<PAGE>
As filed with the Securities and Exchange Commission on October 21, 1999
Registration No. 333-87089
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Amendment No. 1 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
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)
--------------
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. [_]
--------------
CALCULATION OF REGISTRATION FEE
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Amount to be Offering Price Aggregate Offering Amount of
Registered Per Share(1) Price Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, no par
value.................. 5,115,378 $14.00 $71,615,292 $19,910(2)
- ------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated in accordance with Rule 457(o) solely for purposes of calculating
the registration fee.
(2) $15,290 of this fee has been previously paid.
--------------
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 OCTOBER 21, 1999
P R O S P E C T U S
4,448,155 Shares
Common Stock
-----------
Netzee, Inc. is offering for sale 4,000,000 shares of our common stock, and
the selling shareholders are offering for sale an additional 448,155 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 $12.00 and $14.00
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.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<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 667,223
additional shares of common stock to cover over-allotments.
The underwriters are offering the shares on a firm commitment basis. 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>
The Netzee Solution
[thick underline]
Offering Via The Internet:
[small Netzee logo] Cash Management [small Netzee logo] Banking on Main
Street(TM)
[small Netzee logo] Bill Payment [small Netzee logo] Communications
[small Netzee logo] Internet Banking Services
To Community Banks and Bankers' Banks
[Grecian facade] [Grecian facade]
Community Banks Bankers' Banks
[vertical white dashed centered line] [vertical white dashed centered line]
[large multicolored Netzee logo] [large multicolored Netzee logo]
[vertical white dashed centered line] [vertical white dashed centered line]
[globe with lines circling around] [globe with lines circling around]
The Internet The Internet
[two diagonal lines underneath, one [two diagonal lines underneath, one
branching right, one branching left] branching right, one branching left]
[picture of cityscape on left, picture [Grecian facade to left and right]
of human figures on right] Community Banks
Commercial Retail
Customers Customers
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 6
Forward-Looking Statements............................................... 16
Netzee................................................................... 17
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Unaudited Pro Forma Combined Financial Statements........................ 22
Selected Financial Information........................................... 30
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 32
Business................................................................. 48
Management............................................................... 62
Related Party Transactions............................................... 68
Principal and Selling Shareholders....................................... 71
Description of Capital Stock............................................. 73
Shares Eligible for Future Sale.......................................... 77
Underwriting............................................................. 79
Experts.................................................................. 82
Legal Matters............................................................ 82
Where You Can Find More Information...................................... 82
Index to Financial Statements............................................ F-1
</TABLE>
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 $13.00 per share, the midpoint of the range of anticipated
initial public offering prices.
Netzee, Inc.
Our Business
Netzee is a leading provider of 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 $10 billion. We provide cost-
effective, outsourced, secure and expandable 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
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
October 15, 1999, we had contractual arrangements in place to provide Internet
banking products and services to approximately 380 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. As of
October 15, 1999, we had contractual arrangements to provide one or more of our
products and services to over 600 community 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
established exclusive strategic marketing alliances, as a means of business
referral, with bankers' banks located in Georgia and Texas, and we intend to
enter into similar strategic marketing alliances with bankers' banks located in
California, Pennsylvania and Oklahoma. A "bankers' bank" is a bank that
exclusively serves and is owned by other financial institutions. These bankers'
banks, which have relationships with approximately 1,850 financial
institutions, have agreed to recommend our products exclusively to their
customers and member financial institutions.
1
<PAGE>
Our Industry
The Internet has become a powerful and efficient medium for the delivery of
banking services. These services include Internet banking, bill payment, cash
management, payroll and other related 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 $10 billion. Our strategy to accomplish these goals
includes the following:
. provide flexible Internet banking products;
. 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.
Our Relationship with The InterCept Group, Inc.
InterCept provides a wide range of products and services to community
financial institutions in the United States. We intend to form a marketing
alliance with InterCept to market our products and services to InterCept's
customer base of over 1,300 community financial institutions. Upon the
completion of this offering, InterCept will own approximately 39% of our common
stock. Our Chairman, John W. Collins, is the Chairman and Chief Executive
Officer of InterCept. Our Chief Executive Officer, Glenn W. Sturm, is a
director and shareholder of InterCept. Additionally, some of our other
directors and officers are directors, officers or shareholders of InterCept.
These relationships may present conflicts of interest between us and InterCept.
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
<TABLE>
<CAPTION>
<S> <C>
Common stock we are offering...... 4,000,000 shares
Common stock the selling
shareholders are offering........ 448,155 shares
Common stock to be outstanding
immediately after this offering.. 19,395,855 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>
- --------
(1) The number of shares of common stock to be outstanding excludes shares that
we may issue upon the exercise of options and warrants already outstanding
or to be granted or issued after the completion of this offering. See
"Management" and "Related Party Transactions."
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 Direct Access Interactive assets acquired and
liabilities assumed by us. This accounting method generally results in
increased amortization to be reported in future periods. Accordingly, the
accompanying financial information of our predecessor on and before February
28, 1999 is not comparable in all material respects with our financial
information subsequent to February 28, 1999, since that financial information
reports financial position and results of operations on a different basis of
accounting.
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 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;
. the deferred compensation of $11.5 million to be recorded on the options
issued in August, September and October 1999; and
. the issuance of warrants to purchase 461,876 shares of common stock on
October 18, 1999, with an exercise price of $3.25 per share.
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 4,000,000 shares of common stock
pursuant to this offering and the application of the estimated net proceeds
from this offering.
4
<PAGE>
<TABLE>
<CAPTION>
Predecessor
-------------------------------------------------------------
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) (41,869) (228) (18) (334)
Net loss................................. (55) (99) (352) (45,801) (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................................... $ (2.97)
========
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........................... (21,506)
Net loss................................. (23,453)
Basic and diluted net loss per share.....
Weighted average common shares
outstanding.............................
Pro forma basic and diluted net loss per
share................................... $ (1.52)
==========
Pro forma weighted average common shares
outstanding............................. 15,396
==========
Pro forma adjusted EBITDA (1) ........... $ (1,347)
- --------------------------------------------------
==========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
-------------------------
Pro forma
Pro as
Actual forma adjusted
------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash................... $ -- $ 939 $ 18,103
Working capital ....... 25 193 17,357
Total assets........... 2,699 106,865 . 124,029
Long-term debt, net of
current maturities.... 750 29,566 750
Redeemable common
stock................. -- 29,900 --
Total shareholders'
equity................ 1,832 44,914 120,794
</TABLE>
- --------
(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
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;
. develop, test, market and sell our products and services;
. 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, AND WE CANNOT
GUARANTEE WE WILL BECOME PROFITABLE
We incurred net losses, on a pro forma basis to reflect our recent
acquisitions, of approximately $45.8 million for the year ended December 31,
1998 and approximately $23.5 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 $44.9 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 $23.6 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.
Our relationship with InterCept may present potential conflicts of interest
Upon the completion of this offering, InterCept will own approximately 39%
of our common stock. InterCept provides a wide range of products and services,
including electronic fund transfer, core data processing, check imaging, data
communications management and other processing solutions to community financial
institutions in the United States, and therefore InterCept may compete with us
in our business. Additionally, our Chairman, our Chief Executive Officer and
some of our other directors and officers 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.
End users must accept and use our Internet banking products and services for us
to receive revenue
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
7
<PAGE>
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 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.
If our acquisition strategy is not successful, we may lose our competitive
position, and our business and financial results may suffer
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.
8
<PAGE>
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.
Fluctuations in our financial results and events beyond our control could cause
our stock price 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;
. 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
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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 demographics.
The loss of some or all of our strategic marketing alliances would adversely
affect our business, financial condition and results of operations.
The loss of or damage to our data center would result in failures or
interruptions in providing our products and services to our customers
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."
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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 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.
If we cannot hire and retain qualified personnel, we will not be able to
conduct our operations successfully or at all
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
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significant errors or defects in the future that we may or may not be able to
correct. We have recently introduced and will be continually introducing new
products in the market and have not experienced any product liability claims to
date, but the sale and support of our products and services may entail the risk
of these claims. A product liability claim brought against us could have a
material adverse effect on our business, financial condition and results of
operations.
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.
Increased competition may increase pricing pressures, reduce margins and create
a loss of market share
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, on-line service providers and data
processing vendors, 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 ability to establish
and protect our proprietary rights
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
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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
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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.
The lack of a prior market for our common stock may cause unexpected
fluctuations in the price of 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 beneficially own approximately 60% of our
common stock, and no corporate actions requiring shareholder approval can be
taken without their approval, which could adversely affect the value of our
common stock
Following this offering, our officers, directors and affiliated persons will
beneficially own approximately 60% 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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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, 19,395,855
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 15,395,855 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 warrants and
options to purchase a total of 2,671,376 shares of common stock under this plan
and pursuant to other warrant and stock option agreements. We intend to
register all of the shares issuable under this plan and these warrant and
option agreements for sale in the public market. In addition, we have also
agreed to register up to 6,402,007 shares of common stock that we issued in
connection with some of our acquisitions and that may be acquired through the
exercise of warrants, subject to the terms and conditions of applicable
registration rights agreements. See "Shares Eligible for Future Sale."
Management may not use the proceeds of this offering effectively
Our management will have broad discretion in how we use a significant
portion of 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. If management is unable to apply these funds
effectively, our business may be materially and adversely affected.
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 net proceeds we receive from this offering are
reduced significantly for any reason, including the availability of alternative
sources of capital or a change in market conditions generally, the funds
available to us for the repayment of our indebtedness would be reduced.
Consequently, we would continue to have a significant amount of indebtedness,
which could adversely affect our business, financial condition and operating
results. If implemented, these reductions 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.
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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."
OUR FUTURE EARNINGS WILL BE REDUCED BECAUSE WE HAVE A SIGNIFICANT AMOUNT OF
INTANGIBLE ASSETS
On a pro forma basis, as of June 30, 1999, approximately $96.7 million, or
90.5%, 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 IN
THE NET TANGIBLE BOOK VALUE OF THEIR SHARES
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 in the net tangible book
value of their shares of approximately $11.76 in pro forma net tangible book
value per share, or approximately 90.5% of the offering price of $13.00 per
share. Investors will incur additional dilution upon the exercise of
outstanding stock options and warrants.
OUR ARTICLES OF INCORPORATION AND BYLAWS, AS WELL AS GEORGIA CORPORATE LAW, MAY
PREVENT OR DELAY THIRD PARTIES FROM BUYING YOUR STOCK AND RESULT IN A DECREASE
IN THE STOCK PRICE
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 75% 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."
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.
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NETZEE
Netzee is a leading provider of 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 $10 billion. Our predecessor, Direct Access
Interactive, Inc., was formed in October 1996 to provide Internet and telephone
banking products and services. InterCept purchased Direct Access in March 1999.
Acquisition of the Remote Banking Operations of SBS Corporation
In August 1999, Direct Access acquired SBS Corporation in a merger pursuant
to which it issued to the SBS shareholders 2.6 million shares of its common
stock and approximately $16.6 million in cash. Direct Access also repaid
approximately $4.9 million in debt owed by SBS. Immediately after the merger,
Direct Access sold all of the assets of SBS, other than its Internet and
telephone banking assets, to its parent company, InterCept, in exchange for
450,000 shares of Direct Access 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
Netzee was formed on August 25, 1999. On September 3, 1999, Netzee 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, and we issued
options to purchase a total of 55,000 shares of common stock at an exercise
price of $5.00 per share to management and directors of the Internet banking
divisions of TIB and The Bankers Bank. We also sold 76,000 shares of common
stock to a third party for $100,000. 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
On September 3, 1999, we also acquired Call Me Bill, LLC for approximately
$3.3 million in cash. At that time we also sold approximately 31,000 shares of
our common stock to former owners of Call Me Bill for $10.50 per share. 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
On September 3, 1999, we also 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 $46.0
million, after deducting estimated underwriting discounts and estimated
offering expenses and based upon an initial public offering price of $13.00 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 currently intend to use the net proceeds of this offering received by us
as follows:
. approximately $29.3 million to repay principal and accrued interest owed
to InterCept;
. approximately $3.1 million to repay working capital advances and accrued
interest owed to InterCept;
. approximately $6.0 million to expand our sales and marketing efforts
over the next 12 months;
. approximately $4.0 million to continue our product development over the
next 12 months; and
. approximately $3.6 million 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 October 15, 1999, this rate was 10.25%. These loans
mature on the earlier of (1) the completion of 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.
18
<PAGE>
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; (7) the deferred
compensation of $11.5 million to be recorded on the options issued in
August, September and October 1999; and (8) the issuance of warrants to
purchase 461,876 shares of common stock on October 18, 1999 with an
exercise price of $3.25 per share; 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
4,000,000 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 $ 750
------ -------- --------
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 19,395,855 shares
issued and outstanding pro forma, as adjust-
ed............................................ 2,166 56,197 132,077
Notes receivable from shareholders............. -- (3,203) (3,203)
Warrants....................................... -- 4,619 4,619
Deferred compensation.......................... -- (11,472) (11,472)
Accumulated deficit............................ (334) (1,227) (1,227)
------ -------- --------
Total shareholders' equity..................... 1,832 44,914 120,794
------ -------- --------
Total capitalization........................... $2,582 $104,380 $121,544
====== ======== ========
</TABLE>
19
<PAGE>
DILUTION
The assumed initial public offering price of $13.00 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 $(51.8) million or $(3.36) 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;
. the deferred compensation of $11.5 million to be recorded on the
options issued in August, September and October 1999; and
. the issuance of warrants to purchase 461,876 shares of common stock
on October 18, 1999 with an exercise price of $3.25 per share.
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 to $24.1 million or $1.24 per share to
existing shareholders and an immediate dilution of $11.76 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................. $13.00
Net tangible book value at June 30, 1999........................ $0.01
Decrease per share attributable to pro forma adjustments ....... (3.37)
-----
Pro forma net tangible book (deficit) per share at June 30, 1999
................................................................ (3.36)
Increase per share attributable to this offering ............... 4.60
-----
Pro forma net tangible book value per share after this
offering........................................................ 1.24
------
Dilution per share purchased in this offering................... $11.76
======
</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 79.4% $ 56,197,000 51.9% $ 3.65
New investors.......... 4,000,000 20.6% 52,000,000 48.1% 13.00
------------- -------- ------------ -----
Total................. 19,395,855 100.0% $108,197,000 100.0%
============= ======== ============ =====
</TABLE>
20
<PAGE>
The foregoing tables assume:
.a public offering price of $13.00 per share;
.no exercise of the underwriters' over-allotment option; and
.no exercise of any of the 2,641,376 outstanding options and warrants 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 14,947,700, or 77.1% 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
4,448,155, or 22.9% 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 percentage of shares to be held by existing
shareholders will decrease further to 74.5% of the total shares to be
outstanding after the exercise, and the number of shares to be held by new
investors will increase to 5,115,378, or 25.5% of the total shares to be
outstanding after the exercise.
To the extent that any options or warrants 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;
. the deferred compensation of $11.5 million to be recorded on the options
issued in August, September and October 1999; and
. the issuance of warrants to purchase 461,876 shares of common stock on
October 18, 1999 with an exercise price of $3.25 per share.
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, September and October 1999, we granted options to purchase shares
of our common stock at exercise prices ranging from $3.11 to $5.00 per share.
We recorded deferred compensation of approximately $11.5 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, 233,000 of these
options will vest immediately. We recorded approximately $1.9 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 one-year general marketing agreement under which each
bankers' bank will agree 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 expected
benefit period of two years for each of these agreements.
Additionally, we sold 85,000 shares of our common stock for $1.00 per share
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.
22
<PAGE>
On October 18, 1999, we issued warrants to purchase 461,876 shares of common
stock in connection with entering into a $3.0 million line of credit. The fair
value of the warrants of approximately $4.6 million will be amortized to
interest expense over the three-year term of the line of credit.
These financial statements 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.
23
<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 (e) (705) 300
------ ------ ------ ----- ------ ---- --------
Total current assets... 141 792 1,043 148 41 142 2,113
------ ------ ------ ----- ------ ---- --------
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) 4,619
(k) 4,619
OTHER ASSETS:
Intangible assets,
net................... 1,794 0 0 0 90 0 (a) 46,182 96,697
(b) 30,703
(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 98,739
------ ------ ------ ----- ------ ---- --------
Total assets........... $2,699 $1,685 $1,972 $ 823 $6,234 $290 $106,865
====== ====== ====== ===== ====== ==== ========
LIABILITIES AND SHAREHOLDERS'
(DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable,
accrued expenses and
other................. $ 41 $ 193 $ 76 $ 713 $ 116 $ 49 (e) $ (779) $ 409
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 1,920
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 32,051
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........ 0 0 0 0 0 0 0
Common stock........... 2,166 0 0 0 1,937 650 (a) (5,175) 56,197
(b) 32,503
(c) 7,228
(d) (244)
(f) 3,110
(g) 93
(h) 1,479
(i) 978
(j) 11,472
Notes receivable from
shareholders.......... 0 0 0 0 0 0 (f) (3,110) (3,203)
(g) (93)
Warrants............... 0 0 0 0 0 0 (k) 4,619 4,619
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) 44,914
------ ------ ------ ----- ------ ---- --------
Total liabilities and
shareholders'
(deficit) equity...... $2,699 $1,685 $1,972 $ 823 $6,234 $290 $106,865
====== ====== ====== ===== ====== ==== ========
Deferred compensation.. 0 0 0 0 0 0 (j) (11,472) (11,472)
</TABLE>
24
<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 Ad- Pro
Netzee SBS Bank TIB Dyad Bill justments Forma
------ ------ ------- ----- ------- ----- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
License, hardware and
implementation........ $ 455 $1,409 $ 67 $ 274 $ 472 $ 28 (u) $ (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 (v) 40 1,610
(u) 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 (y) (4,354) 5,247
(z) (893)
Amortization from
acquisition
intangibles........... 0 0 0 0 0 0 (l) (620) 32,832
(m) (15,282)
(n) (10,744)
(o) (4,538)
(p) (1,108)
(x) (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 44,930
----- ------ ----- ----- ------- ----- --------
OPERATING LOSS.......... (332) (285) (457) (517) (1,872) (367) (41,869)
OTHER INCOME, net....... -- 288 -- 54 -- -- (v) (40) 302
INTEREST EXPENSE, net... 20 -- -- -- 1,679 (1) (q) (2,153) 4,234
(r) (295)
(s) (451)
(t) 1,679
(w) 224
(aa) (1,540)
----- ------ ----- ----- ------- ----- --------
NET (LOSS) INCOME....... $(352) $ 3 $(457) $(463) $(3,551) $(366) $(45,801)
===== ====== ===== ===== ======= ===== ========
BASIC AND DILUTED NET
LOSS PER SHARE......... $ (2.97)
========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING..... 15,396
========
</TABLE>
25
<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 (u) $ (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 (u) 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 (y) (2,600) 3,493
(z) (893)
Amortization from
acquisition
intangibles........... 138 0 0 0 0 0 (l) (103) 16,347
(m) (7,641)
(n) (5,372)
(o) (2,269)
(p) (554)
(x) (270)
Depreciation and
amortization.......... 58 14 14 7 49 13 155
----- ----- ----- ----- ------- ----- --------
Total operating
expenses.............. 693 1,219 628 567 527 372 23,599
----- ----- ----- ----- ------- ----- --------
OPERATING LOSS.......... (352) (198) (392) (231) (424) (207) (21,506)
OTHER INCOME, net....... -- 50 -- 109 4 1 164
INTEREST EXPENSE, net... 4 -- -- -- 906 (1) (q) $(1,077) 2,111
(r) (148)
(s) (225)
(t) 906
(w) 112
(aa) (770)
----- ----- ----- ----- ------- ----- --------
NET LOSS................ $(356) $(148) $(392) $(122) $(1,326) $(207) $(23,453)
===== ===== ===== ===== ======= ===== ========
BASIC AND DILUTED NET
LOSS PER SHARE......... $ (1.52)
========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING..... 15,396
========
</TABLE>
26
<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 10.25% payable quarterly beginning 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 55,000 shares of common stock at an exercise price of $5.00 per
share 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 $357,500 and has
been included as a component of the purchase price. 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 $32.4 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 $27,166,000 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>
27
<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 and approximately 31,000
shares of Netzee stock sold to former members of Call Me Bill at a price of
$10.50 per share. These shares were valued by Netzee at $11.50 per share.
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 for approximately $74,000.
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. This
adjustment also removes the payable to The Bankers Bank from TIB and the
related receivable from TIB for approximately $705,000. The Bankers Bank
was paying for certain development costs that were shared with 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 $400,000 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 $11.5
million recorded on options issued in August, September and October 1999 at
below fair market value.
(k) The recording of deferred financing fees of approximately $4.6
million related to the issuance of warrants to purchase 461,876 shares of
common stock in connection with the entering into of a $3.0 million line of
credit.
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:
(l) 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.
(m) 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).
(n) 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
$10.7 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).
(o) 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).
28
<PAGE>
(p) 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).
(q) 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.
(r) 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.
(s) 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.
(t) 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.
(u) 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).
(v) 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.
(w) The interest income on the notes receivable from shareholders of
approximately $112,000 for the six months ended June 30, 1999 and
approximately $224,000 for the year ended December 31, 1998.
(x) 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.
(y) The amortization of deferred compensation related to the issuance
of stock options of approximately $2.6 million for the six months ended
June 30, 1999 and approximately $4.4 million for the year ended December
31, 1998.
(z) 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.
(aa) The recording of additional interest expense of approximately
$770,000 related to the issuance of warrants to purchase 461,876 shares of
common stock for the six months ended June 30, 1999 and approximately $1.5
million for the year ended December 31, 1998.
29
<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;
. the deferred compensation of $11.5 million to be recorded on the options
issued in August, September and October 1999; and
. the issuance of warrants to purchase 461,876 shares of common stock on
October 18, 1999 with an exercise price of $3.25 per share.
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.
30
<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........ -- -- -- 5,247 -- --
Amortization
from
acquisition
intangibles.... -- -- -- 32,832 -- --
Depreciation and
amortization... 2 11 15 229 7 2
------ ------ ------ -------- ------ ------
Total operating
expenses....... 100 741 923 44,930 438 108
------ ------ ------ -------- ------ ------
Operating loss... (55) (99) (332) (41,869) (228) (18)
Other income..... -- -- -- 302 -- --
Interest expense,
net............. -- -- (20) 4,234 (13) (4)
------ ------ ------ -------- ------ ------
Net loss......... $ (55) $ (99) $ (352) $(45,801) $ (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.. $ (2.97)
========
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........ -- 3,493
Amortization
from
acquisition
intangibles.... -- 16,347
Depreciation and
amortization... 193 155
-------------- ------------
Total operating
expenses....... 584 23,599
-------------- ------------
Operating loss... (334) (21,506)
Other income..... -- 164
Interest expense,
net............. -- 2,111
-------------- ------------
Net loss......... $ (334) $(23,453)
============== ============
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.. $ (1.52)
============
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 2,699 106,865
Long-term debt, net of current
maturities........................... -- -- -- 750 29,566
Redeemable common stock............... -- -- -- -- 29,900
Total shareholders' (deficit) equity.. (4) (103) (455) 1,832 44,914
</TABLE>
31
<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 October 15, 1999,
Netzee had contractual relationships to provide Internet banking products and
services to approximately 380 community financial institutions and to provide
telephone banking products and services to approximately 220 additional
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. Direct Access was formed in October 1996. InterCept acquired
Direct Access in March 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, our predecessor, Direct Access, acquired the remote banking
operations of SBS Corporation. These operations provided customers, additional
strategic marketing partners and our Banking on Main Street(TM) e-commerce
software.
On September 3, 1999, after the formation of Netzee and its merger with
Direct Access, 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.
32
<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 up-front
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 approximately $10.9 million, $32.8 million, $32.1 million, $20.3
million and $200,000 in 1999, 2000, 2001, 2002 and 2003, respectively, due to
amortization of intangibles resulting from purchase accounting adjustments for
the Acquired Companies.
In July through October 1999, we granted options to purchase 2,209,500
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 $11.5 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 568,000
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.
33
<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
----------- ----------- ------------ ------------
(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
34
<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 $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
35
<PAGE>
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 implementation revenues and monthly maintenance
services revenue for telephone banking products were minimal.
36
<PAGE>
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.
37
<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
38
<PAGE>
December 31, 1998. Total combined Internet banking license, hardware and
implementation revenues 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
39
<PAGE>
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
40
<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.
41
<PAGE>
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>
42
<PAGE>
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 March 1999
in connection with the acquisition of Direct Access Interactive and
subsequently terminated this line of credit. In October 1999, we entered into a
$3.0 million revolving line of credit with an affiliate of one of our
directors. Borrowings under this line of credit bear interest at a rate equal
to the prime rate. At present, we have not borrowed any funds under this line
of credit. In addition, in October 1999, we borrowed approximately $1.3 million
for capital expenditures from a financial institution. This loan bears interest
at LIBOR plus 2%. We are required to make monthly principal payments of $8,621
plus interest beginning November 1, 1999. The loan matures on October 1, 2004,
at which time we must make a balloon payment of approximately $936,300 plus any
remaining interest then due.
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,
43
<PAGE>
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.
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.
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. As of June 30, 1999, we had no cash and a working capital deficit of
approximately $25.2 million.
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 borrowed
approximately $3.0 million from InterCept on this basis as of October 15, 1999.
These borrowings are on substantially the same terms as the borrowings
discussed in the next paragraph. We anticipate that InterCept will make any
necessary additional 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 10.25% 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 $29.3 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 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.
44
<PAGE>
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 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. In February 1998, SBS determined the scope of the year 2000
compliance program and developed a plan of action.
. Renovation. Between February and August 1998, SBS updated its network
infrastructure and made cosmetic interface changes in order to
facilitate the display of four digits to end users of its product.
. Validation. From August 1998 to January 1999, 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.
. Vendor and Customer Compliance. To maintain the current and future
integrity of these systems, SBS began in early 1999 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.
45
<PAGE>
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. 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, the vendors and other third parties from whom we have purchased
or licensed items have provided us with assurances that their products are year
2000 compliant. These third parties have provided detailed disclosures
concerning the status of their year 2000 compliance efforts and, where
necessary, have provided updated products, which address the year 2000 issue.
We have made every effort to obtain these updates and now believe that products
obtained from third parties will not be materially affected by the year 2000
issue.
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 $50,000 in additional year 2000 expenses
during the remainder of 1999, which will be used to purchase contingency
hardware, software and other equipment. 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
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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. 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.
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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 recently
introduced 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 and Internet-based 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 will enable
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
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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 October 15, 1999, we had approximately 380 community financial
institution customers under contract to utilize one or more of 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 $1.1 trillion in 2003, a compound annual
growth rate of approximately 100%.
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 eight
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 7,193 banks, 1,469 thrifts and 10,964
credit unions in the United States with assets of less than $10 billion each.
These community financial institutions hold approximately $1.9 trillion in
deposits, or approximately 46% 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), which is our recently
introduced, 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 Expandability. 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 Internet banking products and services with e-
commerce capabilities, we can provide an innovative gateway to the Internet.
Community financial institutions can utilize our system to
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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 recently introduced
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. We have already begun
to implement this service on a limited basis, and we expect by the end
of 1999 to make cash management services widely available to our
customers.
. 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, provided that the customer's bank has check imaging
capabilities.
. 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 will offer 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 will provide 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 are in the process of
establishing relationships with both regional and national providers of
these products and services.
. Business Products and Services. This service will offer products and
services to small business customers of financial institutions at
wholesale prices. This service will allow financial institutions to help
their commercial customers become more competitive and profitable. For
example, we are in the process of establishing 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 will 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 will 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
October 15, 1999, we had approximately 318 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 intend to form
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 and The Bankers Bank. We intend to enter into similar agreements
shortly with Pacific Coast Bankers' Bank, Bankers Bancorp of Oklahoma, Inc. and
Atlantic Central Bankers' Bank. Pursuant to these agreements, each bankers'
bank agrees 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 19,500 community financial
institutions in the United States with assets of less than $10 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 October 15, 1999, we have contracts with approximately 380 community
financial institutions to provide our Internet banking products and services
and contracts with approximately 600 community financial institutions to
provide one or more of our 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 -- Increased competition may increase pricing pressures, reduce
margins or cause a loss of market share."
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 and expect to enter into a new lease and relocate our corporate
headquarters in Atlanta by the end of 1999. We believe that suitable additional
or alternative space will be available in the future on commercially reasonable
terms as needed.
Employees
As of October 15, 1999, we had a total of approximately 90 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 October 19, 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......... 52 Chairman of the Board of Directors
Jon R. Burke............ 52 Director
Gayle M. Earls.......... 63 Director
Donny R. Jackson........ 50 Director
Joel A. Katz............ 55 Director
Stiles A. Kellett, Jr... 55 Director
Bruce P. Leonard........ 46 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
beneficially own approximately 39% 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 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.
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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. 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.
Jon R. Burke has served as a director of Netzee since October 1999. Since
1995, Mr. Burke has served as a principal with Brown, Burke Capital Partners,
Inc., a financial consulting firm for companies involved in mergers and
acquisitions. Mr. Burke also serves as the general managing member of Capital
Appreciation Management Company, L.L.C., the managing general partner of an
Atlanta-based merchant-banking fund. From 1973 to 1995, he was employed by The
Robinson-Humphrey Company, Inc., most recently serving as a Senior Vice
President in the Research Department. Mr. Burke currently serves on the Board
of Directors of both InterCept and United Companies Financial Corporation, a
financial services holding company engaged in commercial lending.
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.
Stiles A. Kellett, Jr. has been a director of Netzee since October 1999.
Since March 1996, Mr. Kellett has been Chairman of the Board of Directors of
Kellett Investment Corp., a privately-held investment firm. From 1976 to 1995,
Mr. Kellett served as Chairman of the Board of Directors of Convalescent
Services, Inc., a long-term health care company in Atlanta, Georgia. Mr.
Kellett also serves as a director of MCI WorldCom Communications, Inc. and as a
director of Satellink Paging, a paging company located in Roswell, Georgia.
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, Sturm and Kellett currently
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serve as class I directors, Messrs. Waite, Jackson and Burke 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 have entered 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 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.
Under the terms of the Line of Credit Agreement by and between Netzee and
Kellett Partners, L.P., we agreed to cause a representative of Kellett Partners
to be elected to the board of directors. Stiles A. Kellett, Jr. has been
designated by Kellett Partners as its representative to serve on our board of
directors and was elected to the board of directors on October 19, 1999.
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.
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Executive Compensation
All five of our executive officers joined us in 1999. We entered into
employment agreements with Messrs. Sturm, Bowers, Brasfield and Eiswirth on
September 1, 1999. The employment agreements with these executive officers
provide for minimum 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 provide, among other things:
. for a term of two years, subject to extension by us for an additional
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 in our stock, retirement and similar 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, permit him to use
our assets free of charge and provide him with other benefits;
. 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 us without cause or by the
executive after our breach or, for Mr. Sturm, Mr. Bowers, and Mr.
Brasfield only, after a change in control:
. the executive will receive as a lump sum accrued compensation and
bonus, and his annual base salary, bonus and certain benefits for
the remainder of the term of the agreement (or if the remainder of
the term is less than one year, his salary 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 and other stock awards held by the executive vest and become
immediately exercisable; and
. the executive shall have piggyback registration rights to have his
shares included in any registered offering we complete, subject to
various limitations and conditions;
. the executive shall be permitted to participate in venture capital and
other investments whether or not we invest in the particular investment;
and
. if the executive is required to pay Federal excise taxes by reason of a
golden parachute payment, we will reimburse him for those excise taxes.
Mr. Sturm's employment agreement permits him to remain a partner at Nelson
Mullins Riley & Scarborough LLP provided that his work for that firm and any
other organization of which he is an officer or director does not materially
interfere with his duties as our Chief Executive Officer and is not materially
adverse to our interests. He is entitled to keep all compensation paid to him
by that firm. Additionally, Mr. Sturm's employment agreement gives him demand
registration rights if he is terminated for any reason other than for cause and
if, at the time of termination, he owns options that have not been subject to
registration on a Form S-8 or otherwise.
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.
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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.
Options to purchase an aggregate of 1,580,000 shares of common stock were
granted to some of our executive officers and directors in July through October
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........................................ 275,000
C. Michael Bowers.......................................... 275,000
David Brasfield............................................ 100,000
John W. Collins............................................ 165,000
Jon R. Burke............................................... 40,000
Gayle M. Earls............................................. 45,000
Donny R. Jackson........................................... 40,000
Joel A. Katz............................................... 40,000
Stiles A. Kellett, Jr...................................... 40,000
Bruce P. Leonard........................................... 85,000
Steven D. Simpson.......................................... 125,000
Glenn W. Sturm............................................. 310,000
A. Jay Waite............................................... 40,000
</TABLE>
In addition, options to purchase 629,500 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. Burke, Collins, Earls, Jackson, Katz,
Kellett, Leonard, Sturm and Waite are currently vested; and
. 185,000 of Mr. Sturm's options, 175,000 of Mr. Bowers' options, 50,000
of Mr. Brasfield's options and 150,000 of the remaining 225,000 of Mr.
Eiswirth's options, will vest upon the completion of our initial public
offering.
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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, or, with
respect to a shareholder owning more than 10% of the total combined voting
power of all classes of our stock, not less than 110% of the fair market value
of the common stock on the date of grant. The term of an incentive stock option
may not exceed 10 years, or five 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 in separate transactions Call Me Bill, Dyad,
the remote banking operations of SBS and the Internet banking divisions of TIB
and The Bankers Bank. 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. These shares were issued at a price of $10.50 per share. 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 39% 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 and Jon R. Burke is one of our
directors and 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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<PAGE>
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 October 15, 1999, this
loan bore interest at a rate of 10.25% per year. Interest on the outstanding
balance is due quarterly. The note is secured by all of our assets. As of
October 15, 1999, we had recognized interest expense of approximately $430,000.
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%. These loans currently bear 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 October 15, 1999, we had
recognized interest expense of approximately $51,000 and $36,000 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, no later
than March 2000. Icom B is an Internet banking product that allows financial
institutions to interface with bankers' banks. We have agreed to grant them 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 and market it to other
correspondent banks. We have also agreed to pay commissions to each of these
bankers' banks for licensing the Icom B product pursuant to our strategic
marketing agreements. Under these agreements, we 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, with terms expiring in 2003. See "Business--Sales and
Marketing--Strategic Marketing Alliances."
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<PAGE>
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.
Line of Credit Agreement and Warrant
On October 18, 1999, we entered into a Line of Credit Agreement with Kellett
Partners, L.P. Stiles A. Kellett, Jr., a director of Netzee, is an affiliate of
Kellett Partners. Pursuant to this agreement, Kellett Partners agreed to loan
up to $3.0 million to Netzee on a revolving basis at an interest rate equal to
the prime rate. This line of credit terminates on September 30, 2002.
In connection with the line of credit, we issued to Kellett Partners a
warrant to purchase up to 461,876 shares of our common stock at an exercise
price of $3.25 per share. The warrant expires on August 31, 2004. We have
granted to Kellett Partners piggyback registration rights with respect to the
common stock that we may issue to Kellett Partners pursuant to this warrant.
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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 October 19, 1999, and as adjusted to
reflect our 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 October 19, 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.(1)
3150 Holcomb Bridge
Road, Suite 200
Norcross GA 30071...... 7,557,673 49.1% -- 7,557,673 39.0%
Independent Bankers
Financial
Corporation(2)
P. O. Box 560528
Dallas TX 75356-0528... 1,361,000 8.8% 391,208 969,792 5.0%
The Bankers Bank
2410 Paces Ferry Road
600 Paces Summit
Atlanta GA 30339-4098.. 1,361,000 8.8% -- 1,361,000 7.0%
David W. Brasfield(3)(4)
1500 Resource Drive
Birmingham AL 35242.... 835,252 5.4% -- 835,252 4.3%
Michael Vaughn(3)(5)
1500 Resource Drive
Birmingham AL 35242.... 866,667 5.6% -- 866,667 4.5%
Robert D. Kirk,
III(3)(6)
1500 Resource Drive
Birmingham AL 35242.... 948,082 6.2% -- 948,082 4.9%
Glenn W. Sturm(7)(8).... 914,889 5.9% -- 914,889 4.8%
John W. Collins(7)(9)... 757,594 4.9% -- 757,594 3.9%
Donny R.
Jackson(7)(10)......... 351,951 2.3% -- 351,951 1.8%
Sirrom Investments,
Inc.(11)
500 Church Street
Nashville TN 37219..... 66,947 * 56,947 10,000 *
Jon R. Burke(12)........ 10,000 * -- 10,000 *
Gayle M. Earls(12)...... 10,000 * -- 10,000 *
Joel A. Katz(12)........ 10,000 * -- 10,000 *
Stiles A. Kellett,
Jr.(12)(13)............ 471,876 2.4% -- 471,876 *
Bruce P. Leonard(12).... 10,000 * -- 10,000 *
A. Jay Waite(12)........ 10,000 * -- 10,000 *
All directors and
executive
officers(13)(14)
as a group (13
persons)............... 3,791,500 23.0% -- 3,791,500 18.5%
</TABLE>
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<PAGE>
- --------
* 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) Independent Bankers Financial Corporation is the ultimate parent of TIB The
Independent BankersBank.
(3) Includes 86,667 shares held of record by First Union National Bank, as
escrow agent.
(4) Includes 50,000 shares underlying options that will become exercisable upon
the completion of this offering.
(5) Includes 780,000 shares beneficially owned indirectly through Vaughn
Investments LLC.
