with
respect to the Shares;
(k) "Registration Expenses" means all expenses (excluding Selling
---------------------
Expenses and expenses of special counsel for any Selling Holders in excess of
$25,000) incident to the Company's performance of or compliance with Sections 2
----------
and 3 hereof, including all registration and filing fees, fees with respect to
- -----
filings required to be made with any stock exchange or the NASD, fees and
expenses of compliance with state securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), messenger, telephone and delivery
expenses, costs of printing prospectuses, fees and expenses of all independent
certified public accountants of the Company (including the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance) and the fees and expenses of counsel for the Company and counsel
for the underwriters and fees and expenses of the legal counsel of the Selling
Holders up to $25,000, in the aggregate, per registration.
(l) "Registration Statement" means any registration statement of the
----------------------
Company which includes any of the Registrable Securities pursuant to this
Agreement, including the prospectus included or deemed included in the
Registration Statement and all amendments and supplements to the Registration
Statement or the prospectus, including post-effective amendments, and all
exhibits to, and all materials incorporated by reference in, such registration
statement.
(m) "Rule 144" means Rule 144 promulgated under the 1933 Act or any
--------
successor provision.
(n) "Selling Expenses" means legal counsel expenses of the Selling
----------------
Holders in excess of $25,000 in the aggregate and all underwriting discounts,
selling commissions and stock transfer taxes attributable to the sale of
Registrable Securities.
Registration Rights Agreement Page 2
<PAGE>
(o) "Selling Holders" means a Holder who chooses to sell Shares in a
---------------
registered offering pursuant to the terms of this Agreement.
(p) "Shares" means the shares of Common Stock owned by a Holder; and
------
(q) All other capitalized terms used herein but not otherwise defined
shall have the meanings ascribed to them in the Acquisition Agreement.
2. Registration under 1933 Act; Demand Registration.
------------------------------------------------
(a) Demand for Registration. At any time 180 days or more after the
-----------------------
Company becomes a Public Company and if the Holder is required to divest some or
all of its shares by law, regulation or any Governmental Authority, a member of
the Initiating Group may request by written notice that the Company effect the
registration under the 1933 Act of all or any portion of the Shares. Upon
receipt of such request, the Company shall use its commercially reasonable
efforts to (A) file within 45 days all documentation with the Commission
necessary to effect such registration, and (B) promptly effect such
registration. Each notice given pursuant to the immediately preceding sentence
shall set forth (x) the aggregate number of Shares to be included, (y) the names
of the Selling Holders and the number of Shares to be sold by each such Selling
Holder, and (z) the proposed manner of sale.
(b) Limitations on Company's Obligation.
-----------------------------------
(i) Except as set forth below, the Company is obligated to effect
only one (1) registration pursuant to this Section 2, and thereafter the Company
---------
shall have no obligation to include any Shares in any registration pursuant to
this Section 2. A request for registration shall be deemed not to have been made
---------
for the purposes of this Section 2 in the event that, prior to the sale of all
---------
of the Shares (A) a registration requested pursuant to this Section 2 fails to
---------
become effective, (B) a stop order shall have been issued, or (C) the
registration shall have been terminated.
(ii) The Company may not cause any other registration of securities
for sale for its own account (other than a registration effected solely to
implement an employee benefit plan) to be initiated after a registration
requested pursuant to Section 2 hereof and to become effective less than ninety
---------
(90) days after the effective date of any registration requested pursuant to
Section 2 hereof.
- ---------
(iii) Whenever a requested registration is for an underwritten
offering, only shares which are to be included in the underwriting pursuant to
this Agreement or other agreements with the Company, or shares offered by the
Company may be included in the registration
(c) Underwritten Offer. If a member of the Initiating Group desires to
------------------
distribute Shares covered by its request by means of an underwriting, it shall
so advise the Company as a part of its request made pursuant to this Section 2.
The members of the Initiating Group shall together with the Company enter into
an underwriting agreement in customary form with the underwriter.
Registration Rights Agreement Page 3
<PAGE>
(d) Priorities. If in the opinion of the managing underwriter, the
----------
number of securities requested to be included in such registration exceeds the
number which can be sold at the desired price in such offering, the Company will
include in such registration (1) first, the number of securities requested to be
included, which in the opinion of such underwriters can be sold, pro rata among
the respective Selling Holders (and other Selling Holders pursuant to other
written registration rights agreements entered into by the Company prior to the
date hereof) on the basis of the number of shares of Common Stock owned by each
Selling Holder and (2) second, the number of securities requested to be
included, which in the opinion of such underwriters can be sold, by the Company,
(3) third, all other securities requested to be included in such registration.
No stock excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration.
3. Piggyback Registration.
----------------------
(a) Piggy-Back Registration. If at any time after the earlier of (y) 180
-----------------------
days after the date of this agreement or (z) the date the Company becomes a
Public Company, the Company proposes to register, either on its own initiative,
pursuant to Section 2 or otherwise, any of its capital stock under the 1933 Act
in connection with the public offering of such securities on a form and in a
manner that would permit registration of Shares for sale to the public under the
1933 Act, then:
(i) the Company shall notify in writing each Holder of its
intention to effect such a registration at least 40 days prior to the proposed
filing of a Registration Statement in connection therewith;
(ii) the Company shall offer each Holder the opportunity to include
in such registration all or such lesser amount of such Holder's Shares. Upon the
request of one or more Holders given in writing within 20 days after receipt of
the notice described under clause (i) above, the Company, subject to the
provisions hereof, shall cause the Shares specified by such Holder to be
included in the Registration Statement; and
(iii) if the registration of which the Company gives written notice
under clause above involves an underwriting, the Company shall use its
commercially reasonable efforts to cause the managing underwriters of the
proposed underwritten offering to permit Holders to include their Shares in the
underwriting on the same terms and conditions as are applicable to the
securities of the Company included therein.
(b) Limitations On Company's Obligations to Effect Piggy-Back
---------------------------------------------------------
Registration. Notwithstanding the provisions of Section 3(a) above:
- ------------ ------------
(i) if and to the extent that the managing underwriter(s) advise
the Company in writing that, in its good faith determination, inclusion of the
number of Shares held by Holders requesting inclusion in the Registration
Statement would materially interfere with the underwriter's ability to
effectuate the registration and sale of securities proposed to be offered and
sold pursuant to the Registration Statement, the managing underwriter(s) shall
select the permissible quantity of Shares to be sold by the Holders (which may
be none) by reducing the total number of securities to be sold (but not the
number of securities to be sold by all selling
Registration Rights Agreement Page 4
<PAGE>
shareholders) as follows: (A) shareholders of the Company who are not Holders
shall be cut back first with respect to such securities to the full extent of
the securities that such shareholders wished to include in an underwriting, and
(B) Shares offered by the Holders shall be cut back as required by the managing
underwriter on a pro rata basis; and
(ii) if, at any time after giving such written notice of its
intention to register any of its securities and prior to the effective date of
the applicable Registration Statement filed in connection with such
registration, the Company shall determine for any reason not to register such
securities, the Company may, at its election, give written notice of such
determination to each Holder of Shares to be sold in such registration and
thereupon shall be relieved of its obligation to register any securities in
connection with such registration.
(c) Underwritten Offer. If the registration of which the Company gives
------------------
written notice under Section 3(a)(i) involves an underwriting, the Company shall
---------------
so advise in such written notice. In such event the right of any Holder to
registration pursuant to Section 3 shall be conditioned upon such Holder's
---------
participation in such underwriting and the inclusion of such Holder's Shares in
such underwriting. All Holders proposing to distribute their Shares through
such underwriting shall (together with the Company and the other Holders
distributing their Shares through such underwriting) participate in the
underwriting by entering into or completing, at the request of the underwriter
or underwriters selected for such underwriting by the Company, an underwriting
agreement, questionnaires, powers of attorney and indemnities in their customary
form.
4. Obligations of the Company. Whenever required under this Agreement to
--------------------------
use all commercially reasonable efforts to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the Commission a registration statement
covering such Registrable Securities and use all commercially reasonable efforts
to cause such registration statement to be declared effective by the Commission
as expeditiously as possible and to keep such registration effective with
respect to the Registrable Securities until the earlier of (1) the date when all
Registrable Securities covered by the registration statement have been sold or
(2) 90 days from the effective date of the registration statement; provided,
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to counsel for the Holder of
Registrable Securities covered by such registration statement and the
underwriters, if any, copies of all such documents proposed to be filed
(excluding exhibits, unless any such Person shall specifically request
exhibits), which documents will be subject to the review of such counsel and
underwriters. The Company agrees that it will not file such registration
statement or any amendment thereto or any prospectus or any supplement thereto
(including any documents incorporated by reference therein) with the Commission
if the information in such registration statement or prospectus concerning the
Holder has changed and the Holder or the underwriters, if any, shall reasonably
object; provided, that the Company may file and amend the registration statement
under this clause if it removes any incorrect or outdated information from the
registration statement before such filing or amendment.
Registration Rights Agreement Page 5
<PAGE>
(b) Prepare and file with the Commission such amendments and post-
effective amendments to such registration statement as may be necessary to keep
such registration statement effective during the period referred to in Section
-------
4(a) and to comply with the provisions of the 1933 Act with respect to the
- ----
disposition of all securities during such period that are covered by such
registration statement, and cause the prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be filed with the
Commission pursuant to Rule 424 under the 1933 Act.
(c) Furnish to the Holder such numbers of copies of such registration
statement, each amendment thereto, the prospectus included in such registration
statement (including each preliminary prospectus), each supplement thereto and
such other documents as the Holder may reasonably request in order to facilitate
the disposition of Registrable Securities owned by the Holder.
(d) Use all commercially reasonable efforts to register and qualify the
Registrable Securities under such other securities laws of such jurisdictions as
shall be reasonably requested by the Holder and do any and all other acts and
things which may be reasonably necessary or advisable to enable the Holder to
consummate the disposition of the Registrable Securities owned by the Holder in
such jurisdictions; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to transact business,
to subject itself to taxation in any such jurisdiction or to file a general
consent to service of process in any such counties, states or jurisdictions
(other than as to matters and transactions relating to the registration
statement).
(e) Notify the Holder of such Registrable Securities at any time when a
prospectus relating thereto is required to be delivered under the 1933 Act of
the happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading and, with the assistance of such
Holder, the Company will prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or omit
to state any fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(f) Provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement.
(g) Enter into such customary agreements (including underwriting
agreements in customary form for a secondary offering) and take all such other
actions as the Holder of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities.
(h) Make available for inspection by the selling Holder of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such selling Holder or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
officers, directors, employees and independent accountants of the Company to
supply
Registration Rights Agreement Page 6
<PAGE>
all information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement.