(6) Includes 350,000 shares beneficially owned indirectly through Kirk
Investments LLC.
(7) 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.
(8) Includes (1) 8,989 shares held by First Union National Bank, as escrow
agent, and (2) 195,000 shares underlying options that are immediately
exercisable or will become exercisable upon the completion of this
offering.
(9) Includes (1) 10,366 shares held by First Union National Bank, as escrow
agent, and (2) 118,932 shares held indirectly through FDS, LLC, in which
Mr. Collins owns a 60% membership interest.
(10) Includes (1) 2,302 shares held by First Union National Bank, as escrow
agent, and (2) 118,932 shares held indirectly through FDS, LLC, in which
Mr. Jackson owns a 20% membership interest.
(11) Includes 6,695 shares held by First Union National Bank, as escrow agent.
(12) Includes 10,000 shares underlying options that are immediately
exercisable.
(13) Includes 461,876 shares held indirectly by Kellett Partners, L.P.
underlying a warrant that is immediately exercisable.
(14) Includes a total of 650,000 shares underlying options that are immediately
exercisable or will become exercisable upon the completion of this
offering.
John W. Collins is the Chief Executive Officer, the Chairman of the Board of
Directors and a shareholder of InterCept, as well as the Chairman of the Board
of Directors of Netzee. Glenn W. Sturm is a director and shareholder of
InterCept, as well as the Chief Executive Officer and a director of Netzee.
Donny R. Jackson is the President, a director and a shareholder of InterCept,
as well as a director of Netzee. Bruce P. Leonard is the Chief Executive
Officer of The Bankers Bank and a director of Netzee. Gayle M. Earls is the
Chief Executive Officer of TIB and a director of Netzee. Jon R. Burke is one of
our directors and also a director of InterCept.
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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 October 19, 1999, 15,395,855 shares of common stock were
outstanding and held by approximately 42 shareholders of record.
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. We intend to amend the
bylaws to increase the 25% requirement to 75%. This will make it more difficult
for shareholders to call special meetings of shareholders. Further, 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. We intend to cause the articles of
incorporation to be amended in order to remove this provision. Once this
amendment is made, a unanimous written consent of the shareholders will be
required for them to take action without a meeting. This provision would make
it more difficult for shareholders to take action outside of a duly called
annual or special meeting.
Advance Notification of Director Nominations and New Business
We intend to amend our bylaws to require shareholders to notify us in
advance of their nominations of candidates for election to the board of
directors who are not nominated by the board of directors. This provision will
also require advance notification of shareholder proposals to be presented at
the annual meeting of shareholders. Without compliance with these provisions,
any director nominations or proposals to be presented by shareholders without
the approval of the board of directors cannot be considered by the shareholders
at a meeting.
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,
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<PAGE>
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, 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
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<PAGE>
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.
Relationship with InterCept
We intend to amend our bylaws to address potential conflicts of interest
between us and InterCept, which upon the completion of the offering will own
approximately 39% of our common stock. The proposed amendment is designed to
make clear to all persons who may, from time to time, purchase our shares that
the under-taking by InterCept of specific corporate transactions that might
otherwise be deemed to be corporate opportunities of ours and of InterCept will
not constitute a usurpation of corporate opportunities. We anticipate that
these provisions would also clarify that a director or officer has fulfilled
his fiduciary and other duties to us and has not derived an improper benefit if
he acts consistently with the following policy:
. A corporate opportunity offered to any person who is an officer of
Netzee, and is also a director but not an officer of InterCept, should
belong to Netzee.
. A corporate opportunity offered to any person who is a director but not
an officer of Netzee, and who is also a director or officer of InterCept
shall belong to Netzee, if the opportunity is expressly offered to that
person in working solely in his or her capacity as a director of Netzee.
Otherwise, the opportunity shall belong to InterCept.
. A corporate opportunity offered to any person who is an officer of both
Netzee and InterCept shall belong to Netzee.
Additionally, we anticipate that the by-law amendment may provide that a
corporate opportunity offered to a person under circumstances where it is
unclear whether it was offered primarily in that person's capacity as an
officer or director of us or of InterCept may be presented to whichever the
company the director or officer deems appropriate under the circumstances in
his sole discretion exercised in good faith.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is SunTrust Bank, Inc.
76
<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 19,395,855 shares of common stock outstanding, or 20,063,078 shares
if the underwriters exercise their over-allotment option in full. Of this
amount, the 4,448,155 shares sold in this offering, or 5,115,378 shares if the
over-allotment option is exercised in full, 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," 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.
Shares that we register in this offering that are purchased by our affiliates
must be sold in accordance with all of the requirements of Rule 144 except for
the holding period. 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 obtaining this
consent. Although Robinson-Humphrey may, in its sole discretion, release all or
a portion of the shares subject to any lockup agreement, Robinson-Humphrey does
not intend to do so except in cases of financial hardship, subject to market
conditions. If a shareholder should request that Robinson-Humphrey waive the
180-day lock-up period, Robinson-Humphrey would likely take into consideration
the number of shares as to which the request relates, the identity of the
requesting shareholder, the relative demand for additional shares of common
stock in the market, the period of time since the completion of the offering,
and the average trading volume and price performance of the common stock during
that period.
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...... 4,448,155 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............ 14,947,700 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 193,959
shares immediately after the offering), or
77
<PAGE>
. 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.
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.
In October 1999, we issued to Kellett Partners, L.P. a warrant to purchase
up to 461,876 shares of our common stock in connection with the establishment
of a $3.0 million line of credit with that third party. We granted to Kellett
Partners piggyback registration rights substantially similar to those granted
to the former shareholders of SBS and Dyad. Stiles A. Kellett, Jr., an
affiliate of Kellett Partners, is a director of Netzee.
In connection with employment agreements entered into with each of Glenn W.
Sturm, C. Michael Bowers, Richard S. Eiswirth and David W. Brasfield, we have
granted to these executive officers piggyback registration rights, and, with
respect to Mr. Sturm, demand registration rights under certain circumstances,
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 any holders of registration rights since this will depend on
the market price of our common stock, the personal circumstances of the sellers
and other factors.
78
<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.......................................................... 4,448,155
</TABLE>
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 667,223 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.
We and the selling shareholders will pay the underwriters a commission of 7%
of the per share public offering price for each share of common stock that the
underwriters purchase in the offering. 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 approximately $2.4 million. 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 offered by this prospectus.
79
<PAGE>
The underwriters have reserved for sale, at the initial public offering
price, up to 222,408 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
80
<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.
81
<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, is representing the underwriters in this offering. 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.
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.
82
<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 (except
with respect to the matters
discussed in Note 9 as to
which the date is October
19, 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.
The Company's Chief Executive Officer is a director of InterCept and is a
partner at Nelson Mullins Riley & Scarborough, L.L.P. This firm provided legal
services to the Company totaling approximately $50,000 during 1999.
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
F-12
<PAGE>
NETZEE, INC.
(Formerly Direct Access Interactive, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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, options
to purchase a total of 55,000 shares of common stock at an exercise price of
$5.00 per share granted to management and directors of the Internet banking
divisions of TIB and The Bankers Bank, and 76,000 shares of common stock sold
to a third party for $100,000. 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.... 27,166,000 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 Company obtained the cash purchase price and the cash to pay
the assumed debt by issuing a promissory note to InterCept in the amount of
$4,400,000. The note bears interest at prime plus 2%, payable quarterly. The
Company intends to repay the principal and interest on the note with the
proceeds of the planned Offering. 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..... 13,543,000 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 and approximately 31,000 shares of Netzee stock sold
to former owners of Call Me Bill for $10.50 per share. These shares were valued
at $11.50 per share. 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.
Sale of Common Stock
On September 10, 1999, the Company sold 128,617 shares of common stock to
three bankers' banks for $3.11 per share. These shares were sold in connection
with the entering into of a one-year general marketing
F-16
<PAGE>
NETZEE, INC.
(formerly Direct Access Interactive, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
agreement under which each bankers' bank has agreed to use its best efforts to
promote and market the Company's Internet banking products and services to
community financial institutions. The Company will record as an intangible
asset the difference between the fair value of common stock and the price paid.
This intangible asset will be amortized over the two-year expected benefit
period for these agreements. On September 3, 1999, the Company sold 85,000
shares of common stock to an employee. The difference between the fair value of
shares and the price paid for them was recorded as compensation expense.
Employment Agreements
The Company's executive officers intend to enter into employment agreements
providing for minimum annual salaries ranging from $140,000 to $250,000. Each
employment agreement is for a term of two years and provides for incentive
compensation.
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 1,929,500 options
outstanding as of October 19, 1999 and 1,540,500 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.................................... 1,019,500 5.00
October 19, 1999..................................... 80,000 $ 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, 110,000 of the options
were exercisable. On October 19, 1999, the board of directors authorized the
issuance of options to purchase 250,000 shares of common stock at the offering
price. These options will be fully vested on the date of the offering. The
majority of the options vest over a three year period with 568,000 options
being subject to accelerated vesting upon an initial public offering.
F-17
<PAGE>
NETZEE, INC.
(Formerly Direct Access Interactive, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 8,147,000
October 19, 1999...................................... $13.00 640,000
-----------
Total............................................... $11,472,000
===========
</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-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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-55
<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-56
<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-57
<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-58
<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-59
<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-60
<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-61
<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 and approximately 31,000 shares of Netzee
stock sold at $10.50 per share. These shares were sold to former members of the
Company and were valued at $11.50 per share. The acquisition of the Company was
accounted for as a purchase under Accounting Principles Board Opinion No. 16.
F-62
<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-63
<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-64
<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-65
<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-66
<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-67
<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-68
<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-69
<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-70
<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-71
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,448,155 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............................................. $ 19,909
National Association of Securities Dealers, Inc. filing fee...... 6,000
Nasdaq National Market listing fee............................... *
Blue sky fees and expenses....................................... 5,000
Accounting fees and expenses..................................... 850,000
Legal fees and expenses.......................................... *
Printing and engraving expenses.................................. *
Registrar and transfer agent's fees.............................. *
Directors' and officers' liability insurance..................... *
Miscellaneous fees and expenses.................................. *
----------
Total .......................................................... $2,380,000
==========
</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 289,617 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.
(8) On October 18, 1999, Netzee issued a warrant to purchase up to 461,876
shares of common stock at an exercise price of $3.25 per share to an
entity that certified to Netzee that it was an "accredited investor"
as defined in Regulation D of the Securities Act. Netzee issued this
warrant as consideration for a $3,000,000 three-year line of credit
agreement between Netzee and the entity.
(9) On October 19, 1999, Netzee issued to certain executive officers and
directors of Netzee stock options to purchase 330,000 shares of common
stock. No shares of common stock have been issued pursuant to the
exercise of these options.
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, and the Commission's interpretations of such
provisions, 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.
4.6 Registration Rights Agreement, dated October 18, 1999, by and between
Netzee, Inc. and Kellett Partners, L.P.
4.7 Warrant, dated October 18, 1999, issued to Kellett Partners, L.P.
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 Richard S. Eiswirth.
10.6 Employment Agreement, dated September 1, 1999, 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.).
10.18 Line of Credit Agreement, dated October 18, 1999, by and between
Netzee, Inc. and Kellett Partners, L.P.
10.19** General Marketing Agent Agreement, dated September 3, 1999, as
amended, by and between Netzee, Inc. and TIB The Independent
BankersBank.
10.20** General Marketing Agent Agreement, dated September 3, 1999, as
amended, by and between Netzee, Inc. and The Bankers Bank.
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.
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.
**Netzee has filed a confidential treatment request with respect to a portion
of this exhibit.
+Previously filed.
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 21st day of October, 1999
NETZEE, INC.
/s/ Glenn W. Sturm
By: _________________________________
Glenn W. Sturm, Chief Executive
Officer
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 date indicated above.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Glenn W. Sturm Chief Executive Officer October 21, 1999
______________________________________ and Director (Principal
Glenn W. Sturm Executive Officer)
/s/ Richard S. Eiswirth Executive Vice President October 21, 1999
______________________________________ and Chief Financial
Richard S. Eiswirth Officer (Principal
Financial and Accounting
Officer)
* President and Chief October 21, 1999
______________________________________ Operating Officer
C. Michael Bowers
* Chairman of the Board of October 21, 1999
______________________________________ Directors
John W. Collins
/s/ Jon R. Burke Director October 21, 1999
______________________________________
Jon R. Burke
* Director October 21, 1999
______________________________________
Donny R. Jackson
* Director October 21, 1999
______________________________________
Bruce P. Leonard
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director October 21, 1999
______________________________________
GAYLE M. EARLS
* Director October 21, 1999
______________________________________
JOEL A. KATZ
/s/ Stiles A. Kellett, Jr. Director October 21, 1999
______________________________________
STILES A. KELLETT, JR.
* Director October 21, 1999
______________________________________
</TABLE> A. JAY WAITE
/s/ Richard S. Eiswirth
*By: ____________________________
RICHARD S. EISWIRTH
ATTORNEY-IN-FACT
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.
4.6 Registration Rights Agreement, dated October 18, 1999, by and between
Netzee, Inc. and Kellett Partners, L.P.
4.7 Warrant, dated October 18, 1999, issued to Kellett Partners, L.P.
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 Richard S. Eiswirth.
10.6 Employment Agreement, dated September 1, 1999, by and between Netzee,
Inc. and Glenn W. Sturm.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<C> <S>
10.7 Employment Agreement, dated September 1, 1999, by and between Netzee,
Inc. and C. Michael Bowers.
10.8 Employment Agreement, dated September 1, 1999, by and between Netzee,
Inc. and David W. Brasfield.
10.9 Employment Agreement, dated September 1, 1999, 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.).
10.18 Line of Credit Agreement, dated October 18, 1999, by and between
Netzee, Inc. and Kellett partners, L.P.
10.19** General Marketing Agent Agreement, dated September 3, 1999, as
amended, by and between Netzee, Inc. and TIB The Independent
BankersBank.
10.20** General Marketing Agent Agreement, dated September 3, 1999, as
amended, by and between Netzee, Inc. and The Bankers Bank.
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.
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.
**Netzee has filed a confidential treatment request with respect to a portion
of this exhibit.
+Previously filed.
<PAGE>
EXHIBIT 2.6
ASSET TRANSFER AGREEMENT
THIS ASSET TRANSFER AGREEMENT (the "Agreement"), is made and entered into as
of the 6th day of August, 1999, by and between Direct Access Interactive, Inc.,
a Georgia corporation ("Direct Access"), and The InterCept Group, Inc., a
Georgia corporation ("InterCept").
WHEREAS, SBS Corporation, an Alabama corporation ("SBS"), has merged with and
into Direct Access pursuant to an Agreement and Plan of Merger dated August 6,
1999 between Direct Access and SBS, and Direct Access, as the surviving
corporation of such merger, has assumed all rights, privileges, obligations and
liabilities of SBS; and
WHEREAS, the parties hereto deem it in their respective best interests to
transfer those assets of Direct Access relating to its non-remote banking
operations (the "Assets") to InterCept immediately subsequent to the merger of
Direct Access and SBS; and
WHEREAS, Direct Access desires to transfer to InterCept, and InterCept desires
to acquire from Direct Access, the Assets as hereinafter described upon the
terms and conditions hereinafter set forth; and
WHEREAS, the parties hereto desire that this Agreement shall set forth their
full and complete understanding of the terms and conditions under which Direct
Access shall transfer and InterCept shall acquire the Assets;
NOW, THEREFORE, in consideration of InterCept's agreement to assume certain
liabilities of Direct Access and Direct Access' agreement to transfer certain
assets to InterCept, and for other good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
1.1 Transfer of Assets. Subject to the terms and conditions hereof, Direct
------------------
Access does hereby sell, transfer, assign, and convey to InterCept, its
successors and assigns, all of Direct Access' rights, privileges, and
obligations to and under the following properties, assets, rights, contracts and
businesses, which taken together constitute the Assets:
(a) Operating Contracts. All right, title and interest in the written or
-------------------
oral contracts and other agreements to provide, or which are otherwise necessary
to, Direct Access' non-remote banking operations ("Operating Contracts") more
particularly set forth in Exhibit 1.1a, attached hereto;
------------
<PAGE>
(b) Accounts Receivable. All right, title and interest in the accounts and
-------------------
account receivables generated from Direct Access' non-remote banking operations
and set forth in Exhibit 1.1b, attached hereto, and any "open receivables,"
------------
i.e., receivables generated by non-remote banking services performed and
products sold by Direct Access prior to the date of this Agreement and not yet
billed;
(c) Intangible Property. All right, title and interest in all claims,
-------------------
deposits, prepayments, refunds, causes of action, choses in action, rights of
recovery, rights of set off and rights of recoupment (including any such item
relating to the payment of any federal, state or local tax), and all licenses,
permits, registrations and/or authorities, issued and/or required by any local,
state, federal or other governmental agency, related and/or necessary to the
non-remote banking operations of Direct Access or the Assets;
(d) Fixed Assets. All right, title and interest to the equipment and other
------------
fixed assets set forth in Exhibit 1.1d, attached hereto which are reasonably
------------
necessary to perform the non-remote banking functions provided by Direct
Access; and
(e) Other Assets. All right title and interest to all books, records,
------------
ledgers, files, documents, correspondence, telephone numbers, printed materials
and other information necessary for InterCept to commence delivery of the non-
remote banking operations or otherwise relating to the Assets.
1.2 Assets Excluded. Direct Access shall retain title and possession of all of
---------------
its property and assets other than the Assets.
1.3 Assumption of Liabilities.
-------------------------
(a) Operating Contracts. Subject to the limitations set forth in Section
-------------------
1.1(a) hereof, InterCept hereby agrees to assume and satisfy all obligations and
duties of Direct Access under the Operating Contracts listed in Exhibit 1.1a
------------
hereto.
(b) Accounts Payable. InterCept hereby agrees to assume and satisfy all
----------------
obligations and duties of Direct Access under the accounts payable listed
in Exhibit 1.3b hereto.
------------
(c) EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 1.3, IT IS EXPRESSLY
UNDERSTOOD AND AGREED THAT INTERCEPT SHALL NOT ASSUME AND IS NOT ASSUMING, NOR
SHALL INTERCEPT BECOME LIABLE, OBLIGATED OR RESPONSIBLE FOR THE PAYMENT OF ANY
DEBTS, LIABILITIES OR OBLIGATIONS OR THE PERFORMANCE OF ANY DUTIES OF DIRECT
ACCESS, OF ANY KIND OR NATURE WHATSOEVER, WHETHER NOW OR HEREAFTER ARISING AND
WHETHER CONTINGENT OR LIQUIDATED IN AMOUNT, INCLUDING, WITHOUT LIMITATION, ANY
DEBTS, LIABILITIES, OBLIGATIONS OR DUTIES ARISING OUT OF ACCOUNTS PAYABLE, TAX
LIABILITIES, EMPLOYEE BENEFITS, CONTRACTS, AGREEMENTS
2
<PAGE>
OR OTHER TYPES OF LIABILITIES OF DIRECT ACCESS OR RELATED TO THE OPERATION OF
ITS BUSINESS.
ARTICLE 2
TRANSFER VALUE OF ASSETS
The parties agree that the Assets shall be transferred to InterCept at book
value as shown on Direct Access' most recent financial statements. Direct
Access shall be responsible for and shall pay any and all costs and expenses for
taxes, fees, stamps, charges, and all documentary, recording or filing fees
payable in connection with the transfer of the Assets.
ARTICLE 3
MISCELLANEOUS
3.1 Further Assurances. Direct Access shall execute and deliver or cause to be
------------------
executed and delivered such further instruments and take such other action as
InterCept may require to more effectively carry out the transfer of the Assets
and the consummation of the matters contemplated by this Agreement.
3.2 Collection of Receivables. After the effective date of this Agreement,
-------------------------
InterCept shall have the sole right to collect and to endorse with the name of
Direct Access or SBS any checks received on account of any receivables
transferred to InterCept pursuant to Section 1.7(b). If Direct Access receives
payment from customers owing hereunder to InterCept, Direct Access will remit
such payments to InterCept within ten (10) days of receipt thereof.
3.3 Governing Law. This Agreement shall be governed, construed and enforced in
-------------
accordance with the laws of the State of Georgia in all respects.
3.4 Terms and Captions. The term "Agreement" as used herein, as well as the
------------------
terms "herein," "hereof," "hereunder" and the like shall mean this Agreement in
its entirety and all Schedules and Exhibits attached hereto and made a part
hereof. The captions and section headings hereof are for reference and
convenience only and do not enter into or become part of the context. All
pronouns, singular and plural, masculine, feminine or neuter, shall mean and
include the person, entity, firm, or corporation to which they relate as the
context may require.
3.5 Severability. In the event that any term, covenant, condition, agreement,
------------
section or provision hereof shall be deemed invalid or unenforceable by a court
of competent and final jurisdiction in the premises, this Agreement shall not
terminate or be deemed void or voidable, but shall continue in full force and
effect and there shall be substituted for such stricken provision a like but
legal and enforceable provision which most nearly accomplishes the intention of
the parties hereto.
3
<PAGE>
3.6 Notices. All notices, requests, demands, and other communications
-------
hereunder shall be deemed to have been duly given if in writing and sent by hand
or reliable overnight delivery, telecopier (receipt confirmed) or certified or
registered mail, postage prepaid, to the appropriate address indicated below or
such other address as may be given in a notice sent to the other parties hereto:
If to InterCept:
The InterCept Group, Inc.
3150 Holcomb Bridge Road, Suite 200
Norcross, Georgia 30071
Attention: Donny R. Jackson, President
If to Direct Access
Direct Access Interactive, Inc.
3150 Holcomb Bridge Road, Suite 200
Norcross, Georgia 30071
Attention: Donny R. Jackson, President
3.7 Counterparts. This Agreement may be executed in one or more counterparts,
------------
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
3.8 Schedules and Exhibits. Each Schedule and Exhibit referred to in this
----------------------
Agreement is hereby incorporated by reference and made an integral part hereof,
and may be referred to in this Agreement and any other related instrument or
document without being attached thereto.
3.9 Binding Effect. This Agreement shall be binding upon and shall inure to
--------------
the benefit or detriment of the parties hereto and their respective heirs,
personal representatives, permitted successors and assigns.
3.10 Assignment. Neither party hereto may assign any of its rights, duties or
----------
obligations under this agreement without the prior written consent of the other
party hereto and any attempt to do so shall be null and void and of no force and
effect upon the non-consenting party.
3.11 Entire Agreement; Modification of Agreement. This Agreement embodies the
-------------------------------------------
entire agreement of the parties hereto relating to the subject matter hereof and
supersedes all prior oral or written agreements between the parties with respect
to said subject matter. No amendment or modification of this Agreement shall be
valid or binding upon the parties hereto unless made in writing and signed by
each of the parties hereto.
4
<PAGE>
3.12 No Third Party Beneficiaries. Nothing in this Agreement is intended to
----------------------------
create a benefit in favor of, or an obligation to, any person or entity not a
party to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
DIRECT ACCESS INTERACTIVE, INC.
/s/ Donny R. Jackson
--------------------
By: Donny R. Jackson
Its: President
[CORPORATE SEAL]
THE INTERCEPT GROUP, INC.
/s/ Donny R. Jackson
--------------------
By: Donny R. Jackson
Its: President
[CORPORATE SEAL]
5
<PAGE>
EXHIBIT 4.6
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), is dated and executed
---------
effective as of October 18, 1999, by Netzee, Inc., a Georgia corporation (the
"Company"), and Kellett Partners, L.P., a Georgia limited partnership
-------
("Kellett"). The Company and Kellett are hereinafter collectively called the
"Parties."
-------
WHEREAS, the Company and Kellett have entered into a Line of Credit
Agreement, dated as of October 18, 1999 (the "Credit Agreement"), pursuant to
which, among other things, Kellett has agreed to allow the Company to borrow up
to $3,000,000 from Kellett upon the terms and conditions set forth in the Credit
Agreement;
WHEREAS, in connection with the execution and delivery of the Credit
Agreement, the Company has agreed to issue to Kellett a warrant (the "Warrant")
to purchase up to 461,876 shares of the Company's common stock, without par
value (the "Common Stock"); and
------------
WHEREAS, the Company and Kellett desire to provide for the rights of
Kellett with respect to the registration of the shares of Common Stock to be
received by Kellett upon the exercise in whole or in part of the Warrant, in
accordance with the terms, conditions and limitations contained therein.
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 issuable to
----------------------
Kellett upon exercise of the Warrant in whole or in part and any Common Stock
issued as a dividend or other distribution with respect to, or in exchange or
replacement of, such shares of Common Stock that have actually been issued to
Kellett, but shall not include any other shares of Common Stock acquired by
Kellett other than the foregoing;
1
<PAGE>
(e) "Holder" means Kellett if it holds Registrable Securities;
------
provided, however, that any person who acquires any of the Registrable
Securities from Kellett 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;
(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 Warrant.
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 on the same terms
and conditions as any similar Securities of the Company so included, subject to
the provisions of Section 9 hereof.
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
2
<PAGE>
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 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.
3
<PAGE>
(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.
(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
4
<PAGE>
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.
(m) use commercially reasonable efforts to cause all Registrable
Securities to be listed on each securities exchange (or quotation system
operated by a national securities association) on which the common stock of the
Company is then listed (or included) and enter into customary agreements
including, if necessary, a listing application and indemnification agreement in
customary form, if so required.
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 reasonable discretion, abandon or terminate such
registration without the consent of the Holders with no liability to the Holders
or any third party arising therefrom.
5. Accredited Investor. To induce the Company to issue the Warrants
-------------------
and to enter into this Agreement, each Holder, severally and not jointly,
represents and warrants to the Company that because of one or more of the
following criteria, such Holder is an "accredited investor" within the meaning
of Regulation D promulgated by the Commission under the 1933 Act, by reason of:
(i) the Holder is a natural person who has a net worth or joint net worth with
the Holder's spouse exceeding $1,000,000 at the time of issuance of the Warrant;
(ii) the Holder is a natural person who has 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 Holder is a
corporation, partnership or trust with total assets in excess of $5,000,000 not
formed for the specific purpose of acquiring the Warrant; or (iv) all of the
Holder's shareholders, partners or members, as the case may be, are "accredited
investors". Such Holder understands that the officers, directors, attorneys and
other advisors of the Company will rely upon the representations and warranties
made by such Holder in this Agreement in order to establish any necessary
exemption from the registration provisions of the 1933 Act.
6. 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.
7. 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
5
<PAGE>
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.
8. 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.
9. 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 who have been given piggy-back registration
rights without priority by the Company, and (3) third, all other securities
requested to be included in such registration, which in the opinion of such
underwriters can be sold, pro rata among the respective selling security holders
of the Company who have not been given registration rights by the Company, and
which the Company wishes to include, on the basis of the number of securities
owned by each selling security holder.
(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.
10. 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 (but only with due regard for any then
applicable volume limitations thereunder).
6
<PAGE>
(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.
11. 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 actually effected 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.
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 or necessary
7
<PAGE>
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 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 (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 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).
8
<PAGE>
(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, 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 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.
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 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.
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 Kellett, the
address set forth in the Warrant, with a copy (which shall not constitute
notice) to Kellett's counsel as identified therein; and
(b) if to the Company, initially at its address set forth in the Warrant
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 Warrant.
(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
9
<PAGE>
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 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 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.
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 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 Credit
----------------
Agreement and the Warrant) 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 Holder. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
21. 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 except the Holder shall be entitled to assign its rights
hereunder in connection with a transfer of the Warrants or the Registrable
Securities. Any attempted prohibited 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.
[Signatures appear on the following page]
10
<PAGE>
The Parties have executed this Registration Rights Agreement as of the date
first above written.
NETZEE, INC.
By: /s/ Richard S. Eiswirth, Jr.
----------------------------------------
Richard S. Eiswirth, Jr.
Chief Financial Officer
KELLETT PARTNERS, L.P.
By: /s/ Gary Sledge
----------------------------------------
Name: Gary Sledge
Its: CFO
11
<PAGE>
EXHIBIT 4.7
CERTIFICATE NO. W-1
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE
STATE SECURITIES ACTS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
NETZEE, INC.
======================
DATE OF INITIAL ISSUANCE: October 18, 1999
THIS CERTIFIES THAT, for value received, the Holder (as defined below) is
entitled to purchase from the Company (as defined below), at any time prior to
August 31, 2004, four hundred sixty-one thousand eight hundred seventy-six
(461,876) shares of Common Stock (as defined below) of the Company (subject to
adjustment as hereinafter provided), at the Warrant Price (as defined below),
which shall be payable in lawful money of the United States of America upon the
exercise hereof. The exercise of this Warrant shall be subject to the
provisions, limitations, and restrictions herein contained and may be exercised
in whole or in part.
SECTION 1. DEFINITIONS.
- ---------- -----------
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
"Common Stock" shall mean and include the Company's common stock, now or
------------
hereafter authorized by the Company's articles of incorporation.
"Company" shall mean Netzee, Inc., a Georgia corporation.
-------
"Current Market Price" shall mean the average of the daily closing prices
--------------------
of one share of Common Stock for the thirty (30) consecutive business days
ending fifteen (15) business days before the day in question and such average
will be adjusted for any stock dividend, split, combination or reclassification
that took effect during such thirty (30) business day period. The closing price
for each day shall be the last reported sales price regular way or, in case no
such reported sales took place on such day, the average of the last reported bid
and asked prices regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
or if the Common Stock is not at the time listed or admitted for trading on any
such exchange, then such price as shall be equal to the average of the last
reported bid and asked prices, as reported by Nasdaq on such day, or if the
Common Stock is not traded in such manner that the prices referred to above are
available for the period required hereunder, the Current Market Price shall be
determined in good faith by the Board of Directors of the Company (which
determination shall be conclusive absent manifest error).
<PAGE>
"Holder" shall mean Kellett Partners, L.P. or its registered assigns of all
------
or any portion of this Warrant.
"Nasdaq" shall mean any tier of the Nasdaq Stock Market, including the
------
Nasdaq National Market and the Nasdaq SmallCap Market.
"Notice of Exercise" shall mean the Notice of Exercise of Warrant to
------------------
Purchase Common Stock of Netzee, Inc. attached hereto and hereby incorporated
herein.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"State Acts" shall mean any applicable state or local securities or blue
----------
sky acts.
"Warrant" shall mean this Warrant issued to Kellet Partners, L.P.
-------
"Warrant Price" shall mean Three Dollars and Twenty-Five Cents ($3.25) per
-------------
share, subject to adjustment in accordance with Section 2 hereof.
"Warrant Shares" shall mean shares of Common Stock purchased or purchasable
--------------
by the Holder upon the exercise of this Warrant.
SECTION 2. EXERCISE OF WARRANT.
- ---------- -------------------
2.1. Procedure for Exercise of Warrant. To exercise this Warrant in whole
---------------------------------
or in part, the Holder shall deliver to the Company as provided in Section 10
hereof at any time prior to August 31, 2004: (a) a Notice of Exercise; (b) (i)
cash or certified or official bank check, payable to the order of the Company in
the amount of the Warrant Price for each Warrant Share being purchased upon such
exercise, (ii) debt securities of the Company having a principal amount or
equity securities of the Company having a Current Market Price equal to the
Warrant Price for each Warrant Share being purchased upon such exercise or (iii)
a written notice to the Company that the Holder is exercising the Warrant (or a
portion thereof) by authorizing the Company to withhold from issuance a number
of Warrant Shares issuable upon such exercise of the Warrant which, when
multiplied by the Current Market Price of a Warrant Share, is equal to the
Warrant Price for the Warrant Shares being purchased (and such withheld shares
shall no longer be issuable under this Warrant); and (c) this Warrant. Upon
delivery of all items required by this Section 2.1 and payment of the Warrant
Price in full, the Holder shall be deemed to be the holder of record of the
Warrant Shares, notwithstanding that the stock transfer books of the Company may
then be closed or that certificates representing such Warrant Shares may not
then be actually delivered to the Holder. The Company shall, as promptly as
practicable thereafter, and in any event within five (5) business days
thereafter, execute, or cause to be executed, and deliver to the Holder, or the
Holder's nominee, a certificate or certificates representing the aggregate
number of Warrant Shares specified in the Notice of Exercise. Each stock
certificate so delivered shall be in such denomination as may be requested by
the Holder and shall be registered in the name of the Holder or such other name
as shall be designated by the Holder. If this Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of said
2
<PAGE>
stock certificate or certificates, deliver to the Holder a new Warrant
evidencing the right of the Holder to purchase the remaining shares of Common
Stock covered by this Warrant. The Company shall pay the cost of preparation,
execution and delivery of such stock certificates pursuant to this Section 2.1
regardless of the name or names in which such stock certificates shall be
registered. As a condition to exercise of this Warrant, and in addition to the
other deliveries required pursuant to this Section 2.1, the Company may request
the Holder to execute and deliver to the Company a letter evidencing the
Holder's investment intent and containing provisions necessary to evidence the
applicability of exemptions from registration under applicable securities laws.
2.2. Transfer Restriction Legend. Each certificate for Warrant Shares
---------------------------
initially issued upon exercise of this Warrant shall bear a legend in
substantially the following form (and any additional legend appropriate under
the State Acts) on the face or back thereof unless such Warrant Shares shall be
registered under the Securities Act and the State Acts at the time of exercise:
"The shares represented by this stock certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"), nor
under any state securities laws (the "State Acts") and shall not be
transferred at any time in the absence of (i) an effective registration
statement under the Act and the State Acts with respect to such shares at
such time; or (ii) an opinion of counsel satisfactory to the Company and
its counsel, to the effect that such transfer at such time will not violate
the Act or any applicable State Acts; or (iii) a favorable "no action"
letter from the Securities and Exchange Commission and a comparable ruling
from any similar state agency with respect to the State Acts directly
addressing such transfer."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend shall also bear such legend unless in the
opinion of counsel for the holder thereof (which counsel and opinion shall be
reasonably satisfactory to counsel for the Company) the securities represented
thereby are not, at such time, required by law to bear such legend.
2.3. Character of Warrant Shares. All Warrant Shares shall be duly
---------------------------
authorized, validly issued, and, upon payment of the Warrant Price, fully paid
and nonassessable.
2.4. Adjustment of Number of Shares. Upon each adjustment of the Warrant
------------------------------
Price as provided in Section 2.5 hereof, the Holder shall thereafter be entitled
to purchase, at the Warrant Price resulting from such adjustment, the number of
Warrant Shares (calculated to the nearest whole share) obtained by multiplying
the Warrant Price in effect immediately prior to such adjustment by the number
of Warrant Shares immediately prior to such adjustment and dividing the product
thereof by the Warrant Price resulting from such adjustment.
2.5. Adjustment of Warrant Price. The Warrant Price shall be subject to
---------------------------
adjustment from time to time as follows:
(a) If the number of shares of Common Stock outstanding is increased
by a stock dividend payable in shares of Common Stock or by a subdivision or
split of shares of Common Stock, then the Warrant Price in effect immediately
prior to such stock dividend, subdivision or split
3
<PAGE>
shall be proportionately decreased and the number of Warrant Shares shall be
proportionately increased.
(b) If the number of shares of Common Stock outstanding is decreased
by a combination of the outstanding shares of Common Stock, then the Warrant
Price in effect immediately prior to such combination shall be proportionately
increased and the number of Warrant Shares shall be proportionately decreased.
(c) If the Company shall declare a cash dividend upon its Common Stock
payable otherwise than out of earnings or earned surplus or shall distribute to
holders of the Common Stock shares of its capital stock other than Common Stock,
stock or other securities of other persons, evidences of indebtedness issued by
the Company or other persons, assets (excluding cash dividends and
distributions) or options or rights (excluding options to purchase and rights to
subscribe for Common Stock or other securities of the Company convertible into
or exchangeable for Common Stock), then, in each such case, the Warrant Price in
effect immediately prior to such dividend or distribution shall be adjusted as
follows. Immediately following the record date fixed for the determination of
holders of Common Stock entitled to receive such dividend or distribution, the
Warrant Price in effect thereafter shall be determined by multiplying the
Warrant Price in effect immediately prior to such record date by a fraction of
which the numerator shall be an amount equal to (i) the Current Market Price of
one share of Common Stock less (ii) the fair market value (as determined by the
Board of Directors of the Company, which determination shall be conclusive
absent manifest error) of the stock, securities, evidences of indebtedness,
assets, options or rights so distributed in respect of one share of Common
Stock, and of which the denominator shall be the Current Market Price.
(d) All calculations under this Section 2.5 shall be made to the
nearest whole share.
(e) Whenever the Warrant Price shall be adjusted as provided in this
Section 2.5, the Company shall prepare a statement showing the facts requiring
such adjustment and the Warrant Price and the number of Warrant Shares that
shall be in effect after such adjustment. The Company shall cause a copy of
such statement to be sent to the Holder. Where appropriate, such copy may be
given in advance and may be included as part of the notice required to be mailed
under the provisions of Section 2.5(g) hereof.
(f) Adjustments made pursuant to Sections 2.5(a), (b) and (c) shall be
made on the date such dividend, subdivision, split, combination or distribution
is made, and shall become effective at the opening of business on the business
day next following the record date for the determination of shareholders
entitled to such dividend, subdivision, split, combination or distribution.
(g) In the event the Company shall propose to take any action of the
types described in Sections 2.5(a), (b), or (c) the Company shall forward, at
the same time and in the same manner, to the Holder such notice, if any, that
the Company shall give to the holders of capital stock
4
<PAGE>
of the Company. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action.