(i) Promptly notify the Holder of Registrable Securities and the
underwriters, if any, of the following events and (if requested by any such
Person) confirm such notification in writing: (1) the filing of the prospectus
or any prospectus supplement and the registration statement and any amendment or
post-effective amendment thereto and, with respect to the registration statement
or any post-effective amendment thereto, the declaration of the effectiveness of
such documents, (2) any requests by the Commission for amendments or supplements
to the registration statement or the prospectus or for additional information,
(3) the issuance or threat of issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or the initiation of
any proceedings for that purpose and (4) the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or threat
of initiation of any proceeding for such purpose.
(j) Cooperate with the selling Holder of Registrable Securities and the
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and, except with
respect to certificates held or to be held by Persons who are affiliates of the
Company, as that term is defined in Rule 405 promulgated under the 1933 Act, not
bearing any restrictive legends, and enable such Registrable Securities to be in
such lots and registered in such names as the underwriters may request at least
two business days prior to any delivery of Registrable Securities to the
underwriters.
(k) Provide a CUSIP number for all Registrable Securities not later than
the effective date of the registration statement.
(l) Prior to the effectiveness of the registration statement and any
post-effective amendment thereto and at each closing of an underwritten
offering, (1) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the selling
Holder of Registrable Securities and the underwriters, if any, such letters to
be in customary form and covering matters of the type customarily covered in
"cold comfort" letters to underwriters in connection with similar underwritten
offerings; and (2) deliver such documents and certificates as may be reasonably
requested by the Holder of the Registrable Securities being sold and by the
underwriters, if any, to evidence compliance with any customary conditions
contained in the underwriting agreement or other agreement entered into by the
Company and the Holder.
(m) Cooperate and assist in any filings required to be made with the NASD
and in the performance of any due diligence investigation by any underwriter
(including any "qualified independent underwriter") that is required to be
retained in accordance with the rules and regulations of the NASD.
(n) Otherwise comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders, as soon as
practicable, a consolidated earnings statement meeting the requirements of the
1933 Act and Rule 158 thereunder (which need not be audited) for the twelve-
month period (i) commencing at the end of any fiscal quarter
Registration Rights Agreement Page 7
<PAGE>
in which Registrable Securities are sold to underwriters in a firm or best
efforts underwritten offering or (ii) if not sold to underwriters in such an
offering, beginning with the first month of the Company's first fiscal quarter
commencing after the effective date of the registration statement.
5. Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Agreement that
the Holder shall furnish to the Company such information regarding the Holder,
the Registrable Securities held by the Holder, and the intended method of
disposition of such Registrable Securities as the Company shall request and as
shall be required or, in the opinion of the Company's legal counsel, necessary,
in connection with the action to be taken by the Company.
6. Suspension of Disposition of Registrable Securities. The Selling
---------------------------------------------------
Holders of Registrable Securities agrees by acquisition of such Registrable
Securities that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 4(e) hereof, such Holder will
------- ----
forthwith discontinue disposition of Registrable Securities until such Holder's
receipt of copies of a supplemented or amended prospectus contemplated by
Section 4(e) hereof, or until it is advised in writing (the "Advice") by the
- ------------ ------
Company that the use of the prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference in
the prospectus, and, if so directed by the Company, such Holder will deliver to
the Company (at the expense of the Company) all copies, other than permanent
file copies then in such Holder's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the time periods mentioned in
Section 4(a) hereof shall be extended by the number of days during the period
- ------------
from and including the date of the giving of such notice pursuant to Section
-------
4(e) hereof to and including the date when the selling Holder of Registrable
- ----
Securities shall have received the copies of the supplemented or amended
prospectus contemplated by Section 4(e) hereof or the Advice.
------------
7. Expenses of Registration. The Company will pay all Registration
------------------------
Expenses in connection with registrations of Shares effected pursuant to
Sections 2 and 3. All Selling Expenses in connection with any registration
- ----------------
effected pursuant to this Agreement shall be borne by the Company, the Holders
of securities included in such registration other than Shares and the Holders of
the Shares so registered, pro rata on the basis of the relative proceeds
received from the securities included in the registration for the account of the
Company and each such Holder.
8. Termination of the Company's Obligations.
----------------------------------------
(a) The Company shall not be obligated to register or include in any
registration Registrable Securities that any Holder has requested to be
registered if all Registrable Securities that such Holder holds may be publicly
offered, sold and distributed without registration under the 1933 Act pursuant
to Rule 144(k).
(b) With a view to making available to the Holder the benefits of Rule
144 promulgated under the 1933 Act and any other rule or regulation of the
Commission that may at any time permit the Holder to sell securities of the
Company to the public without registration, the Company agrees to use all
commercially reasonable efforts to:
Registration Rights Agreements Page 8
<PAGE>
(i) file with the Commission in a timely manner all reports and
other documents required of the Company under the 1933 Act and the 1934 Act
while it is subject to such registration requirements; and
(ii) furnish to the Holder so long as such Holder owns any of the
Registrable Securities forthwith upon request a written statement by the Company
that it has complied with the reporting requirements the 1934 Act (at any time
for which it remains subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as may be reasonably requested by the Holder
in availing the Holder of any rule or regulation of the Commission permitting
the selling of any such securities without registration.
9. Lockup Agreement. In consideration for the Company performing its
----------------
obligations under this Agreement, each Holder, severally agrees to enter into an
agreement providing that for a period of time (not to exceed one hundred eighty
(180) days) from the effective date of any registration (other than a
registration effected solely to implement an "employee benefit plan" as defined
by Rule 405 or any successor provision or a transaction to which Rule 145 or any
successor provision applies) of Common Stock for an underwritten public offering
(upon request of the underwriters managing the underwritten offering covered by
such registration), such Holder shall not sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any Registrable
Securities, other than shares of Registrable Securities included in the
registration, without the prior written consent of such underwriters; provided,
however, such Holder shall not be obligated to enter into such agreement unless
all executive officers and directors of the Company and each Holder of amounts
equal to or greater than the amount held by such Holder shall have entered into
similar agreements.
10. Indemnification. In the event any Registrable Securities are included
---------------
in a registration statement under this Agreement:
(a) To the full extent permitted by law, the Company hereby agrees to
indemnify and hold harmless the Holder requesting or joining in a registration
and each agent, officer, director and employee, and each Person, if any, who
controls such Holder within the meaning of the 1933 Act, against any losses,
claims, damages or liabilities, joint or several, to which they may become
subject under the 1933 Act and applicable state securities laws insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based on any untrue or alleged untrue statement of any material fact
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading or arise out of any violation by the Company of any rule or
regulation promulgated under the 1933 Act applicable to the Company and relating
to action or inaction required of the Company in connection with any such
registration; and will reimburse each such Person for any legal or other
expenses reasonably incurred in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 10(a) shall not apply to amounts
-------------
paid in settlement of any such loss, claim, damage,
Registration Rights Agreements Page 9
<PAGE>
liability, or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld) nor shall the Company
be liable in any such case for any such loss, claim, damage, liability or action
to the extent that it arises out of or is based upon (i) an untrue statement or
alleged untrue statement or omission or alleged omission made in connection with
such registration statement, preliminary prospectus, final prospectus, or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by or on behalf of such Holder or controlling Person or (ii) such
Holder's failure to deliver a copy of the registration statement or prospectus
or any amendments or supplements thereto to any offeree after the Company has
furnished such Holder with a sufficient number of copies of the same.
(b) To the full extent permitted by law, the Holder requesting or
joining in a registration under this Agreement hereby agrees to indemnify and
hold harmless the Company, each of its directors and officers, each Person, if
any, who controls the Company within the meaning of the 1933 Act, and any
underwriter for the Company (within the meaning of the 1933 Act), against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director, officer, controlling Person or underwriter may become
subject, under the 1933 Act and applicable state securities laws, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, in each case to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in such registration statement, preliminary or final prospectus, or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling Person or underwriter in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 10(b) shall not apply to amounts
-------------
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld).
(c) In no event shall the liability of the selling Holder of Registrable
Securities or the Company hereunder be greater than the dollar amount of the
proceeds received by such Holder or of the Company upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(d) Promptly after receipt by an indemnified party under this Section 10
----------
of notice of the commencement of any action or knowledge of a claim that would,
if asserted, give rise to a claim for indemnity hereunder, such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 10, notify the indemnifying party in writing of the
----------
commencement thereof or knowledge thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with
Registration Rights Agreements Page 10
<PAGE>
any other indemnifying party similarly noticed, assume the defense thereof with
counsel mutually satisfactory to the parties. The failure to notify an
indemnifying party promptly of the commencement of any such action or of the
knowledge of any such claim, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 10, but the omission so to notify the
----------
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 10.
----------
11. Remedies. In addition to being entitled to exercise all rights
--------
provided in this Agreement and the Acquisition Agreements as well as all rights
granted by law, including recovery of damages, the Company and the Holder of
Registrable Securities will be entitled to specific performance of its rights
under this Agreement.
12. Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless such amendment, modification or supplement is approved in writing
by the Company and the Holder.
13. Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered personally
or by reputable overnight or express courier, sent by registered or certified
mail, postage prepaid, or by telefax (with subsequent delivery via one of the
two previous methods) as follows:
(a) If to Company, to:
Netzee, Inc.
2410 Paces Ferry Road
150 Paces Summit
Atlanta, Georgia 30339
Attn: President and Chief Financial Officer
Telefax: (770) 805-2024
Copy (which shall not constitute notice) to:
Sutherland Asbill & Brennan LLP
999 Peachtree Street, N.E.
Suite 2300
Atlanta, Georgia 30309
Attn: Mark D. Wasserman
Telefax: (404) 853-8398
(b) If to TIB:
TIB The Independent BankersBank
350 Phelps Court, Suite 200
Attn: A. Mackey Harral
Executive Vice President
Telefax: (972) 541-0755
Registration Rights Agreements Page 11
<PAGE>
Copy (which shall not constitute notice) to:
Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270-2199
Attn: Valinda B. Wolfert
D. Forrest Brumbaugh
Telefax: (214) 745-5390
(c) If to GBB:
The Bankers Bank
2410 Paces Ferry Road
600 Paces Summit
Atlanta, Georgia 30339-4098
Attn: Kevin Tweddle
Telefax: (770) 805-2164
Copy (which shall not constitute notice) to:
Morris, Manning & Martin
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326-1044
Attn: Larry W. Shackelford
Telefax: (404) 365-9532
or such other addresses and telefax numbers as shall be furnished in writing by
any Party or Holder, and any such notice or communications shall be deemed to
have been given as of three business
14. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original, and each of which shall
constitute one and the same agreement. Any Party may deliver an executed copy
of this Agreement and any documents contemplated hereby by facsimile
transmission to another Party, and such delivery shall have the same force and
effect as any other delivery of a manually signed copy of this Agreement or of
such other documents.
15. Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF
Registration Rights Agreements Page 12
<PAGE>
AMERICA AND THE STATE OF GEORGIA, EXCLUDING CHOICE OF LAW PRINCIPLES.
The Company and the Shareholders consent to the exclusive jurisdiction and
venue of the courts the United States Federal District Court of Georgia, in any
judicial proceeding brought to enforce this Agreement.
17. Invalidity of any Part. If any provision or part of this Agreement
----------------------
shall for any reason be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Agreement and shall be construed as if such invalid, illegal
or unenforceable provision or part thereof had never been contained herein, but
only to the extent of its invalidity, illegality, or unenforceability. Upon any
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the Parties hereto will negotiate in good faith to
modify this Agreement so as to effect the original intent of the Parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated by this Agreement are consummated to the extent possible.
18. Entire Agreement. This Agreement (along with the Acquisition
----------------
Agreements, Marketing Agreement, Antidilution Agreement and the Agreement),
certificates and instruments executed and delivered pursuant to or in connection
with the Acquisition Agreements contain the entire agreement among the Parties
with respect to the transactions contemplated by this Agreement and supersedes
all prior negotiations, arrangements or understandings, written or oral, with
respect thereto.
19. No Assignment; Parties Benefited. Except as provided below, no Party
--------------------------------
may assign its rights, duties or obligations under this Agreement without the
express written consent of the other Parties. Any attempted assignment without
such written consent shall be null and void. Notwithstanding the foregoing, any
-------------
transfer of Registrable Securities of a Holder to an Affiliate shall result in
such transferee becoming a Holder for purposes of this Agreement; provided, that
promptly upon the Company's request such transferee shall execute a written
agreement provided by the Company to adopt and agree to be bound by this
Agreement; otherwise such transferee shall be deemed to have waived any
registration rights hereunder and such securities shall no longer be deemed to
be Registrable Securities. Nothing in this Agreement, express or implied, is
intended to confer upon any third party any rights, remedies, obligations or
liabilities.
Registration Rights Agreements Page 13
<PAGE>
The Parties have executed this Registration Rights Agreement as of the date
first above written.
NETZEE, INC.
By: /s/ Glenn W. Sturm
-------------------------------
Name: Glenn W. Sturm
------------------------------
Title: Chief Executive Officer
-----------------------------
SHAREHOLDER
The Bankers Bank
By: /s/ Kevin Tweddle
--------------------------------
Name: Kevin Tweddle
------------------------------
Title: SVP/CFO
-----------------------------
TIB The Independent BankersBank
By: /s/ Gayle M. Earls
--------------------------------
Name: Gayle M. Earls
------------------------------
Title: President and CEO
-----------------------------
Registration Rights Agreements Page 14
<PAGE>
Exhibit 4.4
-----------
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), is dated and executed
---------
effective as of September 3, 1999, by Netzee, Inc., a Georgia corporation (the
"Company"), and the persons named on the signature page hereto (collectively,
-------
the "Shareholders" and each, a "Shareholder"). The Company and the Shareholders
------------ -----------
are hereinafter collectively called the "Parties."
-------
WHEREAS, the Company, Dyad Corporation, a Georgia corporation, and certain
other parties thereto have entered into an Agreement and Plan of Merger, dated
as of August __, 1999 (the "Merger Agreement"), pursuant to which, among other
----------------
things, the Company has agreed to issue to the Shareholders shares of the
Company's common stock, without par value (the "Common Stock"); and
------------
WHEREAS, the Company and the Shareholders desire to provide for the rights
of the Shareholders with respect to the registration of the shares of Common
Stock to be received by the Shareholders pursuant to the Merger Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Definitions. For purposes of this Agreement:
-----------
(a) "1933 Act" means the United States Securities Act of 1933, as
--------
amended, or any similar U.S. federal statute enacted hereafter, and the rules
and regulations of the Commission thereunder, all as the same shall be in effect
from time to time;
(b) "Commission" means the United States Securities and Exchange
----------
Commission or any other U.S. federal agency at the time administering the 1933
Act and 1934 Act;
(c) "Register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the 1933 Act and the declaration or ordering of effectiveness of
such registration statement by the Commission;
(d) "Registrable Securities" means shares of Common Stock issued or
----------------------
issuable to the Shareholders pursuant to the Merger Agreement and any Common
Stock issued as a dividend or other distribution with respect to, or in exchange
or replacement of, the foregoing, but shall not include any other shares of
Common Stock acquired by Shareholders other than the foregoing;
(e) "Holder" means a Shareholder if the Shareholder holds Registrable
------
Securities; provided, however, that any person who acquires any of the
Registrable Securities from a Shareholder in a distribution or transfer pursuant
to a registration statement filed under the 1933 Act or pursuant to a sale under
Rule 144, Regulation S or any other exemption from registration under the 1933
Act, shall not be considered a Holder;
Registration Rights Agreement Page 1 of 13
<PAGE>
(f) "1934 Act" means the United States Securities Exchange Act of
--------
1934, as amended, or any similar U.S. federal statute enacted hereafter, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect from time to time; and
(g) All other capitalized terms used herein but not otherwise defined
shall have the meanings ascribed to them in the Merger Agreement.
2. Piggyback Registration. Subject to the other provisions hereof, if at
----------------------
any time after consummation of its initial public offering, the Company proposes
to register any of its securities under the 1933 Act, either for its own account
or for the account of other holders of Common Stock (other than on a Form S-8,
Form S-4 or similar registration statement or registration for foreign issuance
or distribution), in connection with the public offering of such securities
solely for cash, on a registration form that would also permit the registration
of Registrable Securities, the Company shall, with respect to any such
registration, promptly give each Holder written notice of such proposal. Upon
the written request of any Holder given within 15 days after mailing of any such
notice by the Company, the Company shall, subject to the terms and limitations
contained herein, use all commercially reasonable efforts to cause to be
included in such registration under the 1933 Act all the Registrable Securities
that each such Holder has requested be registered.
3. Obligations of the Company. Whenever required under this Agreement to
--------------------------
use all commercially reasonable efforts to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the Commission a registration statement
covering such Registrable Securities and use all commercially reasonable efforts
to cause such registration statement to be declared effective by the Commission
as expeditiously as possible and to keep such registration effective with
respect to the Registrable Securities until the earlier of (1) the date when all
Registrable Securities covered by the registration statement have been sold or
(2) 45 days from the effective date of the registration statement; provided,
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to counsel for each Holder of
Registrable Securities covered by such registration statement and the
underwriters, if any, copies of all such documents proposed to be filed
(excluding exhibits, unless any such person shall specifically request
exhibits), which documents will be subject to the review of such counsel and
underwriters. The Company agrees that it will not file such registration
statement or any amendment thereto or any prospectus or any supplement thereto
(including any documents incorporated by reference therein) with the Commission
if the information in such registration statement or prospectus concerning a
particular selling Holder has changed and such Holder or the underwriters, if
any, shall reasonably object; provided, that the Company may file and amend the
registration statement under this clause if it removes any incorrect or outdated
information from the registration statement before such filing or amendment.
(b) Prepare and file with the Commission such amendments and post-
effective amendments to such registration statement as may be necessary to keep
such registration statement effective during the period referred to in Section
3(a) and to comply with the
Registration Rights Agreement Page 2 of 13
<PAGE>
provisions of the 1933 Act with respect to the disposition of all securities
during such period that are covered by such registration statement, and cause
the prospectus to be supplemented by any required prospectus supplement, and as
so supplemented to be filed with the Commission pursuant to Rule 424 under the
1933 Act.
(c) Furnish to the selling Holders such numbers of copies of such
registration statement, each amendment thereto, the prospectus included in such
registration statement (including each preliminary prospectus), each supplement
thereto and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use all commercially reasonable efforts to register and qualify
the Registrable Securities under such other securities laws of such
jurisdictions as shall be reasonably requested by any selling Holder and do any
and all other acts and things which may be reasonably necessary or advisable to
enable such selling Holder to consummate the disposition of the Registrable
Securities owned by such Holder in such jurisdictions; provided that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to transact business, to subject itself to taxation in any such
jurisdiction or to file a general consent to service of process in any such
counties, states or jurisdictions; and provided further that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the Registrable Securities shall be
qualified shall require that expenses incurred in connection with the
qualification of the Registrable Securities in that jurisdiction be borne by
selling shareholders, then such expenses shall be payable by the selling Holders
pro rata, to the extent required by such jurisdiction, including but not limited
to filing fees and expenses of counsel and other advisors and any commissions or
discounts related to the registration of Registrable Securities in such other
jurisdictions.
(e) Notify each selling Holder of such Registrable Securities at any
time when a prospectus relating thereto is required to be delivered under the
1933 Act of the happening of any event as a result of which the prospectus
included in such registration statement contains an untrue statement of a
material fact or omits any fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and, with
the assistance of such Holder, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(f) Provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement.
(g) Enter into such customary agreements (including underwriting
agreements in customary form for a secondary offering) and take all such other
actions as the Holders of a majority of the Registrable Securities being sold or
the underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities.
Registration Rights Agreement Page 3 of 13
<PAGE>
(h) Make available for inspection by any selling Holder of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such selling Holder or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
officers, directors, employees and independent accountants of the Company to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement.
(i) Promptly notify the Holders of Registrable Securities and the
underwriters, if any, of the following events and (if requested by any such
person) confirm such notification in writing: (1) the filing of the prospectus
or any prospectus supplement and the registration statement and any amendment or
post-effective amendment thereto and, with respect to the registration statement
or any post-effective amendment thereto, the declaration of the effectiveness of
such documents, (2) any requests by the Commission for amendments or supplements
to the registration statement or the prospectus or for additional information,
(3) the issuance or threat of issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or the initiation of
any proceedings for that purpose and (4) the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or threat
of initiation of any proceeding for such purpose.
(j) Cooperate with the selling Holders of Registrable Securities and
the underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and, except with
respect to certificates held or to be held by persons who are affiliates of the
Company, as that term is defined in Rule 405 promulgated under the 1933 Act, not
bearing any restrictive legends, and enable such Registrable Securities to be in
such lots and registered in such names as the underwriters may request at least
two business days prior to any delivery of Registrable Securities to the
underwriters.
(k) Provide a CUSIP number for all Registrable Securities not later
than the effective date of the registration statement.
(l) Prior to the effectiveness of the registration statement and any
post-effective amendment thereto and at each closing of an underwritten
offering, (1) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the selling
Holders of Registrable Securities and the underwriters, if any, such letters to
be in customary form and covering matters of the type customarily covered in
"cold comfort" letters to underwriters in connection with similar underwritten
offerings; and (2) deliver such documents and certificates as may be reasonably
requested by the Holders of a majority of the Registrable Securities being sold
and by the underwriters, if any, to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company and such Holder.
4. Termination of Registration. Notwithstanding any other provision in
---------------------------
this Agreement, at any time before or after the filing of a registration
statement, and before the effective date of such registration statement, the
Company may, in its sole discretion, abandon
Registration Rights Agreement Page 4 of 13
<PAGE>
or terminate such registration without the consent of the Holders with no
liability to the Holders or any third party arising therefrom.
5. Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Agreement that
the Holders shall furnish to the Company such information regarding them, the
Registrable Securities held by them, and the intended method of disposition of
such Registrable Securities as the Company shall request and as shall be
required or, in the opinion of the Company, necessary, in connection with the
action to be taken by the Company.