(h) Whenever the provisions of this Section 2.5 shall require that an
adjustment shall become effective immediately after the record date for an event
and the Holder exercises its Warrant after such record date and before the
occurrence of such event, the Company may defer until the occurrence of such
event issuing to the Holder the additional shares of Common Stock issuable upon
such exercise by reason of the adjustment required by such event over and above
the shares of Common Stock issuable upon such exercise before giving effect to
such adjustment; provided, however, that the Company shall deliver to such
-------- -------
Holder a due bill or other appropriate instrument evidencing such Holder's right
to receive such additional shares upon the occurrence of the event requiring
such adjustment.
(i) The sale or other disposition of any Common Stock theretofore held
in the treasury of the Company shall be deemed to be an issuance thereof.
SECTION 3. OWNERSHIP AND TRANSFER.
- ---------- ----------------------
3.1. Ownership. The Company may deem and treat the person in whose name
---------
this Warrant is registered as the Holder and owner hereof (notwithstanding any
notations of ownership or writing hereon made by anyone other than the Company)
for all purposes and shall not be affected by any notice to the contrary until
presentation of this Warrant for registration of transfer as provided in this
Section 3.
3.2. Transfer and Replacement. Subject to restrictions on transfer of
------------------------
this Warrant under the Securities Act or the State Acts, this Warrant and all
rights hereunder are transferable in whole or in part upon the books of the
Company by the Holder hereof in person or by duly authorized attorney, and a new
Warrant or Warrants, of the same tenor as this Warrant but registered in the
name of the transferee or transferees shall be made and delivered by the Company
upon surrender of this Warrant duly endorsed, at the office of the Company.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft or destruction of this Warrant, and of indemnity or security
reasonably satisfactory to it, or upon surrender of this Warrant if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant. This Warrant shall be promptly canceled by the Company upon the
surrender hereof in connection with any transfer or replacement.
SECTION 4. MERGERS, CONSOLIDATIONS, SALES.
- ---------- ------------------------------
In the case of any proposed consolidation, any proposed merger of the
Company with another corporation in which the Company does not survive or
survives only as a subsidiary of another corporation, any proposed sale of
substantially all of the Company's outstanding capital stock, any proposed sale
of all or substantially all of the Company's assets, or any proposed
reorganization or reclassification of the securities of the Company, then, as a
condition of such consolidation, merger, sale, reorganization or
reclassification, the Holder will be given advance notice thereof in sufficient
time to enable Holder to exercise this Warrant and participate in such
transaction as a shareholder
5
<PAGE>
of the Company. In the case of any proposed merger in which the Company is the
survivor (and not as a subsidiary of another corporation), the Holder will be
given advance notice thereof in time sufficient to enable Holder to exercise
this Warrant, but in the event the Warrant is not exercised, it shall continue
in force.
SECTION 5. NOTICE OF MERGER, ETC; TERMINATION OF WARRANT.
- ---------- ---------------------------------------------
In case of any distribution of the assets of the Company in dissolution,
winding up or liquidation or in case of any proposed consolidation, merger, sale
of stock or sale of assets described in the first sentence of Section 4 hereof,
the Company shall give notice thereof to the Holder and shall make no
distribution to shareholders of the Company or effect such proposed transaction
until the expiration of ten (10) days from the date of mailing of the aforesaid
notice and, in any case, the Holder may exercise this Warrant within ten (10)
days from the date of the giving of such notice, and all rights herein granted
not so exercised within such ten (10) day period shall thereafter become null
and void.
SECTION 6. NOTICE OF EXTRAORDINARY DIVIDENDS.
- ---------- ---------------------------------
If the Board of Directors of the Company shall declare any dividend or
other distribution on its Common Stock except out of earnings or earned surplus
or by way of a stock dividend payable in shares of its Common Stock, the Company
shall mail notice thereof to the Holder hereof not less than ten (10) days prior
to the record date fixed for determining shareholders entitled to participate in
such dividend or other distribution, and the Holder shall not participate
(except as otherwise provided in Section 2.5 hereof) in such dividend or other
distribution unless this Warrant is exercised prior to such record date. The
provisions of this Section 6 shall not apply to distributions made in connection
with transactions covered by Section 4 hereof.
SECTION 7. FRACTIONAL SHARES.
- ---------- -----------------
Fractional shares shall not be issued upon the exercise of this Warrant but
in any case where the Holder would, except for the provisions of this Section 7,
be entitled under the terms hereof to receive a fractional share upon the
complete exercise of this Warrant, the Company shall, upon the exercise of this
Warrant for the largest number of whole shares then called for, pay a sum in
cash equal to the value of such fractional share (as determined in good faith by
the Board of Directors of the Company, which determination shall be conclusive
absent manifest error).
SECTION 8. CLOSING OF TRANSFER BOOKS.
- ---------- -------------------------
The right to exercise this Warrant shall not be suspended during any period
while the stock transfer books of the Company may be closed. The Company shall
not be required, however, to deliver certificates for the Warrant Shares while
such books are duly closed for any purpose, but the Company may postpone the
delivery of the certificates for such Common Stock until the opening of such
books, and they shall be delivered as soon as practicable thereafter.
6
<PAGE>
SECTION 9. RESERVED SHARES.
- ---------- ---------------
The Company shall reserve and set apart and have available for issuance at
all times, free from preemptive rights, out of its treasury stock or its
authorized but unissued shares of Common Stock, or both, solely for the purpose
of effecting the exercise of this Warrant, the number of shares of Common Stock
sufficient to provide for the exercise of this Warrant.
SECTION 10. NOTICES.
- ----------- -------
Any notice or other document required or permitted to be given or delivered
to the Holder shall be delivered at, or sent by certified or registered mail,
postage prepaid, to Kellett Partners, L.P., 200 Galleria Parkway, Suite 1800,
Atlanta, Georgia 30339, or to such other address as shall have been furnished
to the Company in writing by the Holder. Any notice or other document required
or permitted to be given or delivered to the Company shall be delivered at, or
sent by certified or registered mail, postage prepaid, to, the address of the
Company as set forth following its signature below, or to such other address as
shall have been furnished to the Holder in writing by the Company. Any notice
or other document so addressed and mailed by registered or certified mail shall
be deemed to be given when so mailed. Any notice so addressed and otherwise
delivered shall be deemed to be given when actually received by the addressee.
SECTION 11. NO RIGHTS AS SHAREHOLDER; LIMITATION OF LIABILITY.
- ----------- -------------------------------------------------
This Warrant shall not entitle the Holder to any of the rights of a
shareholder of the Company. No provision hereof, in the absence of the purchase
of shares of Common Stock by the Holder pursuant to this Warrant, shall give
rise to any liability of the Holder for the exercise price hereunder or as a
shareholder of the Company, whether such liability is asserted by the Company or
any third party.
SECTION 12. LAW GOVERNING.
- ----------- -------------
This Warrant shall be governed by, and construed and enforced in accordance
with, the laws of the State of Georgia.
SECTION 13. MISCELLANEOUS.
- ----------- -------------
This Warrant and any provision hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party (or any
predecessor in interest thereof) against which enforcement of the same is
sought. The headings in this Warrant are for purposes of reference only and
shall not affect the meaning or construction of any of the provisions hereof.
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer as of the 18th day of October, 1999.
NETZEE, INC.
By: /s/ Richard S. Eiswirth, Jr.
-------------------------------------
Name: Richard S. Eiswirth, Jr.
Title: CFO & EVP
Address: 2410 Paces Ferry Road
150 Paces Summit
Atlanta, Georgia 30339
8
<PAGE>
ASSIGNMENT
----------
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of Warrant Shares
set forth below:
Name and Address of Assignee No. of Warrant Shares
---------------------------- ---------------------
and does hereby irrevocably constitute and appoint as Attorney
____________________ to register such transfer on the books of the Company
maintained for purpose, with full power of substitution.
Dated: ,
--------------- ----- --------------------------------------------
Name of Holder
Signature Guarantee:
By:
-------------------------------------
Name:
-------------------------------------
(Affix Stamp) Title:
-------------------------------------
By:
----------------------------
Title:
NOTICE
------
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
The signature to this assignment must be guaranteed by a national bank or
trust company or by a firm that is a member of the National Association of
Securities Dealers, Inc.
9
<PAGE>
NOTICE OF EXERCISE
OF WARRANT TO PURCHASE
COMMON STOCK OF NETZEE, INC.
============================
To: Netzee, Inc.
2410 Paces Ferry Road
150 Paces Summit
Atlanta, Georgia 30339
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-1), hereby agrees to subscribe for the purchase of
______ shares of the Common Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Payment shall be made by (check one of the following):
_____ 1. Delivery of $_______ transmitted hereby by certified or official
bank check.
_____ 2. Delivery of stock certificate no(s). _________ and surrender of
shares of the Company's common stock evidenced thereby having a Current Market
Price on the date hereof of $________ (computed in accordance with the
definition of Current Market Price set forth in Section 1 of the Warrant) (i.e.,
a "cashless" exercise).
_____ 3. Delivery of the Company's _______ in the aggregate amount of
$_______ and surrender of $__________ in principal amount thereof, plus accrued
and unpaid interest in the amount of $____________ (i.e., a "cashless"
exercise).
_____ 4. Surrender of ______ Warrant Shares exercisable under Warrant No.
____, having a Current Market Price on the date hereof of $______ (computed in
accordance with the definition of Current Market Price set forth in Section 2 of
the Warrant) (i.e., a net issuance exercise).
If such shares shall not be all of the shares purchasable hereunder, a new
Warrant of like tenor for the balance of the shares purchasable hereunder shall
be delivered to the undersigned.
Signature
-------------------------------
Address:
-------------------------------
10
<PAGE>
EXHIBIT 5.1
November , 1999
---
Netzee, Inc.
2410 Paces Ferry Road
150 Paces Summit
Atlanta, Georgia 30339
Ladies and Gentlemen:
We are acting as your counsel in connection with the registration of up
to 5,115,378 common shares, no par value (the "Shares"), of Netzee, Inc., a
Georgia corporation ("Netzee"). The Shares are being registered with the
Securities and Exchange Commission (the "Commission") under a Registration
Statement on Form S-1, File No. 333-87089 (the "Registration Statement"), for a
public offering pursuant to an underwriting agreement, the form of which has
been filed as an exhibit to the Registration Statement (the "Underwriting
Agreement"). Pursuant to Rule 430A promulgated by the Commission, the amended
Registration Statement on the date it becomes effective will omit certain
information, including the public offering price and underwriting discounts or
commissions (the "Rule 430A Information"). We are familiar with the relevant
documents and materials used in preparing the Registration Statement and the
Prospectus that forms a part of the Registration Statement (the "Prospectus").
Based on our review of the relevant documents and materials, it is our
opinion that when (a) the Registration Statement shall have been declared
effective by order of the Commission, (b) the Underwriting Agreement shall have
been executed by duly authorized officers of Netzee pursuant to the
authorization by the Board of Directors of Netzee, and (c) the Shares shall have
been issued and sold upon the terms and conditions (including the Rule 430A
Information) set forth in the Registration Statement and the Underwriting
Agreement, then the Shares will be legally issued, fully paid and nonassessable.
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the Prospectus and to the filing of this opinion as an exhibit to
the Registration Statement.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
<PAGE>
EXHIBIT 10.1
NETZEE, INC.
1999 STOCK OPTION AND INCENTIVE PLAN
<PAGE>
NETZEE, INC.
1999 STOCK OPTION AND INCENTIVE PLAN
TABLE OF CONTENTS
-----------------
ARTICLE 1 DEFINITIONS................................................... 1
ARTICLE 2 THE PLAN
2.1 Name.......................................................... 5
2.2 Purpose....................................................... 5
2.3 Shareholder Approval.......................................... 5
ARTICLE 3 PARTICIPANTS.................................................. 5
ARTICLE 4 ADMINISTRATION
4.1 Duties and Powers of the Committee............................ 6
4.2 Interpretation; Rules......................................... 6
4.3 No Liability.................................................. 6
4.4 Majority Rule................................................. 6
4.5 Company Assistance............................................ 6
ARTICLE 5 SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations................................................... 7
5.2 Antidilution.................................................. 7
ARTICLE 6 OPTIONS
6.1 Types of Options Granted...................................... 9
6.2 Option Grant and Agreement.................................... 9
6.3 Optionee Limitations.......................................... 9
6.4 $100,000 Limitations.......................................... 9
6.5 Exercise Price................................................ 10
i
<PAGE>
6.6 Exercise Period............................................... 10
6.7 Option Exercise............................................... 10
6.8 Reload Options................................................ 11
6.9 Nontransferability of Option.................................. 12
6.10 Termination of Employment or Service.......................... 12
6.11 Employment Rights............................................. 12
6.12 Certain Successor Options..................................... 12
6.13 Effect of a Corporate Transaction............................. 12
ARTICLE 7 RESTRICTED STOCK
7.1 Awards of Restricted Stock.................................... 13
7.2 Non-Transferability........................................... 13
7.3 Lapse of Restrictions......................................... 13
7.4 Termination of Employment..................................... 13
7.5 Treatment of Dividends........................................ 13
7.6 Delivery of Shares............................................ 14
ARTICLE 8 STOCK APPRECIATION RIGHTS
8.1 SAR Grants.................................................... 14
8.2 Determination of Price........................................ 14
8.3 Exercise of a SAR............................................. 14
8.4 Payment for a SAR............................................. 14
8.5 Status of a SAR under the Plan................................ 14
8.6 Termination of SARs........................................... 14
8.7 No Shareholder Rights......................................... 15
ARTICLE 9 STOCK CERTIFICATES............................................ 15
ARTICLE 10 TERMINATION AND AMENDMENT
10.1 Termination and Amendment..................................... 16
10.2 Effect on Grantee's Rights.................................... 16
ARTICLE 11 RELATIONSHIP TO OTHER COMPENSATION PLANS...................... 16
ii
<PAGE>
ARTICLE 12 MISCELLANEOUS
12.1 Replacement or Amended Grants.................................. 17
12.2 Forfeiture for Competition..................................... 17
12.3 Leave of Absence............................................... 17
12.4 Plan Binding on Successors..................................... 17
12.5 Singular, Plural; Gender....................................... 18
12.6 Headings, etc. ................................................ 18
12.7 Section 16 Compliance, Etc. ................................... 18
EXHIBIT A to Netzee, Inc. 1999 Stock Option and Incentive Plan -- Form
of Stock Option Agreement............................................A-1
iii
<PAGE>
EXHIBIT 10.1
NETZEE, INC.
1999 STOCK OPTION AND INCENTIVE PLAN
ARTICLE 1
DEFINITIONS
As used in this Plan, the following terms have the following meanings
unless the context clearly indicates to the contrary:
"Award" means a grant of Restricted Stock or an SAR.
-----
"Board" means the Board of Directors of the Company.
-----
"Cause" means (i) the commission of an act of fraud, embezzlement, theft or
-----
proven dishonesty, or any other illegal act or practice (whether or not
resulting in criminal prosecution or conviction), including theft or destruction
of property of the Company, a Parent, or a Subsidiary, or any other act or
practice which the Committee shall, in good faith, deem to have resulted in the
recipient's becoming unbondable under the Company's, a Parent's or any
Subsidiary's fidelity bond; (ii) the willful engaging in conduct that is deemed
by the Committee, in good faith, to be materially injurious to the Company, a
Parent or any Subsidiary, monetarily or otherwise, including, but not limited
to, (A) improperly disclosing trade secrets or other confidential or sensitive
business information and data about the Company, a Parent or any Subsidiaries,
(B) and competing with the Company, a Parent or any Subsidiary, or (C)
soliciting employees, consultants or customers of the Company, a Parent or any
Subsidiary; (iii) the willful or continued failure or habitual neglect by a
person who is an Employee to perform his or her duties with the Company, a
Parent or any Subsidiary substantially in accordance with the operating or
personnel policies or procedures of the Company, Parent or the Subsidiary
generally applicable to all their employees; or (iv) other disregard of rules or
policies of the Company, a Parent or any Subsidiary, or conduct evidencing
willful or wanton disregard of the
<PAGE>
interests of the Company, a Parent or any Subsidiary. For purposes of this Plan,
no act or failure to act by the recipient shall be deemed be "willful" unless
done or omitted to be done by recipient not in good faith and without reasonable
belief that the recipient's action or omission was in the best interest of the
Company and/or the Subsidiary. Notwithstanding the foregoing, if the recipient
has entered into an employment agreement that is binding as of the date of
employment termination, and if such employment agreement defines "Cause," then
the definition of "Cause" in such agreement shall apply to the recipient in this
Plan. "Cause" shall be determined by the Committee based upon information
presented by the Company and the Employee and shall be final and binding on all
parties hereto.
"Code" means the United States Internal Revenue Code of 1986, as amended.
----
Any reference herein to a specific section of the Code shall be deemed to
include a reference to any corresponding provision of future law.
"Committee" means a committee of at least two Directors appointed from time
---------
to time by the Board, having the duties and authority set forth herein in
addition to any other authority granted by the Board; provided, however, that
-------- -------
with respect to any Options or Awards granted to an individual who is also a
Section 16 Insider, the Committee shall consist of either the entire Board of
Directors or a committee of at least two Directors (who need not be members of
the Committee with respect to Options or Awards granted to any other
individuals) who are Non-Employee Directors, and all authority and discretion
shall be exercised by such Non-Employee Directors, and references herein to the
"Committee" means such Non-Employee Directors insofar as any actions or
determinations of the Committee shall relate to or affect Options or Awards made
to or held by any Section 16 Insider. In selecting the Committee, the Board
shall also consider the benefits under Section 162(m) of the Code of having a
Committee composed of "outside directors" (as that term is defined in the Code)
for certain grants of Options to highly compensated executives. At any time
that the Board shall not have appointed a committee as described above, any
reference herein to the Committee means a reference
2
<PAGE>
to the Board.
"Company" means Netzee, Inc., a Georgia corporation.
-------
"Corporate Transaction" means any of the following transactions to which
---------------------
the Company is a party:
(i) a merger, consolidation, share exchange, combination or other
transaction or series of transactions (other than a public
offering by the Company for cash of the Company's capital stock,
debt or other securities) in which securities possessing more
than 50% of the total combined voting power of the Company's
outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately
prior to such transaction;
(ii) the sale, transfer or other disposition of all or substantially
all of the Company's assets;
(iii) the liquidation or dissolution of the Company; or
(iv) a change in the composition of the Board as a result of which
fewer than one-half of the incumbent directors are directors who
either:
(A) had been directors of the Company 24 months prior to such
change; or
(B) were elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of the
directors who had been directors of the Company 24 months
prior to such change and who
3
<PAGE>
were still in office at the time of the election or
nomination;
provided, however, that the Board may determine and provide by resolution that
- -------- -------
any such transaction shall not constitute a Corporate Transaction.
"Director" means a member of the Board and any person who is an advisory or
--------
honorary director of the Company if such person is considered a director for the
purposes of Section 16 of the Exchange Act, as determined by reference to such
Section 16, the rules and regulations promulgated thereunder, and judicial
decisions and interpretative or "no-action" positions of the SEC with respect
thereto, as the same may be in effect or set forth from time to time.
"Employee" means an employee of the Company or a Parent or Subsidiary.
--------
"Exchange Act" means the Securities Exchange Act of 1934. Any reference
------------
herein to a specific section of the Exchange Act shall be deemed to include a
reference to any corresponding provision of future law.
"Exercise Price" means the price at which an Optionee may purchase a share
--------------
of Stock under a Stock Option Agreement.
"Fair Market Value" on any date means (i) the closing sales price of the
-----------------
Stock, regular way, on such date on the national securities exchange having the
greatest volume of trading in the Stock during the 30 day period preceding the
day the value is to be determined or, if such exchange was not open for trading
on such date, the next preceding date on which it was open; (ii) if the Stock is
not traded on any national securities exchange, the average of the closing high
bid and low asked prices of the Stock on the over-the-counter market on the day
such value
4
<PAGE>
is to be determined, or in the absence of closing bids on such day, the closing
bids on the next preceding day on which there were bids; or (iii) if the Stock
also is not traded on the over-the-counter market, the fair market value as
determined in good faith by the Board or the Committee based on such relevant
facts as may be available to the Board, which may include opinions of
independent experts, the price at which recent sales have been made, the book
value of the Stock, and the Company's current and anticipated future earnings.
"Grantee" means a person who is an Optionee or a person who has received an
-------
Award of Restricted Stock or an SAR.
"Incentive Stock Option" means an option to purchase any stock of the
----------------------
Company, which complies with and is subject to the terms, limitations and
conditions of Section 422 of the Code and any regulations promulgated with
respect thereto.
"Non-Employee Director" shall have the meaning set forth in Rule 16b-3
---------------------
under the Exchange Act, as the same may be in effect from time to time, or in
any successor rule thereto, and shall be determined for all purposes under the
Plan according to interpretative or "no-action" positions with respect thereto
issued by the SEC.
"Officer" means a person who constitutes an officer of the Company for the
-------
purposes of Section 16 of the Exchange Act, as determined by reference to such
Section 16 and to the rules, regulations, judicial decisions, and interpretative
or "no-action" positions with respect to such rule of the SEC, as the same may
be in effect or set forth from time to time.
"Option" means an option, whether or not an Incentive Stock Option, to
------
purchase Stock granted pursuant to the provisions of Article 6 of this Plan.
5
<PAGE>
"Optionee" means a person to whom an Option has been granted under this
--------
Plan.
"Parent" means any corporation (other than the Company) in an unbroken
------
chain of corporations ending with the Company if, at the time of the grant (or
modification) of the Option, each of the corporations other than the Company
owns stock possessing 50 percent or more of the total combined voting power of
the classes of stock in one of the other corporations in such chain.
"Permanent and Total Disability" has the same meaning as given to that term
------------------------------
by Code Section 22(e)(3) and any regulations or rulings promulgated thereunder.
"Plan" means the Netzee, Inc. 1999 Stock Option and Incentive Plan, the
----
terms of which are set forth herein.
"Purchasable" refers to Stock which may be purchased by an Optionee under
-----------
the terms of this Plan on or after a certain date specified in the applicable
Stock Option Agreement.
"Qualified Domestic Relations Order" has the meaning set forth in the Code
----------------------------------
or in the Employee Retirement Income Security Act of 1974, or the rules and
regulations promulgated under the Code or such Act.
"Reload Option" has the meaning set forth in Section 6.8 of the Plan.
-------------
"Restricted Stock" means Stock issued, subject to restrictions, to a
----------------
Grantee pursuant to Article 7 of this Plan.
"Restriction Agreement" means the agreement setting forth the terms
---------------------
6
<PAGE>
of an Award, and executed by a Grantee as provided in Section 7.1 of this Plan.
"SAR" means a stock appreciation right, which is the right to receive an
---
amount equal to the appreciation, if any, in the Fair Market Value of a share of
Stock from the date of the grant of the right to the date of its payment, all as
provided in Article 8 of this Plan.
"SAR Price" means the base value established by the Committee for a SAR on
---------
the date the SAR is granted and which is used in determining the amount of
benefit, if any, paid to a Grantee.
"SEC" means the United States Securities and Exchange Commission.
---
"Section 16 Insider" means any person who is subject to the provisions of
------------------
Section 16 of the Exchange Act, as provided in Rule 16a-2 promulgated pursuant
to the Exchange Act.
"Stock" means the Common Stock, no par value per share, of the Company or,
-----
in the event that the outstanding shares of Stock are hereafter changed into or
exchanged for shares of a different stock or securities of the Company or some
other entity, such other stock or securities.
"Stock Option Agreement" means an agreement between the Company and an
----------------------
Optionee under which the Optionee may purchase Stock under this Plan, a sample
form of which is attached hereto as Exhibit A (which form may be varied by the
Committee in granting an Option).
7
<PAGE>
"Subsidiary" means any corporation (other than the Company) in an unbroken
----------
chain of corporations beginning with the Company if, at the time of the grant
(or modification) of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
ARTICLE 2
THE PLAN
2.1 Name. This Plan shall be known as the "Netzee, Inc. 1999 Stock Option
----
and Incentive Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests of the
-------
Company, its Subsidiaries and its shareholders by affording certain employees
and Directors of the Company and its Subsidiaries, as well as key consultants
and advisors to the Company or any Subsidiary, an opportunity to acquire or
increase their proprietary interests in the Company. The objective of the
issuance of the Options and Awards is to promote the growth and profitability of
the Company and its Subsidiaries because the Grantees will be provided with an
additional incentive to achieve the Company's objectives through participation
in its success and growth and by encouraging their continued association with or
service to the Company.
2.3 Shareholder Approval. The Plan shall become effective on August 5,
--------------------
1999; provided, however, that if the Company's shareholders have not approved
-------- -------
the Plan on or prior to the first anniversary of such effective date, then all
options granted under the Plan shall be non-Incentive Stock Options. If, at the
time of any amendment to the Plan, shareholder approval is required by the Code
for Incentive Stock Options and such shareholder approval has not been obtained
(or is not obtained within 12 months thereof), any Incentive Stock Options
issued under the
8
<PAGE>
Plan shall automatically become options which do not qualify as Incentive Stock
Options.
ARTICLE 3
PARTICIPANTS
The class of persons eligible to participate in the Plan shall consist of
all persons whose participation in the Plan the Committee determines to be in
the best interests of the Company, which shall include, but not be limited to,
all Directors and employees of the Company or any Subsidiary, as well as key
consultants and advisors to the Company or any Subsidiary.
9
<PAGE>
ARTICLE 4
ADMINISTRATION
4.1 Duties and Powers of the Committee. The Plan shall be administered by
----------------------------------
the Committee. The Committee shall select one of its members as its Chairman
and shall hold its meetings at such times and places as it may determine. The
Committee shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it may deem necessary. The
Committee shall have the power to act by unanimous written consent in lieu of a
meeting, and to meet telephonically. In administering the Plan, the Committee's
actions and determinations shall be binding on all interested parties. The
Committee shall have the power to grant Options or Awards in accordance with the
provisions of the Plan and may grant Options and Awards singly, in combination,
or in tandem. Subject to the provisions of the Plan, the Committee shall have
the discretion and authority (i) to determine those individuals to whom Options
or Awards will be granted and whether such Options shall be accompanied by the
right to receive Reload Options, (ii) the number of shares of Stock subject to
each Option or Award, (iii) such other matters as are specified herein, and (iv)
any other terms and conditions of a Stock Option Agreement or Restriction
Agreement. Without limiting the generality of the foregoing, the Committee
shall be entitled to condition the grant of any Option or Award upon the
execution by the recipient of a non-compete, a non-solicitation and/or a
confidentiality agreement. The Committee shall also have the discretion and
authority to delegate to any Officer its powers to grant Options or Awards under
the Plan to any person who is an employee of the Company but not an Officer or
Director. To the extent not inconsistent with the provisions of the Plan, the
Committee may give a Grantee an election to surrender an Option or Award in
exchange for the grant of a new Option or Award, and shall have the authority to
amend or modify an outstanding Stock Option Agreement or Restriction Agreement,
or to waive any provision thereof, provided that the Grantee consents to such
action.
10
<PAGE>
4.2 Interpretation; Rules. Subject to the express provisions of the Plan,
---------------------
the Committee also shall have complete authority to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to it, to determine
the details and provisions of each Stock Option Agreement, and to make all other
determinations necessary or advisable for the administration of the Plan,
including, without limitation, the amending or altering of the Plan and any
Options or Awards granted under the Plan as may be required to comply with or to
conform to any federal, state, or local laws or regulations.
4.3 No Liability. Neither any member of the Board nor any member of the
------------
Committee shall be liable to any person for any act or determination made in
good faith with respect to the Plan or any Option or Award granted hereunder.
4.4 Majority Rule. A majority of the members of the Committee shall
-------------
constitute a quorum, and any action taken by a majority at a meeting at which a
quorum is present, or any action taken without a meeting evidenced by a writing
executed by all the members of the Committee, shall constitute the action of the
Committee.
4.5 Company Assistance. The Company shall supply full and timely
------------------
information to the Committee on all matters relating to eligible persons, their
employment, death, retirement, disability, or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary in
the performance of its duties.
ARTICLE 5
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to any antidilution adjustment pursuant
-----------
11
<PAGE>
to the provisions of Section 5.2 of this Plan, the maximum number of shares of
Stock that may be issued hereunder shall be 3,500,000. The number of shares of
Stock available for issuance hereunder shall automatically increase on January 1
of each year beginning January 1, 2000, to an amount equal to twenty percent
(20%) of the fully-diluted shares of Stock (assuming the conversion of all
outstanding options and warrants) outstanding on December 31 of the previous
year (subject to adjustment under Section 5.2); provided, however, that the
shares available for issuance shall not be less than 3,500,000. Any or all
shares of Stock subject to the Plan may be issued in any combination of
Incentive Stock Options, non-Incentive Stock Options, Restricted Stock, or SARs,
and the amount of Stock subject to the Plan may be increased from time to time
in accordance with Article 10, provided that the total number of shares of Stock
issuable pursuant to Incentive Stock Options may not be increased to more than
3,500,000 (other than pursuant to anti-dilution adjustments) without shareholder
approval. Shares subject to an Option or issued as an Award may be either
authorized and unissued shares or shares issued and later acquired by the
Company. The shares covered by any unexercised portion of an Option that has
terminated for any reason (except as set forth in the following paragraph), or
any forfeited portion of an Award, may again be optioned or awarded under the
Plan, and such shares shall not be considered as having been optioned or issued
in computing the number of shares of Stock remaining available for option or
award hereunder. Furthermore, not more than 1,000,000 shares of Stock may be
made subject to Options and Awards to any individual in the aggregate in any one
fiscal year of the Company, such limitation to be applied in a manner consistent
with the requirements of, and only to the extent required for compliance with,
the exclusion from the limitation on deductibility of compensation under Section
162(m) of the Code.
If Options are issued in respect of options to acquire stock of any entity
acquired, by merger or otherwise, by the Company (or any
12
<PAGE>
Subsidiary of the Company), to the extent that such issuance shall not be
inconsistent with the terms, limitations and conditions of Code section 422 or
Rule 16b-3 under the Exchange Act, the aggregate number of shares of Stock for
which Options may be granted hereunder shall automatically be increased by the
number of shares subject to the Options so issued; provided, however, that the
------ --------
aggregate number of shares of Stock for which Options may be granted hereunder
shall automatically be decreased by the number of shares covered by any
unexercised portion of an Option so issued that has terminated for any reason,
and the shares subject to any such unexercised portion may not be optioned to
any other person.
5.2 Antidilution.
------------
(a) If (x) the outstanding shares of Stock are changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of merger, consolidation, reorganization, recapitalization,
reclassification, combination or exchange of shares, or stock split or stock
dividend, (y) any spin-off, spin-out or other distribution of assets materially
affects the price of the Company's stock, or (z) there is any assumption and
conversion to the Plan by the Company of an acquired company's outstanding
option grants, then:
(i) the aggregate number and kind of shares of Stock for which
Options or Awards may be granted hereunder shall be adjusted
proportionately by the Committee; and
(ii) the rights of Optionees (concerning the number of shares
subject to Options and the Exercise Price) under outstanding Options
and the rights of the holders of Awards (concerning the terms and
conditions of the lapse of any then-remaining restrictions), shall be
adjusted proportionately by the Committee.
13
<PAGE>
(b) In addition to Section 6.13, if the Company shall be a party to
any reorganization involving merger or consolidation in which it does not
survive or survives only as a subsidiary of another corporation, or acquisition
of the stock or substantially all the assets of the Company, the Committee, in
its discretion, may:
(i) notwithstanding other provisions of this Plan, declare that
all Options granted under the Plan shall become exercisable
immediately notwithstanding the provisions of the respective Stock
Option Agreements regarding exercisability, that all such Options
shall terminate 30 days after the Committee gives written notice of
the immediate right to exercise all such Options and of the decision
to terminate all Options not exercised within such 30-day period, and
that all then-remaining restrictions pertaining to Awards under the
Plan shall immediately lapse; and/or
(ii) notify all Grantees that all Options or Awards granted under
the Plan shall be assumed by the successor corporation or substituted
on an equitable basis with options or restricted stock issued by such
successor corporation.
(c) If the Company is to be liquidated or dissolved in connection with
a reorganization described in Section 5.2(b), the provisions of such Section
shall apply. In all other instances, the adoption of a plan of dissolution or
liquidation of the Company shall, notwithstanding other provisions hereof, cause
all then-remaining restrictions pertaining to Awards under the Plan to lapse,
and shall cause every Option outstanding under the Plan to terminate to the
extent not exercised prior to the adoption of the plan of dissolution or
liquidation by the shareholders, provided that, notwithstanding other provisions
hereof, the Committee may declare all Options granted under
14
<PAGE>
the Plan to be exercisable at any time on or before the fifth business day
following such adoption notwithstanding the provisions of the respective Stock
Option Agreements regarding exercisability.
(d) The adjustments described in paragraphs (a) through (c) of this
Section 5.2, and the manner of their application, shall be determined solely by
the Committee, and any such adjustment may provide for the elimination of
fractional share interests; provided, however, that any adjustment made by the
-------- -------
Committee shall be made in a manner that will not cause an Incentive Stock
Option to be other than an Incentive Stock Option under applicable statutory and
regulatory provisions. The adjustments required under this Article 5 shall
apply to any successors of the Company and shall be made regardless of the
number or type of successive events requiring such adjustments.
ARTICLE 6
OPTIONS
6.1 Types of Options Granted. The Committee may, under this Plan, grant
------------------------
either Incentive Stock Options or Options which do not qualify as Incentive
Stock Options. Within the limitations provided in this Plan, both types of
Options may be granted to the same person at the same time, or at different
times, under different terms and conditions, as long as the terms and conditions
of each Option are consistent with the provisions of the Plan. Without
limitation of the foregoing, Options may be granted subject to conditions based
on the financial performance of the Company or any other factor the Committee
deems relevant.
6.2 Option Grant and Agreement. Each Option granted hereunder shall be
--------------------------
evidenced by minutes of a meeting or the written consent of the Committee and by
a written Stock Option Agreement executed by the Company and the Optionee. The
terms of the Option, including the Option's duration, time or times of exercise,
exercise price, whether the Option
15
<PAGE>
is intended to be an Incentive Stock Option, and whether the Option is to be
accompanied by the right to receive a Reload Option, shall be stated in the
Stock Option Agreement. No Incentive Stock Option may be granted more than ten
years after the earlier to occur of the effective date of the Plan or the date
the Plan is approved by the Company's shareholders.
Separate Stock Option Agreements may be used for Options intended to be
Incentive Stock Options and those not so intended, but any failure to use such
separate agreements shall not invalidate, or otherwise adversely affect the
Optionee's interest in, the Options evidenced thereby.
6.3 Optionee Limitations. The Committee shall not grant an Incentive
--------------------
Stock Option to any person who, at the time the Incentive Stock Option is
granted:
(a) is not an Employee; or
(b) owns or is considered to own stock possessing at least 10% of the
total combined voting power of all classes of stock of the Company or any of its
Parent or Subsidiary corporations; provided, however, that this limitation shall
-------- -------
not apply if at the time an Incentive Stock Option is granted the Exercise Price
is at least 110% of the Fair Market Value of the Stock subject to such Option
and such Option by its terms would not be exercisable after five years from the
date on which the Option is granted. For the purpose of this subsection (b), a
person shall be considered to own: (i) the stock owned, directly or indirectly,
by or for his or her brothers and sisters (whether by whole or half blood),
spouse, ancestors and lineal descendants; (ii) the stock owned, directly or
indirectly, by or for a corporation, partnership, estate, or trust in proportion
to such person's stock interest, partnership interest or beneficial interest
therein; and (iii) the stock which such person may
16
<PAGE>
purchase under any outstanding options of the Company or of any Parent or
Subsidiary of the Company.
6.4 $100,000 Limitations. Except as provided below, the Committee shall
---------------------
not grant an Incentive Stock Option to, or modify the exercise provisions of
outstanding Incentive Stock Options held by, any person who, at the time the
Incentive Stock Option is granted (or modified), would thereby receive or hold
any Incentive Stock Options of the Company and any Parent or Subsidiary of the
Company, such that the aggregate Fair Market Value (determined as of the
respective dates of grant or modification of each option) of the stock with
respect to which such Incentive Stock Options are exercisable for the first time
during any calendar year is in excess of $100,000 (or such other limit as may be
prescribed by the Code from time to time); provided, however, that the foregoing
-------- -------
restriction on modification of outstanding Incentive Stock Options shall not
preclude the Committee from modifying an outstanding Incentive Stock Option if,
as a result of such modification and with the consent of the Optionee, such
Option no longer constitutes an Incentive Stock Option; and provided further
--- -------- -------
that, if the $100,000 limitation (or such other limitation prescribed by the
Code) described in this Section 6.4 is exceeded, the Incentive Stock Option, the
granting or modification of which resulted in the exceeding of such limit, shall
be treated as an Incentive Stock Option up to the limitation and the excess
shall be treated as an Option not qualifying as an Incentive Stock Option.
6.5 Exercise Price. The Exercise Price of the Stock subject to each
--------------
Option shall be determined by the Committee. Subject to the provisions of
Section 6.3(b) hereof, the Exercise Price of an Incentive Stock Option shall not
be less than the Fair Market Value of the Stock as of the date the Option is
granted.
6.6 Exercise Period. The period for the exercise of each Option granted
---------------
hereunder shall be determined by the Committee, but each
17
<PAGE>
Incentive Stock Option shall not be exercisable after the expiration of ten
years from the date of grant of the Option. In addition, no Incentive Stock
Option granted under the Plan shall be exercisable prior to shareholder approval
of the Plan.