6. Suspension of Disposition of Registrable Securities. Each selling
---------------------------------------------------
Holder of Registrable Securities agrees by acquisition of such Registrable
Securities that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 3(e) hereof, such Holder will
forthwith discontinue disposition of Registrable Securities until such Holder's
receipt of copies of a supplemented or amended prospectus contemplated by
Section 3(e) hereof, or until it is advised in writing (the "Advice") by the
------
Company that the use of the prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference in
the prospectus, and, if so directed by the Company, such Holder will deliver to
the Company (at the expense of the Company) all copies, other than permanent
file copies then in such Holder's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the time periods mentioned in
Section 3(a) hereof shall be extended by the number of days during the period
from and including the date of the giving of such notice pursuant to Section
3(e) hereof to and including the date when each selling Holder of Registrable
Securities shall have received the copies of the supplemented or amended
prospectus contemplated by Section 3(e) hereof or the Advice.
7. Expenses of Registration. All expenses incurred in connection with a
------------------------
registration pursuant to this Agreement, including all registration and
qualification fees, printing and accounting fees, and fees and disbursements of
counsel for the Company, shall be borne by the Company. All other expenses
(including the underwriting discounts, commissions and costs, costs and expenses
described in Section 3(d), and expenses of counsel and other advisors to the
selling Holders) shall be borne by the Holders selling Registrable Securities.
8. Underwriting Requirements; Priorities.
-------------------------------------
(a) The Company shall select the investment banker(s) and manager(s)
to administer any offering required hereunder, if any. If the managing
underwriters advise the Company in writing that, in their opinion, the number of
securities requested to be included in such registration exceeds the number
which can be sold at the desired price in such offering, the Company will
include in such registration (1) first, the securities the Company proposes to
sell, (2) second, the number of securities requested to be included, which in
the opinion of such underwriters can be sold, pro rata among the respective
selling shareholders of Common Stock on the basis of the number of shares of
Common Stock owned by each selling shareholder and (3) third, all other
securities requested to be included in such registration.
Registration Rights Agreement Page 5 of 13
<PAGE>
(b) No person may participate in any underwritten registration
hereunder unless such person (1) agrees to sell such person's securities on the
basis provided in any underwriting arrangements approved by the Company and (2)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
9. Termination of the Company's Obligations.
----------------------------------------
(a) The Company shall not be obligated to register or include in any
registration Registrable Securities that any Holder has requested to be
registered if all Registrable Securities that such Holder holds may be publicly
offered, sold and distributed without registration under the 1933 Act pursuant
to Rule 144, Regulation S or other exemption from registration promulgated by
the Commission under the 1933 Act (whether or not subject to applicable volume
limitations thereunder).
(b) The Company shall not be obligated to register the Registrable
Securities of any Holder if, within the six months prior to the time of a
proposed registration, the Company has offered such Holder the opportunity to
register Registrable Securities under the terms hereof and either (1) the Holder
declined such offer or (2) Registrable Securities of such Holder were registered
by the Company.
(c) With a view to making available to the Holders the benefits of
Rule 144 promulgated under the 1933 Act and any other rule or regulation of the
Commission that may at any time permit a Holder to sell securities of the
Company to the public without registration, the Company agrees to use all
commercially reasonable efforts to:
(i) file with the Commission in a timely manner all reports and
other documents required of the Company under the 1933 Act and the 1934 Act
while it is subject to such registration requirements; and
(ii) furnish to any Holder so long as such Holder owns any of the
Registrable Securities forthwith upon request a written statement by the Company
that it has complied with the reporting requirements the 1934 Act (at any time
for which it remains subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as may be reasonably requested by any Holder
in availing any Holder of any rule or regulation of the Commission permitting
the selling of any such securities without registration.
10. Lockup Agreement. As a condition to the exercise of any registration
----------------
rights hereunder, each Holder hereby agrees in connection with any registration
of its Registrable Securities not to sell, make any short sale of, pledge, grant
any option for the purchase of or otherwise dispose of or reduce his or her risk
of ownership with respect to, any Registrable Securities (other than those
included in the registration) without the prior written consent of the Company
or the underwriters, as the case may be, during the seven days prior to and the
180-day period beginning on the effective date of the offering. Each holder
agrees to execute and deliver a lock-up letter (setting forth the above
restrictions in greater detail) if requested by the underwriters or the Company
in connection with any offering of Registrable Securities.
Registration Rights Agreement Page 6 of 13
<PAGE>
11. Indemnification. In the event any Registrable Securities are included
---------------
in a registration statement under this Agreement:
(a) To the full extent permitted by law, the Company hereby agrees to
indemnify and hold harmless each Holder requesting or joining in a registration
and each person, if any, who controls such Holder within the meaning of the 1933
Act, against any losses, claims, damages or liabilities, joint or several, to
which they may become subject under the 1933 Act and applicable state securities
laws insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based on any untrue or alleged untrue
statement of any material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or arise out of any
violation by the Company of any rule or regulation promulgated under the 1933
Act applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration; and will reimburse each such
person for any legal or other expenses reasonably incurred by him in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 11(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld) nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon (i) an
untrue statement or alleged untrue statement or omission or alleged omission
made in connection with such registration statement, preliminary prospectus,
final prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by or on behalf of any such Holder or controlling person
or (ii) such Holder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto to any offeree after the
Company has furnished such Holder with a sufficient number of copies of the
same.
(b) To the full extent permitted by law, each Holder requesting or
joining in a registration under this Agreement hereby agrees to indemnify and
hold harmless the Company, each of its directors and officers, each person, if
any, who controls the Company within the meaning of the 1933 Act, and any
underwriter for the Company (within the meaning of the 1933 Act), each other
selling Holder and each person, if any, who controls such other selling Holder
within the meaning of Section 15 of the 1933 Act against any losses, claims,
damages or liabilities, joint or several, to which the Company or any such
director, officer, controlling person or underwriter may become subject, under
the 1933 Act and applicable state securities laws, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, in each case to the extent that such
untrue statement or
Registration Rights Agreement Page 7 of 13
<PAGE>
alleged untrue statement or omission or alleged omission was made in such
registration statement, preliminary or final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this Section 11(b) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of such Holder (which consent shall not be unreasonably
withheld).
(c) In no event shall the liability of any selling Holder of
Registrable Securities or the Company hereunder be greater than the dollar
amount of the proceeds received by such Holder or, in the case of the Company,
the proceeds received by all Holders, upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(d) Promptly after receipt by an indemnified party under this Section
11 of notice of the commencement of any action or knowledge of a claim that
would, if asserted, give rise to a claim for indemnity hereunder, such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 11, notify the indemnifying party in
writing of the commencement thereof or knowledge thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, assume the defense thereof with counsel mutually satisfactory
to the parties. The failure to notify an indemnifying party promptly of the
commencement of any such action or of the knowledge of any such claim, if
prejudicial to his ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
11, but the omission so to notify the indemnifying party will not relieve him of
any liability that he may have to any indemnified party otherwise than under
this Section 11.
12. Remedies. In addition to being entitled to exercise all rights
--------
provided in this Agreement and the Merger Agreement as well as all rights
granted by law, including recovery of damages, the Company and each Holder of
Registrable Securities will be entitled to specific performance of its rights
under this Agreement.
13. Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless such amendment, modification or supplement is approved in writing
by the Company and the Holders of at least a majority of the outstanding
Registrable Securities, voting together as a single class.
14. Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by personal delivery, by
internationally recognized overnight courier (with charges prepaid) or by
telecopy (with telephone confirmation) as follows:
(a) if to a Holder of Registrable Securities, at the most current
address given by such Holder to the Company in accordance with the provisions of
this Section 14, which
Registration Rights Agreement Page 8 of 13
<PAGE>
address initially is, with respect to the Shareholders, the address set forth in
the Merger Agreement, with a copy (which shall not constitute notice) to the
Shareholders' respective counsel as identified therein; and
(b) if to the Company, initially at its address set forth in the
Merger Agreement and thereafter at such other address, notice of which is given
in accordance with the provisions of this Section 14, with a copy (which shall
not constitute notice) to the Company's counsel as identified in the Merger
Agreement.
(c) All such notices and communications shall be deemed to have been
duly given or made when personally delivered, the day of guaranteed delivery by
such overnight courier service or when transmitted to the specified telecopy
number and confirmed by telephone, in each case addressed to the respective
parties as set forth above.
15. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed an original and all of which taken together
shall constitute one and the same agreement.
16. Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
17. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF
GEORGIA, EXCLUDING CHOICE OF LAW PRINCIPLES.
The Company and the Shareholders irrevocably consent to the exclusive
jurisdiction and venue of the courts of any county in the State of Georgia and
the United States Federal District Court of Georgia, in any judicial proceeding
brought to enforce this Agreement. The parties agree that any forum other than
the State of Georgia is an inconvenient forum and that a lawsuit (or non-
compulsory counterclaim) brought by one party against another party, in a court
of any jurisdiction other than the State of Georgia should be forthwith
dismissed or transferred to a court located in the State of Georgia.
18. Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
19. Entire Agreement. This Agreement (together with the Merger Agreement
----------------
and such other agreements as specifically referred to in the Merger Agreement)
is intended by the parties as a final expression of their agreement and intended
to be a complete and exclusive statement of the agreement and understanding of
the parties hereto in respect of the subject matter contained herein. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein with respect to the registration rights granted by
the Company with respect to the Common Stock held by the Holders. This Agreement
supersedes
Registration Rights Agreement Page 9 of 13
<PAGE>
all prior agreements and understandings between the parties with respect to such
subject matter.
20. No Assignment; Parties Benefited. No Party may assign its rights,
--------------------------------
duties or obligations under this Agreement without the express written consent
of the other Parties. Any attempted assignment without such written consent
shall be null and void. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any third party any rights, remedies, obligations or
liabilities.
Registration Rights Agreement Page 10 of 13
<PAGE>
The Parties have executed this Registration Rights Agreement as of the date
first above written.
NETZEE, INC.
By: /s/ C. Michael Bowers
----------------------------------
C. Michael Bowers
President
SHAREHOLDERS
/s/ Gary T. Anderson
----------------------------------
Gary T. Anderson
/s/ William R. Asbell, Jr.
----------------------------------
William R. Asbell, Jr.
/s/ C. Michael Bowers
----------------------------------
C. Michael Bowers
/s/ William J. Ching
----------------------------------
William J. Ching
/s/ Jonathan R. Coe
----------------------------------
Jonathan R. Coe
/s/ John W. Collins
----------------------------------
John W. Collins
FDS, LLC
/s/ John W. Collins
----------------------------------
Name: John W. Collins
-----------------------------
Title: ---------------------------
/s/ Jim Graves
----------------------------------
Jim Graves
/s/ Neil E. Grayson
----------------------------------
Registration Rights Agreement Page 11 of 13
<PAGE>
Neil E. Grayson
/s/ William D. Hasewinkle
----------------------------------
William D. Hasewinkle
/s/ Andrew L. Howell
----------------------------------
Andrew L. Howell
InterCept Holding Company, Inc.