6.7 Option Exercise.
---------------
(a) Unless otherwise provided in the Stock Option Agreement or Section
6.6 of this Plan, an Option may be exercised at any time or from time to time
during the term of the Option as to any or all full shares which have become
Purchasable under the provisions of the Option, but not at any time as to fewer
than 100 shares unless the remaining shares that have become so Purchasable are
fewer than 100 shares. The Committee shall have the authority to prescribe in
any Stock Option Agreement that the Option may be exercised only in accordance
with a vesting schedule during the term of the Option.
(b) An Option shall be exercised by (i) delivery to the Company at its
principal office a written notice of exercise with respect to a specified number
of shares of Stock and (ii) payment to the Company at that office of the full
amount of the Exercise Price for such number of shares in accordance with
Section 6.7(c). If requested by an Optionee, an Option may be exercised with
the involvement of a stockbroker in accordance with the federal margin rules set
forth in Regulation T (in which case the certificates representing the
underlying shares will be delivered by the Company directly to the stockbroker).
(c) The Exercise Price is to be paid in full in cash upon the exercise
of the Option, and the Company shall not be required to deliver certificates for
the shares purchased until such payment has been made; provided, however, that
-------- -------
in lieu of cash, in the Committee's sole discretion, all or any portion of the
Exercise Price may be paid by tendering to the Company shares of Stock duly
endorsed for transfer and
18
<PAGE>
owned by the Optionee, or by authorization to the Company to withhold shares of
Stock otherwise issuable upon exercise of the Option, in each case to be
credited against the Exercise Price at the Fair Market Value of such shares on
the date of exercise (however, no fractional shares may be so transferred, and
the Company shall not be obligated to make any cash payments in consideration of
any excess of the aggregate Fair Market Value of shares transferred over the
aggregate Exercise Price); and provided further, that the Committee may provide
--- -------- -------
in that the Committee may a Stock Option Agreement (or may otherwise determine
in its sole discretion at the time of exercise) that, in lieu of cash or shares,
all or a portion of the Exercise Price may be paid by the Optionee's execution
of a full recourse promissory note equal to the Exercise Price or relevant
portion thereof, subject to compliance with applicable state and federal laws,
rules and regulations.
(d) In addition to and at the time of payment of the Exercise Price,
the Optionee shall pay to the Company in cash the full amount of any federal,
state, and local income, employment, or other withholding taxes applicable to
the taxable income of such Optionee resulting from such exercise; provided,
--------
however, that in the discretion of the Committee any Stock Option Agreement may
- -------
provide that all or any portion of such tax obligations, together with
additional taxes not exceeding the actual additional taxes to be owed by the
Optionee as a result of such exercise, may, upon the irrevocable election of the
Optionee, be paid by tendering to the Company whole shares of Stock duly
endorsed for transfer and owned by the Optionee, or by authorization to the
Company to withhold shares of Stock otherwise issuable upon exercise of the
Option, in either case in that number of shares having a Fair Market Value on
the date of exercise equal to the amount of such taxes thereby being paid, and
subject to such restrictions as to the approval and timing of any such election
as the Committee may from time to time determine to be necessary or appropriate
to satisfy the conditions of the exemption set forth in Rule 16b-3 under the
Exchange Act, if such rule
19
<PAGE>
is applicable.
(e) The holder of an Option shall not have any of the rights of a
shareholder with respect to the shares of Stock subject to the Option until such
shares have been issued and transferred to the Optionee upon the exercise of the
Option.
6.8 Reload Options.
--------------
(a) The Committee may specify in a Stock Option Agreement (or may
otherwise determine in its sole discretion) that a Reload Option shall be
granted, without further action of the Committee, (i) to an Optionee who
exercises an Option (including a Reload Option) by surrendering shares of Stock
in payment of amounts specified in Sections 6.7(c) or 6.7(d) of this Plan, (ii)
for the same number of shares as are surrendered to pay such amounts, (iii) as
of the date of such payment and at an Exercise Price equal to the Fair Market
Value of the Stock on such date, and (iv) otherwise on the same terms and
conditions as the Option whose exercise has occasioned such payment, except as
provided below and subject to such other contingencies, conditions, or other
terms as the Committee shall specify at the time such exercised Option is
granted; provided, however, that the Committee may require that the shares
-------- -------
surrendered in payment as provided above must have been held by the Optionee for
at least six months prior to such surrender.
(b) Unless provided otherwise in the Stock Option Agreement, a Reload
Option may not be exercised by an Optionee (i) prior to the end of a one-year
period from the date that the Reload Option is granted, and (ii) unless the
Optionee retains beneficial ownership of the shares of Stock issued to such
Optionee upon exercise of the Option referred to above in Section 6.8(a)(i) for
a period of one year from the date of such exercise.
6.9 Nontransferability of Option. Except in the case of non-
----------------------------
20
<PAGE>
Incentive Stock Options to the extent permitted in the Stock Option Agreement or
pursuant to a Qualified Domestic Relations Order or other than as provided
below, no Option shall be transferable by an Optionee other than by will or the
laws of descent and distribution. Further, except in the case of non-Incentive
Stock Options to the extent permitted in the Stock Option Agreement or as
otherwise provided below, during the lifetime of an Optionee, Options shall be
exercisable only by such Optionee. In connection with the Optionee's estate
plan, a non-Incentive Stock Option may be assigned in whole or in part during
Optionee's lifetime to one or more members of the Optionee's immediate family or
to a trust established for the exclusive benefit of one or more such family
members. The assigned portion shall be exercisable only by the person or persons
who acquire a proprietary interest in the Option pursuant to such assignment.
The terms applicable to the assigned portion shall be the same as those in
effect for this Option immediately prior to such assignment and shall be set
forth in such documents issued to the assignee as the Committee may deem
appropriate.
6.10 Termination of Employment or Service. The Committee shall have the
------------------------------------
power to specify, with respect to the Options granted to a particular Optionee,
the effect upon such Optionee's right to exercise an Option of termination of
such Optionee's employment or service under various circumstances, which effect
may include immediate or deferred termination of such Optionee's rights under an
Option, or acceleration of the date at which an Option may be exercised in full;
provided, however, that in no event may an Incentive Stock Option be exercised
- -------- -------
after the expiration of ten years from the date of its grant.
6.11 Employment Rights. Nothing in the Plan or in any Stock Option
-----------------
Agreement shall confer on any person any right to continue in the employ of the
Company or any of its Subsidiaries, or shall interfere in any way with the right
of the Company or any of its Subsidiaries to terminate such person's employment
at any time.
21
<PAGE>
6.12 Certain Successor Options. To the extent not inconsistent with the
-------------------------
terms, limitations and conditions of Code section 422 and any regulations
promulgated with respect thereto, an Option issued in respect of an option held
by an Employee to acquire stock of any entity acquired, by merger or otherwise,
by the Company (or any Subsidiary of the Company) may contain terms that differ
from those stated in this Article 6, but solely to the extent necessary to
preserve for any such employee the rights and benefits contained in such
predecessor option, or to satisfy the requirements of Code section 424(a).
6.13 Effect of a Corporate Transaction. Unless otherwise determined by the
---------------------------------
Board or the Committee at least 10 days prior to the effective time of a
Corporate Transaction, all Options, to the extent outstanding at the time of a
Corporate Transaction but not otherwise fully exercisable, shall automatically
accelerate so that the Options shall, immediately prior to the effective date of
the Corporate Transaction, become exercisable for all shares at the time subject
to such Options and may be exercised for any or all of those shares as fully
vested shares of Stock. This Section 6.13 is supplemental to Section 5.2(b).
22
<PAGE>
ARTICLE 7
RESTRICTED STOCK
7.1 Awards of Restricted Stock. The Committee may grant Awards of
--------------------------
Restricted Stock, which shall be governed by a Restriction Agreement between the
Company and the Grantee. Each Restriction Agreement shall contain such
restrictions, terms, and conditions as the Committee may, in its discretion,
determine, and may require that an appropriate legend be placed on the
certificates evidencing the subject Restricted Stock. Shares of Restricted
Stock granted pursuant to an Award hereunder shall be issued in the name of the
Grantee as soon as reasonably practicable after the Award is granted, provided
that the Grantee has executed the Restriction Agreement governing the Award, the
appropriate blank stock powers and, in the discretion of the Committee, an
escrow agreement and any other documents which the Committee may require as a
condition to the issuance of such Shares. If a Grantee shall fail to execute
the foregoing documents within any time period prescribed by the Committee, the
Award shall be void. At the discretion of the Committee, Shares issued in
connection with an Award shall be deposited together with the stock powers with
an escrow agent designated by the Committee. Unless the Committee determines
otherwise and as set forth in the Restriction Agreement, upon delivery of the
Shares to the escrow agent, the Grantee shall have all of the rights of a
shareholder with respect to such Shares, including the right to vote the Shares
and to receive all dividends or other distributions paid or made with respect to
the Shares.
7.2 Non-Transferability. Until any restrictions upon Restricted Stock
-------------------
awarded to a Grantee shall have lapsed in a manner set forth in Section 7.3,
such shares of Restricted Stock shall be neither (i) transferable, other than by
will or the laws of descent and distribution or pursuant to a Qualified Domestic
Relations Order, nor (ii) delivered to the Grantee.
23
<PAGE>
7.3 Lapse of Restrictions. Restrictions upon Restricted Stock awarded
---------------------
hereunder shall lapse at such time or times and on such terms and conditions as
the Committee may, in its discretion, determine at the time the Award is granted
or thereafter, provided, however, that any award made to a Grantee who is also a
-------- -------
Section 16 Insider, shall not lapse less than six months after the date of the
Award.
7.4 Termination of Employment. The Committee shall have the power to
-------------------------
specify, with respect to each Award granted to any particular Grantee, the
effect upon such Grantee's rights with respect to such Restricted Stock of the
termination of such Grantee's employment under various circumstances, which
effect may include immediate or deferred forfeiture of such Restricted Stock or
acceleration of the date at which any then-remaining restrictions shall lapse.
7.5 Treatment of Dividends. At the time an Award of Restricted Stock is
----------------------
made, the Committee may, in its discretion, determine that the payment to the
Grantee of any dividends, or a specified portion thereof, declared or paid on
such Restricted Stock shall be (i) deferred until the lapsing of the relevant
restrictions and (ii) held by the Company for the account of the Grantee until
such lapsing. In the event of such deferral, there shall be credited at the end
of each year (or portion thereof) interest on the amount of the account at the
beginning of the year at a rate per annum determined by the Committee. Payment
of deferred dividends, together with interest thereon, shall be made upon the
lapsing of restrictions imposed on such Restricted Stock, and any dividends
deferred (together with any interest thereon) in respect of Restricted Stock
shall be forfeited upon any forfeiture of such Restricted Stock.
7.6 Delivery of Shares. Except as provided otherwise in Article 9 below,
------------------
within a reasonable period of time following the lapse of the restrictions on
shares of Restricted Stock, the Committee shall cause a
24
<PAGE>
stock certificate to be delivered to the Grantee with respect to such shares and
such shares shall be free of all restrictions hereunder.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1 SAR Grants. The Committee, in its sole discretion, may grant SARs to
----------
any Grantee. The Committee may impose such conditions or restrictions on the
exercise of any SAR as it may deem appropriate, including, without limitation,
restricting the time of exercise of the SAR to specified periods as may be
necessary to satisfy the requirements of Rule 16b-3.
8.2 Determination of Price. The SAR Price shall be established by the
----------------------
Committee in its sole discretion. The SAR Price shall not be less than 100% of
Fair Market Value of the Stock on the date the SAR is granted for a SAR issued
in tandem with an Incentive Stock Option.
8.3 Exercise of a SAR. Upon exercise of a SAR, the Grantee shall be
-----------------
entitled, subject to the terms and conditions of this Plan and the Agreement, to
receive the excess for each share of Stock being exercised under the SAR of (i)
the Fair Market Value of such share of Stock on the date of exercise over (ii)
the SAR Price for such share of Stock.
8.4 Payment for a SAR. At the sole discretion of the Committee, the
-----------------
payment of such excess shall be made in (i) cash, (ii) shares of Stock, or (iii)
a combination of both. Shares of Stock used for this payment shall be valued at
their Fair Market Value on the date of exercise of the applicable SAR.
8.5 Status of a SAR under the Plan. Shares of Stock subject to an Award
------------------------------
of a SAR shall be considered shares of Stock which may be issued under the Plan
for purposes of Section 5.1 of this Plan, unless the
25
<PAGE>
Agreement making the Award of the SAR provides that the exercise of such SAR
results in the termination of an unexercised Option for the same number of
shares of Stock.
8.6 Termination of SARs. A SAR may be terminated as follows:
-------------------
(a) During the period of continuous employment with the Company,
Parent or Subsidiary, a SAR will be terminated only if it has been fully
exercised or it has expired by its terms.
(b) Upon termination of employment, the SAR will terminate upon the
earliest of (i) the full exercise of the SAR, (ii) the expiration of the
SAR by its terms, and (iii) not more than three months following the date
of employment termination; provided, however, should termination of
-------- -------
employment (A) result from the death or Permanent and Total Disability of
the Grantee, the period referenced in clause (iii) hereof shall be one year
or (B) be for Cause, the SAR will terminate on the date of employment
termination. For purposes of the Plan, a leave of absence approved by the
Company shall not be deemed to constitute termination of employment unless
otherwise provided in the Agreement or by the Company on the date of the
leave of absence.
(c) Subject to the terms of the Agreement with the Grantee, if a
Grantee shall die or become subject to a Permanent and Total Disability
prior to the termination of employment with the Company, Parent or
Subsidiary and prior to the termination of a SAR, such SAR may be exercised
to the extent that the Grantee shall have been entitled to exercise it at
the time of death or disability, as the case may be, by the Grantee, the
estate of the Grantee or the person or persons to whom the SAR may have
been transferred by will or by the laws of descent and distribution.
26
<PAGE>
(d) Except as otherwise expressly provided in the Agreement with the
Grantee, in no event will the continuation of the term of a SAR beyond the
date of termination of employment allow the Employee, or the Employee's
beneficiaries or heirs, to accrue additional rights under the Plan, have
additional SARs available for exercise, or receive a higher benefit than
the benefit payable as if the SAR had been exercised on the date of
employment termination.
8.7 No Shareholder Rights. The Grantee shall have no rights as a
---------------------
shareholder with respect to a SAR. In addition, no adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or rights except as provided in Section 5.2 of this
Plan.
ARTICLE 9
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate for
shares of Stock purchased upon the exercise of any Option granted hereunder or
any portion thereof, or deliver any certificate for shares of Restricted Stock
granted hereunder, prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges (if any)
on which the Stock is then listed;
(b) The completion of any registration or other qualification of such
shares which the Committee shall deem necessary or advisable under any federal
or state law or under the rulings or regulations of the SEC or any other
governmental regulatory body;
(c) The obtaining of any approval or other clearance from any federal or
state governmental agency or body which the Committee shall
27
<PAGE>
determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the exercise of
the Option as the Board from time to time may establish for reasons of
administrative convenience.
Stock certificates issued and delivered to Grantees shall bear such
restrictive legends as the Company shall deem necessary or advisable pursuant to
applicable federal and state securities laws. The inability of the Company to
obtain approval from any regulatory body having authority deemed by the Company
to be necessary to the lawful issuance and sale of any Stock pursuant to Options
shall relieve the Company of any liability with respect to the non-issuance or
sale of the Stock as to which such approval shall not have been obtained. The
Company shall, however, use reasonable commercial efforts to obtain all such
approvals.
ARTICLE 10
TERMINATION AND AMENDMENT
10.1 Termination and Amendment. The Board may at any time amend or
-------------------------
terminate the Plan; provided, however, that the Board (unless its actions are
-------- -------
approved or ratified by the shareholders of the Company within twelve months of
the date that the Board amends the Plan) may not amend the Plan to:
(a) increase the total number of shares of Stock issuable pursuant
to Incentive Stock Options under the Plan, except as contemplated in Section
5.2; or
(b) change the class of employees eligible to receive Incentive
Stock Options that may participate in the Plan.
10.2 Effect on Grantee's Rights. No termination, amendment, or
--------------------------
28
<PAGE>
modification of the Plan shall affect adversely a Grantee's rights under a
previously executed and then-presently enforceable Stock Option Agreement or
Restriction Agreement without the consent of the Grantee or his legal
representative.
ARTICLE 11
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option,
incentive, or other compensation plans in effect for the Company or any of its
Subsidiaries; nor shall the adoption of the Plan preclude the Company or any of
its Subsidiaries from establishing any other form of incentive or other
compensation plan for employees or Directors of the Company or any of its
Subsidiaries.
ARTICLE 12
MISCELLANEOUS
12.1 Replacement or Amended Grants. At the sole discretion of the
-----------------------------
Committee, and subject to the terms of the Plan, the Committee may modify
outstanding Options or Awards or accept the surrender of outstanding Options or
Awards and grant new Options or Awards in substitution for them, provided that
no modification of an Option or Award shall adversely affect a Grantee's rights
under a previously executed and then-presently enforceable Stock Option
Agreement or Restriction Agreement without the consent of the Grantee or his
legal representative.
12.2 Forfeiture for Competition. If a Grantee provides services to a
--------------------------
competitor of the Company, a Parent or any Subsidiaries, whether as an employee,
officer, director, independent contractor, consultant, agent, or otherwise, such
services being of a nature that can reasonably be expected to involve the skills
and experience used or developed by the Grantee while an Employee, then that
Grantee's rights under any Options
29
<PAGE>
outstanding hereunder shall be forfeited and terminated, and any shares of
Restricted Stock held by such Grantee subject to remaining restrictions shall be
forfeited, subject in each case to a determination to the contrary by the
Committee.
12.3 Leave of Absence. Unless provided otherwise in a particular Stock
----------------
Option Agreement, the following provisions shall apply upon an Optionee's
commencement of an authorized leave of absence:
(a) The exercise schedule in effect for such Option shall be frozen as of
the first day of the authorized leave, and the Option shall not become
exercisable for any additional installments of shares of Stock during the period
Optionee remains on such leave.
(b) Should Optionee resume active Employee status within 60 days after the
start date of the authorized leave, Optionee shall, for purposes of the
applicable exercise schedule, receive service credit for the entire period of
such leave. If Optionee does not resume active Employee status within such 60-
day period, then no credit shall be given for the entire period of such leave.
(c) If the Option is an Incentive Stock Option, and if the leave of absence
continues for more than three months, then the Option shall automatically
convert to a Non-Incentive Stock Option under the Federal tax laws upon the
expiration of such three-month period, unless the Optionee's reemployment rights
are guaranteed by statute or written agreement. Following any such conversion
of the Option, all subsequent exercises of the Option, whether effected before
or after Optionee's return to active Employee status, shall result in an
immediate taxable event, and the Company shall be required to collect from
Optionee the Federal, state and local income and employment withholding taxes
applicable to such exercise.
30
<PAGE>
(d) In no event shall the Option become exercisable for any additional
shares or otherwise remain outstanding if the Optionee does not resume Employee
status prior to the Expiration Date of the option term.
12.4 Plan Binding on Successors. The Plan shall be binding upon the
--------------------------
successors and assigns of the Company.
12.5 Singular, Plural; Gender. Whenever used in this Plan, nouns in the
------------------------
singular form shall include the plural forms thereof and vice versa, and
---- -----
masculine pronouns shall include the feminine pronoun versions thereof and vice
----
versa.
- -----
12.6 Headings, etc., No Part of Plan. Headings of Articles and Sections of
-------------------------------
this Plan have been inserted for convenience and reference only and do not
constitute part of the Plan.
12.7 Section 16 Compliance, Etc. With respect to Section 16 Insiders and
---------------------------
"highly-compensated" persons under Section 162(m) of the Code, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act and with Section 162(m) of the
Code. To the extent any provision of the Plan or action by the Committee fails
to so comply, it shall be deemed void to the extent permitted by law and deemed
advisable by the Committee. In addition, if necessary to comply with Rule 16b-3
with respect to any grant of an Option hereunder, and in addition to any other
vesting or holding period specified hereunder or in an applicable Stock Option
Agreement, any Section 16 Insider acquiring an Option shall be required to hold
either the Option or the underlying shares of Stock obtained upon exercise of
the Option for a minimum of six months.
* * * * *
31
<PAGE>
EXHIBIT A to
Netzee, Inc.
1999 Stock Option and Incentive Plan
Form of Stock Option Agreement
NETZEE, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into as of this
____ day of ________________________, _________, by and between Netzee, Inc., a
Georgia corporation (the "Company"), and _________________ (the "Optionee").
WHEREAS, the Board of Directors and shareholders of the Company have
adopted a Stock Option and Incentive Plan known as the "Netzee, Inc. 1999 Stock
Option and Incentive Plan" (the "Plan"); and
WHEREAS, the Committee has granted the Optionee a stock option to purchase
the number of shares of the Company's common stock as set forth below, and in
consideration of the granting of that stock option the Optionee intends to
remain in the employ of the Company;
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to such option in accordance with the Plan; and
WHEREAS, the Company has conditioned the grant of this stock option upon
the execution by the Optionee of a Confidentiality, Non-Competition and Non-
Solicitation Agreement (the "Confidentiality Agreement") in the form presented
to the Optionee herewith and Optionee is willing to execute such Agreement to
enable him or her to receive this stock option;
A-1
<PAGE>
NOW, THEREFORE, as an employment incentive and to encourage stock
ownership, and also in consideration of the mutual covenants contained herein,
including the execution by Optionee concurrently herewith of the Confidentiality
Agreement, the parties hereto agree as follows.
1. Incorporation of Plan. This option is granted pursuant to the
---------------------
provisions of the Plan, and the terms and definitions of the Plan are
incorporated into this Agreement by reference and made a part of this Agreement.
The Optionee acknowledges receipt of a copy of the Plan.
2. Grant of Option. Subject to the terms, restrictions, limitations and
---------------
conditions stated in this Agreement, the Company hereby evidences its grant to
the Optionee, not in lieu of salary or other compensation, of the right and
option (the "Option") to purchase all or any part of the number of shares of the
Company's Common Stock, no par value per share (the "Stock"), set forth on
Schedule I attached and incorporated into this Agreement by reference. The
Option shall be exercisable in the amounts and at the time(s) specified on
Schedule I. The Option shall expire and shall not be exercisable on the date
specified on Schedule I or on such earlier date as determined pursuant to
Section 8, 9, or 10 of this Agreement. Schedule I states whether the Option is
intended to be an Incentive Stock Option.
3. Purchase Price. The price per share to be paid by the Optionee for the
--------------
shares subject to this Option (the "Exercise Price") shall be as specified on
Schedule I, which price shall be an amount not less than the Fair Market Value
of a share of Stock as of the Date of Grant (as defined in Section 11 below) if
the Option is an Incentive Stock Option.
4. Exercise Terms. The Optionee must exercise the Option for at least the
--------------
lesser of 100 shares or the number of shares of Purchasable Stock as to which
the Option remains unexercised. If this Option is not exercised with respect to
all or any part of the shares subject to this
A-2
<PAGE>
Option prior to its expiration, the shares with respect to which this Option was
not exercised shall no longer be subject to this Option.
5. Option Non-Transferable. This Option shall not be transferable by the
-----------------------
Optionee other than by will or the laws of descent and distribution; provided,
however, that if this Option is a non-Incentive Stock Option, this Option shall
be transferable to the extent provided in this Agreement or as otherwise
provided in Section 6.9 of the Plan. Furthermore, during the lifetime of an
Optionee, this Option shall be exercisable only by the Optionee; provided,
however, that if this Option is a non-Incentive Stock Option, this Option shall
be exercisable to the extent provided in this Agreement or as otherwise provided
in Section 6.9 of the Plan. If this Option is a non-Incentive Stock Option, it
may be transferred in whole or in part to an entity with respect to which the
Optionee owns (a) in the case of an entity which is a corporation, stock
possessing more than 50 percent of the total combined voting power of all
classes of stock, or (b) in the case of an entity which is not a corporation, a
controlling interest.
6. Notice of Exercise of Option. This Option may be exercised by the
----------------------------
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice of
Exercise attached to this Agreement as Schedule II) signed by the Optionee, or
by such administrators, executors or personal representatives, and delivered or
mailed to the Company as specified in Section 14 below to the attention of the
President, Chief Executive Officer or such other officer as the President or
Chief Executive Officer may designate. Any such notice shall (a) specify the
number of shares of Stock which the Optionee or the Optionee's administrators,
executors or personal representatives, as the case may be, then elects to
purchase hereunder, (b) contain such information as may be reasonably required
pursuant to Section 12 below, and (c) be accompanied by (i) a certified or
cashier's check payable to the Company in payment of the total
A-3
<PAGE>
Exercise Price applicable to such shares as provided herein, (ii) shares of
Stock owned by the Optionee and duly endorsed or accompanied by stock transfer
powers having a Fair Market Value equal to the total Exercise Price applicable
to such shares purchased under this Agreement, or (iii) a certified or cashier's
check accompanied by the number of shares of Stock whose Fair Market Value when
added to the amount of the check equals the total Exercise Price applicable to
the shares being purchased under this Agreement. Upon receipt of any such notice
and accompanying payment, and subject to the terms hereof and of the Plan, the
Company agrees to issue to the Optionee or the Optionee's administrators,
executors or personal representatives, as the case may be, stock certificates
for the number of shares specified in such notice registered in the name of the
person exercising this Option.
7. Adjustment in Option. The number of Shares subject to this Option, the
--------------------
Exercise Price and other matters are subject to adjustment during the term of
this Option in accordance with the Plan.
8. Termination of Employment.
-------------------------
(a) Except as otherwise specified in Schedule I to this Agreement, in the
event of the termination of the Optionee's employment with the Company or any of
its Subsidiaries, other than a termination that is either (i) for Cause (as
defined in the Plan), (ii) voluntary on the part of the Optionee and without
written consent of the Company, or (iii) for reasons of death or disability or
retirement, the Optionee may exercise this Option at any time within 30 days
after such termination to the extent of the number of shares which were
Purchasable hereunder at the date of such termination.
(b) Except as specified in Schedule I attached hereto, in the event of a
termination of the Optionee's employment that is either (i) for Cause or (ii)
voluntary on the part of the Optionee and without the
A-4
<PAGE>
written consent of the Company, this Option, to the extent not previously
exercised, shall terminate immediately and shall not thereafter be or become
exercisable.
(c) Unless and to the extent otherwise provided in Schedule I hereto, in
the event of the retirement of the Optionee at the normal retirement date as
prescribed from time to time by the Company or any Subsidiary, the Optionee
shall continue to have the right to exercise any Options for shares which were
Purchasable at the date of the Optionee's retirement. Notwithstanding the
foregoing, this Option will become void and unexercisable on the date which is
three months after the date of retirement unless on (or effective as of) the
date of retirement the Optionee enters into a retiree noncompete agreement with
the Company and continues to comply with such noncompete agreement. This Option
does not confer upon the Optionee any right with respect to continuance of
employment by the Company or by any of its Subsidiaries. This Option shall not
be affected by any change of employment so long as the Optionee continues to be
an employee of the Company or one of its Subsidiaries.
(d) In no event shall this Option be exercisable after the expiration date
of this Option set forth in Section 6 of Schedule I attached hereto.
9. Disabled Optionee. In the event of termination of employment because
-----------------
of the Optionee's Permanent and Total Disability, the Optionee (or his or her
personal representative) may exercise this Option, within a period ending on the
earlier of (a) the last day of the one year period following the Optionee's
death or (b) the expiration date of this Option, to the extent of the number of
shares which were Purchasable under this Agreement at the date of such
termination.
10. Death of Optionee. Except as otherwise set forth in Schedule
-----------------
A-5
<PAGE>
I with respect to the rights of the Optionee upon termination of employment
under Section 8(a) above, in the event of the Optionee's death while employed by
the Company or any of its Subsidiaries or within three months after a
termination of such employment (if such termination was neither (i) for Cause
nor (ii) voluntary on the part of the Optionee and without the written consent
of the Company), the appropriate persons described in Section 6 of this
Agreement or persons to whom all or a portion of this Option is transferred in
accordance with Section 5 of this Agreement may exercise this Option at any time
within a period ending on the earlier of (a) the last day of the one year period
following the Optionee's death or (b) the expiration date of this Option. If the
Optionee was an employee of the Company at the time of death, this Option may be
so exercised to the extent of the number of shares that were Purchasable under
this Agreement at the date of death. If the Optionee's employment terminated
prior to his or her death, this Option may be exercised only to the extent of
the number of shares covered by this Option which were Purchasable under this
Agreement at the date of such termination.
11. Date of Grant. This Option was granted by the Committee on the date
-------------
set forth in Schedule I (the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges that
----------------------------------
the issuance of capital stock of the Company is subject to limitations imposed
by federal and state law, and the Optionee hereby agrees that the Company shall
not be obligated to issue any shares of Stock upon exercise of this Option that
would cause the Company to violate law or any rule, regulation, order or consent
decree of any regulatory authority (including without limitation the SEC) having
jurisdiction over the affairs of the Company. The Optionee agrees that he or
she will provide the Company with such information as is reasonably requested by
the Company or its counsel to determine whether the issuance of Stock complies
with the provisions described by this Section 12.
A-6
<PAGE>
13. Miscellaneous.
-------------
(a) This Agreement shall be binding upon the parties hereto and their
representatives, successors and assigns.
(b) This Agreement shall be governed by the substantive laws of, the State
of Georgia without regard to that state's choice of law rules.
(c) Any requests or notices to be given hereunder shall be deemed given,
and any elections or exercises to be made or accomplished shall be deemed made
or accomplished, upon actual delivery thereof to the designated recipient, or
three days after deposit thereof in the United States mail, registered, return
receipt requested and postage prepaid, addressed, if to the Optionee, at the
address set forth below and, if to the Company, to the executive offices of the
Company at 2410 Paces Ferry Road, 150 Paces Summit, Atlanta, Georgia 30339, or
at such other addresses that the parties provide to each other in accordance
with the foregoing notice requirements.
(d) This Agreement may not be modified except in writing executed by each
of the parties to it.
A-7
<PAGE>
IN WITNESS WHEREOF, the Committee has caused this Stock Option Agreement to
be executed on behalf of the Company, and the Optionee has executed this Stock
Option Agreement, all as of the day and year first above written.
NETZEE, INC. OPTIONEE
By:________________________________
________________________________
Name:_________________________
Name:_________________________
Title:________________________ Address:
________________________
________________________
________________________
A-8
<PAGE>
SCHEDULE I
TO
STOCK OPTION AGREEMENT
BETWEEN
NETZEE, INC.
AND
____________________________
Dated: __________________
1. Number of Shares Subject to Option: Shares.
---------------------------------- ----------------
2. This Option (Check one) [ ] is [ ] is not an Incentive Stock Option.
----------- -- --------------------------------
3. Option Exercise Price: $ per Share.
--------------------- ----------
Date of Grant:
- ------------- -------------------
5. Option Vesting Schedule:
-----------------------
Check one:
( ) Options are exercisable with respect to all shares on or after
the date hereof
( ) Options are exercisable with respect to the number of shares
indicated below on or after the date indicated next to the number
of shares:
No. of Shares Vesting Date
------------- ------------
i
<PAGE>
6. Option Exercise Period:
----------------------
Check One:
( ) All options expire and are void unless exercised on or before
_______________, ____.
( ) Options expire and are void unless exercised on or before the
date indicated next to the number of shares:
No. of Shares Expiration Date
------------- ---------------
7. Effect of Termination of Employment of Optionee (if different from that set
-----------------------------------------------
forth in Sections 8 and 10 of the Stock Option Agreement):
iii
<PAGE>
SCHEDULE II
TO
STOCK OPTION AGREEMENT
BETWEEN
NETZEE, INC.
AND
____________________________
Dated: __________________
NOTICE OF EXERCISE
The undersigned hereby notifies Netzee, Inc. (the "Company") of this
election to exercise the undersigned's stock option to purchase __________
shares of the Company's common stock, no par value per share (the "Common
Stock"), pursuant to the Stock Option Agreement (the "Agreement") between the
undersigned and the Company dated _______________________, _____. Accompanying
this Notice is (1) a certified or a cashier's check in the amount of
$________________ payable to the Company, and/or (2) __________ shares of the
Company's Common Stock presently owned by the undersigned and duly endorsed or
accompanied by stock transfer powers, having an aggregate Fair Market Value (as
defined in the Company's 1999 Stock Option and Incentive Plan (the "Plan")) as
of the date hereof of $_______________, and/or (3) authorization to withhold
__________ shares of Stock otherwise issuable upon exercise of the Option having
an aggregate Fair Market Value (as defined in the Plan) as of the date hereof of
$_______________, with such shares of Stock that are withheld being credited
against the Exercise Price, such amounts of (1), (2) and (3) being equal, in the
aggregate, to the purchase price per share set forth in Section 3 of the
Agreement
iv
<PAGE>
multiplied by the number of shares being purchased hereby (in each
instance subject to appropriate adjustment pursuant to Section 5.2 of the Plan).
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this
_______ day of ____________________, _____.
OPTIONEE [OR OPTIONEE'S ADMINISTRATOR,
EXECUTOR OR PERSONAL REPRESENTATIVE]
________________________________________________
Name:__________________________________________
Position (if other than Optionee)_____________________
v
<PAGE>
EXHIBIT 10.2
DIRECT ACCESS INTERACTIVE, INC.
1999 STOCK OPTION AND INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE 1 DEFINITIONS............................................... 1
ARTICLE 2 THE PLAN.................................................. 5
2.1 Name........................................................ 5
2.2 Purpose..................................................... 5
2.3 Shareholder Approval........................................ 5
ARTICLE 3 PARTICIPANTS.............................................. 5
ARTICLE 4 ADMINISTRATION............................................ 6
4.1 Duties and Powers of the Committee.......................... 6
4.2 Interpretation; Rules....................................... 6
4.3 No Liability................................................ 6
4.4 Majority Rule............................................... 6
4.5 Company Assistance.......................................... 6
ARTICLE 5 SHARES OF STOCK SUBJECT TO PLAN........................... 7
5.1 Limitations................................................. 7
5.2 Antidilution................................................ 7
ARTICLE 6 OPTIONS................................................... 9
6.1 Types of Options Granted.................................... 9
6.2 Option Grant and Agreement.................................. 9
6.3 Optionee Limitations........................................ 9
6.4 $100,000 and Section 162(m) Limitations..................... 9
6.5 Exercise Price.............................................. 10
6.6 Exercise Period............................................. 10
6.7 Option Exercise............................................. 10
6.8 Reload Options.............................................. 12
6.9 Nontransferability of Option................................ 12
6.10 Termination of Employment or Service....................... 12
6.11 Employment Rights.......................................... 12
6.12 Certain Successor Options.................................. 13
6.13 Effect of a Corporate Transaction.......................... 13
i
<PAGE>
ARTICLE 7 RESTRICTED STOCK.......................................... 13
7.1 Awards of Restricted Stock.................................. 13
7.2 Non-Transferability......................................... 13
7.3 Lapse of Restrictions....................................... 14
7.4 Termination of Employment................................... 14
7.5 Treatment of Dividends...................................... 14
7.6 Delivery of Shares.......................................... 14
ARTICLE 8 STOCK APPRECIATION RIGHTS................................. 14
8.1 SAR Grants.................................................. 14
8.2 Determination of Price...................................... 14
8.3 Exercise of a SAR........................................... 14
8.4 Payment for a SAR........................................... 15
8.5 Status of a SAR under the Plan.............................. 15
8.6 Termination of SARs......................................... 15
8.7 No Shareholder Rights....................................... 15
ARTICLE 9 STOCK CERTIFICATES........................................ 16
ARTICLE 10 TERMINATION AND AMENDMENT................................. 16
10.1 Termination and Amendment.................................. 16
10.2 Effect on Grantee's Rights................................. 17
ARTICLE 11 RELATIONSHIP TO OTHER COMPENSATION PLANS.................. 17
ARTICLE 12 MISCELLANEOUS............................................. 17
12.1 Replacement or Amended Grants.............................. 17
12.2 Forfeiture for Competition................................. 17
12.3 Leave of Absence........................................... 17
12.4 Plan Binding on Successors................................. 18
12.5 Singular, Plural; Gender................................... 18
12.6 Headings, etc. ............................................ 18
12.7 Section 16 Compliance...................................... 18
EXHIBIT A to Direct Access Interactive, Inc. 1999 Stock Option and
Incentive Plan - Form of Stock Option Agreement.................. 1
SCHEDULE A............................................................ 6
SCHEDULE B............................................................viii
ii
<PAGE>
DIRECT ACCESS INTERACTIVE, INC.
1999 STOCK OPTION AND INCENTIVE PLAN
ARTICLE 1
DEFINITIONS
As used in this Plan, the following terms have the following meanings unless
the context clearly indicates to the contrary:
"Award" means a grant of Restricted Stock or an SAR.
-----
"Board" means the Board of Directors of the Company.
-----
"Cause" means (i) the commission of an act of fraud, embezzlement, theft or
-----
proven dishonesty, or any other illegal act or practice (whether or not
resulting in criminal prosecution or conviction), including theft or destruction
of property of the Company, a Parent, or a Subsidiary, or any other act or
practice which the Committee shall, in good faith, deem to have resulted in the
recipient's becoming unbondable under the Company's, a Parent's or any
Subsidiary's fidelity bond; (ii) the willful engaging in misconduct which is
deemed by the Committee, in good faith, to be materially injurious to the
Company, a Parent or any Subsidiary, monetarily or otherwise, including, but not
limited to, improperly disclosing trade secrets or other confidential or
sensitive business information and data about the Company, a Parent or any
Subsidiaries and competing with the Company, a Parent or any Subsidiaries, or
soliciting employees, consultants or customers of the Company, a Parent or any
Subsidiaries in violation of law or any employment or other agreement to which
the recipient is a party; (iii) the willful and continued failure or habitual
neglect by a person who is an Employee to perform his or her duties with the
Company, a Parent or any Subsidiary substantially in accordance with the
operating and personnel policies and procedures of the Company, Parent or the
Subsidiary generally applicable to all their employees; or (iv) other disregard
of rules or policies of the Company, a Parent or any Subsidiary, or conduct
evidencing willful or wanton disregard of the interests of the Company, a Parent
or any Subsidiary. For purposes of this Plan, no act or failure to act by the
recipient shall be deemed be "willful" unless done or omitted to be done by
recipient not in good faith and without reasonable belief that the recipient's
action or omission was in the best interest of the Company and/or the
Subsidiary. Notwithstanding the foregoing, if the recipient has entered into an
employment agreement that is binding as of the date of employment termination,
and if such employment agreement defines "Cause," then the definition of "Cause"
in such agreement shall apply to the recipient in this Plan. "Cause" shall be
determined by the Committee based upon information presented by the Company and
the Employee and shall be final and binding on all parties hereto.
"Code" means the United States Internal Revenue Code of 1986, including
----
effective date and transition rules (whether or not codified). Any reference
herein to a specific section of the Code shall be deemed to include a reference
to any corresponding provision of future law.
"Committee" means a committee of at least two Directors appointed from time
---------
to time by the Board, having the duties and authority set forth herein in
addition to any other authority
<PAGE>
granted by the Board; provided, however, that with respect to any Options or
Awards granted to an individual who is also a Section 16 Insider, the Committee
shall consist of either the entire Board of Directors or a committee of at least
two Directors (who need not be members of the Committee with respect to Options
or Awards granted to any other individuals) who are Non-Employee Directors, and
all authority and discretion shall be exercised by such Non-Employee Directors,
and references herein to the "Committee" means such Non-Employee Directors
insofar as any actions or determinations of the Committee shall relate to or
affect Options or Awards made to or held by any Section 16 Insider. In selecting
the Committee, the Board shall also consider the benefits under Section 162(m)
of the Code of having a Committee composed of "outside directors" (as that term
is defined in the Code) for certain grants of Options to highly compensated
executives. At any time that the Board shall not have appointed a committee as
described above, any reference herein to the Committee means a reference to the
Board.
"Company" means Direct Access Interactive, Inc., a Georgia corporation.
-------
"Corporate Transaction" means any of the following transactions to which
---------------------
the Company is a party:
(i) a merger, consolidation, share exchange, combination or other
transaction or series of transactions (other than a public
offering by the Company for cash of the Company's capital stock,
debt or other securities) in which securities possessing more
than 50% of the total combined voting power of the Company's
outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately
prior to such transaction;
(ii) the sale, transfer or other disposition of all or substantially
all of the Company's assets;
(iii) the liquidation or dissolution of the Company; or
(iv) A change in the composition of the Board as a result of which
fewer than one-half of the incumbent directors are directors
who either:
(a) Had been directors of the Company 24 months prior to such
change; or
(b) Were elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of the
directors who had been directors of the Company 24 months
prior to such change and who were still in office at the
time of the election or nomination;
provided, however, that the Board may determine and provide by
-------- -------
resolution that any such transaction shall not constitute a Corporate
Transaction.
2
<PAGE>
"Director" means a member of the Board and any person who is an advisory or
--------
honorary director of the Company if such person is considered a director for the
purposes of Section 16 of the Exchange Act, as determined by reference to such
Section 16 and to the rules, regulations, judicial decisions, and interpretative
or "no-action" positions with respect thereto of the SEC, as the same may be in
effect or set forth from time to time.
"Employee" means an employee of the Company or a Parent or Subsidiary.
--------
"Exchange Act" means the Securities Exchange Act of 1934. Any reference
------------
herein to a specific section of the Exchange Act shall be deemed to include a
reference to any corresponding provision of future law.
"Exercise Price" means the price at which an Optionee may purchase a share
--------------
of Stock under a Stock Option Agreement.
"Fair Market Value" on any date means (i) the closing sales price of the
-----------------
Stock, regular way, on such date on the national securities exchange having the
greatest volume of trading in the Stock during the thirty-day period preceding
the day the value is to be determined or, if such exchange was not open for
trading on such date, the next preceding date on which it was open; (ii) if the
Stock is not traded on any national securities exchange, the average of the
closing high bid and low asked prices of the Stock on the over-the-counter
market on the day such value is to be determined, or in the absence of closing
bids on such day, the closing bids on the next preceding day on which there were
bids; or (iii) if the Stock also is not traded on the over-the-counter market,
the fair market value as determined in good faith by the Board or the Committee
based on such relevant facts as may be available to the Board, which may include
opinions of independent experts, the price at which recent sales have been made,
the book value of the Stock, and the Company's current and anticipated future
earnings.
"Grantee" means a person who is an Optionee or a person who has received an
-------
Award of Restricted Stock or an SAR.
"Incentive Stock Option" means an option to purchase any stock of the
----------------------
Company, which complies with and is subject to the terms, limitations and
conditions of Section 422 of the Code and any regulations promulgated with
respect thereto.
"Non-Employee Director" shall have the meaning set forth in Rule 16b-3
---------------------
under the Exchange Act, as the same may be in effect from time to time, or in
any successor rule thereto, and shall be determined for all purposes under the
Plan according to interpretative or "no-action" positions with respect thereto
issued by the SEC.
"Officer" means a person who constitutes an officer of the Company for the
-------
purposes of Section 16 of the Exchange Act, as determined by reference to such
Section 16 and to the rules, regulations, judicial decisions, and interpretative
or "no-action" positions with respect to such rule of the SEC, as the same may
be in effect or set forth from time to time.
3
<PAGE>
"Option" means an option, whether or not an Incentive Stock Option, to
------
purchase Stock granted pursuant to the provisions of Article 6 of this Plan.
"Optionee" means a person to whom an Option has been granted under this
--------
Plan.
"Parent" means any corporation (other than the Company) in an unbroken
------
chain of corporations ending with the Company if, at the time of the grant (or
modification) of the Option, each of the corporations other than the Company
owns stock possessing 50 percent or more of the total combined voting power of
the classes of stock in one of the other corporations in such chain.
"Permanent and Total Disability" has the same meaning as given to that term
------------------------------
by Code Section 22(e)(3) and any regulations or rulings promulgated thereunder.
"Plan" means the Direct Access Interactive, Inc. 1999 Stock Option and
----
Incentive Plan, the terms of which are set forth herein.
"Purchasable" refers to Stock which may be purchased by an Optionee under
-----------
the terms of this Plan on or after a certain date specified in the applicable
Stock Option Agreement.
"Qualified Domestic Relations Order" has the meaning set forth in the Code
----------------------------------
or in the Employee Retirement Income Security Act of 1974, or the rules and
regulations promulgated under the Code or such Act.
"Reload Option" has the meaning set forth in Section 6.8 of the Plan.
-------------
"Restricted Stock" means Stock issued, subject to restrictions, to a
----------------
Grantee pursuant to Article 7 of this Plan.
"Restriction Agreement" means the agreement setting forth the terms of an
---------------------
Award, and executed by a Grantee as provided in Section 7.1 of this Plan.
"SAR" means a stock appreciation right, which is the right to receive an
---
amount equal to the appreciation, if any, in the Fair Market Value of a share of
Stock from the date of the grant of the right to the date of its payment, all as
provided in Article 8 of this Plan.
"SAR Price" means the base value established by the Committee for a SAR on
---------
the date the SAR is granted and which is used in determining the amount of
benefit, if any, paid to a Grantee.
"SEC" means the United States Securities and Exchange Commission.
---
"Section 16 Insider" means any person who is subject to the provisions of
------------------
Section 16 of the Exchange Act, as provided in Rule 16a-2 promulgated pursuant
to the Exchange Act.
4
<PAGE>
"Stock" means the Common Stock, no par value per share, of the Company or,
-----
in the event that the outstanding shares of Stock are hereafter changed into or
exchanged for shares of a different stock or securities of the Company or some
other entity, such other stock or securities.
"Stock Option Agreement" means an agreement between the Company and an
----------------------
Optionee under which the Optionee may purchase Stock under this Plan, a sample
form of which is attached hereto as Exhibit A (which form may be varied by the
Committee in granting an Option).
"Subsidiary" means any corporation (other than the Company) in an unbroken
----------
chain of corporations beginning with the Company if, at the time of the grant
(or modification) of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
ARTICLE 2
THE PLAN
2.1 Name. This Plan shall be known as the "Direct Access Interactive, Inc.
----
1999 Stock Option and Incentive Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests of the
-------
Company, its Subsidiaries and its shareholders by affording certain employees
and Directors of the Company and its Subsidiaries, as well as key consultants
and advisors to the Company or any Subsidiary, an opportunity to acquire or
increase their proprietary interests in the Company. The objective of the
issuance of the Options and Awards is to promote the growth and profitability of
the Company and its Subsidiaries because the Grantees will be provided with an
additional incentive to achieve the Company's objectives through participation
in its success and growth and by encouraging their continued association with or
service to the Company.
2.3 Shareholder Approval. The Plan shall become effective on August 5, 1999;
--------------------
provided, however, that if the Company's shareholders have not approved the Plan
on or prior to the first anniversary of such effective date, then all options
granted under the Plan shall be non-Incentive Stock Options. If, at the time of
any amendment to the Plan, shareholder approval is required by the Code for
Incentive Stock Options and such shareholder approval has not been obtained (or
is not obtained within 12 months thereof), any Incentive Stock Options issued
under the Plan shall automatically become options which do not qualify as
Incentive Stock Options.
ARTICLE 3
PARTICIPANTS
The class of persons eligible to participate in the Plan shall consist of all
persons whose participation in the Plan the Committee determines to be in the
best interests of the Company, which shall include, but not be limited to, all
Directors and employees of the Company or any Subsidiary, as well as key
consultants and advisors to the Company or any Subsidiary.
5
<PAGE>
ARTICLE 4
ADMINISTRATION
4.1 Duties and Powers of the Committee. The Plan shall be administered by
----------------------------------
the Committee. The Committee shall select one of its members as its Chairman
and shall hold its meetings at such times and places as it may determine. The
Committee shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it may deem necessary. The
Committee shall have the power to act by unanimous written consent in lieu of a
meeting, and to meet telephonically. In administering the Plan, the Committee's
actions and determinations shall be binding on all interested parties. The
Committee shall have the power to grant Options or Awards in accordance with the
provisions of the Plan and may grant Options and Awards singly, in combination,
or in tandem. Subject to the provisions of the Plan, the Committee shall have
the discretion and authority to determine those individuals to whom Options or
Awards will be granted and whether such Options shall be accompanied by the
right to receive Reload Options, the number of shares of Stock subject to each
Option or Award, such other matters as are specified herein, and any other terms
and conditions of a Stock Option Agreement or Restriction Agreement. The
Committee shall also have the discretion and authority to delegate to any
Officer its powers to grant Options or Awards under the Plan to any person who
is an employee of the Company but not an Officer or Director. To the extent not
inconsistent with the provisions of the Plan, the Committee may give a Grantee
an election to surrender an Option or Award in exchange for the grant of a new
Option or Award, and shall have the authority to amend or modify an outstanding
Stock Option Agreement or Restriction Agreement, or to waive any provision
thereof, provided that the Grantee consents to such action.
4.2 Interpretation; Rules. Subject to the express provisions of the Plan,
---------------------
the Committee also shall have complete authority to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to it, to determine
the details and provisions of each Stock Option Agreement, and to make all other
determinations necessary or advisable for the administration of the Plan,
including, without limitation, the amending or altering of the Plan and any
Options or Awards granted under the Plan as may be required to comply with or to
conform to any federal, state, or local laws or regulations.
4.3 No Liability. Neither any member of the Board nor any member of the
------------
Committee shall be liable to any person for any act or determination made in
good faith with respect to the Plan or any Option or Award granted hereunder.
4.4 Majority Rule. A majority of the members of the Committee shall
-------------
constitute a quorum, and any action taken by a majority at a meeting at which a
quorum is present, or any action taken without a meeting evidenced by a writing
executed by all the members of the Committee, shall constitute the action of the
Committee.
4.5 Company Assistance. The Company shall supply full and timely information
------------------
to the Committee on all matters relating to eligible persons, their employment,
death, retirement, disability, or other termination of employment, and such
other pertinent facts as the Committee
6
<PAGE>
may require. The Company shall furnish the Committee with such clerical and
other assistance as is necessary in the performance of its duties.
ARTICLE 5
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to any antidilution adjustment pursuant to the
-----------
provisions of Section 5.2 of this Plan, the maximum number of shares of Stock
that may be issued hereunder shall be 3,500,000. The number of shares of Stock
available for issuance hereunder shall automatically increase on January 1 of
each year beginning January 1, 2000, to an amount equal to twenty percent (20%)
of the fully-diluted shares of Stock (assuming the conversion of all outstanding
options and warrants) outstanding on December 31 of the previous year (subject
to adjustment under Section 5.2); provided, however, that the shares available
for issuance shall not be less than 3,500,000. Any or all shares of Stock
subject to the Plan may be issued in any combination of Incentive Stock Options,
non-Incentive Stock Options, Restricted Stock, or SARs, and the amount of Stock
subject to the Plan may be increased from time to time in accordance with
Article 10, provided that the total number of shares of Stock issuable pursuant
to Incentive Stock Options may not be increased to more than 3,500,000 (other
than pursuant to anti-dilution adjustments) without shareholder approval.
Shares subject to an Option or issued as an Award may be either authorized and
unissued shares or shares issued and later acquired by the Company. The shares
covered by any unexercised portion of an Option that has terminated for any
reason (except as set forth in the following paragraph), or any forfeited
portion of an Award, may again be optioned or awarded under the Plan, and such
shares shall not be considered as having been optioned or issued in computing
the number of shares of Stock remaining available for option or award hereunder.
If Options are issued in respect of options to acquire stock of any entity
acquired, by merger or otherwise, by the Company (or any Subsidiary of the
Company), to the extent that such issuance shall not be inconsistent with the
terms, limitations and conditions of Code section 422 or Rule 16b-3 under the
Exchange Act, the aggregate number of shares of Stock for which Options may be
granted hereunder shall automatically be increased by the number of shares
subject to the Options so issued; provided, however, that the aggregate number
of shares of Stock for which Options may be granted hereunder shall
automatically be decreased by the number of shares covered by any unexercised
portion of an Option so issued that has terminated for any reason, and the
shares subject to any such unexercised portion may not be optioned to any other
person.
5.2 Antidilution.
------------
(a) If (x) the outstanding shares of Stock are changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of merger, consolidation, reorganization, recapitalization,
reclassification, combination or exchange of shares, or stock split or stock
dividend, (y) any spin-off, spin-out or other distribution of assets materially
affects the price of the Company's stock, or (z) there is any assumption and
conversion to the Plan by the Company of an acquired company's outstanding
option grants, then:
7
<PAGE>
(i) the aggregate number and kind of shares of Stock for which
Options or Awards may be granted hereunder shall be adjusted
proportionately by the Committee; and
(ii) the rights of Optionees (concerning the number of shares
subject to Options and the Exercise Price) under outstanding Options and
the rights of the holders of Awards (concerning the terms and conditions
of the lapse of any then-remaining restrictions), shall be adjusted
proportionately by the Committee.
(b) If the Company shall be a party to any reorganization in which it
does not survive, involving merger, consolidation, or acquisition of the stock
or substantially all the assets of the Company, the Committee, in its
discretion, may:
(i) notwithstanding other provisions of this Plan, declare that all
Options granted under the Plan shall become exercisable immediately
notwithstanding the provisions of the respective Stock Option Agreements
regarding exercisability, that all such Options shall terminate 30 days
after the Committee gives written notice of the immediate right to
exercise all such Options and of the decision to terminate all Options not
exercised within such 30-day period, and that all then-remaining
restrictions pertaining to Awards under the Plan shall immediately lapse;
and/or
(ii) notify all Grantees that all Options or Awards granted under
the Plan shall be assumed by the successor corporation or substituted on
an equitable basis with options or restricted stock issued by such
successor corporation.
(c) If the Company is to be liquidated or dissolved in connection with a
reorganization described in Section 5.2(b), the provisions of such Section shall
apply. In all other instances, the adoption of a plan of dissolution or
liquidation of the Company shall, notwithstanding other provisions hereof, cause
all then-remaining restrictions pertaining to Awards under the Plan to lapse,
and shall cause every Option outstanding under the Plan to terminate to the
extent not exercised prior to the adoption of the plan of dissolution or
liquidation by the shareholders, provided that, notwithstanding other provisions
hereof, the Committee may declare all Options granted under the Plan to be
exercisable at any time on or before the fifth business day following such
adoption notwithstanding the provisions of the respective Stock Option
Agreements regarding exercisability.
(d) The adjustments described in paragraphs (a) through (c) of this
Section 5.2, and the manner of their application, shall be determined solely by
the Committee, and any such adjustment may provide for the elimination of
fractional share interests; provided, however, that any adjustment made by the
Committee shall be made in a manner that will not cause an Incentive Stock
Option to be other than an Incentive Stock Option under applicable statutory and
regulatory provisions. The adjustments required under this Article 5 shall apply
to any successors of the Company and shall be made regardless of the number or
type of successive events requiring such adjustments.
8
<PAGE>
ARTICLE 6
OPTIONS
6.1 Types of Options Granted. The Committee may, under this Plan, grant
------------------------
either Incentive Stock Options or Options which do not qualify as Incentive
Stock Options. Within the limitations provided in this Plan, both types of
Options may be granted to the same person at the same time, or at different
times, under different terms and conditions, as long as the terms and conditions
of each Option are consistent with the provisions of the Plan. Without
limitation of the foregoing, Options may be granted subject to conditions based
on the financial performance of the Company or any other factor the Committee
deems relevant.
6.2 Option Grant and Agreement. Each Option granted hereunder shall be
--------------------------
evidenced by minutes of a meeting or the written consent of the Committee and by
a written Stock Option Agreement executed by the Company and the Optionee. The
terms of the Option, including the Option's duration, time or times of exercise,
exercise price, whether the Option is intended to be an Incentive Stock Option,
and whether the Option is to be accompanied by the right to receive a Reload
Option, shall be stated in the Stock Option Agreement. No Incentive Stock
Option may be granted more than ten years after the earlier to occur of the
effective date of the Plan or the date the Plan is approved by the Company's
shareholders.
Separate Stock Option Agreements may be used for Options intended to be
Incentive Stock Options and those not so intended, but any failure to use such
separate agreements shall not invalidate, or otherwise adversely affect the
Optionee's interest in, the Options evidenced thereby.
6.3 Optionee Limitations. The Committee shall not grant an Incentive Stock
--------------------
Option to any person who, at the time the Incentive Stock Option is granted:
(a) is not an Employee; or
(b) owns or is considered to own stock possessing at least 10% of the
total combined voting power of all classes of stock of the Company or any of its
Parent or Subsidiary corporations; provided, however, that this limitation shall
not apply if at the time an Incentive Stock Option is granted the Exercise Price
is at least 110% of the Fair Market Value of the Stock subject to such Option
and such Option by its terms would not be exercisable after five years from the
date on which the Option is granted. For the purpose of this subsection (b), a
person shall be considered to own: (i) the stock owned, directly or indirectly,
by or for his or her brothers and sisters (whether by whole or half blood),
spouse, ancestors and lineal descendants; (ii) the stock owned, directly or
indirectly, by or for a corporation, partnership, estate, or trust in proportion
to such person's stock interest, partnership interest or beneficial interest
therein; and (iii) the stock which such person may purchase under any
outstanding options of the Company or of any Parent or Subsidiary of the
Company.
6.4 $100,000 and Section 162(m) Limitations. Except as provided below, the
----------------------------------------
Committee shall not grant an Incentive Stock Option to, or modify the exercise
provisions of outstanding Incentive Stock Options held by, any person who, at
the time the Incentive Stock
9
<PAGE>
Option is granted (or modified), would thereby receive or hold any Incentive
Stock Options of the Company and any Parent or Subsidiary of the Company, such
that the aggregate Fair Market Value (determined as of the respective dates of
grant or modification of each option) of the stock with respect to which such
Incentive Stock Options are exercisable for the first time during any calendar
year is in excess of $100,000 (or such other limit as may be prescribed by the
Code from time to time); provided that the foregoing restriction on modification
of outstanding Incentive Stock Options shall not preclude the Committee from
modifying an outstanding Incentive Stock Option if, as a result of such
modification and with the consent of the Optionee, such Option no longer
constitutes an Incentive Stock Option; and provided that, if the $100,000
--------
limitation (or such other limitation prescribed by the Code) described in this
Section 6.4 is exceeded, the Incentive Stock Option, the granting or
modification of which resulted in the exceeding of such limit, shall be treated
as an Incentive Stock Option up to the limitation and the excess shall be
treated as an Option not qualifying as an Incentive Stock Option. Furthermore,
not more than 1,000,000 shares of Stock may be made subject to Options to any
individual in the aggregate in any one fiscal year of the Company, such
limitation to be applied in a manner consistent with the requirements of, and
only to the extent required for compliance with, the exclusion from the
limitation on deductibility of compensation under Section 162(m) of the Code.
6.5 Exercise Price. The Exercise Price of the Stock subject to each Option
--------------
shall be determined by the Committee. Subject to the provisions of Section
6.3(b) hereof, the Exercise Price of an Incentive Stock Option shall not be less
than the Fair Market Value of the Stock as of the date the Option is granted.
6.6 Exercise Period. The period for the exercise of each Option granted
---------------
hereunder shall be determined by the Committee, but the Stock Option Agreement
with respect to each Option intended to be an Incentive Stock Option shall
provide that such Option shall not be exercisable after the expiration of ten
years from the date of grant (or modification) of the Option. In addition, no
Incentive Stock Option granted under the Plan shall be exercisable prior to
shareholder approval of the Plan.
6.7 Option Exercise.
---------------
(a) Unless otherwise provided in the Stock Option Agreement or
Section 6.6 of this Plan, an Option may be exercised at any time or from time to
time during the term of the Option as to any or all full shares which have
become Purchasable under the provisions of the Option, but not at any time as to
fewer than 100 shares unless the remaining shares that have become so
Purchasable are fewer than 100 shares. The Committee shall have the authority to
prescribe in any Stock Option Agreement that the Option may be exercised only in
accordance with a vesting schedule during the term of the Option.
(b) An Option shall be exercised by (i) delivery to the Company at its
principal office a written notice of exercise with respect to a specified number
of shares of Stock and (ii) payment to the Company at that office of the full
amount of the Exercise Price for such number of shares in accordance with
Section 6.7(c). If requested by an Optionee, an Option may be exercised with the
involvement of a stockbroker in accordance with the federal margin rules set
10
<PAGE>
forth in Regulation T (in which case the certificates representing the
underlying shares will be delivered by the Company directly to the stockbroker).
(c) The Exercise Price is to be paid in full in cash upon the exercise
of the Option, and the Company shall not be required to deliver certificates for
the shares purchased until such payment has been made; provided, however, that
in lieu of cash, in the Company's sole discretion, all or any portion of the
Exercise Price may be paid by tendering to the Company shares of Stock duly
endorsed for transfer and owned by the Optionee, or by authorization to the
Company to withhold shares of Stock otherwise issuable upon exercise of the
Option, in each case to be credited against the Exercise Price at the Fair
Market Value of such shares on the date of exercise (however, no fractional
shares may be so transferred, and the Company shall not be obligated to make any
cash payments in consideration of any excess of the aggregate Fair Market Value
of shares transferred over the aggregate Exercise Price); provided further, that
the Board may provide in a Stock Option Agreement (or may otherwise determine in
its sole discretion at the time of exercise) that, in lieu of cash or shares,
all or a portion of the Exercise Price may be paid by the Optionee's execution
of a recourse note equal to the Exercise Price or relevant portion thereof,
subject to compliance with applicable state and federal laws, rules and
regulations.
(d) In addition to and at the time of payment of the Exercise Price, the
Optionee shall pay to the Company in cash the full amount of any federal, state,
and local income, employment, or other withholding taxes applicable to the
taxable income of such Optionee resulting from such exercise; provided, however,
that in the discretion of the Committee any Stock Option Agreement may provide
that all or any portion of such tax obligations, together with additional taxes
not exceeding the actual additional taxes to be owed by the Optionee as a result
of such exercise, may, upon the irrevocable election of the Optionee, be paid by
tendering to the Company whole shares of Stock duly endorsed for transfer and
owned by the Optionee, or by authorization to the Company to withhold shares of
Stock otherwise issuable upon exercise of the Option, in either case in that
number of shares having a Fair Market Value on the date of exercise equal to the
amount of such taxes thereby being paid, and subject to such restrictions as to
the approval and timing of any such election as the Committee may from time to
time determine to be necessary or appropriate to satisfy the conditions of the
exemption set forth in Rule 16b-3 under the Exchange Act, if such rule is
applicable.
(e) The holder of an Option shall not have any of the rights of a
shareholder with respect to the shares of Stock subject to the Option until such
shares have been issued and transferred to the Optionee upon the exercise of the
Option.
11
<PAGE>
6.8 Reload Options.
--------------
(a) The Committee may specify in a Stock Option Agreement (or may
otherwise determine in its sole discretion) that a Reload Option shall be
granted, without further action of the Committee, (i) to an Optionee who
exercises an Option (including a Reload Option) by surrendering shares of Stock
in payment of amounts specified in Sections 6.7(c) or 6.7(d) of this Plan, (ii)
for the same number of shares as are surrendered to pay such amounts, (iii) as
of the date of such payment and at an Exercise Price equal to the Fair Market
Value of the Stock on such date, and (iv) otherwise on the same terms and
conditions as the Option whose exercise has occasioned such payment, except as
provided below and subject to such other contingencies, conditions, or other
terms as the Committee shall specify at the time such exercised Option is
granted; provided, however, that the Committee may require that the shares
surrendered in payment as provided above must have been held by the Optionee for
at least six months prior to such surrender.
(b) Unless provided otherwise in the Stock Option Agreement, a Reload
Option may not be exercised by an Optionee (i) prior to the end of a one-year
period from the date that the Reload Option is granted, and (ii) unless the
Optionee retains beneficial ownership of the shares of Stock issued to such
Optionee upon exercise of the Option referred to above in Section 6.8(a)(i) for
a period of one year from the date of such exercise.
6.9 Nontransferability of Option. Other than as provided below, no Incentive
----------------------------
Stock Option shall be transferable by an Optionee other than by will or the laws
of descent and distribution or, in the case of non-Incentive Stock Options,
pursuant to a Qualified Domestic Relations Order, and, during the lifetime of an
Optionee, Options shall be exercisable only by such Optionee (or by such
Optionee's guardian or legal representative, should one be appointed). However,
in connection with the Optionee's estate plan, a Non-Incentive Stock Option may
be assigned in whole or in part during Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established for the
exclusive benefit of one or more such family members. The assigned portion
shall be exercisable only by the person or persons who acquire a proprietary
interest in the Option pursuant to such assignment. The terms applicable to the
assigned portion shall be the same as those in effect for this Option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Committee may deem appropriate.
6.10 Termination of Employment or Service. The Committee shall have the
------------------------------------
power to specify, with respect to the Options granted to a particular Optionee,
the effect upon such Optionee's right to exercise an Option of termination of
such Optionee's employment or service under various circumstances, which effect
may include immediate or deferred termination of such Optionee's rights under an
Option, or acceleration of the date at which an Option may be exercised in full;
provided, however, that in no event may an Incentive Stock Option be exercised
after the expiration of ten years from the date of its grant.
6.11 Employment Rights. Nothing in the Plan or in any Stock Option Agreement
-----------------
shall confer on any person any right to continue in the employ of the Company or
any of its
12
<PAGE>
Subsidiaries, or shall interfere in any way with the right of the Company or any
of its Subsidiaries to terminate such person's employment at any time.
6.12 Certain Successor Options. To the extent not inconsistent with the
-------------------------
terms, limitations and conditions of Code section 422 and any regulations
promulgated with respect thereto, an Option issued in respect of an option held
by an Employee to acquire stock of any entity acquired, by merger or otherwise,
by the Company (or any Subsidiary of the Company) may contain terms that differ
from those stated in this Article 6, but solely to the extent necessary to
preserve for any such employee the rights and benefits contained in such
predecessor option, or to satisfy the requirements of Code section 424(a).
6.13 Effect of a Corporate Transaction. Unless otherwise determined by the
---------------------------------
Board or the Committee at least 10 days prior to the effective time of a
Corporate Transaction, all Options, to the extent outstanding at the time of a
Corporate Transaction but not otherwise fully exercisable, shall automatically
accelerate so that the Options shall, immediately prior to the effective date of
the Corporate Transaction, become exercisable for all shares at the time subject
to such Options and may be exercised for any or all of those shares as fully
vested shares of Stock.
ARTICLE 7
RESTRICTED STOCK
7.1 Awards of Restricted Stock. The Committee may grant Awards of Restricted
--------------------------
Stock, which shall be governed by a Restriction Agreement between the Company
and the Grantee. Each Restriction Agreement shall contain such restrictions,
terms, and conditions as the Committee may, in its discretion, determine, and
may require that an appropriate legend be placed on the certificates evidencing
the subject Restricted Stock. Shares of Restricted Stock granted pursuant to an
Award hereunder shall be issued in the name of the Grantee as soon as reasonably
practicable after the Award is granted, provided that the Grantee has executed
the Restriction Agreement governing the Award, the appropriate blank stock
powers and, in the discretion of the Committee, an escrow agreement and any
other documents which the Committee may require as a condition to the issuance
of such Shares. If a Grantee shall fail to execute the foregoing documents
within any time period prescribed by the Committee, the Award shall be void. At
the discretion of the Committee, Shares issued in connection with an Award shall
be deposited together with the stock powers with an escrow agent designated by
the Committee. Unless the Committee determines otherwise and as set forth in
the Restriction Agreement, upon delivery of the Shares to the escrow agent, the
Grantee shall have all of the rights of a shareholder with respect to such
Shares, including the right to vote the Shares and to receive all dividends or
other distributions paid or made with respect to the Shares.
7.2 Non-Transferability. Until any restrictions upon Restricted Stock
-------------------
awarded to a Grantee shall have lapsed in a manner set forth in Section 7.3,
such shares of Restricted Stock shall not be transferable other than by will or
the laws of descent and distribution, or pursuant to a Qualified Domestic
Relations Order, nor shall they be delivered to the Grantee.
13
<PAGE>
7.3 Lapse of Restrictions. Restrictions upon Restricted Stock awarded
---------------------
hereunder shall lapse at such time or times (but, with respect to any award to a
Grantee who is also a Section 16 Insider, not less than six months after the
date of the Award) and on such terms and conditions as the Committee may, in its
discretion, determine at the time the Award is granted or thereafter.
7.4 Termination of Employment. The Committee shall have the power to
-------------------------
specify, with respect to each Award granted to any particular Grantee, the
effect upon such Grantee's rights with respect to such Restricted Stock of the
termination of such Grantee's employment under various circumstances, which
effect may include immediate or deferred forfeiture of such Restricted Stock or
acceleration of the date at which any then-remaining restrictions shall lapse.
7.5 Treatment of Dividends. At the time an Award of Restricted Stock is
----------------------
made, the Committee may, in its discretion, determine that the payment to the
Grantee of any dividends, or a specified portion thereof, declared or paid on
such Restricted Stock shall be (i) deferred until the lapsing of the relevant
restrictions and (ii) held by the Company for the account of the Grantee until
such lapsing. In the event of such deferral, there shall be credited at the end
of each year (or portion thereof) interest on the amount of the account at the
beginning of the year at a rate per annum determined by the Committee. Payment
of deferred dividends, together with interest thereon, shall be made upon the
lapsing of restrictions imposed on such Restricted Stock, and any dividends
deferred (together with any interest thereon) in respect of Restricted Stock
shall be forfeited upon any forfeiture of such Restricted Stock.
7.6 Delivery of Shares. Except as provided otherwise in Article 9 below,
------------------
within a reasonable period of time following the lapse of the restrictions on
shares of Restricted Stock, the Committee shall cause a stock certificate to be
delivered to the Grantee with respect to such shares and such shares shall be
free of all restrictions hereunder.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1 SAR Grants. The Committee, in its sole discretion, may grant to any
----------
Grantee a SAR. The Committee may impose such conditions or restrictions on the
exercise of any SAR as it may deem appropriate, including, without limitation,
restricting the time of exercise of the SAR to specified periods as may be
necessary to satisfy the requirements of Rule 16b-3.
8.2 Determination of Price. The SAR Price shall be established by the
----------------------
Committee in its sole discretion. The SAR Price shall not be less than 100% of
Fair Market Value of the Stock on the date the SAR is granted for a SAR issued
in tandem with an Incentive Stock Option.
8.3 Exercise of a SAR. Upon exercise of a SAR, the Grantee shall be
-----------------
entitled, subject to the terms and conditions of this Plan and the Agreement, to
receive the excess for each share of Stock being exercised under the SAR of (i)
the Fair Market Value of such share of Stock on the date of exercise over (ii)
the SAR Price for such share of Stock.
14
<PAGE>
8.4 Payment for a SAR. At the sole discretion of the Committee, the payment
-----------------
of such excess shall be made in (i) cash, (ii) shares of Stock, or (iii) a
combination of both. Shares of Stock used for this payment shall be valued at
their Fair Market Value on the date of exercise of the applicable SAR.
8.5 Status of a SAR under the Plan. Shares of Stock subject to an Award of a
------------------------------
SAR shall be considered shares of Stock which may be issued under the Plan for
purposes of Section 5.1 of this Plan, unless the Agreement making the Award of
the SAR provides that the exercise of such SAR results in the termination of an
unexercised Option for the same number of shares of Stock.
8.6 Termination of SARs. A SAR may be terminated as follows:
-------------------
(a) During the period of continuous employment with the Company,
Parent or Subsidiary, a SAR will be terminated only if it has been fully
exercised or it has expired by its terms.
(b) Upon termination of employment, the SAR will terminate upon the
earliest of (i) the full exercise of the SAR, (ii) the expiration of the SAR
by its terms, and (iii) not more than three months following the date of
employment termination; provided, however, should termination of employment
(A) result from the death or Permanent and Total Disability of the Grantee,
the period referenced in clause (iii) hereof shall be one year or (B) be for
Cause, the SAR will terminate on the date of employment termination. For
purposes of the Plan, a leave of absence approved by the Company shall not be
deemed to be termination of employment unless otherwise provided in the
Agreement or by the Company on the date of the leave of absence.
(c) Subject to the terms of the Agreement with the Grantee, if a
Grantee shall die or become subject to a Permanent and Total Disability prior
to the termination of employment with the Company, Parent or Subsidiary and
prior to the termination of a SAR, such SAR may be exercised to the extent
that the Grantee shall have been entitled to exercise it at the time of death
or disability, as the case may be, by the Grantee, the estate of the Grantee
or the person or persons to whom the SAR may have been transferred by will or
by the laws of descent and distribution.
(d) Except as otherwise expressly provided in the Agreement with the
Grantee, in no event will the continuation of the term of a SAR beyond the
date of termination of employment allow the Employee, or the Employee's
beneficiaries or heirs, to accrue additional rights under the Plan, have
additional SARs available for exercise, or receive a higher benefit than the
benefit payable as if the SAR had been exercised on the date of employment
termination.
8.7 No Shareholder Rights. The Grantee shall have no rights as a shareholder
---------------------
with respect to a SAR. In addition, no adjustment shall be made for dividends
(ordinary or
15
<PAGE>
extraordinary, whether in cash, securities or other property) or distributions
or rights except as provided in Section 5.2 of this Plan.
ARTICLE 9
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate for
shares of Stock purchased upon the exercise of any Option granted hereunder or
any portion thereof, or deliver any certificate for shares of Restricted Stock
granted hereunder, prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which the Stock is then listed;
(b) The completion of any registration or other qualification of such
shares which the Committee shall deem necessary or advisable under any federal
or state law or under the rulings or regulations of the SEC or any other
governmental regulatory body;
(c) The obtaining of any approval or other clearance from any federal
or state governmental agency or body which the Committee shall determine to be
necessary or advisable; and
(d) The lapse of such reasonable period of time following the exercise
of the Option as the Board from time to time may establish for reasons of
administrative convenience.
Stock certificates issued and delivered to Grantees shall bear such
restrictive legends as the Company shall deem necessary or advisable pursuant to
applicable federal and state securities laws. The inability of the Company to
obtain approval from any regulatory body having authority deemed by the Company
to be necessary to the lawful issuance and sale of any Stock pursuant to Options
shall relieve the Company of any liability with respect to the non-issuance or
sale of the Stock as to which such approval shall not have been obtained. The
Company shall, however, use its best efforts to obtain all such approvals.
ARTICLE 10
TERMINATION AND AMENDMENT
10.1 Termination and Amendment. The Board may at any time terminate the
-------------------------
Plan; provided, however, that the Board (unless its actions are approved or
ratified by the shareholders of the Company within twelve months of the date
that the Board amends the Plan) may not amend the Plan to:
(a) increase the total number of shares of Stock issuable pursuant to
Incentive Stock Options under the Plan, except as contemplated in Section 5.2;
or
16
<PAGE>
(b) change the class of employees eligible to receive Incentive Stock
Options that may participate in the Plan.
10.2 Effect on Grantee's Rights. No termination, amendment, or modification
--------------------------
of the Plan shall affect adversely a Grantee's rights under a Stock Option
Agreement or Restriction Agreement without the consent of the Grantee or his
legal representative.