/s/ Donny R. Jackson
----------------------------------
Name: Donny R. Jackson
-----------------------------
Title: President
----------------------------
/s/ Donny R. Jackson
----------------------------------
Donny R. Jackson
JCB Venture Partnership III
/s/ Robert S. Doolittle
----------------------------------
Name: Robert S. Doolittle
-----------------------------
Title: Partner
----------------------------
/s/ Jonathan H. Klapper
----------------------------------
Jonathan H. Klapper
/s/ Michael C. Nunan
----------------------------------
Michael C. Nunan
/s/ Robert D. Pannell
----------------------------------
Robert D. Pannell
Registration Rights Agreement Page 12 of 13
<PAGE>
/s/ David L. Patten
----------------------------------
David L. Patten
Phoenix International Ltd., Inc.
/s/ Bahram Yusefzadeh
----------------------------------
Name: Bahram Yusefzadeh
-----------------------------
Title: Chm & CEO
----------------------------
Pickering Investments
/s/ C. Russell Pickering
----------------------------------
Name: C. Russell Pickering
-----------------------------
Title: Partner
----------------------------
/s/ Susan L. Spencer and John W.
----------------------------------
Spencer, II
----------------------------------
Susan L. Spencer and John W. Spencer,
II
/s/ Glenn W. Sturm
----------------------------------
Glenn W. Sturm
/s/ Mike Sulpy
----------------------------------
Mike Sulpy
TAF, L.P.
/s/ [Illegible]
----------------------------------
Name:
-----------------------------
Title:
----------------------------
/s/ Charles D. Vaughn
----------------------------------
Charles D. Vaughn
/s/ James Walker, IV
----------------------------------
James Walker, IV
Registration Rights Agreement Page 13 of 13
<PAGE>
EXHIBIT 4.5
-----------
AGREEMENT
THIS AGREEMENT ("Agreement") is dated and executed effective as of
September 3, 1999, by and among NETZEE, INC., a Georgia corporation ("Netzee"),
and SIRROM INVESTMENTS, INC. ("Sirrom"). Netzee and Sirrom are hereinafter
collectively called the "Parties" and each, individually, a "Party."
WHEREAS, on December 31, 1997 Dyad Corporation, a Georgia corporation
("Dyad") issued stock purchase warrants (the "Warrant") to Sirrom Investments,
Inc., in connection with making a loan to Dyad in the amount of $3,500,000.
Pursuant to the terms of the Warrants, Sirrom had the right to purchase 615
shares of Dyad's common stock, subject to increases in the amount of shares of
Dyad common stock in the event the indebtedness owed by Dyad to Sirrom continued
to be outstanding; and
WHEREAS, Dyad shall be merged with and into Netzee (the "Merger") pursuant
to the terms and conditions of that certain Agreement and Plan of Merger dated
as of August 30, 1999 (the "Merger Agreement"), by and among Netzee, Dyad, and
the shareholders of Dyad executing the Merger Agreement; and
WHEREAS, prior to the Merger, Sirrom shall have exercised its Warrant and
shall have acquired 1,745 shares of the common stock of Dyad and shall be a
shareholder of Dyad for purposes of the Merger; and
WHEREAS, pursuant to the terms of the Merger Agreement, Sirrom shall
surrender the shares of Dyad owned by Sirrom in exchange for shares of common
stock, no par value, of Netzee (such Netzee shares received in the Merger
collectively, the "Shares"); and
WHEREAS, in consideration of Sirrom agreeing in a letter agreement, dated
August 31, 1999, (the "Payoff Letter") to cancel and terminate all of the terms
and conditions of the Warrant, including but not limited to the right to
register shares of Dyad common stock under the Securities Act of 1933, as
amended, Netzee has agreed that in the event there is an initial public offering
of shares of Netzee common stock (the "IPO"), then the Shares held by Sirrom
pursuant to the Merger may be registered and sold by Sirrom in the IPO, subject
to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Obligation of Netzee to Register. Netzee confirms its obligations to
--------------------------------
Sirrom to register the Shares, other than the Shares which shall be offered to
the public pursuant to the provisions of Section 2 hereof, pursuant to that
certain Registration Rights Agreement dated August 31, 1999, by and among
Netzee, Dyad and the shareholders of Dyad who executed said agreement (the
"Registration Rights Agreement").
<PAGE>
2. Obligation of Netzee in Connection with an Initial Public Offering. If
------------------------------------------------------------------
at any time after the date hereof, Netzee shall offer for sale shares of Netzee
common stock in the IPO, then Netzee shall allow Sirrom to sell any or all of
the Shares in the IPO; provided that Sirrom shall comply with Section 5 of the
Registration Rights Agreement and that Sirrom shall execute a lock-up letter and
other documents and agreements requested by the representative of the
underwriters for the IPO in accordance with Section 10 of the Registration
Rights Agreement; provided, further that if the representative of the
underwriters for the IPO certifies in writing that the inclusion therein of some
or all of the Shares would adversely affect the sale of the Shares to be sold by
Netzee thereunder, then Netzee shall be required to include in the IPO only that
number of the Shares which the underwriters determine in their sole discretion
will not adversely affect the sale of the Shares to be sold by Netzee in the
IPO.
4. Amendments and Waivers. The Agreement may not be amended unless such
----------------------
amendment is approved in writing by the Parties.
5. Notices. All communications provided for or permitted hereunder shall
-------
be made in writing by personal delivery, by recognized overnight courier (with
charges prepaid) or by telecopy (with telephone confirmation) to the address for
a Party as set forth in the Merger Agreement, with a copy (which shall not
constitute notice) to said Party's counsel as identified in the Merger Agreement
All such communications shall be deemed to have been duly given or made when
personally delivered, the day of guaranteed delivery by such overnight courier
service or when transmitted to the specified telecopy number and confirmed by
telephone.
6. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the Parties in separate counterparts, each of which when so
executed shall be deemed an original and all of which taken together shall
constitute one and the same agreement.
7. Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
8. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF
GEORGIA, EXCLUDING CHOICE OF LAW PRINCIPLES. The Parties irrevocably consent to
the exclusive jurisdiction and venue of the courts of any county in the State of
Georgia and the United States Federal District Court of Georgia, in any judicial
proceeding brought to enforce this Agreement. The Parties agree that any forum
other than the State of Georgia is an inconvenient forum and that a lawsuit (or
non-compulsory counterclaim) brought by one party against another party, in a
court of any jurisdiction other than the State of Georgia should be forthwith
dismissed or transferred to a court located in the State of Georgia.
9. Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
<PAGE>
10. Entire Agreement. This Agreement (together with the Payoff Letter,
----------------
the Merger Agreement, the Registration Rights Agreement and such other
agreements as specifically referred to in the Merger Agreement) is intended by
the Parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement with respect to the subject
matter hereof and thereof and understanding of the Parties hereto in respect of
the subject matter contained herein and therein.
11. No Assignment; Parties Benefited. No Party may assign any or all of
--------------------------------
its rights, duties or obligations under this Agreement without the express
written consent of the other Party, which consent shall not be unreasonably
withheld. Any attempted assignment without such written consent shall be null
----
and void. Nothing in this Agreement, express or implied, is intended to confer
- --------
upon any third party any rights, remedies, obligations or liabilities.
12. Contingent on Closing. This Agreement shall take effect only upon, and
---------------------
is contingent upon, the closing of the transactions contemplated by the Merger
Agreement.
The Parties have executed this Agreement as of the date first above
written.
NETZEE, INC.
By: /s/ Glenn W. Sturm
-------------------------------------
Glenn W. Sturm
Chief Executive Officer
SIRROM INVESTMENTS, INC.
By: /s/ Kathy Harris
----------------------------------
Name: Kathy Harris
----------------------------
Title: Vice President
---------------------------
<PAGE>
EXHIBIT 10.11
-------------
PROMISSORY NOTE
$21,534,625 August 6, 1999
Direct Access Interactive, Inc. (hereinafter referred to as "Maker"), for
value received, hereby promises to pay to the order of The InterCept Group,
Inc., a Georgia corporation (hereinafter referred to as "Payee"), on the earlier
of (i) August 6, 2001 or (ii) the closing date of an initial public offering of
Maker's common stock (the "Maturity Date"), the aggregate principal amount of
Twenty One Million, Five Hundred Thirty Four Thousand, Six Hundred Twenty Five
and No/100 Dollars ($21,534,625) together with interest on the unpaid principal
balance and all other outstanding amounts and fees owed hereunder for which
interest may accrue under applicable law from the date hereof at the rate of
Prime Rate + 2.0% (a total of 10.0% at the date of this Note) per annum
(computed on the basis of a 360-day year). The Prime Rate shall be equal to the
prime rate as published in The Wall Street Journal (Eastern Edition).
Interest only on the outstanding principal balance hereof shall be due and
payable quarterly, in arrears, with the first installment being payable on the
first (1st) day of October, 1999 and subsequent installments being payable on
the first (1st) day of each succeeding quarter thereafter until the Maturity
Date, at which time the entire outstanding principal balance, together with all
accrued and unpaid interest and all other sums owed hereunder, shall be
immediately due and payable in full. All amounts due under this Note are
payable at 3150 Holcomb Bridge Road, Suite 200, Norcross, GA 30071 or at such
other place as Payee may from time to time designate to Maker in writing, in
coin or currency of the United States of America.
This Note shall be binding upon the Maker and its successors and assigns
and shall inure to the benefit of Payee and its successors and assigns. The
indebtedness evidenced hereby may be prepaid in whole or in part, at any time
and from time to time, without penalty. Any such prepayments shall be credited
first to any accrued and unpaid interest and then to the outstanding principal
balance hereof.
This Note is with full recourse to any assets of Maker. The proceeds of
this Note are to be used by Maker for purposes of paying the consideration under
the Agreement and Plan of Merger dated August 6, 1999 by and between Maker and
SBS Corporation, and to pay certain liabilities of SBS Corporation assumed by
Maker. Maker hereby grants to Payee a purchase money security interest in the
assets of SBS Corporation owned by Maker which are acquired with the proceeds of
this Note as well as a lien and security interest to Maker's other assets and
properties, as further described and evidenced by the Security Agreement of even
date herewith executed by Maker for the benefit of Payee (the "Security
Agreement"). All obligations of Maker under this Promissory Note shall be
secured by such Security Agreement.