ARTICLE 11
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option, incentive,
or other compensation plans in effect for the Company or any of its
Subsidiaries; nor shall the adoption of the Plan preclude the Company or any of
its Subsidiaries from establishing any other form of incentive or other
compensation plan for employees or Directors of the Company or any of its
Subsidiaries.
ARTICLE 12
MISCELLANEOUS
12.1 Replacement or Amended Grants. At the sole discretion of the
-----------------------------
Committee, and subject to the terms of the Plan, the Committee may modify
outstanding Options or Awards or accept the surrender of outstanding Options or
Awards and grant new Options or Awards in substitution for them, provided that
no modification of an Option or Award shall adversely affect a Grantee's rights
under a Stock Option Agreement or Restriction Agreement without the consent of
the Grantee or his legal representative.
12.2 Forfeiture for Competition. If a Grantee provides services to a
--------------------------
competitor of the Company, a Parent or any Subsidiaries, whether as an employee,
officer, director, independent contractor, consultant, agent, or otherwise, such
services being of a nature that can reasonably be expected to involve the skills
and experience used or developed by the Grantee while an Employee, then that
Grantee's rights under any Options outstanding hereunder shall be forfeited and
terminated, and any shares of Restricted Stock held by such Grantee subject to
remaining restrictions shall be forfeited, subject in each case to a
determination to the contrary by the Committee.
12.3 Leave of Absence. Unless provided otherwise in a particular Stock
----------------
Option Agreement, the following provisions shall apply upon an Optionee's
commencement of an authorized leave of absence:
(a) The exercise schedule in effect for such Option shall be frozen
as of the first day of the authorized leave, and the Option shall not become
exercisable for any additional installments of shares of Stock during the period
Optionee remains on such leave.
(b) Should Optionee resume active Employee status within 60 days
after the start date of the authorized leave, Optionee shall, for purposes of
the applicable exercise schedule,
17
<PAGE>
receive service credit for the entire period of such leave. If Optionee does not
resume active Employee status within such 60-day period, then no credit shall be
given for the entire period of such leave.
(c) If the Option is an Incentive Stock Option, then the following
shall also apply:
If the leave of absence continues for more than three months, then
the Option shall automatically convert to a Non-Incentive Stock Option
under the Federal tax laws upon the expiration of such three-month period,
unless the Optionee's reemployment rights are guaranteed by statute or
written agreement. Following any such conversion of the Option, all
subsequent exercises of the Option, whether effected before or after
Optionee's return to active Employee status, shall result in an immediate
taxable event, and the Company shall be required to collect from Optionee
the Federal, state and local income and employment withholding taxes
applicable to such exercise.
(d) In no event shall the Option become exercisable for any additional
shares or otherwise remain outstanding if the Optionee does not resume Employee
status prior to the Expiration Date of the option term.
12.4 Plan Binding on Successors. The Plan shall be binding upon the
--------------------------
successors and assigns of the Company.
12.5 Singular, Plural; Gender. Whenever used in this Plan, nouns in the
------------------------
singular shall include the plural, and the masculine pronoun shall include the
feminine gender.
12.6 Headings, etc., No Part of Plan. Headings of Articles and Sections of
-------------------------------
this Plan are inserted for convenience and reference; they do not constitute
part of the Plan.
12.7 Section 16 Compliance. With respect to Section 16 Insiders and
---------------------
"highly-compensated" persons under Section 162(m) of the Code, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act and with Section 162(m) of the
Code. To the extent any provision of the Plan or action by the Committee fails
to so comply, it shall be deemed void to the extent permitted by law and deemed
advisable by the Committee. In addition, if necessary to comply with Rule 16b-3
with respect to any grant of an Option hereunder, and in addition to any other
vesting or holding period specified hereunder or in an applicable Stock Option
Agreement, any Section 16 Insider acquiring an Option shall be required to hold
either the Option or the underlying shares of Stock obtained upon exercise of
the Option for a minimum of six months.
18
<PAGE>
EXHIBIT A to
Direct Access Interactive, Inc.
1999 Stock Option and Incentive Plan
Form of Stock Option Agreement
DIRECT ACCESS INTERACTIVE, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into as of this
-----
day of , , by and between Direct Access
------------------------ ---------
Interactive, Inc., a Georgia corporation (the "Company"), and
------------------
(the "Optionee").
WHEREAS, the Board of Directors and shareholders of the Company have adopted a
Stock Option and Incentive Plan known as the "Direct Access Interactive, Inc.
1999 Stock Option and Incentive Plan" (the "Plan"); and
WHEREAS, the Committee has granted the Optionee a stock option to purchase the
number of shares of the Company's common stock as set forth below, and in
consideration of the granting of that stock option the Optionee intends to
remain in the employ of the Company; and
WHEREAS, the Company and the Optionee desire to enter into a written agreement
with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an employment incentive and to encourage stock ownership,
and also in consideration of the mutual covenants contained herein, the parties
hereto agree as follows.
1. Incorporation of Plan. This option is granted pursuant to the provisions
---------------------
of the Plan, and the terms and definitions of the Plan are incorporated into
this Agreement by reference and made a part of this Agreement. The Optionee
acknowledges receipt of a copy of the Plan.
2. Grant of Option. Subject to the terms, restrictions, limitations and
---------------
conditions stated in this Agreement, the Company hereby evidences its grant to
the Optionee, not in lieu of salary or other compensation, of the right and
option (the "Option") to purchase all or any part of the number of shares of the
Company's Common Stock, no par value per share (the "Stock"), set forth on
Schedule A attached and incorporated into this Agreement by reference. The
Option shall be exercisable in the amounts and at the time(s) specified on
Schedule A. The Option shall expire and shall not be exercisable on the date
specified on Schedule A or on such earlier date as determined pursuant to
Section 8, 9, or 10 of this Agreement. Schedule A states whether the Option is
intended to be an Incentive Stock Option.
19
<PAGE>
3. Purchase Price. The price per share to be paid by the Optionee for the
--------------
shares subject to this Option (the "Exercise Price") shall be as specified on
Schedule A, which price shall be an amount not less than the Fair Market Value
of a share of Stock as of the Date of Grant (as defined in Section 11 below) if
the Option is an Incentive Stock Option.
4. Exercise Terms. The Optionee must exercise the Option for at least the
--------------
lesser of 100 shares or the number of shares of Purchasable Stock as to which
the Option remains unexercised. If this Option is not exercised with respect to
all or any part of the shares subject to this Option prior to its expiration,
the shares with respect to which this Option was not exercised shall no longer
be subject to this Option.
5. Option Non-Transferable. Unless otherwise provided in this Agreement, no
-----------------------
Option shall be transferable by an Optionee other than by will or the laws of
descent and distribution or, in the case of non-Incentive Stock Options,
pursuant to a Qualified Domestic Relations Order. During the lifetime of an
Optionee, Options shall be exercisable only by such Optionee (or by such
Optionee's guardian or legal representative, should one be appointed).
6. Notice of Exercise of Option. This Option may be exercised by the
----------------------------
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice of
Exercise attached to this Agreement as Schedule B) signed by the Optionee, or by
such administrators, executors or personal representatives, and delivered or
mailed to the Company as specified in Section 14 below to the attention of the
President, Chief Executive Officer or such other officer as the President or
Chief Executive Officer may designate. Any such notice shall (a) specify the
number of shares of Stock which the Optionee or the Optionee's administrators,
executors or personal representatives, as the case may be, then elects to
purchase hereunder, (b) contain such information as may be reasonably required
pursuant to Section 12 below, and (c) be accompanied by (i) a certified or
cashier's check payable to the Company in payment of the total Exercise Price
applicable to such shares as provided herein, (ii) shares of Stock owned by the
Optionee and duly endorsed or accompanied by stock transfer powers having a Fair
Market Value equal to the total Exercise Price applicable to such shares
purchased under this Agreement, or (iii) a certified or cashier's check
accompanied by the number of shares of Stock whose Fair Market Value when added
to the amount of the check equals the total Exercise Price applicable to the
shares being purchased under this Agreement. Upon receipt of any such notice
and accompanying payment, and subject to the terms hereof, the Company agrees to
issue to the Optionee or the Optionee's administrators, executors or personal
representatives, as the case may be, stock certificates for the number of shares
specified in such notice registered in the name of the person exercising this
Option.
7. Adjustment in Option. The number of Shares subject to this Option, the
--------------------
Exercise Price and other matters are subject to adjustment during the term of
this Option in accordance with Section 5.2 of the Plan.
20
<PAGE>
8. Termination of Employment.
-------------------------
(a) Except as otherwise specified in Schedule A to this Agreement, in the
event of the termination of the Optionee's employment with the Company or any of
its Subsidiaries, other than a termination that is either (i) for cause, (ii)
voluntary on the part of the Optionee and without written consent of the
Company, or (iii) for reasons of death or disability or retirement, the Optionee
may exercise this Option at any time within 30 days after such termination to
the extent of the number of shares which were Purchasable hereunder at the date
of such termination.
(b) Except as specified in Schedule A attached hereto, in the event of a
termination of the Optionee's employment that is either (i) for cause or (ii)
voluntary on the part of the Optionee and without the written consent of the
Company, this Option, to the extent not previously exercised, shall terminate
immediately and shall not thereafter be or become exercisable.
(c) Unless and to the extent otherwise provided in Schedule A hereto,
in the event of the retirement of the Optionee at the normal retirement date as
prescribed from time to time by the Company or any Subsidiary, the Optionee
shall continue to have the right to exercise any Options for shares which were
Purchasable at the date of the Optionee's retirement. Notwithstanding the
foregoing, the Options will become void and unexercisable on the date which is
three months after the date of retirement unless on (or effective as of) the
date of retirement the Optionee enters into a noncompete agreement with the
Company and continues to comply with such noncompete agreement. This Option does
not confer upon the Optionee any right with respect to continuance of employment
by the Company or by any of its Subsidiaries. This Option shall not be affected
by any change of employment so long as the Optionee continues to be an employee
of the Company or one of its Subsidiaries.
9. Disabled Optionee. In the event of termination of employment because of
-----------------
the Optionee's Permanent and Total Disability, the Optionee (or his or her
personal representative) may exercise this Option, within a period ending on the
earlier of (a) the last day of the one year period following the Optionee's
death or (b) the expiration date of this Option, to the extent of the number of
shares which were Purchasable under this Agreement at the date of such
termination.
10. Death of Optionee. Except as otherwise set forth in Schedule A with
-----------------
respect to the rights of the Optionee upon termination of employment under
Section 8(a) above, in the event of the Optionee's death while employed by the
Company or any of its Subsidiaries or within three months after a termination of
such employment (if such termination was neither (i) for cause nor (ii)
voluntary on the part of the Optionee and without the written consent of the
Company), the appropriate persons described in Section 6 of this Agreement or
persons to whom all or a portion of this Option is transferred in accordance
with Section 5 of this Agreement may exercise this Option at any time within a
period ending on the earlier of (a) the last day of the one year period
following the Optionee's death or (b) the expiration date of this Option. If
the Optionee was an employee of the Company at the time of death, this Option
21
<PAGE>
may be so exercised to the extent of the number of shares that were Purchasable
under this Agreement at the date of death. If the Optionee's employment
terminated prior to his or her death, this Option may be exercised only to the
extent of the number of shares covered by this Option which were Purchasable
under this Agreement at the date of such termination.
11. Date of Grant. This Option was granted by the Committee on the date set
-------------
forth in Schedule A (the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges that the
----------------------------------
issuance of capital stock of the Company is subject to limitations imposed by
federal and state law, and the Optionee hereby agrees that the Company shall not
be obligated to issue any shares of Stock upon exercise of this Option that
would cause the Company to violate law or any rule, regulation, order or consent
decree of any regulatory authority (including without limitation the SEC) having
jurisdiction over the affairs of the Company. The Optionee agrees that he or
she will provide the Company with such information as is reasonably requested by
the Company or its counsel to determine whether the issuance of Stock complies
with the provisions described by this Section 12.
13. Restriction on Disposition of Shares. The shares purchased pursuant to
------------------------------------
the exercise of an Incentive Stock Option shall not be transferred by the
Optionee except pursuant to the Optionee's will, or the laws of descent and
distribution, until such date which is the later of two years after the grant of
such Incentive Stock Option or one year after the transfer of the shares to the
Optionee pursuant to the exercise of such Incentive Stock Option.
14. Miscellaneous.
-------------
(a) This Agreement shall be binding upon the parties hereto and their
representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be governed
by the laws of, the State of Georgia.
(c) Any requests or notices to be given hereunder shall be deemed
given, and any elections or exercises to be made or accomplished shall be deemed
made or accomplished, upon actual delivery thereof to the designated recipient,
or three days after deposit thereof in the United States mail, registered,
return receipt requested and postage prepaid, addressed, if to the Optionee, at
the address set forth below and, if to the Company, to the executive offices of
the Company at 3150 Holcomb Bridge Road, Suite 200, Norcross, Georgia, 30071, or
at such other addresses that the parties provide to each other in accordance
with the foregoing notice requirements.
(d) This Agreement may not be modified except in writing executed by
each of the parties to it.
22
<PAGE>
IN WITNESS WHEREOF, the Committee has caused this Stock Option Agreement to be
executed on behalf of the Company, and the Optionee has executed this Stock
Option Agreement, all as of the day and year first above written.
DIRECT ACCESS INTERACTIVE, INC. OPTIONEE
By:
----------------------------- -----------------------------------
Name: Name:
------------------------ ------------------------------
Title: Address:
----------------------- ---------------------------
---------------------------
---------------------------
23
<PAGE>
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
DIRECT ACCESS INTERACTIVE, INC.
AND
-------------------------------
Dated:
------------------------
1. Number of Shares Subject to Option: Shares.
----------------------------------
2. This Option (Check one) [ ] is [ ] is not an Incentive Stock Option.
----------- -- --------------------------------
3. Option Exercise Price: $ per Share.
--------------------- ---------------
4. Date of Grant:
------------- -------------------
5. Option Vesting Schedule:
-----------------------
Check one:
( ) Options are exercisable with respect to all shares on or
after the date hereof
( ) Options are exercisable with respect to the number of shares
indicated below on or after the date indicated next to the
number of shares:
No. of Shares Vesting Date
------------- ------------
<PAGE>
6. Option Exercise Period:
----------------------
Check One:
( ) All options expire and are void unless exercised on or before
, .
--------------- ----
( ) Options expire and are void unless exercised on or before the
date indicated next to the number of shares:
No. of Shares Expiration Date
------------- ---------------
7. Effect of Termination of Employment of Optionee (if different from that set
-----------------------------------------------
forth in Sections 8 and 10 of the Stock Option Agreement):
<PAGE>
SCHEDULE B
TO
STOCK OPTION AGREEMENT
BETWEEN
DIRECT ACCESS INTERACTIVE, INC.
AND
-------------------------------
Dated:
-------------------
NOTICE OF EXERCISE
The undersigned hereby notifies Direct Access Interactive, Inc. (the
"Company") of this election to exercise the undersigned's stock option to
purchase shares of the Company's common stock, no par value per share
----------
(the "Common Stock"), pursuant to the Stock Option Agreement (the "Agreement")
between the undersigned and the Company dated , .
----------------------- -----
Accompanying this Notice is (1) a certified or a cashier's check in the amount
of $ payable to the Company, and/or (2) shares of the
---------------- -----------
Company's Common Stock presently owned by the undersigned and duly endorsed or
accompanied by stock transfer powers, having an aggregate Fair Market Value (as
defined in the Company's 1999 Stock Option and Incentive Plan (the "Plan")) as
of the date hereof of $ , and/or (3) authorization to withhold
---------------
shares of Stock otherwise issuable upon exercise of the Option having
- ----------
an aggregate Fair Market Value (as defined in the Plan) as of the date hereof of
$ , with such shares of Stock that are withheld being credited
---------------
against the Exercise Price, such amounts of (1), (2) and (3) being equal, in the
aggregate, to the purchase price per share set forth in Section 3 of the
Agreement multiplied by the number of shares being purchased hereby (in each
instance subject to appropriate adjustment pursuant to Section 5.2 of the Plan).
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this
--------
day of , .
----------------------- -----
OPTIONEE [OR OPTIONEE'S ADMINISTRATOR,
EXECUTOR OR PERSONAL REPRESENTATIVE]
---------------------------------------------------
Name:
----------------------------------------------
Position (if other than Optionee):
-----------------
<PAGE>
EXHIBIT 10.3
DIRECT ACCESS INTERACTIVE, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), is entered into as of the 1st
day of July, 1999, by and between Direct Access Interactive, Inc., a Georgia
corporation (the "Company"), and Glenn W. Sturm (the "Optionee").
WHEREAS, the Board of Directors of the Company agreed as of July 1, 1999, to
grant the Optionee a stock option to purchase the number of shares of the
Company's Common Stock as set forth below;
WHEREAS, the Company and the Optionee desire to enter into a written agreement
with respect to such option.
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
parties hereto agree as follows.
1. Grant of Option. Subject to the terms, restrictions, limitations, and
---------------
conditions stated herein, the Company hereby evidences its grant to the Optionee
of the right and option (the "Option") to purchase all or any part of the number
of shares of the Company's Common Stock, no par value (the "Stock"), set forth
on Schedule A attached hereto and incorporated herein by reference. The Option
shall be exercisable in the amounts and at the time specified on Schedule A.
The Option shall expire and shall not be exercisable on the date specified on
Schedule A or on such earlier date as determined pursuant to this Agreement.
2. Purchase Price. The price per share to be paid by the Optionee for the
--------------
shares subject to this Option (the "Exercise Price") shall be as specified on
Schedule A.
3. Exercise Terms. The Optionee must exercise the Option for at least the
--------------
lesser of 100 shares or the number of shares of stock which may be purchased by
the Optionee under the terms of this Agreement as to which the Option remains
unexercised. If this Option is not exercised with respect to all or any part of
the shares subject to this Option prior to its expiration, the shares with
respect to which this Option was not exercised shall no longer be subject to
this Option.
4. Restrictions on Transferability. No Option shall be transferable by an
-------------------------------
Optionee other than by will or the laws of descent and distribution or pursuant
to a Qualified Domestic Relations Order (as defined in the Internal Revenue Code
of 1986, as amended (the "Code") or in the Employee Retirement Income Security
Act of 1974, as amended (the "Act"), or the rules and regulations promulgated
under the Code or the Act). During the lifetime of an Optionee, Options shall
be exercisable only by such Optionee (or by such Optionee's guardian or legal
representative, should one be appointed.
5. Notice of Exercise of Option. This Option may be exercised by the
----------------------------
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice of
Exercise attached hereto as Schedule B) signed by the Optionee, or by such
administrators, executors or personal representatives, and delivered or mailed
to the Company as specified in Section 12 hereof to the attention of the
President or such other officer as the Company may designate. Any such notice
shall (a) specify the number of shares of Stock which the Optionee or the
Optionee's administrators, executors or personal representatives, as the case
may be, then elects to purchase hereunder, (b) contain such information as may
be reasonably required by the Company, and (c) be accompanied by (i) a certified
or cashier's check payable to the Company in payment of the total Exercise Price
applicable to such shares as provided herein, (ii) shares of Stock owned by the
Optionee and duly endorsed or
<PAGE>
accompanied by stock transfer powers having a Fair Market Value (as determined
by the Board of Directors) equal to the total Exercise Price applicable to such
shares purchased hereunder, or (iii) a certified or cashier's check accompanied
by the number of shares of Stock whose Fair Market Value when added to the
amount of the check equals the total Exercise Price applicable to such shares
purchased hereunder. Upon receipt of any such notice and accompanying payment,
and subject to the terms hereof, the Company agrees to issue to the Optionee or
the Optionee's administrators, executors or personal representatives, as the
case may be, stock certificates for the number of shares specified in such
notice registered in the name of the person exercising this Option.
6. Adjustment in Option. The number of Shares subject to this Option, the
--------------------
Exercise Price and other matters are subject to adjustment during the term of
this Option as appropriate for stock splits, stock dividends, and similar
events.
7. Termination of Employment.
-------------------------
(a) Except as may otherwise be specified in Schedule A hereto, in the
event of the termination of the Optionee's employment with the Company or any of
its Subsidiaries, the Optionee may exercise this Option at any time within 30
days after such termination to the extent of the number of shares which were
purchasable hereunder at the date of such termination.
(b) Unless and to the extent otherwise provided in Schedule A hereto, in
the event of the retirement of the Optionee at the normal retirement date as
prescribed from time to time by the Company or any Subsidiary, the Optionee
shall continue to have the right to exercise any Options for shares which were
Purchasable at the date of the Optionee's retirement. This Option does not
confer upon the Optionee any right with respect to continuance of employment by
the Company or by any of its Subsidiaries. This Option shall not be affected by
any change of employment so long as the Optionee continues to be an employee of
the Company or one of its Subsidiaries.
8. Disabled Optionee. In the event of termination of employment because of
-----------------
the Optionee's becoming subject to a Permanent and Total Disability (as defined
by Section 22(e)(3) of the Code and any regulations or rulings promulgated
thereunder), the Optionee (or his or her personal representative) may exercise
this Option at any time within three months after such termination to the extent
of the number of shares which were purchasable hereunder at the date of such
termination.
9. Death of Optionee. Except as otherwise may be set forth in Schedule A with
-----------------
respect to the rights of the Optionee upon termination of employment under
Section 7 above, in the event of the Optionee's death while employed by the
Company or any of its Subsidiaries or within three months after a termination of
such employment, the appropriate persons described in Section 5 hereof or
persons to whom all or a portion of this Option is transferred in accordance
with Section 4 hereof may exercise this Option at any time within a period
ending on the earlier of (a) the last day of the three month period following
the Optionee's death or (b) the expiration date of this Option. If the Optionee
was an employee of the Company at the time of death, this Option may be so
exercised to the extent of the number of shares that were purchasable hereunder
at the date of death. If the Optionee's employment terminated prior to his or
her death, this Option may be exercised only to the extent of the number of
shares covered by this Option which were purchasable hereunder at the date of
such termination.
9. Date of Grant. This Option was granted by the Board of Directors of the
-------------
Company on the date set forth in Schedule A (the "Date of Grant").
10. Compliance with Regulatory Matters. The Optionee acknowledges that the
----------------------------------
issuance of capital stock of the Company is subject to limitations imposed by
federal and state law and the Optionee
<PAGE>
hereby agrees that the Company shall not be obligated to issue any shares of
Stock upon exercise of this Option that would cause the Company to violate law
or any rule, regulation, order or consent decree of any regulatory authority
(including without limitation the Securities and Exchange Commission) having
jurisdiction over the affairs of the Company. The Optionee agrees that he or she
will provide the Company with such information as is reasonably requested by the
Company or its counsel to determine whether the issuance of Stock complies with
the provisions described by this Section.
11. Restriction on Disposition of Shares. The shares purchased pursuant to
------------------------------------
the exercise of an Incentive Stock Option shall not be transferred by the
Optionee except pursuant to the Optionee's will or the laws of descent and
distribution until such date which is the later of two years after the grant of
such Incentive Stock Option or one year after the transfer of the shares to the
Optionee pursuant to the exercise of such Incentive Stock Option.
12. Miscellaneous.
-------------
(a) This Agreement shall be binding upon the parties hereto and their
representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be governed by
the laws of, the State of Georgia.
(c) Any requests or notices to be given hereunder shall be deemed given,
and any elections or exercises to be made or accomplished shall be deemed made
or accomplished, upon actual delivery thereof to the designated recipient, or
three days after deposit thereof in the United States mail, registered, return
receipt requested and postage prepaid, addressed, if to the Optionee, at the
address set forth below and, if to the Company, to the executive offices of the
Company.
(d) This Agreement may not be modified except in writing executed by each
of the parties hereto.
(e) THE OPTIONEE ACKNOWLEDGES THAT THIS OPTION AND ALL SHARES OF STOCK
ACQUIRED PURSUANT TO THE EXERCISE OF THIS OPTION ARE DEEMED TO BE "RESTRICTED
SECURITIES" AS DEFINED IN RULE 144 PROMULGATED PURSUANT TO THE SECURITIES ACT OF
1933 AND, THEREFORE, RESALE OF SUCH SHARES MUST BE MADE PURSUANT TO THE
REGISTRATION PROVISIONS OF SUCH ACT OR AN EXEMPTION THEREFROM.
<PAGE>
IN WITNESS WHEREOF, the Board of Directors of the Company has caused this
Stock Option Agreement to be executed on behalf of the Company and the Company's
seal to be affixed hereto and attested by the Secretary or an Assistant
Secretary of the Company, and the Optionee has executed this Stock Option
Agreement under seal, all as of the day and year first above written.
COMPANY:
DIRECT ACCESS INTERACTIVE, INC.
Attest:
By: /s/ Donny R. Jackson
- ----------------------------- ---------------------------------
Secretary Name: Donny R. Jackson
-------------------------------
[SEAL] Title: President/COO
------------------------------
OPTIONEE:
/s/ Glenn W. Sturm
-------------------------------------
Name: Glenn W. Sturm
-------------------------------
Address:
-----------------------------
-----------------------------
<PAGE>
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
DIRECT ACCESS INTERACTIVE, INC.
AND
Glenn W. Sturm
Dated July 1, 1999
1. Number of Shares Subject to Option: 21.25 shares of the Company's Common
----------------------------------
Stock
2. This Option (Check one) [ X ] is [ ] is not an Incentive Stock Option.
----------- -- --------------------------------
3. Option Exercise Price: $16,000 per share.
---------------------
4. Date of Grant: July 1, 1999
-------------
5. Option Vesting Schedule:
-----------------------
Check one:
( ) Options are exercisable with respect to all shares
( X ) Options are exercisable with respect to the number of shares
indicated below on or after the date indicated next to the
number of shares:
<TABLE>
<CAPTION>
No. of Shares Vesting Date
------------------------------------------------------------------------
<S> <C>
21.25 One third annually beginning on the first
anniversary of this agreement; 50% of unvested
options vest upon an initial public offering
------------------------------------------------------------------------
</TABLE>
6. Option Exercise Period:
----------------------
Options expire and are void unless exercised on or before June 30, 2009.
A-1
<PAGE>
SCHEDULE B
TO
STOCK OPTION AGREEMENT
BETWEEN
DIRECT ACCESS INTERACTIVE, INC.
AND
Glenn W. Sturm
Dated ____________________
NOTICE OF EXERCISE
The undersigned hereby notifies Direct Access Interactive, Inc. (the
"Company") of this election to exercise the undersigned's stock option to
purchase ________ shares of the Company's Common Stock, no par value (the
"Common Stock"), pursuant to the Stock Option Agreement (the "Agreement")
between the undersigned and the Company dated July 1, 1999. Accompanying this
Notice is (1) a certified or a cashier's check in the amount of
$________________ payable to the Company, and/or (2) _______________ shares of
the Company's Common Stock presently owned by the undersigned and duly endorsed
or accompanied by stock transfer powers, having an aggregate Fair Market Value
as of the date hereof of $__________________, such amounts being equal, in the
aggregate, to the purchase price per share set forth in Section 3 of the
Agreement multiplied by the number of shares being purchased hereby (in each
instance subject to appropriate adjustment pursuant to Section 6 of the
Agreement).
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this _____ day
of ___________, ____.
OPTIONEE [OR OPTIONEE'S
ADMINISTRATOR,
EXECUTOR OR PERSONAL
REPRESENTATIVE]
---------------------------------------
Name:
Position (if other than Optionee):
<PAGE>
EXHIBIT 10.4
DIRECT ACCESS INTERACTIVE, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), is entered into as of the 1st
day of July, 1999, by and between Direct Access Interactive, Inc., a Georgia
corporation (the "Company"), and John W. Collins (the "Optionee").
WHEREAS, the Board of Directors of the Company agreed as of July 1, 1999, to
grant the Optionee a stock option to purchase the number of shares of the
Company's Common Stock as set forth below;
WHEREAS, the Company and the Optionee desire to enter into a written agreement
with respect to such option.
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
parties hereto agree as follows.
1. Grant of Option. Subject to the terms, restrictions, limitations, and
---------------
conditions stated herein, the Company hereby evidences its grant to the Optionee
of the right and option (the "Option") to purchase all or any part of the number
of shares of the Company's Common Stock, no par value (the "Stock"), set forth
on Schedule A attached hereto and incorporated herein by reference. The Option
shall be exercisable in the amounts and at the time specified on Schedule A.
The Option shall expire and shall not be exercisable on the date specified on
Schedule A or on such earlier date as determined pursuant to this Agreement.
2. Purchase Price. The price per share to be paid by the Optionee for the
--------------
shares subject to this Option (the "Exercise Price") shall be as specified on
Schedule A.
3. Exercise Terms. The Optionee must exercise the Option for at least the
--------------
lesser of 100 shares or the number of shares of stock which may be purchased by
the Optionee under the terms of this Agreement as to which the Option remains
unexercised. If this Option is not exercised with respect to all or any part of
the shares subject to this Option prior to its expiration, the shares with
respect to which this Option was not exercised shall no longer be subject to
this Option.
4. Restrictions on Transferability. No Option shall be transferable by an
-------------------------------
Optionee other than by will or the laws of descent and distribution or pursuant
to a Qualified Domestic Relations Order (as defined in the Internal Revenue Code
of 1986, as amended (the "Code") or in the Employee Retirement Income Security
Act of 1974, as amended (the "Act"), or the rules and regulations promulgated
under the Code or the Act). During the lifetime of an Optionee, Options shall
be exercisable only by such Optionee (or by such Optionee's guardian or legal
representative, should one be appointed.
5. Notice of Exercise of Option. This Option may be exercised by the
----------------------------
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice of
Exercise attached hereto as Schedule B) signed by the Optionee, or by such
administrators, executors or personal representatives, and delivered or mailed
to the Company as specified in Section 12 hereof to the attention of the
President or such other officer as the Company may designate. Any such notice
shall (a) specify the number of shares of Stock which the Optionee or the
Optionee's administrators, executors or personal representatives, as the case
may be, then elects to purchase hereunder, (b) contain such information as may
be reasonably required by the Company, and (c) be accompanied by (i) a certified
or cashier's check payable to the Company in payment of the total Exercise Price
applicable to such shares as provided herein, (ii) shares of Stock owned by the
Optionee and duly endorsed or
<PAGE>
accompanied by stock transfer powers having a Fair Market Value (as determined
by the Board of Directors) equal to the total Exercise Price applicable to such
shares purchased hereunder, or (iii) a certified or cashier's check accompanied
by the number of shares of Stock whose Fair Market Value when added to the
amount of the check equals the total Exercise Price applicable to such shares
purchased hereunder. Upon receipt of any such notice and accompanying payment,
and subject to the terms hereof, the Company agrees to issue to the Optionee or
the Optionee's administrators, executors or personal representatives, as the
case may be, stock certificates for the number of shares specified in such
notice registered in the name of the person exercising this Option.
6. Adjustment in Option. The number of Shares subject to this Option, the
--------------------
Exercise Price and other matters are subject to adjustment during the term of
this Option as appropriate for stock splits, stock dividends, and similar
events.
7. Termination of Employment.
-------------------------
(a) Except as may otherwise be specified in Schedule A hereto, in the
event of the termination of the Optionee's employment with the Company or any of
its Subsidiaries, the Optionee may exercise this Option at any time within 30
days after such termination to the extent of the number of shares which were
purchasable hereunder at the date of such termination.
(b) Unless and to the extent otherwise provided in Schedule A hereto, in
the event of the retirement of the Optionee at the normal retirement date as
prescribed from time to time by the Company or any Subsidiary, the Optionee
shall continue to have the right to exercise any Options for shares which were
Purchasable at the date of the Optionee's retirement. This Option does not
confer upon the Optionee any right with respect to continuance of employment by
the Company or by any of its Subsidiaries. This Option shall not be affected by
any change of employment so long as the Optionee continues to be an employee of
the Company or one of its Subsidiaries.
8. Disabled Optionee. In the event of termination of employment because of
-----------------
the Optionee's becoming subject to a Permanent and Total Disability (as defined
by Section 22(e)(3) of the Code and any regulations or rulings promulgated
thereunder), the Optionee (or his or her personal representative) may exercise
this Option at any time within three months after such termination to the extent
of the number of shares which were purchasable hereunder at the date of such
termination.
9. Death of Optionee. Except as otherwise may be set forth in Schedule A with
-----------------
respect to the rights of the Optionee upon termination of employment under
Section 7 above, in the event of the Optionee's death while employed by the
Company or any of its Subsidiaries or within three months after a termination of
such employment, the appropriate persons described in Section 5 hereof or
persons to whom all or a portion of this Option is transferred in accordance
with Section 4 hereof may exercise this Option at any time within a period
ending on the earlier of (a) the last day of the three month period following
the Optionee's death or (b) the expiration date of this Option. If the Optionee
was an employee of the Company at the time of death, this Option may be so
exercised to the extent of the number of shares that were purchasable hereunder
at the date of death. If the Optionee's employment terminated prior to his or
her death, this Option may be exercised only to the extent of the number of
shares covered by this Option which were purchasable hereunder at the date of
such termination.
9. Date of Grant. This Option was granted by the Board of Directors of the
-------------
Company on the date set forth in Schedule A (the "Date of Grant").
10. Compliance with Regulatory Matters. The Optionee acknowledges that the
----------------------------------
issuance of capital stock of the Company is subject to limitations imposed by
federal and state law and the Optionee
<PAGE>
hereby agrees that the Company shall not be obligated to issue any shares of
Stock upon exercise of this Option that would cause the Company to violate law
or any rule, regulation, order or consent decree of any regulatory authority
(including without limitation the Securities and Exchange Commission) having
jurisdiction over the affairs of the Company. The Optionee agrees that he or she
will provide the Company with such information as is reasonably requested by the
Company or its counsel to determine whether the issuance of Stock complies with
the provisions described by this Section.
11. Restriction on Disposition of Shares. The shares purchased pursuant to
------------------------------------
the exercise of an Incentive Stock Option shall not be transferred by the
Optionee except pursuant to the Optionee's will or the laws of descent and
distribution until such date which is the later of two years after the grant of
such Incentive Stock Option or one year after the transfer of the shares to the
Optionee pursuant to the exercise of such Incentive Stock Option.
12. Miscellaneous.
-------------
(a) This Agreement shall be binding upon the parties hereto and their
representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be governed
by the laws of, the State of Georgia.
(c) Any requests or notices to be given hereunder shall be deemed given,
and any elections or exercises to be made or accomplished shall be deemed made
or accomplished, upon actual delivery thereof to the designated recipient, or
three days after deposit thereof in the United States mail, registered, return
receipt requested and postage prepaid, addressed, if to the Optionee, at the
address set forth below and, if to the Company, to the executive offices of the
Company.
(d) This Agreement may not be modified except in writing executed by
each of the parties hereto.
(e) THE OPTIONEE ACKNOWLEDGES THAT THIS OPTION AND ALL SHARES OF STOCK
ACQUIRED PURSUANT TO THE EXERCISE OF THIS OPTION ARE DEEMED TO BE "RESTRICTED
SECURITIES" AS DEFINED IN RULE 144 PROMULGATED PURSUANT TO THE SECURITIES ACT OF
1933 AND, THEREFORE, RESALE OF SUCH SHARES MUST BE MADE PURSUANT TO THE
REGISTRATION PROVISIONS OF SUCH ACT OR AN EXEMPTION THEREFROM.
<PAGE>
IN WITNESS WHEREOF, the Board of Directors of the Company has caused this
Stock Option Agreement to be executed on behalf of the Company and the Company's
seal to be affixed hereto and attested by the Secretary or an Assistant
Secretary of the Company, and the Optionee has executed this Stock Option
Agreement under seal, all as of the day and year first above written.
COMPANY:
DIRECT ACCESS INTERACTIVE, INC.
Attest:
By: /s/ Donny R. Jackson
- --------------------------- -------------------------------------
Secretary
Name: Donny R. Jackson
-----------------------------------
[SEAL]
Title: President/COO
-----------------------------------
OPTIONEE:
/s/ John W. Collins
----------------------------------------
Name:
-----------------------------------
Address:
--------------------------------
--------------------------------
<PAGE>
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
DIRECT ACCESS INTERACTIVE, INC.
AND
John W. Collins
Dated July 1, 1999
1. Number of Shares Subject to Option: 15.625 shares of the Company's Common
----------------------------------
Stock
2. This Option (Check one) [ X ] is [ ] is not an Incentive Stock Option.
----------- -- --------------------------------
3. Option Exercise Price: $16,000 per share.
---------------------
4. Date of Grant: July 1, 1999
-------------
5. Option Vesting Schedule:
-----------------------
Check one:
( ) Options are exercisable with respect to all shares
(X) Options are exercisable with respect to the number of shares
indicated below on or after the date indicated next to the
number of shares:
No. of Shares Vesting Date
- --------------------------------------------------------------------------
15.625 One third annually beginning on the first
anniversary of this agreement
- --------------------------------------------------------------------------
6. Option Exercise Period:
----------------------
Options expire and are void unless exercised on or before June 30, 2009.
A-1
<PAGE>
SCHEDULE B
TO
STOCK OPTION AGREEMENT
BETWEEN
DIRECT ACCESS INTERACTIVE, INC.