If any of the following events (an "Event of Default") shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise), then this Note shall thereupon be and become, forthwith due and
payable, without any further notice or demand of any kind whatsoever, all of
which are hereby expressly waived:
<PAGE>
(a) If Maker defaults in the payment of principal or interest on this
Note when and as the same shall become due and payable and such default
continues for 20 days after Maker receives notice from Payee of such
default; or
(b) If Maker makes an assignment for the benefit of creditors or
admits in writing an inability to pay his or its debts generally as they
become due;
(c) If an order, judgment or decree is entered adjudicating Maker
bankrupt or insolvent;
(d) If Maker petitions or applies to any tribunal for the appointment
of a trustee or receiver of Maker, or of any substantial part of the assets
of Maker, or commences any proceedings relating to Maker under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect;
(e) If any such petition or application is filed, or any such
proceedings are commenced, against Maker, and Maker by any act indicates
its approval thereof, consent thereto, or acquiescence therein, or an order
is entered appointing any such trustee or receiver, or approving the
petition in any such proceedings, and such order remains unstayed and in
effect for more than 90 days;
(f) If Maker breaches any of its representations, warranties,
covenants, agreements or other obligations under the Security Agreement,
which breach is not cured within ten (10) days of such breach;
(g) If Maker defaults on any other obligations owed to Payee under
any now existing or hereafter arising agreement, promissory note, contract
or other document; or
(h) If Maker dissolves or otherwise ceases to conduct business in the
ordinary course as presently conducted.
Any failure on the part of Payee at any time to require the performance by
Maker of any of the terms or provisions hereof, even if known, shall in no way
affect the right thereafter to enforce the same, nor shall any failure of Payee
to insist on strict compliance with the terms and conditions hereof be taken or
held to be a waiver of any succeeding breach or of the right of Payee to insist
on strict compliance with the terms and conditions hereof.
Time is of the essence with respect to this Note.
This Note shall be governed by, and enforced and interpreted in accordance
with, the laws of the State of Georgia without regard to the principles of
conflict of laws.
In the event this note, or any part hereof, is collected by or through an
attorney-at-law, Maker agrees to pay all costs of collection including, but not
limited to, attorneys' fees equal to
<PAGE>
15% of the principal and interest then due. In the event that Maker fails to
make any payment when due, Payee shall provide written notice of default to
Maker, which notice shall allow Maker ten (10) days from the date of receipt of
such notice in which to cure such default. If such default is not cured within
the time allowed, the balance hereof shall be deemed to be immediately
accelerated without further notice to Maker.
IN WITNESS WHEREOF, Maker has executed this Note under seal as of the date
first set forth above.
MAKER:
Direct Access Interactive, Inc.
/s/ Scott R. Meyerhoff
-----------------------------------
By: Scott R. Meyerhoff
Chief Financial Officer
[CORPORATE SEAL]
<PAGE>
EXHIBIT 10.12
-------------
PROMISSORY NOTE
$4,399,639.22 September 1, 1999
NetZee, Inc. (hereinafter referred to as "Maker"), for value received,
hereby promises to pay to the order of The InterCept Group, Inc., a Georgia
corporation (hereinafter referred to as "Payee"), on the earlier of (i)
September 1, 2001 or (ii) the closing date of an initial public offering of
Maker's common stock (the "Maturity Date"), the aggregate principal amount of
Four Million Three Hundred Ninety-Nine Thousand Six Hundred Thirty-Nine and
22/100 Dollars ($4,399,639.22) together with interest on the unpaid principal
balance and all other outstanding amounts and fees owed hereunder for which
interest may accrue under applicable law from the date hereof at the rate of
Prime Rate + 2.0% (a total of 10.25% at the date of this Note) per annum
(computed on the basis of a 360-day year). The Prime Rate shall be equal to the
prime rate as published in The Wall Street Journal (Eastern Edition).
Interest only on the outstanding principal balance hereof shall be due and
payable quarterly, in arrears, with the first installment being payable on the
first (1st) day of October, 1999 and subsequent installments being payable on
the first (1st) day of each succeeding quarter thereafter until the Maturity
Date, at which time the entire outstanding principal balance, together with all
accrued and unpaid interest and all other sums owed hereunder, shall be
immediately due and payable in full. All amounts due under this Note are
payable at 3150 Holcomb Bridge Road, Suite 200, Norcross, GA 30071 or at such
other place as Payee may from time to time designate to Maker in writing, in
coin or currency of the United States of America.
This Note shall be binding upon the Maker and its successors and assigns
and shall inure to the benefit of Payee and its successors and assigns. The
indebtedness evidenced hereby may be prepaid in whole or in part, at any time
and from time to time, without penalty. Any such prepayments shall be credited
first to any accrued and unpaid interest and then to the outstanding principal
balance hereof.
This Note is with full recourse to any assets of Maker. The proceeds of
this Note are to be used by Maker for purposes of paying the consideration under
the Agreement and Plan of Merger dated on or about September 1, 1999 by and
between Maker and Dyad Corporation and to pay certain liabilities of Dyad
Corporation assumed by Maker. Maker hereby grants to Payee a purchase money
security interest in the assets of Dyad Corporation owned by Maker which are
acquired with the proceeds of this Note as well as a lien and security interest
to Maker's other assets and properties, as further described and evidenced by
the Security Agreement dated September 1, 1999 executed by Maker (as successor
to Direct Access Interactive, Inc.) for the benefit of Payee (the "Security
Agreement"). All obligations of Maker under this Promissory Note shall be
secured by such Security Agreement.
If any of the following events (an "Event of Default") shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise), then this Note shall thereupon be and become, forthwith due and
payable, without any further notice or demand of any kind whatsoever, all of
which are hereby expressly waived;
<PAGE>
(a) If Maker defaults in the payment of principal or interest on this
Note when and as the same shall become due and payable and such default
continues for 20 days after Maker receives notice from Payee of such
default; or
(b) If Maker makes an assignment for the benefit of creditors or
admits in writing an inability to pay his or its debts generally as they
become due;
(c) If an order, judgment or decree is entered adjudicating Maker
bankrupt or insolvent;
(d) If Maker petitions or applies to any tribunal for the appointment
of a trustee or receiver of Maker, or of any substantial part of the assets
of Maker, or commences any proceedings relating to Maker under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect;
(e) If any such petition or application is filed, or any such
proceedings are commenced, against Maker, and Maker by any act indicates
its approval thereof, consent thereto, or acquiescence therein, or an order
is entered appointing any such trustee or receiver, or approving the
petition in any such proceedings, and such order remains unstayed and in
effect for more than 90 days;
(f) If Maker breaches any of its representations, warranties,
covenants, agreements or other obligations under the Security Agreement,
which breach is not cured within ten (10) days of such breach;
(g) If Maker defaults on any other obligations owed to Payee under
any now existing or hereafter arising agreement, promissory note, contract
or other document; or
(h) If Maker dissolves or otherwise ceases to conduct business in the
ordinary course as presently conducted.
Any failure on the part of Payee at any time to require the performance by
Maker of any of the terms or provisions hereof, even if known, shall in no way
affect the right thereafter to enforce the same, nor shall any failure of Payee
to insist on strict compliance with the terms and conditions hereof be taken or
held to be a waiver of any succeeding breach or of the right of Payee to insist
on strict compliance with the terms and conditions hereof.
Time is of the essence with respect to this Note.
This Note shall be governed by, and enforced and interpreted in accordance
with, the laws of the State of Georgia without regard to the principles of
conflict of laws.
In the event this note, or any part hereof, is collected by or through an
attorney-at-law, Maker agrees to pay all costs of collection including, but not
limited to, attorneys' fees equal to
2
<PAGE>
15% of the principal and interest then due. In the event that Maker fails to
make any payment when due, Payee shall provide written notice of default to
Maker, which notice shall allow Maker ten (10) days from the date of receipt of
such notice in which to cure such default. If such default is not cured within
the time allowed, the balance hereof shall be deemed to be immediately
accelerated without further notice to Maker.
IN WITNESS WHEREOF, Maker has executed this Note under seal as of the date
first set forth above.
MAKER:
NetZee, Inc.
/s/ Richard S. Eiswirth, Jr.
-------------------------------
By: Richard S. Eiswirth, Jr.
Chief Financial Officer
[CORPORATE SEAL]
3
<PAGE>
EXHIBIT 10.13
PROMISSORY NOTE
$2,882,200 September 1, 1999
NetZee, Inc. (hereinafter referred to as "Maker"), for value received,
hereby promises to pay to the order of The InterCept Group, Inc., a Georgia
corporation (hereinafter referred to as "Payee"), on the earlier of (i)
September 1, 2001 or (ii) the closing date of an initial public offering of
Maker's common stock (the "Maturity Date"), the aggregate principal amount of
Two Million Eight Hundred Eighty-Two Thousand Two Hundred and No/100 Dollars
($2,882,200) together with interest on the unpaid principal balance and all
other outstanding amounts and fees owed hereunder for which interest may accrue
under applicable law from the date hereof at the rate of Prime Rate + 2.0% (a
total of 10.25% at the date of this Note) per annum (computed on the basis of a
360-day year). The Prime Rate shall be equal to the prime rate as published in
The Wall Street Journal (Eastern Edition).
Interest only on the outstanding principal balance hereof shall be due and
payable quarterly, in arrears, with the first installment being payable on the
first (1st) day of October, 1999 and subsequent installments being payable on
the first (1st) day of each succeeding quarter thereafter until the Maturity
Date, at which time the entire outstanding principal balance, together with all
accrued and unpaid interest and all other sums owed hereunder, shall be
immediately due and payable in full. All amounts due under this Note are
payable at 3150 Holcomb Bridge Road, Suite 200, Norcross, GA 30071 or at such
other place as Payee may from time to time designate to Maker in writing, in
coin or currency of the United States of America.
This Note shall be binding upon the Maker and its successors and assigns
and shall inure to the benefit of Payee and its successors and assigns. The
indebtedness evidenced hereby may be prepaid in whole or in part, at any time
and from time to time, without penalty. Any such prepayments shall be credited
first to any accrued and unpaid interest and then to the outstanding principal
balance hereof.
This Note is with full recourse to any assets of Maker. The proceeds of
this Note are to be used by Maker for purposes of paying the consideration under
the Acquisition Agreement dated on or about September 1, 1999 by and between
Maker, Call Me Bill, Inc. and the equity holders of Call Me Bill, Inc. Maker
hereby grants to Payee a purchase money security interest in the assets of Call
Me Bill, Inc. owned by Maker which are acquired with the proceeds of this Note
as well as a lien and security interest to Maker's other assets and properties,
as further described and evidenced by the Security Agreement dated on or about
September 1, 1999 executed by Maker (as the successor to Direct Access
Interactive, Inc.) for the benefit of Payee (the "Security Agreement"). All
obligations of Maker under this Promissory Note shall be secured by such
Security Agreement.
If any of the following events (an "Event of Default") shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise), then this Note shall thereupon be and become, forthwith due and
payable, without any further notice or demand of any kind whatsoever, all of
which are hereby expressly waived:
<PAGE>
(a) If Maker defaults in the payment of principal or interest on this
Note when and as the same shall become due and payable and such default
continues for 20 days after Maker receives notice from Payee of such
default; or
(b) If Maker makes an assignment for the benefit of creditors or
admits in writing an inability to pay his or its debts generally as they
become due;
(c) If an order, judgment or decree is entered adjudicating Maker
bankrupt or insolvent;
(d) If Maker petitions or applies to any tribunal for the appointment
of a trustee or receiver of Maker, or of any substantial part of the assets
of Maker, or commences any proceedings relating to Maker under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect;
(e) If any such petition or application is filed, or any such
proceedings are commenced, against Maker, and Maker by any act indicates
its approval thereof, consent thereto, or acquiescence therein, or an order
is entered appointing any such trustee or receiver, or approving the
petition in any such proceedings, and such order remains unstayed and in
effect for more than 90 days;
(f) If Maker breaches any of its representations, warranties,
covenants, agreements or other obligations under the Security Agreement,
which breach is not cured within ten (10) days of such breach;
(g) If Maker defaults on any other obligations owed to Payee under
any now existing or hereafter arising agreement, promissory note, contract
or other document; or
(h) If Maker dissolves or otherwise ceases to conduct business in the
ordinary course as presently conducted.
Any failure on the part of Payee at any time to require the performance by
Maker of any of the terms or provisions hereof, even if known, shall in no way
affect the right thereafter to enforce the same, nor shall any failure of Payee
to insist on strict compliance with the terms and conditions hereof be taken or
held to be a waiver of any succeeding breach or of the right of Payee to insist
on strict compliance with the terms and conditions hereof.
Time is of the essence with respect to this Note.
This Note shall be governed by, and enforced and interpreted in accordance
with, the laws of the State of Georgia without regard to the principles of
conflict of laws.
<PAGE>
In the event this note, or any part hereof, is collected by or through an
attorney-at-law, Maker agrees to pay all costs of collection including, but not
limited to, attorneys' fees equal to 15% of the principal and interest then due.
In the event that Maker fails to make any payment when due, Payee shall provide
written notice of default to Maker, which notice shall allow Maker ten (10) days
from the date of receipt of such notice in which to cure such default. If such
default is not cured within the time allowed, the balance hereof shall be deemed
to be immediately accelerated without further notice to Maker.
IN WITNESS WHEREOF, Maker has executed this Note under seal as of the date
first set forth above.
MAKER:
NetZee, Inc.
/s/ Richard S. Eiswirth, Jr.
----------------------------------------
By: Richard S. Eiswirth, Jr.
Chief Financial Officer
[CORPORATE SEAL]
<PAGE>
EXHIBIT 10.14
PROMISSORY NOTE
$1,050,000 July 1, 1999
JOHN W. COLLINS (hereinafter referred to as "Maker"), for value received,
hereby promises to pay to the order of DIRECT ACCESS INTERACTIVE, INC., a
Georgia corporation (hereinafter referred to as "Payee"), the aggregate
principal sum of ONE MILLION AND FIFTY THOUSAND dollars ($1,050,000) on June 30,
2002 (the "Maturity Date"), together with interest on the unpaid principal
balance at the rate of 7.0% per annum, compounded annually. Interest shall be
paid on December 31, 1999 and each June 30 and December 31 thereafter until this
Note is paid in full. The principal hereof and the interest thereon are payable
at 3150 Holcomb Bridge Road, Suite 200, Norcross, GA 30071 or at such other
place as Payee may from time to time designate to Maker in writing, in coin or
currency of the United States of America.
If, at any time or from time to time prior to the Maturity Date, Maker
sells any shares of capital stock of Payee that are held by Maker, Maker shall
pay to Payee an amount equal to 50% of the net proceeds of such sale(s) in
repayment of the amounts outstanding under this Note. Such payment shall be made
to Payee at the same time as the closing of such sale. Maker agrees that Payee
shall be entitled to place a stop order or other instructions on the books of
Payee and its transfer agent to reflect this obligation to pay all of the
proceeds of any such sale. Maker may, at any time and from time to time, prepay
all or any portion of the principal of this Note remaining unpaid, without
penalty or premium. Any payments made prior to the Maturity Date shall be
applied first to the payment of accrued but unpaid interest on this Note and the
balance to principal.
If any of the following events (an "Event of Default") shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise), then this Note shall thereupon be and become, forthwith due and
payable, without any further notice or demand of any kind whatsoever, all of
which are hereby expressly waived:
(a) If Maker defaults in the payment of principal or interest on
this Note when and as the same shall become due and payable and such
default continues for 20 days after Maker receives notice from Payee of
such default; or
(b) If Maker makes an assignment for the benefit of creditors or
admits in writing an inability to pay his or its debts generally as they
become due;
(c) If an order, judgment or decree is entered adjudicating Maker
bankrupt or insolvent;
<PAGE>
(d) If Maker petitions or applies to any tribunal for the
appointment of a trustee or receiver of Maker, or of any substantial part
of the assets of Maker, or commences any proceedings relating to Maker
under any bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect;
(e) If any such petition or application is filed, or any such
proceedings are commenced, against Maker, and Maker by any act indicates
its approval thereof, consent thereto, or acquiescence therein, or an order
is entered appointing any such trustee or receiver, or approving the
petition in any such proceedings, and such order remains unstayed and in
effect for more than 90 days; or
(f) If Maker dies or becomes mentally incompetent or incapacitated,
which incompetence or incapacitation continues for a period of thirty (30)
days or more.
This Note is with full recourse to any assets of Maker.
Any failure on the part of Payee at any time to require the performance by
Maker of any of the terms or provisions hereof, even if known, shall in no way
affect the right thereafter to enforce the same, nor shall any failure of Payee
to insist on strict compliance with the terms and conditions hereof be taken or
held to be a waiver of any succeeding breach or of the right of Payee to insist
on strict compliance with the terms and conditions hereof.
Time is of the essence with respect to this Note.
This Note shall be governed by, and enforced and interpreted in accordance
with, the laws of the State of Georgia without regard to the principles of
conflict of laws.
In the event this note, or any part hereof, is collected by or through an
attorney-at-law, Maker agrees to pay all costs of collection including, but not
limited to, attorneys' fees equal to 15% of the principal and interest then due.
In the event that Maker fails to make any payment when due, Payee shall provide
written notice of default to Maker, which notice shall allow Maker ten (10) days
from the date of receipt of such notice in which to cure such default. If such
default is not cured within the time allowed, the balance hereof shall be deemed
to be immediately accelerated without further notice to Maker.
IN WITNESS WHEREOF, Maker has executed this Note under seal as of the date
first set forth above.
MAKER:
/s/ John W. Collins
--------------------------------------
<PAGE>
EXHIBIT 10.15
PROMISSORY NOTE
$1,260,000 July 1, 1999
GLENN W. STURM (hereinafter referred to as "Maker"), for value received,
hereby promises to pay to the order of DIRECT ACCESS INTERACTIVE, INC., a
Georgia corporation (hereinafter referred to as "Payee"), the aggregate
principal sum of ONE MILLION TWO HUNDRED AND SIXTY THOUSAND dollars ($1,260,000)
on June 30, 2002 (the "Maturity Date"), together with interest on the unpaid
principal balance at the rate of 7.0% per annum, compounded annually. Interest
shall be paid on December 31, 1999 and each June 30 and December 31 thereafter
until this Note is paid in full. The principal hereof and the interest thereon
are payable at 3150 Holcomb Bridge Road, Suite 200, Norcross, GA 30071 or at
such other place as Payee may from time to time designate to Maker in writing,
in coin or currency of the United States of America.
If, at any time or from time to time prior to the Maturity Date, Maker
sells any shares of capital stock of Payee that are held by Maker, Maker shall
pay to Payee an amount equal to 50% of the net proceeds of such sale(s) in
repayment of the amounts outstanding under this Note. Such payment shall be made
to Payee at the same time as the closing of such sale. Maker agrees that Payee
shall be entitled to place a stop order or other instructions on the books of
Payee and its transfer agent to reflect this obligation to pay all of the
proceeds of any such sale. Maker may, at any time and from time to time, prepay
all or any portion of the principal of this Note remaining unpaid, without
penalty or premium. Any payments made prior to the Maturity Date shall be
applied first to the payment of accrued but unpaid interest on this Note and the
balance to principal.
If any of the following events (an "Event of Default") shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise), then this Note shall thereupon be and become, forthwith due and
payable, without any further notice or demand of any kind whatsoever, all of
which are hereby expressly waived:
(a) If Maker defaults in the payment of principal or interest on
this Note when and as the same shall become due and payable and such
default continues for 20 days after Maker receives notice from Payee of
such default; or
(b) If Maker makes an assignment for the benefit of creditors or
admits in writing an inability to pay his or its debts generally as they
become due;
(c) If an order, judgment or decree is entered adjudicating Maker
bankrupt or insolvent;
<PAGE>
(d) If Maker petitions or applies to any tribunal for the
appointment of a trustee or receiver of Maker, or of any substantial part
of the assets of Maker, or commences any proceedings relating to Maker
under any bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect;
(e) If any such petition or application is filed, or any such
proceedings are commenced, against Maker, and Maker by any act indicates
its approval thereof, consent thereto, or acquiescence therein, or an order
is entered appointing any such trustee or receiver, or approving the
petition in any such proceedings, and such order remains unstayed and in
effect for more than 90 days; or
(f) If Maker dies or becomes mentally incompetent or incapacitated,
which incompetence or incapacitation continues for a period of thirty (30)
days or more.
This Note is with full recourse to any assets of Maker.
Any failure on the part of Payee at any time to require the performance by
Maker of any of the terms or provisions hereof, even if known, shall in no way
affect the right thereafter to enforce the same, nor shall any failure of Payee
to insist on strict compliance with the terms and conditions hereof be taken or
held to be a waiver of any succeeding breach or of the right of Payee to insist
on strict compliance with the terms and conditions hereof.
Time is of the essence with respect to this Note.
This Note shall be governed by, and enforced and interpreted in accordance
with, the laws of the State of Georgia without regard to the principles of
conflict of laws.
In the event this note, or any part hereof, is collected by or through an
attorney-at-law, Maker agrees to pay all costs of collection including, but not
limited to, attorneys' fees equal to 15% of the principal and interest then due.
In the event that Maker fails to make any payment when due, Payee shall provide
written notice of default to Maker, which notice shall allow Maker ten (10) days
from the date of receipt of such notice in which to cure such default. If such
default is not cured within the time allowed, the balance hereof shall be deemed
to be immediately accelerated without further notice to Maker.
IN WITNESS WHEREOF, Maker has executed this Note under seal as of the date
first set forth above.
MAKER:
/s/ Glenn W. Sturm
-------------------------------------
<PAGE>
EXHIBIT 10.16
PROMISSORY NOTE
$400,000 July 1, 1999
DONNY R. JACKSON (hereinafter referred to as "Maker"), for value received,
hereby promises to pay to the order of DIRECT ACCESS INTERACTIVE, INC., a
Georgia corporation (hereinafter referred to as "Payee"), the aggregate
principal sum of FOUR HUNDRED THOUSAND dollars ($400,000) on June 30, 2002 (the
"Maturity Date"), together with interest on the unpaid principal balance at the
rate of 7.0% per annum, compounded annually. Interest shall be paid on December
31, 1999 and each June 30 and December 31 thereafter until this Note is paid in
full. The principal hereof and the interest thereon are payable at 3150 Holcomb
Bridge Road, Suite 200, Norcross, GA 30071 or at such other place as Payee may
from time to time designate to Maker in writing, in coin or currency of the
United States of America.