AND
John W. Collins
Dated ____________________
NOTICE OF EXERCISE
The undersigned hereby notifies Direct Access Interactive, Inc. (the
"Company") of this election to exercise the undersigned's stock option to
purchase ________ shares of the Company's Common Stock, no par value (the
"Common Stock"), pursuant to the Stock Option Agreement (the "Agreement")
between the undersigned and the Company dated July 1, 1999. Accompanying this
Notice is (1) a certified or a cashier's check in the amount of
$________________ payable to the Company, and/or (2) _______________ shares of
the Company's Common Stock presently owned by the undersigned and duly endorsed
or accompanied by stock transfer powers, having an aggregate Fair Market Value
as of the date hereof of $__________________, such amounts being equal, in the
aggregate, to the purchase price per share set forth in Section 3 of the
Agreement multiplied by the number of shares being purchased hereby (in each
instance subject to appropriate adjustment pursuant to Section 6 of the
Agreement).
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this _____ day
of ___________, ____.
OPTIONEE [OR OPTIONEE'S
ADMINISTRATOR,
EXECUTOR OR PERSONAL
REPRESENTATIVE]
------------------------------------------
Name:
Position (if other than Optionee):
<PAGE>
EXHIBIT 10.5
Direct Access Interactive, Inc.
1999 Stock Option and Incentive Plan
Form of Stock Option Agreement
DIRECT ACCESS INTERACTIVE, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into as of this 5th
day of August, 1999, by and between Direct Access Interactive, Inc., a Georgia
corporation (the "Company"), and Richard S. Eiswirth Jr. (the "Optionee").
WHEREAS, the Board of Directors and shareholders of the Company have adopted a
Stock Option and Incentive Plan known as the "Direct Access Interactive, Inc.
1999 Stock Option and Incentive Plan" (the "Plan"); and
WHEREAS, the Committee has granted the Optionee a stock option to purchase the
number of shares of the Company's common stock as set forth below, and in
consideration of the granting of that stock option the Optionee intends to
remain in the employ of the Company; and
WHEREAS, the Company and the Optionee desire to enter into a written agreement
with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an employment incentive and to encourage stock ownership,
and also in consideration of the mutual covenants contained herein, the parties
hereto agree as follows.
1. Incorporation of Plan. This option is granted pursuant to the provisions
---------------------
of the Plan, and the terms and definitions of the Plan are incorporated into
this Agreement by reference and made a part of this Agreement. The Optionee
acknowledges receipt of a copy of the Plan.
2. Grant of Option. Subject to the terms, restrictions, limitations and
---------------
conditions stated in this Agreement, the Company hereby evidences its grant to
the Optionee, not in lieu of salary or other compensation, of the right and
option (the "Option") to purchase all or any part of the number of shares of the
Company's Common Stock, no par value per share (the "Stock"), set forth on
Schedule A attached and incorporated into this Agreement by reference. The
Option shall be exercisable in the amounts and at the time(s) specified on
Schedule A. The Option shall expire and shall not be exercisable on the date
specified on Schedule A or on such earlier date as determined pursuant to
Section 8, 9, or 10 of this Agreement. Schedule A states whether the Option is
intended to be an Incentive Stock Option.
3. Purchase Price. The price per share to be paid by the Optionee for the
--------------
shares subject to this Option (the "Exercise Price") shall be as specified on
Schedule A, which price shall be an amount not less than the Fair Market Value
of a share of Stock as of the Date of Grant (as defined in Section 11 below) if
the Option is an Incentive Stock Option.
<PAGE>
4. Exercise Terms. The Optionee must exercise the Option for at least the
--------------
lesser of 100 shares or the number of shares of Purchasable Stock as to which
the Option remains unexercised. If this Option is not exercised with respect to
all or any part of the shares subject to this Option prior to its expiration,
the shares with respect to which this Option was not exercised shall no longer
be subject to this Option.
5. Option Non-Transferable. Unless otherwise provided in this Agreement, no
-----------------------
Option shall be transferable by an Optionee other than by will or the laws of
descent and distribution or, in the case of non-Incentive Stock Options,
pursuant to a Qualified Domestic Relations Order. During the lifetime of an
Optionee, Options shall be exercisable only by such Optionee (or by such
Optionee's guardian or legal representative, should one be appointed).
6. Notice of Exercise of Option. This Option may be exercised by the
----------------------------
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice of
Exercise attached to this Agreement as Schedule B) signed by the Optionee, or by
such administrators, executors or personal representatives, and delivered or
mailed to the Company as specified in Section 14 below to the attention of the
President, Chief Executive Officer or such other officer as the President or
Chief Executive Officer may designate. Any such notice shall (a) specify the
number of shares of Stock which the Optionee or the Optionee's administrators,
executors or personal representatives, as the case may be, then elects to
purchase hereunder, (b) contain such information as may be reasonably required
pursuant to Section 12 below, and (c) be accompanied by (i) a certified or
cashier's check payable to the Company in payment of the total Exercise Price
applicable to such shares as provided herein, (ii) shares of Stock owned by the
Optionee and duly endorsed or accompanied by stock transfer powers having a Fair
Market Value equal to the total Exercise Price applicable to such shares
purchased under this Agreement, or (iii) a certified or cashier's check
accompanied by the number of shares of Stock whose Fair Market Value when added
to the amount of the check equals the total Exercise Price applicable to the
shares being purchased under this Agreement. Upon receipt of any such notice
and accompanying payment, and subject to the terms hereof, the Company agrees to
issue to the Optionee or the Optionee's administrators, executors or personal
representatives, as the case may be, stock certificates for the number of shares
specified in such notice registered in the name of the person exercising this
Option.
7. Adjustment in Option. The number of Shares subject to this Option, the
--------------------
Exercise Price and other matters are subject to adjustment during the term of
this Option in accordance with Section 5.2 of the Plan.
<PAGE>
8. Termination of Employment.
-------------------------
(a) Except as otherwise specified in Schedule A to this Agreement, in the
event of the termination of the Optionee's employment with the Company or any of
its Subsidiaries, other than a termination that is either (i) for cause, (ii)
voluntary on the part of the Optionee and without written consent of the
Company, or (iii) for reasons of death or disability or retirement, the Optionee
may exercise this Option at any time within 30 days after such termination to
the extent of the number of shares which were Purchasable hereunder at the date
of such termination.
(b) Except as specified in Schedule A attached hereto, in the event of a
termination of the Optionee's employment that is either (i) for cause or (ii)
voluntary on the part of the Optionee and without the written consent of the
Company, this Option, to the extent not previously exercised, shall terminate
immediately and shall not thereafter be or become exercisable.
(c) Unless and to the extent otherwise provided in Schedule A hereto, in the
event of the retirement of the Optionee at the normal retirement date as
prescribed from time to time by the Company or any Subsidiary, the Optionee
shall continue to have the right to exercise any Options for shares which were
Purchasable at the date of the Optionee's retirement. Notwithstanding the
foregoing, the Options will become void and unexercisable on the date which is
three months after the date of retirement unless on (or effective as of) the
date of retirement the Optionee enters into a noncompete agreement with the
Company and continues to comply with such noncompete agreement. This Option
does not confer upon the Optionee any right with respect to continuance of
employment by the Company or by any of its Subsidiaries. This Option shall not
be affected by any change of employment so long as the Optionee continues to be
an employee of the Company or one of its Subsidiaries.
9. Disabled Optionee. In the event of termination of employment because of
-----------------
the Optionee's Permanent and Total Disability, the Optionee (or his or her
personal representative) may exercise this Option, within a period ending on the
earlier of (a) the last day of the one year period following the Optionee's
death or (b) the expiration date of this Option, to the extent of the number of
shares which were Purchasable under this Agreement at the date of such
termination.
10. Death of Optionee. Except as otherwise set forth in Schedule A with
-----------------
respect to the rights of the Optionee upon termination of employment under
Section 8(a) above, in the event of the Optionee's death while employed by the
Company or any of its Subsidiaries or within three months after a termination of
such employment (if such termination was neither (i) for cause nor (ii)
voluntary on the part of the Optionee and without the written consent of the
Company), the appropriate persons described in Section 6 of this Agreement or
persons to whom all or a portion of this Option is transferred in accordance
with Section 5 of this Agreement may exercise this Option at any time within a
period ending on the earlier of (a) the last day of the one year period
following the Optionee's death or (b) the expiration date of this Option. If
the Optionee was an employee of the Company at the time of death, this Option
may be so exercised to the extent of the number of shares that were Purchasable
under this Agreement at the date of death. If the Optionee's employment
terminated prior to his or her death, this Option may be exercised only
<PAGE>
to the extent of the number of shares covered by this Option which were
Purchasable under this Agreement at the date of such termination.
11. Date of Grant. This Option was granted by the Committee on the date set
-------------
forth in Schedule A (the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges that the
----------------------------------
issuance of capital stock of the Company is subject to limitations imposed by
federal and state law, and the Optionee hereby agrees that the Company shall not
be obligated to issue any shares of Stock upon exercise of this Option that
would cause the Company to violate law or any rule, regulation, order or consent
decree of any regulatory authority (including without limitation the SEC) having
jurisdiction over the affairs of the Company. The Optionee agrees that he or
she will provide the Company with such information as is reasonably requested by
the Company or its counsel to determine whether the issuance of Stock complies
with the provisions described by this Section 12.
13. Restriction on Disposition of Shares. The shares purchased pursuant to
------------------------------------
the exercise of an Incentive Stock Option shall not be transferred by the
Optionee except pursuant to the Optionee's will, or the laws of descent and
distribution, until such date which is the later of two years after the grant of
such Incentive Stock Option or one year after the transfer of the shares to the
Optionee pursuant to the exercise of such Incentive Stock Option.
14. Miscellaneous.
-------------
(a) This Agreement shall be binding upon the parties hereto and their
representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be governed by the
laws of, the State of Georgia.
(c) Any requests or notices to be given hereunder shall be deemed given, and
any elections or exercises to be made or accomplished shall be deemed made or
accomplished, upon actual delivery thereof to the designated recipient, or three
days after deposit thereof in the United States mail, registered, return receipt
requested and postage prepaid, addressed, if to the Optionee, at the address set
forth below and, if to the Company, to the executive offices of the Company at
3150 Holcomb Bridge Road, Suite 200, Norcross, Georgia, 30071, or at such other
addresses that the parties provide to each other in accordance with the
foregoing notice requirements.
(d) This Agreement may not be modified except in writing executed by each of
the parties to it.
<PAGE>
IN WITNESS WHEREOF, the Committee has caused this Stock Option Agreement to be
executed on behalf of the Company, and the Optionee has executed this Stock
Option Agreement, all as of the day and year first above written.
DIRECT ACCESS INTERACTIVE, INC. OPTIONEE
By: /s/ Donny R. Jackson /s/ Richard S. Eiswirth Jr.
----------------------------- --------------------------------------
Name: Donny R. Jackson Name: Richard S. Eiswirth Jr.
------------------------- Address: 8205 Brookwood Valley Circle
Title: President/COO Atlanta, GA 30309
------------------------
A-5
<PAGE>
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
DIRECT ACCESS INTERACTIVE, INC.
AND
Richard S. Eiswirth Jr.
Dated: August 5, 1999
1. Number of Shares Subject to Option: 200,000 Shares.
----------------------------------
2. This Option (Check one) [ X ] is [ ] is not an Incentive Stock Option.
----------- -- --------------------------------
3. Option Exercise Price: $3.11 per Share.
---------------------
4. Date of Grant: August 5, 1999
-------------
5. Option Vesting Schedule:
-----------------------
Check one:
( ) Options are exercisable with respect to all shares on or
after the date hereof
( X ) Options are exercisable with respect to the number of shares
indicated below on or after the date indicated next to the
number of shares:
<TABLE>
<CAPTION>
No. of Shares Vesting Date
--------------------------------------------------------------------
<C> <S>
50,000 On the date of this agreement.
--------------------------------------------------------------------
150,000 One third annually beginning on the first
anniversary of this agreement; 50% of
unvested options vest upon an initial public
offering
-------------------------------------------------------------------
</TABLE>
<PAGE>
6. Option Exercise Period:
----------------------
Check One:
( X ) All options expire and are void unless exercised on or
before August 5, 2009.
( ) Options expire and are void unless exercised on or before
the date indicated next to the number of shares:
No. of Shares Expiration Date
------------- ---------------
7. Effect of Termination of Employment of Optionee (if different from that set
-----------------------------------------------
forth in Sections 8 and 10 of the Stock Option Agreement):
<PAGE>
SCHEDULE B
TO
STOCK OPTION AGREEMENT
BETWEEN
DIRECT ACCESS INTERACTIVE, INC.
AND
Richard S. Eiswirth Jr.
Dated: August 5, 1999
NOTICE OF EXERCISE
The undersigned hereby notifies Direct Access Interactive, Inc. (the
"Company") of this election to exercise the undersigned's stock option to
purchase 30,000 shares of the Company's common stock, no par value per share
(the "Common Stock"), pursuant to the Stock Option Agreement (the "Agreement")
between the undersigned and the Company dated August 5, 1999. Accompanying this
Notice is (1) a promissory note in the amount of $93,300 payable to the Company,
and/or (2) __________ shares of the Company's Common Stock presently owned by
the undersigned and duly endorsed or accompanied by stock transfer powers,
having an aggregate Fair Market Value (as defined in the Company's 1999 Stock
Option and Incentive Plan (the "Plan")) as of the date hereof of
$_______________, and/or (3) authorization to withhold __________ shares of
Stock otherwise issuable upon exercise of the Option having an aggregate Fair
Market Value (as defined in the Plan) as of the date hereof of $_______________,
with such shares of Stock that are withheld being credited against the Exercise
Price, such amounts of (1), (2) and (3) being equal, in the aggregate, to the
purchase price per share set forth in Section 3 of the Agreement multiplied by
the number of shares being purchased hereby (in each instance subject to
appropriate adjustment pursuant to Section 5.2 of the Plan).
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this 5th day of
August, 1999.
Richard S. Eiswirth Jr.
------------------------------------
Name:
------------------------------
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into by
and between NETZEE, INC., a Georgia corporation (the "Company"), and GLENN W.
STURM, an individual resident of the State of Georgia (the "Executive"), to be
effective as of the 1/st/ day of September, 1999 (the "Effective Date").
The Company presently employs the Executive as its Chief Executive Officer.
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the growth and success of the Company is
substantial. The Board desires to provide for the continued employment of the
Executive and to make certain changes in the Executive's employment arrangements
that the Board believes will reinforce and encourage the continued dedication of
the Executive to the Company and will promote the best interests of the Company
and its shareholders. The Executive is willing to continue to serve the Company
on the terms and conditions provided herein.
Defined Terms: Capitalized terms used in this Agreement that are not otherwise
- -------------
defined herein are defined at Section 20 hereof.
1. Employment. The Company shall continue to employ the Executive, and the
----------
Executive shall continue to serve the Company, as Chief Executive
Officer of the Company, upon the terms and conditions set forth herein.
The Executive shall be the only Chief Executive Officer of the Company
and shall be the most senior officer of the Company. The Executive shall
have such authority and responsibilities as are consistent with his
position as provided herein and as may be set forth in the Bylaws or
assigned by the Board from time to time. The Executive shall report to
the Board.
The Executive shall devote his full business time, attention, skill, and
efforts to the performance of his duties hereunder, except during
periods of illness or periods of vacation and leaves of absence
consistent with Company policy. Notwithstanding anything to the
contrary, this employment relationship between the Executive and the
Company shall not be exclusive. In this regard, the Executive may devote
reasonable periods of time (and be exclusively entitled to all
compensation and other income related thereto) to continue to provide
legal and other consulting services, to serve as a director or advisor
to other organizations, to perform charitable and other community
activities, and to manage his personal investments; provided, however,
that such activities do not materially interfere with the performance of
his duties hereunder and are not adverse to the interests of the
Company.
1
<PAGE>
Unless otherwise agreed to by the Executive, the Executive shall be
headquartered at the Company's offices in and around the metropolitan
area of Atlanta, Georgia, but shall do such traveling as is reasonably
required of him in the performance of his duties.
2. Term. Unless earlier terminated as provided herein, the Executive's
----
employment under this Agreement shall commence as of the Effective Date
and shall continue for a period of two (2) years (the "Initial Term");
provided, however, the Company may extend the Initial Term for another
two (2) years (the "Extended Term") upon (i) written notice to the
Executive on or before January 15, 2001, and (ii) a minimum of a seven
percent (7%) increase to the Executive's then existing base salary (as
described at Section 3.a. below). (The Initial Term and the Extended
Term shall be individually and collectively referred to herein as the
"Term.")
3. Compensation and Benefits.
-------------------------
a. The Company shall pay to the Executive a base salary at a rate of
not less than $250,000 per annum, in accordance with the salary
payment practices of the Company in effect from time to time.
On or before each September 1/st/ of the Term (beginning
September 1, 2000) the Compensation Committee (or in the absence
thereof, the Board with Executive abstaining) shall review the base
salary of the Executive and increase (but not decrease) such base
salary by an amount determined in the discretion of the Compensation
Committee (or in the absence thereof, the Board with Executive
abstaining).
b. For each year of the Term, the Executive shall be eligible to
participate in any management incentive programs established by the
Company and to receive incentive compensation based upon achievement
of targeted levels of performance and such other criteria as the
Compensation Committee (or in the absence thereof, the Board with
Executive abstaining) may establish from time to time. In addition,
the Compensation Committee (or in the absence thereof, the Board
with Executive abstaining) shall annually consider (on or before
each September 1/st/) the Executive's performance and determine if
additional bonus is appropriate.
c. The Executive may participate in any executive stock incentive
plans established by the Company from time to time and shall be
eligible for the grant of stock options, stock, and/or other awards
provided thereunder (collectively, "Options"). Additionally, the
Compensation Committee (or in the absence thereof, the Board with
Executive abstaining) shall annually consider (on or before each
September 1/st/) the Executive's performance and
2
<PAGE>
determine if additional grants of Options are appropriate.
d. The Executive shall continue to participate in all retirement,
welfare, deferred compensation, life and health insurance (including
health insurance for Executive's spouse and his dependents), and
other benefit plans or programs of the Company now or hereafter
applicable to the Executive or applicable generally to executives of
the Company or to a class of executives that includes senior
executives of the Company; provided, however, that during any period
during the Term that the Executive is subject to a Disability, and
during the 180-day period of physical or mental infirmity leading up
to the Executive's Disability, the amount of the Executive's
compensation provided under Section 3.a. shall be reduced by the sum
of the amounts, if any, paid to the Executive for the same period
under any disability benefit or pension plan of the Company or any
of its subsidiaries.
e. The Company shall provide to the Executive an automobile owned or
leased by the Company of a make and model appropriate to the
Executive's status (in the reasonable business judgment of the
Executive) or, in lieu thereof at the Executive's option, shall
provide the Executive with an monthly allowance of not less than
$1,250 to partially cover the cost of an automobile owned or leased
by the Executive.
f. The Executive shall be entitled to four (4) weeks paid vacation (in
addition to Company-wide holiday periods) each year during the Term,
to be taken in accordance with the Company's vacation policies for
executives, as in effect from time to time.
g. The Company shall reimburse the Executive's expenses for dues and
capital assessments (but not initiation fees) of one (1) country and
(1) dining club membership currently held (or to be held) by the
Executive; provided, however, that if the Executive during the term
of his employment with the Company ceases his membership in any such
clubs and any bonds or other capital payments made by the Company
are repaid to the Executive, the Executive shall pay over such
payments to the Company.
h. The Company shall reimburse the Executive for first-class travel
and accommodations, seminar, and other expenses related to the
Executive's duties which are incurred and accounted for in
accordance with the practices of the Company, as in effect from time
to time. Further, the Company shall reimburse the Executive for all
fees, dues, seminars (including travel and lodging) and other
related costs and expenses reasonably required by the Executive to
maintain his status as an active (or inactive, in the Executive's
discretion) lawyer in each state that the Executive is, or may be,
admitted.
3
<PAGE>
In the Executive's reasonable discretion, the Executive shall be
entitled to personal use of assets of the Company, free of charge or
assessment, whether or not such personal use is separate or in
conjunction with a business purpose.
i. The Company agrees that the Executive shall be entitled to invest
in venture capital and similar investments whether or not the
Company also participates in such investments.
4. Termination.
-----------
a. The Executive's employment under this Agreement may be terminated
prior to the end of the Initial Term, or if extended, the Extended
Term, only as follows:
(i) upon the death of the Executive;
(ii) by the Company due to the Disability of the Executive upon
delivery of a Notice of Termination to the Executive;
(iii) by the Company for Cause upon delivery of a Notice of
Termination to the Executive;
(iv) by the Company without Cause upon delivery of a Notice of
Termination;
(v) following a Change in Control, by the Executive for any
reason upon delivery of a Notice of Termination to the
Company within a 90-day period beginning on the 30/th/ day
after any occurrence of a Change in Control or within a
90-day period beginning on the one year anniversary of the
occurrence of any Change in Control; and
(vi) by the Executive upon a material breach of this Agreement by
the Company, upon delivery of a Notice of Termination to the
Company at least thirty (30) days prior to the Termination
Date and chance to cure therein.
b. If the Executive's employment with the Company shall be
terminated during the Term (i) by reason of the Executive's death,
or (ii) by the Company for Disability or Cause, the Company shall
pay to the Executive (or in the case of his death, the Executive's
estate) within 15 days after the Termination Date, a lump sum cash
payment equal to the Accrued Compensation and, if such termination
is other than by the Company for Cause, the Pro Rata Bonus.
4
<PAGE>
c. If the Executive's employment with the Company shall be
terminated during the Term pursuant to Sections 4.a. (iv), (v),
or (vi), the Executive shall be entitled to all of the following:
(i) the Company shall pay to the Executive in cash, as a lump-
sum, within 15 days of the Termination Date, an amount equal
to all Accrued Compensation and the Pro Rata Bonus;
(ii) the Company shall pay to the Executive in cash, as a lump-
sum, within 15 days of the Termination Date, an amount equal
to the base salary (as described in Section 3.a.), then in
effect, that would otherwise have been payable to the
Executive during the Term if such Term was not earlier
terminated; provided, however, if the otherwise remaining Term
is less than 365 days, such remaining Term shall automatically
be deemed to be 365 days;
(iii) the Company shall pay to the Executive in cash, as a lump-
sum, within 15 days of the Termination Date an amount equal
to the product of the Bonus Amount, multiplied by the number
of months that were otherwise remaining in the Term, divided
by 12;
(iv) the Company shall pay to the Executive in cash, as a lump-
sum, within 15 days of the Termination Date, an amount equal
to those amounts described in Sections 3.e. and 3.g. that
would have otherwise been payable during the Term if such Term
was not earlier terminated;
(v) for the period from the Termination Date through the date
that the Executive attains the age of 65 (the "Continuation
Period"), the Company shall at its expense continue on behalf
of the Executive and his dependents and beneficiaries the life
insurance, disability, medical, dental, and hospitalization
benefits provided (x) to the Executive at any time during the
90-day period prior to the Termination Date or at any time
thereafter or (y) to other similarly situated executives who
continue in the employ of the Company during the Continuation
Period, if permitted, in either case, by the applicable
benefit plan; provided, however, if such applicable benefit
plans do not permit the Company to continue such coverage and
benefits to the Executive, then the Company shall periodically
reimburse, or pay on behalf of, the Executive to maintain such
benefits and coverage from other sources. The coverage and
benefits (including deductibles and costs) provided in this
Section 4(c)(v) during the Continuation Period shall be no
less favorable to the
5
<PAGE>
Executive and his dependents and beneficiaries than the most
favorable of such coverages and benefits during any of the
periods referred to in clauses (x) and (y) above. The
Company's obligation hereunder with respect to the foregoing
benefits shall be limited to the extent that the Executive
obtains any such benefits pursuant to a subsequent employer's
benefit plans or Medicare, in which case the Company may
reduce the coverage of any benefits it is required to provide
the Executive hereunder as long as the aggregate coverages and
benefits of the combined benefit plans is no less favorable to
the Executive than the coverages and benefits required to be
provided hereunder. This subsection (v) shall not be
interpreted so as to limit any benefits to which the Executive
or his dependents or beneficiaries may be entitled under any
of the Company's executive benefit plans, programs or
practices following the Executive's termination of employment,
including without limitation, retiree medical and life
insurance benefits;
(vi) the restrictions on any outstanding incentive awards
(including the Options) granted to the Executive under any
Company plan or arrangement shall lapse and such incentive
award shall become 100% vested, and all Options and stock
appreciation rights granted to the Executive by the Company
shall become immediately exercisable and shall become 100%
vested; and
(vii) upon a Termination Date occurring prior to the earlier of
(A) an Initial Public Offering, or (B) the date in which the
Company becomes subject to the reporting requirements set
forth in the Securities Exchange Act of 1934, the Company
shall, within 15 days after the Termination Date, offer to
repurchase all of the Company's capital stock and other debt
and securities of the Company (collectively, the "Company
Equity") then owned by the Executive, at a purchase price
equal to the Fair Market Value of such Company Equity, as
determined in accordance with the provisions below. The
question of the Fair Market Value of the Company Equity shall
be submitted to three impartial and reputable appraisers. The
Executive and the Company shall each select one appraiser, and
such appraisers shall select a third, independent appraiser.
The three appraisers shall thereafter proceed as expeditiously
as possible to determine (by concurrence of a majority of such
appraisers) the Fair Market Value of the Company Equity, and
the appraisers shall deliver an appraisal report to the
Executive and the Company as soon as practicable after it is
completed. The determination of the question of the Fair
Market Value of the Company Equity by such appraisers shall be
final and binding on the Executive and the Company for
purposes of this
6
<PAGE>
Agreement. The Company shall pay the reasonable fees and
expenses of such appraisers. For the purposes hereof, "Fair
Market Value" shall mean the relevant percentage of the fair
value of the business of the Company represented by the
Company Equity as to which such determination is being made,
which shall be determined on a going concern basis and as
between a willing seller and a willing buyer, taking into
account the Company's financial condition, performance, market
share and other relevant criteria, but not taking into account
the absence of a public market for the shares or that the
shares constitute a minority interest in the Company.
d. The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment
or otherwise, and no such payment shall be offset nor reduced by the
amount of any compensation or benefits provided to the Executive in
any subsequent employment except as provided in Section 4(c)(v).
e. In the event that any payment or benefit (within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended
(the "Code")) to the Executive or for his benefit paid or payable or
distributed or distributable pursuant to the terms of this Agreement
or otherwise in connection with, or arising out of, his employment
with the Company or a change in ownership or effective control of
the Company or of a substantial portion of its assets ( a "Payment"
or "Payments"), would be subject to the excise tax imposed by
Section 4999 of the Code and/or any interest or penalties are
incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the
Executive shall promptly receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of
all taxes (including any interest or penalties, other than interest
and penalties imposed by reason of the Executive's failure to file
timely a tax return or pay taxes shown due on his return, imposed
with respect to such taxes and the Excise Tax, including any Excise
Tax imposed upon the Gross-Up Payment, the Executive would retain an
amount equal to such original payment or benefit.
f. The severance pay and benefits provided for in this Section 4
shall be in lieu of any other severance or termination pay to which
the Executive may be entitled under any Company severance or
termination plan, program, practice or arrangement. The Executive's
entitlement to any other compensation or benefits shall be
determined in accordance with the Company's executive benefit plans
and other applicable programs, policies and practices then in
effect.
7
<PAGE>
5. Protection of Trade Secrets and Confidential Information.
--------------------------------------------------------
a. Through exercise of his rights and performance of his obligations
under this Agreement, Executive will be exposed to "Trade Secrets"
and "Confidential Information" (as those terms are defined below).
"Trade Secrets" shall mean information or data or of about the
Company or any affiliated entity, including, but not limited to,
technical or nontechnical data, formulas, patterns, compilations,
programs, devices, methods, techniques, drawings, processes,
financial data, financial plans, products plans, or lists of actual
or potential customers, clients, distributors, or licensees, that:
(i) derive economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from their
disclosure or use; and (ii) are the subject of efforts that are
reasonable under the circumstances to maintain their secrecy. To
the extent that the foregoing definition is inconsistent with a
definition of "trade secret" mandated under applicable law, the
latter definition shall govern for purposes of interpreting
Executive's obligations under this Agreement. Except as required to
perform his obligations under this Agreement or except with
Company's prior written permission, Executive shall not use,
redistribute, market, publish, disclose or divulge to any other
person or entity any Trade Secrets of the Company. The Executive's
obligations under this provision shall remain in force (during and
after the Term) for so long as such information or data shall
continue to constitute a "trade secret" under applicable law.
Executive agrees to cooperate with any and all confidentiality
requirements of the Company and Executive shall immediately notify
the Company of any unauthorized disclosure or use of any Trade
Secrets of which Executive becomes aware.
b. The Executive agrees to maintain in strict confidence and, except
as necessary to perform his duties for the Company, not to use or
disclose any Confidential Business Information at any time during
the term of his employment and for a period of one year after the
later of (i) the Executive's last date of employment and (ii) the
last day of the period with respect to which the Executive received
compensation by reason of his termination of employment.
"Confidential Business Information" shall mean any non-public
information of a competitively sensitive or personal nature, other
than Trade Secrets, acquired by the Executive, directly or
indirectly, in connection with the Executive's employment (including
his employment with the Company prior to the date of this
Agreement), including (without limitation) oral and written
information concerning the Company or its affiliates relating to
financial position and results of operations (revenues, margins,
assets, net income, etc.), annual and long-range business plans,
marketing plans and methods, account invoices, oral or written
customer information, and personnel information. Confidential
Business Information also includes
8
<PAGE>
information recorded in manuals, memoranda, projections, minutes,
plans, computer programs, and records, whether or not legended or
otherwise identified by the company and its affiliates as
Confidential Business Information, as well as information that is
the subject of meetings and discussions and not so recorded;
provided, however, that Confidential Business Information shall not
include information that is generally available to the public, other
than as a result of disclosure, directly or indirectly, by the
Executive, or was available to the Executive on a non-confidential
basis prior to its disclosure to the Executive.
c. Upon termination of employment, the Executive shall leave with
the Company all business records relating to the Company and its
affiliates including, without limitation, all contracts, calendars,
and other materials or business records concerning its business or
customers, including all physical, electronic, and computer copies
thereof, whether or not the Executive prepared such materials or
records himself. Upon such termination, the Executive shall retain
no copies of any such materials.
d. As set forth above, the Executive shall not disclose Trade
Secrets or Confidential Business Information. However, nothing in
this provision shall prevent the Executive from disclosing Trade
Secrets or Confidential Business Information pursuant to a court
order or court-issued subpoena, so long as the Executive first
notifies (unless such notice is impracticable or impossible) the
Company of said order or subpoena in sufficient time to allow the
Company to seek an appropriate protective order. The Executive
agrees that if he receives any formal or informal discovery request,
court order, or subpoena requesting that he disclose Trade Secrets
or Confidential Business Information, he will immediately notify the
Company and provide the Company with a copy of said request, court
order, or subpoena.
6. Non-Solicitation and Related Matters.
------------------------------------
a. If the Executive is terminated for Cause or if the Executive
resigns without Adequate Justification, then for a period of two
years following the date of termination, the Executive shall not
(except on behalf of or with the prior written consent of the
Company) either directly or indirectly, on the Executive's own
behalf or in the service or on behalf of others, (i) solicit,
divert, or appropriate to or for a Competing Business, or (ii)
attempt to solicit, divert, or appropriate to or for a Competing
Business, any person or entity that was a customer or prospective
customer of the Company on the date of termination and with whom the
Executive had direct material contact within twelve months of the
Executive's last date of employment.
b. If the Executive is terminated for Cause or if the Executive
resigns without
9
<PAGE>
Adequate Justification, then for a period of two years following the
date of termination, the Executive shall not, either directly or
indirectly, on the Executive's own behalf or in the service or on
behalf of others, (i) solicit, divert, or hire away, or (ii) attempt
to solicit, divert, or hire away any employee of, or consultant to,
the Company or any of its affiliates engaged or experienced in the
Business, regardless of whether the employee or consultant is full-
time or temporary, the employment or engagement is pursuant to
written agreement, or the employment is for a determined period or
is at will.
c. The Executive acknowledges and agrees that great loss and
irreparable damage would be suffered by the Company if the Executive
should breach or violate any of the terms or provisions of the
covenants and agreements set forth in this Section 6. The Executive
further acknowledges and agrees that each of these covenants and
agreements is reasonably necessary to protect and preserve the
interests of the Company. The parties agree that money damages for
any breach of clauses (a) and (b) of this Section 6 will be
insufficient to compensate for any breaches thereof, and that the
Executive or any of the Executive's affiliates, as the case may be,
will, to the extent permitted by law, waive in any proceeding
initiated to enforce such provisions any claim or defense that an
adequate remedy at law exists. The existence of any claim, demand,
action, or cause of action against the Company, whether predicated
upon this Agreement or otherwise, shall not constitute a defense to
the enforcement by the Company of any of the covenants or agreements
in this Agreement; provided, however, that nothing in this Agreement
shall be deemed to deny the Executive the right to defend against
this enforcement on the basis that the Company has no right to its
enforcement under the terms of this Agreement.
d. The Executive acknowledges and agrees that: (i) the covenants and
agreements contained in clauses (a) through (e) of this Section 6
are the essence of this Agreement; (ii) that the Executive has
received good, adequate and valuable consideration for each of these
covenants; and (iii) each of these covenants is reasonable and
necessary to protect and preserve the interests and properties of
the Company. The Executive also acknowledges and agrees that: (i)
irreparable loss and damage will be suffered by the company should
the Executive breach any of these covenants and agreements; (ii)
each of these covenants and agreements in clauses (a) and (b) of
this Section 6 is separate, distinct and severable not only from the
other covenants and agreements but also from the remaining
provisions of this Agreement; and (iii) the unenforceability of any
covenants or agreements shall not affect the validity or
enforceability of any of the other covenants or agreements or any
other provision or provisions of this Agreement. The Executive
acknowledges and agrees that if any of the provisions of clauses
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<PAGE>
(a) and (b) of this Section 6 shall ever be deemed to exceed the
time, activity, or geographic limitations permitted by applicable
law, then such provisions shall be and hereby are reformed to the
maximum time, activity, or geographical limitations permitted by
applicable law.
e. The Executive and the Company hereby acknowledge that it may be
appropriate from time to time to modify the terms of this Section 6
and the definition of the term "Business" to reflect changes in the
Company's business and affairs so that the scope of the limitations
placed on the Executive's activities by this Section 6 accomplishes
the parties' intent in relation to the then current facts and
circumstances. Any such amendment shall be effective only when
completed in writing and signed by the Executive and the Company.
7. Successors; Binding Agreement.
-----------------------------
a. This Agreement shall be binding upon and shall inure to the
benefit of the Company, its Successors and Assigns and the Company
shall require any Successors and Assigns to expressly assume and
agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession or assignment had taken place.
b. Neither this Agreement not any right or interest hereunder shall
be assignable or transferable by the Executive, his beneficiaries or
legal representatives, except by will or by the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.
8. Fees and Expenses. The Company shall pay all reasonable legal fees
-----------------
and related expenses (including but not limited to the costs of experts,
accountants and counsel) incurred by the Executive as they become due as
a result of any of the following: (a) the preparation, negotiation,
counsel, and execution of this Agreement; (b) the termination of the
Executive's employment (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination of employment);
or (c) the Executive seeking to obtain or enforce any right or benefit
provided by this Agreement.
9. Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in this Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly
given when personally delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed to the respective
addresses last given by each party to the other; provided, however, that
-----------------
all notices to the Company shall be directed to the attention of the
Chairman of Board
11
<PAGE>
with a copy to the Secretary of the Company. All notices and
communications shall be deemed to have been received on the date of
delivery thereof.
10. Settlement of Claim. The Company's obligation to make the payments
-------------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other
right that the Company may have against the Executive or others. The
Company may, however, withhold from any benefits payable under this
Agreement all federal, state, city, or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
11. Modification and Waiver. No provisions of this Agreement may be
-----------------------
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by the Executive and the
Company. No waiver by any party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time.
12. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Georgia without
giving effect to the conflict of laws principles thereof. Any action
brought by any party to this Agreement shall be brought and maintained
in a court of competent jurisdiction in State Georgia.
13. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions
hereof.
14. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto and supersedes all prior agreement, if any,
understandings and arrangements, oral or written, between the parties
hereto with respect to the subject matter hereof.
15. Headings. The headings of Sections herein are included solely for
--------
convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
16. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
17. Demand Registration Rights.
--------------------------
12
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a. Rights. Subject to the provisions of this Section 17(a), (i) if
------
the Executive's employment is terminated for any reason provided
herein, other than for Cause, and (ii) he owns beneficially any
Options that have not been subject to registration for sale under
the Act, pursuant to the filing of a form S-8 or otherwise
(collectively, the "Unregistered Options"), then the Executive may,
at any time and from time to time, request registration for sale
under the Act of all or part of the capital stock of the Company
representing such Unregistered Options (collectively, the
"Unregistered Stock") then held by him (excluding, for purposes of
this Section 17(a), shares of common stock subject to the Options
held by the Executive as to which the vesting provisions shall not
have otherwise lapsed pursuant to this Agreement or otherwise). Any
such request shall specify the number of shares proposed to be
registered and sold and the name of the managing underwriter of the
proposed offering (who must be acceptable to the Company in its
reasonable discretion).
b. Exceptions. The Company shall not be required to effect a demand
----------
registration under the Act pursuant to Section 17(a) above if any of
the following apply: (i) the aggregate Fair Market Value (as defined
above) of the shares of the Unregistered Stock proposed to be
registered does not equal or exceed $12,000,000 prior to the Initial
Public Offering or $2,000,000 after the Initial Public Offering;
(ii) within 12 months prior to any such request for registration, a
registration of securities of the Company has been effected in which
the Executive had the right to participate pursuant to this Section
17 or Section 18 hereof; (iii) the Company receives such request for
registration within 180 days preceding the anticipated effective
date of a proposed underwritten public offering of securities of the
Company approved by the Board prior to the Company's receipt of such
request; or (iv) the Board reasonably determines in good faith that
effecting such a demand registration at such time would have a
material adverse effect upon a proposed sale of all (or
substantially all) of the assets of the Company, or a merger,
reorganization, recapitalization, or similar transaction materially
affecting the capital structure or equity ownership of the Company
which is actively being negotiated with another party whose identity
is disclosed to the Executive; provided, however, that the Company
may only delay a demand registration pursuant to this Section
17(b)(iv) for a period not exceeding six (6) months (or until such
earlier time as such transaction is consummated or no longer
proposed). The Company shall promptly notify in writing the
Executive of any decision not to effect any such request for
registration pursuant to this Section 17(b), which notice shall set
forth in reasonable detail the reason for such decision and shall
include an undertaking by the Company promptly to notify the
Executive as soon as a demand registration may be effected.
c. Reduction. If the managing underwriters reasonably determine
---------
that the
13
<PAGE>
number of shares of the Unregistered Stock held by the Executive
which the Executive requested to be included in such registration
exceeds the number that can be sold in such offering, then the
amount of such shares that may be included in such registration
shall be reduced to the number of shares that the managing
underwriters reasonably determine is marketable.
d. Withdrawal. The Executive may withdraw at any time before a
----------
registration statement filed pursuant to this Section 17 is declared
effective, in which event the Company may withdraw such registration
statement.