If, at any time or from time to time prior to the Maturity Date, Maker
sells any shares of capital stock of Payee that are held by Maker, Maker shall
pay to Payee an amount equal to 50% of the net proceeds of such sale(s) in
repayment of the amounts outstanding under this Note. Such payment shall be made
to Payee at the same time as the closing of such sale. Maker agrees that Payee
shall be entitled to place a stop order or other instructions on the books of
Payee and its transfer agent to reflect this obligation to pay all of the
proceeds of any such sale. Maker may, at any time and from time to time, prepay
all or any portion of the principal of this Note remaining unpaid, without
penalty or premium. Any payments made prior to the Maturity Date shall be
applied first to the payment of accrued but unpaid interest on this Note and the
balance to principal.
If any of the following events (an "Event of Default") shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise), then this Note shall thereupon be and become, forthwith due and
payable, without any further notice or demand of any kind whatsoever, all of
which are hereby expressly waived:
(a) If Maker defaults in the payment of principal or interest on
this Note when and as the same shall become due and payable and such
default continues for 20 days after Maker receives notice from Payee of
such default; or
(b) If Maker makes an assignment for the benefit of creditors or
admits in writing an inability to pay his or its debts generally as they
become due;
(c) If an order, judgment or decree is entered adjudicating Maker
bankrupt or insolvent;
<PAGE>
(d) If Maker petitions or applies to any tribunal for the
appointment of a trustee or receiver of Maker, or of any substantial part
of the assets of Maker, or commences any proceedings relating to Maker
under any bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect;
(e) If any such petition or application is filed, or any such
proceedings are commenced, against Maker, and Maker by any act indicates
its approval thereof, consent thereto, or acquiescence therein, or an order
is entered appointing any such trustee or receiver, or approving the
petition in any such proceedings, and such order remains unstayed and in
effect for more than 90 days; or
(f) If Maker dies or becomes mentally incompetent or incapacitated,
which incompetence or incapacitation continues for a period of thirty (30)
days or more.
This Note is with full recourse to any assets of Maker.
Any failure on the part of Payee at any time to require the performance by
Maker of any of the terms or provisions hereof, even if known, shall in no way
affect the right thereafter to enforce the same, nor shall any failure of Payee
to insist on strict compliance with the terms and conditions hereof be taken or
held to be a waiver of any succeeding breach or of the right of Payee to insist
on strict compliance with the terms and conditions hereof.
Time is of the essence with respect to this Note.
This Note shall be governed by, and enforced and interpreted in accordance
with, the laws of the State of Georgia without regard to the principles of
conflict of laws.
In the event this note, or any part hereof, is collected by or through an
attorney-at-law, Maker agrees to pay all costs of collection including, but not
limited to, attorneys' fees equal to 15% of the principal and interest then due.
In the event that Maker fails to make any payment when due, Payee shall provide
written notice of default to Maker, which notice shall allow Maker ten (10) days
from the date of receipt of such notice in which to cure such default. If such
default is not cured within the time allowed, the balance hereof shall be deemed
to be immediately accelerated without further notice to Maker.
IN WITNESS WHEREOF, Maker has executed this Note under seal as of the date
first set forth above.
MAKER:
/s/ Donny R. Jackson
--------------------------------------
<PAGE>
EXHIBIT 10.17
PROMISSORY NOTE
$93,300 August 5, 1999
Richard S. Eiswirth Jr. (hereinafter referred to as "Maker"), for value
received, hereby promises to pay to the order of DIRECT ACCESS INTERACTIVE,
INC., a Georgia corporation (hereinafter referred to as "Payee"), the aggregate
principal sum of Ninety three thousand three hundred dollars ($93,300) on August
4, 2002 (the "Maturity Date"), together with interest on the unpaid principal
balance at the rate of 7.0% per annum, compounded annually. Interest shall be
paid on December 31, 1999 and each June 30 and December 31 thereafter until this
Note is paid in full. The principal hereof and the interest thereon are payable
at 3150 Holcomb Bridge Road, Suite 200, Norcross, GA 30071 or at such other
place as Payee may from time to time designate to Maker in writing, in coin or
currency of the United States of America.
If, at any time or from time to time prior to the Maturity Date, Maker
sells any shares of capital stock of Payee that are held by Maker, Maker shall
pay to Payee an amount equal to 50% of the net proceeds of such sale(s) in
repayment of the amounts outstanding under this Note. Such payment shall be made
to Payee at the same time as the closing of such sale. Maker agrees that Payee
shall be entitled to place a stop order or other instructions on the books of
Payee and its transfer agent to reflect this obligation to pay all of the
proceeds of any such sale. Maker may, at any time and from time to time, prepay
all or any portion of the principal of this Note remaining unpaid, without
penalty or premium. Any payments made prior to the Maturity Date shall be
applied first to the payment of accrued but unpaid interest on this Note and the
balance to principal.
If any of the following events (an "Event of Default") shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise), then this Note shall thereupon be and become, forthwith due and
payable, without any further notice or demand of any kind whatsoever, all of
which are hereby expressly waived:
(a) If Maker defaults in the payment of principal or interest on
this Note when and as the same shall become due and payable and such
default continues for 20 days after Maker receives notice from Payee of
such default; or
(b) If Maker makes an assignment for the benefit of creditors or
admits in writing an inability to pay his or its debts generally as they
become due;
(c) If an order, judgment or decree is entered adjudicating Maker
bankrupt or insolvent;
<PAGE>
(d) If Maker petitions or applies to any tribunal for the
appointment of a trustee or receiver of Maker, or of any substantial part
of the assets of Maker, or commences any proceedings relating to Maker
under any bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect;
(e) If any such petition or application is filed, or any such
proceedings are commenced, against Maker, and Maker by any act indicates
its approval thereof, consent thereto, or acquiescence therein, or an order
is entered appointing any such trustee or receiver, or approving the
petition in any such proceedings, and such order remains unstayed and in
effect for more than 90 days; or
(f) If Maker dies or becomes mentally incompetent or incapacitated,
which incompetence or incapacitation continues for a period of thirty (30)
days or more.
This Note is with full recourse to any assets of Maker.
Any failure on the part of Payee at any time to require the performance by
Maker of any of the terms or provisions hereof, even if known, shall in no way
affect the right thereafter to enforce the same, nor shall any failure of Payee
to insist on strict compliance with the terms and conditions hereof be taken or
held to be a waiver of any succeeding breach or of the right of Payee to insist
on strict compliance with the terms and conditions hereof.
Time is of the essence with respect to this Note.
This Note shall be governed by, and enforced and interpreted in accordance
with, the laws of the State of Georgia without regard to the principles of
conflict of laws.
In the event this note, or any part hereof, is collected by or through an
attorney-at-law, Maker agrees to pay all costs of collection including, but not
limited to, attorneys' fees equal to 15% of the principal and interest then due.
In the event that Maker fails to make any payment when due, Payee shall provide
written notice of default to Maker, which notice shall allow Maker ten (10) days
from the date of receipt of such notice in which to cure such default. If such
default is not cured within the time allowed, the balance hereof shall be deemed
to be immediately accelerated without further notice to Maker.
IN WITNESS WHEREOF, Maker has executed this Note under seal as of the date
first set forth above.
MAKER:
/s/ Richard S. Eiswirth, Jr.
----------------------------------
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
------------------------------
1. Bank Systems and Equipment Corp., a Florida corporation
2. Dyad Mortgage Technologies, Inc., a Georgia corporation
3. Call Me Bill, LLC, a Kentucky limited liability corporation
4. Net-merce, LLC, a Kentucky limited liability corporation
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
September 10, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 28,057 13,985
<SECURITIES> 0 0
<RECEIVABLES> 19,222 45,780
<ALLOWANCES> 0 (10,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> 47,279 49,765
<PP&E> 1,969 20,000
<DEPRECIATION> (394) (4,994)
<TOTAL-ASSETS> 87,876 93,657
<CURRENT-LIABILITIES> 140,833 548,475
<BONDS> 0 0
0 0
0 0
<COMMON> 50,871 50,871
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 87,876 93,657
<SALES> 642,099 591,012
<TOTAL-REVENUES> 642,099 591,012
<CGS> (422,375) (465,577)
<TOTAL-COSTS> (741,119) (922,726)
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (117) (20,147)
<INCOME-PRETAX> (99,137) (351,861)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (99,137) (351,861)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (99,137) (351,861)
<EPS-BASIC> (.05) (.18)
<EPS-DILUTED> (.05) (.18)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> OCT-10-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 44,823
<TOTAL-REVENUES> 44,823
<CGS> (49,700)
<TOTAL-COSTS> (99,514)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (54,691)
<INCOME-TAX> 0
<INCOME-CONTINUING> (54,691)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,691)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 210,190
<TOTAL-REVENUES> 210,190
<CGS> (205,601)
<TOTAL-COSTS> (437,798)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (13,173)
<INCOME-PRETAX> (240,781)
<INCOME-TAX> 0
<INCOME-CONTINUING> (240,781)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (240,781)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> FEB-28-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 90,162
<TOTAL-REVENUES> 90,162
<CGS> (44,358)
<TOTAL-COSTS> (108,583)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,469)
<INCOME-PRETAX> (21,890)
<INCOME-TAX> 0
<INCOME-CONTINUING> (21,890)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,890)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> MAR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 100,483
<ALLOWANCES> (10,000)
<INVENTORY> 0
<CURRENT-ASSETS> 141,030
<PP&E> 817,965
<DEPRECIATION> (54,334)
<TOTAL-ASSETS> 2,698,815
<CURRENT-LIABILITIES> 115,855
<BONDS> 0
0
0
<COMMON> 2,166,889
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,698,815
<SALES> 250,535
<TOTAL-REVENUES> 250,535
<CGS> (126,454)
<TOTAL-COSTS> (584,036)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (428)
<INCOME-PRETAX> (333,929)
<INCOME-TAX> 0
<INCOME-CONTINUING> (333,929)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (333,929)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
<PAGE>
EXHIBIT 99.1
Netzee, Inc.
(formerly Direct Access Interactive, Inc.)
Valuation and Qualifying Accounts
Allowance for Doubtful Accounts
(Schedule II to Audited Financial Statements)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Cost and Charged to End
of the Period Expenses Other Accounts Deductions of the Period
------------- ---------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1996 $ - $ - $ - $ - $ -
1997 - - - - -
1998 $ - $ 10,000 $ - $ - $ 10,000
</TABLE>
<PAGE>
EXHIBIT 99.2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards, the
financial statements of Netzee, Inc. included in this registration statement and
have issued our report thereon dated September 8, 1999. Our audit was made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in the index is the responsibility of the company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
September 8, 1999