18. Piggyback Registration Rights.
-----------------------------
a. Rights. Subject to the provision of this Section 18, if the
------
Company proposes to make a registered public offering of shares of
its common stock (the "Common Stock"), excluding an Initial Public
Offering, of any of its securities under the Act (whether to be sold
by it or by one or more third parties), other than an offering
pursuant to a demand registration under Section 17 hereof or an
offering registered on Form S-8, Form S-4, or comparable forms, the
Company shall, not less than 45 days prior to the proposed filing
date of the registration form, given written notice of the proposed
registration to the Executive, and at the written request of the
Executive delivered to the Company within 15 days after the receipt
of such notice, shall, subject to the provisions of subsection (b)
below, include in such registration and offering, and in any
underwriting of such offering, all shares of Common Stock as may
have been designated in the Executive's request.
b. Offering Reduction. If a registration in which the Executive has
------------------
the right to participate pursuant to this Section 18 is an
underwritten offering, and if the managing underwriters determine,
in their reasonable discretion that the number of securities
requested to be included in such registration only exceeds the
number that can be sold in such offering, then the Company shall
include in such registration the number of shares of Common Stock
requested to be sold by the Company as the managing underwriters
shall determine; and the Executive and all other persons who have
exercised registration rights with respect to the proposed offering
shall participate in the offering in proportion to the number of
shares of Common Stock so requested by each of them to be so
included.
19. Other Registration Issues.
-------------------------
a. The Company shall have no obligation to file a registration
statement pursuant to Section 17 hereof, or to include shares of
Common Stock owned by the Executive in a registration statement
pursuant to Section 18 hereof,
14
<PAGE>
unless and until the Executive has furnished the Company with all
information and statements about or pertaining to the Executive in
such reasonable detail as is reasonably deemed by the Company to be
necessary or appropriate with respect to the preparation of the
registration statement. Whenever the Executive has requested that
any shares of Common Stock be registered pursuant to Section 17 or
18 hereof, subject to the provisions of those Sections, the Company
shall, as expeditiously as reasonably possible:
(i) prepare and file with the SEC a registration statement with
respect to such shares and use its best efforts to cause such
registration statement to become effective as soon as
reasonably practicable thereafter (provided that before filing
a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish counsel for the
Executive with copies of all such documents proposed to be
filed);
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and prospectus used
in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than
nine (9) months or until the underwriters have completed the
distribution described in such registration statement,
whichever occurs first;
(iii) furnish to the Executive such number of copies of such
registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement
(including each preliminary prospectus), and such other
documents as the Executive may reasonably request;
(iv) use its best efforts to register or qualify such shares
under such other securities or Blue Sky Laws of such
jurisdictions as the Executive reasonably requests (and to
maintain such registrations and qualifications effective for a
period of nine months or until the underwriters have completed
the distribution of such shares, whichever occurs first), and
to do any and all other acts and things which may be necessary
or advisable to enable the Executive or underwriters to
consummate the disposition in such jurisdictions of such
shares; provided, further, however, that, notwithstanding
anything to the contrary in this Agreement with respect to the
bearing of expenses, if any such jurisdiction shall require
that expenses incurred in connection with the qualification of
such shares in that jurisdiction be borne in part or full by
the Executive, then the Executive shall pay such expenses to
the extent required by such jurisdiction;
15
<PAGE>
(v) cause all such shares to be listed on securities exchanges,
if any, on which similar securities issued by the Company
are then listed;
(vi) provide a transfer agent and registrar for all such shares
not later than the effective date of such registration
statements;
(vii) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such
other actions as the Executive and underwriters reasonably
request (and subject to approval by the Company's counsel) in
order to expedite or facilitate the disposition of such
shares; and
(viii) make available for inspection by the Executive, by any
underwriter participating in any distribution pursuant to such
registration statement, and by any attorney, accountant or
other agent retained by the Executive or underwriter, or by
any such underwriter, all financial and other records,
pertinent corporate documents, and properties (other than
confidential intellectual property) of the Company; provided,
however, that the Company may condition delivery of any
information, records or corporate documents upon the receipt
from the Executive and the underwriter and their counsel,
accountants, advisors and agents, of a confidentiality
agreement in form and substance acceptable to the Company and
its counsel in the exercise of their exclusive discretion.
b. Holdback Agreement. In the event that the Company effects an
------------------
underwritten public offering of any of the Company's equity
securities, the Executive agrees, if requested by the managing
underwriters, not to effect any sale or distribution, including any
sale pursuant to Rule 144 under the Act, of any equity securities
(except as party of such underwritten offering) during the 180-day
period commencing with the effective date of the registration
statement for such offering.
c. Stockholder Expenses. If, pursuant to Section 17 or 18 hereof,
--------------------
shares of Common Stock owned by the Executive are included in a
registration statement, then the Executive shall pay all transfer
taxes, if any, relating to the sale of its shares, the fees and
expenses of his own counsel, and its pro rata portion of any
underwriting discounts, fees or commissions or the equivalent
thereof.
d. The Company's Expenses. Except for the fees and expenses
----------------------
specified in Section 19(c) hereof and except as provided below in
this Section 19(d), the Company shall pay all expenses incident
to the registration and to the
16
<PAGE>
Company's performance of or compliance with this Agreement,
including, without limitation, all registration and filing fees,
fees and expenses of compliance with securities or Blue Sky Laws,
underwriting discounts, fees and commissions (other than the
Executive's pro rata portion of any underwriting discounts or
commissions or the equivalent thereof), printing expenses, messenger
and delivery expenses, and fees and expenses of counsel for the
Company and all independent certified public accountants and other
persons retained by the Company. If the Company shall previously
have paid, pursuant to this Section 19(d), the expenses of a
registration, then the Executive shall pay all expenses described in
this Section 19(d) (but not expenses described in Section 19(e)
hereof).
e. Other. With respect to any registration pursuant to Section 17
-----
or 18 hereof, the Company shall pay its internal expenses
(including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties) and
the expenses and fees for listing the securities to be registered on
exchanges on which similar securities issued by the Company are then
listed.
f. Indemnity. In the event that any shares of Common Stock owned by
---------
the Executive are offered or sold by means of a registration
statement pursuant to Section 17 or 18 hereof, the Company agrees to
indemnify and hold harmless the Executive and each person, if any,
who controls or may control the Executive within the meaning of the
Act (the Executive and any such other persons being hereinafter
referred to individually as an "Indemnified Person" and collectively
as "Indemnified Persons") from and against all demands, claims,
actions or causes of action, assessments, losses, damages,
liabilities, costs, and expenses, including, without limitation,
interest, penalties, and reasonable attorneys fees and
disbursements, asserted against, resulting to, imposed upon or
incurred by such Indemnified Person, jointly or severally, directly
or indirectly (hereinafter referred to in this Section 19(f) in the
singular as a "claim" and in the plural as "claims"), based upon,
arising out of, or resulting from any untrue statement or alleged
untrue statement of a material fact contained in the registration
statement, any preliminary or final prospectus contained therein, or
any amendment or supplement thereto, or any document incident to
registration or qualification of any such shares, or any omission or
alleged omission to state therein a material fact necessary to make
the statements made therein, in the light of the circumstances under
which they were made, not misleading, or any violation by the
Company of the Act of any state securities or Blue Sky Laws, except
insofar as such claim is based upon, arises out of or results from
information developed or certified by the Executive for use in
connection with the registration statement or arises out of or
results from the omission of information known to the Executive
prior to the violation or alleged violation. The Executive agrees
17
<PAGE>
to indemnify and hold harmless the Company, its officers and
directors, and each person, if any, who controls or may control the
Company within the meaning of the Act (the Company, its officers and
directors, and any such persons also being hereinafter referred to
individually in this context as an "Indemnified Person" and
collectively as "Indemnified Persons"(from and against all claims
based upon, arising out of, or resulting from any untrue statement
of a material fact contained in the registration statement, or any
omission to state therein a material fact necessary in order to make
the statement made therein, in the light of the circumstances under
which they were made, not misleading, to the extent that such claim
is based upon, arises out of, or results from information developed
or certified by the Executive for use in connection with the
registration statement or arises out of, or results from an omission
of information known to the Executive prior to the violation or
alleged violation; provided, however, that the maximum amount of
liability in respect of such indemnification shall be limited to an
amount equal to the net proceeds actually received by the Company or
the Executive from the sale of such shares effected pursuant to such
registration. The indemnifications set forth herein shall be in
addition to any liability the Company or the Executive may otherwise
have to the Indemnified Persons. Promptly after actually receiving
definitive notice of any claim in respect of which an Indemnified
Person may seek indemnification under this Section 19(f), such
Indemnified Person shall submit written notice thereof to either the
Company or the Executive, as the case may be (sometimes being
hereinafter referred to as an "Indemnifying Person"). The omission
of the Indemnified Person so to notify the Indemnifying Person of
any such claim shall not relieve the Indemnifying Person from any
liability it may have hereunder except to the extent that (a) such
liability was caused or increased by such omission, or (b) the
ability of the Indemnifying Person to reduce such liability was
materially adversely affected by such omission. In addition, the
omission of the Indemnified Person to notify the Indemnifying Person
of any such claim shall not relieve the Indemnifying Person to
notify the Indemnifying Person of any such claim shall not relieve
the Indemnifying Person from any liability it may have otherwise
hereunder. The Indemnifying Person shall have the right to
undertake, by counsel or representatives of its own choosing, the
defense, compromise or settlement (without admitting liability of
the Indemnified Person) of any such claim asserted, such defense,
compromise or settlement to be undertaken at the expense and risk of
the Indemnifying Person, and the Indemnified Person shall have the
right to engage separate counsel, at its own expense, whom counsel
for the Indemnifying Person shall keep informed and consult with in
a reasonable manner. In the event the Indemnifying Person shall
elect not to undertake such defense by its own representatives, the
Indemnifying Person shall give prompt written notice of such
election to the Indemnified Person, and the Indemnified Person shall
give prompt written notice of such election
18
<PAGE>
to the Indemnified Person, and the Indemnified Person shall
undertake the defense, compromise or settlement (without admitting
liability of the Indemnified Person) thereof on behalf of and for
the account and risk of the Indemnifying Person by counsel or other
representatives designed by the Indemnified Person. In the event
that any claim shall arise out of a transaction or cover any period
or periods wherein the Company and the Executive shall each be
liable hereunder for part of the liability or obligation arising
therefrom, then the parties shall, each choosing its own counsel and
bearing its own expenses, defend such claims, and no settlement or
compromise of such claim may be made without the joint consent or
approval of the Company and the Executive. Notwithstanding the
foregoing, no Indemnifying Person shall be obligated hereunder with
respect to amounts paid in settlement of any claim if such
settlement is effected without the consent of such Indemnifying
Person (which consent shall not be unreasonably withheld).
20. Definitions. For purposes of this Agreement, the following terms shall
-----------
have the following meanings:
a. "Accrued Compensation" shall mean the aggregate amount of all
amounts earned or accrued through the Termination Date but not paid
as of the Termination Date including (i) base salary and other
amounts set forth in Sections 3.e., f., g., and h., (ii)
reimbursement for expenses incurred by the Executive on behalf of
the Company during the period ending on the Termination Date and not
otherwise reimbursed hereunder, and (iii) bonuses and incentive
compensation (other than the Pro Rata Bonus).
b. "Act" shall mean the Securities Act of 1933, as amended.
c. "Adequate Justification" shall mean the occurrence after a Change
in Control of any of the following events or conditions: (i) a
material failure of the Company to comply with the terms of this
Agreement; (ii) any relocation of the Executive outside the Atlanta,
Georgia metropolitan area; or (iii) other than as provided for
herein, the removal of the Executive from the position of Chief
Executive Officer or any other substantial diminution in the
Executive's authority or the Executive's responsibilities that is
not approved by a majority of the members of the Board with the
Executive abstaining.
d. "Bonus Amount" shall mean the greater of (i) the most recent
annual bonuses paid or payable to the Executive, or (ii) the average
of the annual bonuses paid or payable during all previous fiscal
years ended prior to the Termination Date.
e. "Business" shall mean the design, development, marketing and
19
<PAGE>
implementation of electronic banking software and services for
financial institutions.
f. "Bylaws" shall mean the Bylaws of the Company, as amended,
supplemented or otherwise modified form time to time.
g. "Cause" shall mean the occurrence of any of the following:
1. any act that (X) constitutes, on the part of the Executive,
fraud or gross malfeasance of duty, and (Y) is demonstrably
likely to lead to material injury to the Company or resulted,
or was intended to result, in direct or indirect gain to or
personal enrichment of the Executive; provided, however, that
such conduct shall not constitute Cause:
(1.) unless (1) there shall have been delivered to the
Executive a written notice setting forth with
specificity the reasons that the Board believes the
Executive's conduct constitutes the criteria set forth
in clause (i), (2) the Executive shall have been
provided the opportunity, if such behavior is
susceptible to cure, to cure the specific inappropriate
behavior within 30 days following written notice, (3)
after such 30-day period, the Board of Directors
determines that the behavior has not been cured, and (4)
the termination is evidenced by a resolution adopted in
good faith by two-thirds of the members of the Board
(other than the Executive); or
(2.) if such conduct (1) was believed by the Executive in
good faith to have been in or not opposed to the
interests of the Company, and (2) was not intended to
and did not result in the direct or indirect gain to or
personal enrichment of the Executive; or
(ii) the conviction (from which no appeal may be or is timely
taken) of the Executive of a felony involving moral
turpitude; or
(iii) the material breach of this Agreement by the Executive,
upon sixty (60) days written notice thereof and chance to
cure therein.
j. A "Change in Control" shall mean the occurrence during the Term of
any of the following events:
(i) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by
any "Person" (as the term "person" is used for purposes of
Section 13(d) or 14(d)
20
<PAGE>
of the Securities Exchange act of 1934 (the "1934 Act"))
immediately after which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated under the 1934
Act) of 35% or more of the combined voting power of the
Company's then outstanding Voting Securities; provided,
however, that in determining whether a Change in Control has
occurred, Voting Securities that are acquired in a "Non-
Control Acquisition" (as defined below) shall not constitute
an acquisition that would cause a Change in Control. A "Non-
Control Acquisition" shall mean an acquisition by (1) an
employee benefit plan (or a trust forming a part thereof)
maintained by (x) the Company or (y) any corporation or other
Person of which a majority of its voting power or its equity
securities or equity interest is owned directly or indirectly
by the Company (a "Subsidiary"), (2) the Company or any
Subsidiary, or (3) any Person in connection with a "Non-
Control Transaction" (as defined below);
(ii) The individuals who, as of the date of the Initial Public
Offering, are members of the Board (the "Incumbent Board")
cease for any reason to constitute at least two-thirds of the
Board following the date of the Initial Public Offering;
provided, however, that if the election, or nomination for
election by the Company's stockholders, of any new director
was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this
Agreement, be considered as a member of the Incumbent Board;
provided, further, however, that no individual shall be
considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board (a "Proxy Contest") including by
reason of any agreement intended to avoid or settle any
Election contest or Proxy Contest; or
(iii) Approval by stockholders of the Company of:
(A.) A merger, consolidation, or reorganization involving
the Company, unless
(1) the stockholders of the Company, immediately
before such merger, consolidation or
reorganization, own, directly or indirectly,
immediately following such merger, consolidation
or reorganization, own at least two-thirds of the
combined voting power of the outstanding voting
securities of the corporation
21
<PAGE>
resulting form such merger or consolidation or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their
ownership of the Voting Securities immediately
before such merger, consolidation or
reorganization, and
(2) the individuals who were members of the Incumbent
Board immediately prior to the execution of the
agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds
of the members of the board of directors of the
Surviving Corporation.
(A transaction described in clauses (1) and (2)
shall herein be referred to as a "Non-Control
Transaction")
(B) A complete liquidation or dissolution of the Company;
or
(C) An agreement for the sale or other disposition of all
or substantially all of the assets of the Company to
any Person (other than a transfer to a Subsidiary).
Notwithstanding anything contained in this Agreement to the
contrary, if the Executive's employment is terminated prior to a
Change in Control and the Executive reasonably demonstrates that
such termination (A) was at the request of a third party who has
indicated an intention or taken steps reasonably calculated to
effect a Change in Control and who effectuates a Change in Control
(a "Third Party") or (B) otherwise occurred in connection with, or
in anticipation of, a Change in Control that actually occurs, then
for all purposes of this Agreement, the date of a Change in Control
with respect to the Executive shall mean the date immediately prior
to the date of such termination of the Executive's employment.
k. "Compensation Committee" shall mean the compensation committee of
the Board.
l. "Competing Business" shall mean any business that, in whole or in
part, is the same or substantially the same as the Business, unless
such Business is operated and/or conducted by an affiliate of the
Company.
m. "Disability" shall mean the inability of the Executive to perform
substantially all of his current duties as required hereunder for a
continuous period of 90 days because of mental or physical
condition, illness or injury.
22
<PAGE>
n. "Initial Public Offering" shall mean the closing of the first
public offering of the Company's common stock registered under the
Act in which aggregate proceeds to the Company, net of all
underwriting discounts and commissions and other expenses of
issuance and distribution as stated in the prospectus relating to
such offering, are equal to at least twelve million dollars
($12,000,000).
o. "Notice of Termination" shall mean a written notice of termination
from the Company or the Executive, as the case may be, that
specifies an effective date of termination, indicates the specific
termination provision in this Agreement relied upon, and sets forth
in reasonable detail the facts and circumstances claimed to provide
a basis for termination of the Executive's employment under the
provision so indicated.
p. "Pro Rata Bonus" shall mean an amount equal to the Bonus Amount
multiplied by a fraction the numerator of which is the number of
days in the fiscal year through the Termination Date and the
denominator of which is 365.
q. "Successors and Assigns" shall mean a corporation or other entity
acquiring all or substantially all the assets and business of the
Company (including this Agreement), whether by operation of law or
otherwise.
r. "Termination Date" shall mean, in the case of the Executive's
death, his date of death, and in all other cases, the date specified
in the Notice of Termination.
[Continued on the next page.]
23
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IN WITNESS WHEREOF, the Company and Executive have caused this Agreement to
be executed, effective as of the Effective Date.
COMPANY:
Netzee, Inc.
by: /s/ John W. Collins
---------------------------------
Name: John W. Collins
-------------------------------
Title: Chairman
------------------------------
EXECUTIVE:
/s/ Glenn W. Sturm
-------------------------------------
Glenn W. Sturm
24
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into by
-------------------------
and between NETZEE, INC., a Georgia corporation (the "Company"), and C. MICHAEL
BOWERS, an individual resident of the State of Georgia (the "Executive"), to be
effective as of the 1/st/ day of September, 1999 (the "Effective Date").
The Company desires to employ the Executive as its Chief Operating Officer
and President and the Executive is willing to serve the Company on the terms and
conditions provided herein.
Defined Terms: Capitalized terms used in this Agreement that are not otherwise
- -------------
defined herein are defined at Section 19 hereof.
1. Employment. The Company hereby employs the Executive, and the
----------
Executive hereby agrees to serve the Company, as the Chief Operating
Officer and President of the Company, upon the terms and conditions
set forth herein. The Executive shall be the only Chief Operating
Officer and President of the Company. The Executive shall have such
authority and responsibilities as are consistent with his position as
provided herein and as may be set forth in the Bylaws or assigned by
the Chief Executive Officer of the Company (the "CEO") from time to
time. The Executive shall report to the CEO.
The Executive shall devote his full business time, attention, skill,
and efforts to the performance of his duties hereunder, except during
periods of illness or periods of vacation and leaves of absence
consistent with Company policy. This employment relationship between
the Executive and the Company shall be exclusive; provided, however,
the Executive may devote reasonable periods of time (and be
exclusively entitled to all compensation and other income related
thereto) to continue to provide consulting services to other persons
and organizations, to serve as a director or advisor to other
organizations, to perform charitable and other community activities,
and to manage his personal investments; provided, further, however,
that such activities do not interfere with the performance of his
duties hereunder and are not adverse to the interests of the Company.
Unless otherwise agreed to by the Executive, the Executive shall be
headquartered at the Company's offices in and around the metropolitan
area of Atlanta, Georgia, but shall do such traveling as is reasonably
required of him in the performance of his duties.
2. Term. Unless earlier terminated as provided herein, the Executive's
----
employment
1
<PAGE>
under this Agreement shall commence as of the Effective Date and shall
continue for a period of two (2) years (the "Initial Term"); provided,
however, the Company may extend the Initial Term for another two (2)
years (the "Extended Term") upon (i) written notice to the Executive
on or before January 15, 2001, and (ii) a minimum of a seven percent
(7%) increase to the Executive's then existing base salary (as
described at Section 3.a. below). (The Initial Term and the Extended
Term shall be individually and collectively referred to herein as the
"Term.")
3. Compensation and Benefits.
-------------------------
a. The Company shall pay to the Executive a base salary at a rate of
not less than $200,000 per annum, in accordance with the salary
payment practices of the Company in effect from time to time.
On or before each September 1/st/ of the Term (beginning
September 1,2000) the CEO (or Compensation Committee) shall
review the base salary of the Executive and increase (but not
decrease) such base salary by an amount determined in the
discretion of the CEO (or Compensation Committee).
b. For each year of the Term, the Executive shall be eligible to
participate in any management incentive programs established by
the Company and to receive incentive compensation based upon
achievement of targeted levels of performance and such other
criteria as the CEO (or Compensation Committee) may establish
from time to time. In addition, the CEO (or the Compensation
Committee) shall annually consider (on or before each September
1/st/) the Executive's performance and determine if additional
bonus is appropriate.
c. The Executive may participate in any executive stock incentive
plans established by the Company from time to time and shall be
eligible for the grant of stock options, stock, and/or other
awards provided thereunder. Additionally, the Board (or the
Compensation Committee), upon recommendation by the CEO, shall
annually consider (on or before each September 1/st/) the
Executive's performance and determine if additional grants of
stock options, stock, and/or other awards are appropriate.
d. The Executive shall continue to participate in all retirement,
welfare, deferred compensation, life and health insurance
(including health insurance for Executive's spouse and his
dependants), and other benefit plans or programs of the Company
now or hereafter applicable to the Executive or applicable
generally to executives of the Company or to a class of
executives that includes senior executives of the Company;
provided, however, that during any period during the Term that
the Executive is subject to a Disability, and
2
<PAGE>
during the 180-day period of physical or mental infirmity leading
up to the Executive's Disability, the amount of the Executive's
compensation provided under Section 3.a. shall be reduced by the
sum of the amounts, if any, paid to the Executive for the same
period under any disability benefit or pension plan of the
Company or any of its subsidiaries.
e. The Company shall provide to the Executive an automobile owned or
leased by the Company of a make and model appropriate to the
Executive's status (in the reasonable business judgment of the
Executive) or, in lieu thereof at the Executive's option, shall
provide the Executive with an monthly allowance of not less than
$1,000 to partially cover the cost of an automobile owned or
leased by the Executive.
f. The Executive shall be entitled to three (3) weeks paid vacation
(in addition to Company-wide holiday periods) each year during
the Term, to be taken in accordance with the Company's vacation
policies for executives, as in effect from time to time.
g. The Company shall reimburse the Executive's expenses for dues and
capital assessments (but not initiation fees) of one (1) country
and (1) dining club membership currently held (or to be held) by
the Executive; provided, however, that if the Executive during
the term of his employment with the Company ceases his membership
in any such clubs and any bonds or other capital payments made by
the Company are repaid to the Executive, the Executive shall pay
over such payments to the Company.
h. The Company shall reimburse the Executive for first-class travel
and accommodations, seminar, and other expenses related to the
Executive's duties that are incurred and accounted for in
accordance with the practices of the Company, as in effect from
time to time.
Upon the prior approval of the CEO, the Executive shall be
entitled to personal use of assets of the Company, free of charge
or assessment, whether or not such personal use is separate or in
conjunction with a business purpose.
i. The Company agrees that the Executive shall be entitled to invest
in venture capital and similar investments whether or not the
Company also participates in such investments.
4. Termination.
-----------
a. The Executive's employment under this Agreement may be terminated
prior
3
<PAGE>
to the end of the Initial Term, or if extended, the Extended
Term, only as follows:
(i) upon the death of the Executive;
(ii) by the Company due to the Disability of the Executive upon
delivery of a Notice of Termination to the Executive;
(iii) by the Company for Cause upon delivery of a Notice of
Termination to the Executive;
(iv) by the Company without Cause upon delivery of a Notice of
Termination;
(v) following a Change in Control, by the Executive for any
reason upon delivery of a Notice of Termination to the
Company within a 90-day period beginning on the 30/th/ day
after any occurrence of a Change in Control or within a
90-day period beginning on the one year anniversary of the
occurrence of any Change in Control; and
(vi) by the Executive upon a material breach of this Agreement
by the Company, upon delivery of a Notice of Termination
to the Company at least thirty (30) days prior to the
Termination Date and chance to cure therein.
b. If the Executive's employment with the Company shall be terminated
during the Term (i) by reason of the Executive's death, or (ii) by the
Company for Disability or Cause, the Company shall pay to the
Executive (or in the case of his death, the Executive's estate) within
15 days after the Termination Date, a lump sum cash payment equal to
the Accrued Compensation and, if such termination is other than by the
Company for Cause, the Pro Rata Bonus.
c. If the Executive's employment with the Company shall be terminated
during the Term pursuant to Sections 4.a. (iv), (v), or (vi), the
Executive shall be entitled to all of the following:
(i) the Company shall pay to the Executive in cash, as a lump-sum,
within 15 days of the Termination Date, an amount equal to all
Accrued Compensation and the Pro Rata Bonus;
(ii) the Company shall pay to the Executive in cash, as a lump-sum,
within 15 days of the Termination Date, an amount equal to the
base
4
<PAGE>
salary (as described in Section 3.a.), then in effect, that would
otherwise have been payable to the Executive during the Term if
such Term was not earlier terminated; provided, however, if the
otherwise remaining Term is less than 365 days, such remaining
Term shall automatically be deemed to be 365 days;
(iii) the Company shall pay to the Executive in cash, as a lump-sum,
within 15 days of the Termination Date an amount equal to the
product of the Bonus Amount, multiplied by the number of months
that were otherwise remaining in the Term, divided by 12;
(iv) the Company shall pay to the Executive in cash, as a lump-sum,
within 15 days of the Termination Date, an amount equal to those
amounts described in Sections 3.e. and 3.g. that would have
otherwise been payable during the Term if such Term was not
earlier terminated;
(v) the restrictions on any outstanding incentive awards (including
stock options) granted to the Executive under any Company plan or
arrangement shall lapse and such incentive award shall become
100% vested, and all stock options and stock appreciation rights
granted to the Executive by the Company shall become immediately
exercisable and shall become 100% vested; and
(vi) upon a Termination Date occurring prior to the earlier of (A) an
Initial Public Offering, or (B) the date in which the Company
becomes subject to the reporting requirements set forth in the
Securities Exchange Act of 1934, the Company shall, within 15
days after the Termination Date, offer to repurchase all of the
Company's capital stock and other debt and securities of the
Company (collectively, the "Company Equity") then owned by the
Executive, at a purchase price equal to the Fair Market Value of
such Company Equity, as determined in accordance with the
provisions below. The question of the Fair Market Value of the
Company Equity shall be submitted to three impartial and
reputable appraisers. The Executive and the Company shall each
select one appraiser, and such appraisers shall select a third,
independent appraiser. The three appraisers shall thereafter
proceed as expeditiously as possible to determine (by concurrence
of a majority of such appraisers) the Fair Market Value of the
Company Equity, and the appraisers shall deliver an appraisal
report to the Executive and the Company as soon as practicable
after it is completed. The determination of the question of the
Fair Market Value of the Company Equity by such appraisers shall
be final and
5
<PAGE>
binding on the Executive and the Company for purposes of this
Agreement. The Company shall pay the reasonable fees and expenses
of such appraisers. For the purposes hereof, "Fair Market Value"
shall mean the relevant percentage of the fair value of the
business of the Company represented by the Company Equity as to
which such determination is being made, which shall be determined
on a going concern basis and as between a willing seller and a
willing buyer, taking into account the Company's financial
condition, performance, market share and other relevant criteria,
but not taking into account the absence of a public market for
the shares or that the shares constitute a minority interest in
the Company.
d. The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or
otherwise, and no such payment shall be offset nor reduced by the
amount of any compensation or benefits provided to the Executive in
any subsequent employment.
e. In the event that any payment or benefit (within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended
(the "Code")) to the Executive or for his benefit paid or payable or
distributed or distributable pursuant to the terms of this Agreement
or otherwise in connection with, or arising out of, his employment
with the Company or a change in ownership or effective control of the
Company or of a substantial portion of its assets ( a "Payment" or
"Payments"), would be subject to the excise tax imposed by Section
4999 of the Code and/or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall promptly
receive an additional payment (a "Gross-Up Payment") in an amount such
that after payment by the Executive of all taxes (including any
interest or penalties, other than interest and penalties imposed by
reason of the Executive's failure to file timely a tax return or pay
taxes shown due on his return, imposed with respect to such taxes and
the Excise Tax, including any Excise Tax imposed upon the Gross-Up
Payment, the Executive would retain an amount equal to such original
payment or benefit.
f. The severance pay and benefits provided for in this Section 4 shall be
in lieu of any other severance or termination pay to which the
Executive may be entitled under any Company severance or termination
plan, program, practice or arrangement. The Executive's entitlement to
any other compensation or benefits shall be determined in accordance
with the Company's executive benefit plans and other applicable
programs, policies and practices then in
6
<PAGE>
effect.
5. Protection of Trade Secrets and Confidential Information.
--------------------------------------------------------
a. Through exercise of his rights and performance of his obligations
under this Agreement, Executive will be exposed to "Trade
Secrets" and "Confidential Information" (as those terms are
defined below). "Trade Secrets" shall mean information or data or
of about the Company or any affiliated entity, including, but not
limited to, technical or nontechnical data, formulas, patterns,
compilations, programs, devices, methods, techniques, drawings,
processes, financial data, financial plans, products plans, or
lists of actual or potential customers, clients, distributors, or
licensees, that: (i) derive economic value, actual or potential,
from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain
economic value from their disclosure or use; and (ii) are the
subject of efforts that are reasonable under the circumstances to
maintain their secrecy. To the extent that the foregoing
definition is inconsistent with a definition of "trade secret"
mandated under applicable law, the latter definition shall govern
for purposes of interpreting Executive's obligations under this
Agreement. Except as required to perform his obligations under
this Agreement or except with Company's prior written permission,
Executive shall not use, redistribute, market, publish, disclose
or divulge to any other person or entity any Trade Secrets of the
Company. The Executive's obligations under this provision shall
remain in force (during and after the Term) for so long as such
information or data shall continue to constitute a "trade secret"
under applicable law. Executive agrees to cooperate with any and
all confidentiality requirements of the Company and Executive
shall immediately notify the Company of any unauthorized
disclosure or use of any Trade Secrets of which Executive becomes
aware.
b. The Executive agrees to maintain in strict confidence and, except
as necessary to perform his duties for the Company, not to use or
disclose any Confidential Business Information at any time during
the term of his employment and for a period of one year after the
later of (i) the Executive's last date of employment and (ii) the
last day of the period with respect to which the Executive
received compensation by reason of his termination of employment.
"Confidential Business Information" shall mean any non-public
information of a competitively sensitive or personal nature,
other than Trade Secrets, acquired by the Executive, directly or
indirectly, in connection with the Executive's employment
(including his employment with the Company prior to the date of
this Agreement), including (without limitation) oral and written
information concerning the Company or its affiliates relating to
financial position and results of operations (revenues, margins,
assets, net
7
<PAGE>
income, etc.), annual and long-range business plans, marketing
plans and methods, account invoices, oral or written customer
information, and personnel information. Confidential Business
Information also includes information recorded in manuals,
memoranda, projections, minutes, plans, computer programs, and
records, whether or not legended or otherwise identified by the
company and its affiliates as Confidential Business Information,
as well as information that is the subject of meetings and
discussions and not so recorded; provided, however, that
Confidential Business Information shall not include information
that is generally available to the public, other than as a result
of disclosure, directly or indirectly, by the Executive, or was
available to the Executive on a non-confidential basis prior to
its disclosure to the Executive.
c. Upon termination of employment, the Executive shall leave with
the Company all business records relating to the Company and its
affiliates including, without limitation, all contracts,
calendars, and other materials or business records concerning its
business or customers, including all physical, electronic, and
computer copies thereof, whether or not the Executive prepared
such materials or records himself. Upon such termination, the
Executive shall retain no copies of any such materials.
d. As set forth above, the Executive shall not disclose Trade
Secrets or Confidential Business Information. However, nothing
in this provision shall prevent the Executive from disclosing
Trade Secrets or Confidential Business Information pursuant to a
court order or court-issued subpoena, so long as the Executive
first notifies (unless such notice is impracticable or
impossible) the Company of said order or subpoena in sufficient
time to allow the Company to seek an appropriate protective
order. The Executive agrees that if he receives any formal or
informal discovery request, court order, or subpoena requesting
that he disclose Trade Secrets or Confidential Business
Information, he will immediately notify the Company and provide
the Company with a copy of said request, court order, or
subpoena.
6. Non-Solicitation and Related Matters.
------------------------------------
a. If the Executive is terminated for Cause or if the Executive
resigns without Adequate Justification, then for a period of two
years following the date of termination, the Executive shall not
(except on behalf of or with the prior written consent of the
Company) either directly or indirectly, on the Executive's own
behalf or in the service or on behalf of others, (i) solicit,
divert, or appropriate to or for a Competing Business, or (ii)
attempt to solicit, divert, or appropriate to or for a Competing
Business, any person or entity that was a customer or prospective
customer of the Company on the
8
<PAGE>
date of termination and with whom the Executive had direct
material contact within twelve months of the Executive's last
date of employment.
b. If the Executive is terminated for Cause or if the Executive
resigns without Adequate Justification, then for a period of two
years following the date of termination, the Executive shall not,
either directly or indirectly, on the Executive's own behalf or
in the service or on behalf of others, (i) solicit, divert, or
hire away, or (ii) attempt to solicit, divert, or hire away any
employee of, or consultant to, the Company or any of its
affiliates engaged or experienced in the Business, regardless of
whether the employee or consultant is full-time or temporary, the
employment or engagement is pursuant to written agreement, or the
employment is for a determined period or is at will.
c. The Executive acknowledges and agrees that great loss and
irreparable damage would be suffered by the Company if the
Executive should breach or violate any of the terms or provisions
of the covenants and agreements set forth in this Section 6. The
Executive further acknowledges and agrees that each of these
covenants and agreements is reasonably necessary to protect and
preserve the interests of the Company. The parties agree that
money damages for any breach of clauses (a) and (b) of this
Section 6 will be insufficient to compensate for any breaches
thereof, and that the Executive or any of the Executive's
affiliates, as the case may be, will, to the extent permitted by
law, waive in any proceeding initiated to enforce such provisions
any claim or defense that an adequate remedy at law exists. The
existence of any claim, demand, action, or cause of action
against the Company, whether predicated upon this Agreement or
otherwise, shall not constitute a defense to the enforcement by
the Company of any of the covenants or agreements in this
Agreement; provided, however, that nothing in this Agreement
shall be deemed to deny the Executive the right to defend against
this enforcement on the basis that the Company has no right to
its enforcement under the terms of this Agreement.
d. The Executive acknowledges and agrees that: (i) the covenants and
agreements contained in clauses (a) through (e) of this Section 6
are the essence of this Agreement; (ii) that the Executive has
received good, adequate and valuable consideration for each of
these covenants; and (iii) each of these covenants is reasonable
and necessary to protect and preserve the interests and
properties of the Company. The Executive also acknowledges and
agrees that: (i) irreparable loss and damage will be suffered by
the company should the Executive breach any of these covenants
and agreements; (ii) each of these covenants and agreements in
clauses (a) and (b) of this Section 6 is separate, distinct and
severable not only from the
9
<PAGE>
other covenants and agreements but also from the remaining
provisions of this Agreement; and (iii) the unenforceability of
any covenants or agreements shall not affect the validity or
enforceability of any of the other covenants or agreements or any
other provision or provisions of this Agreement. The Executive
acknowledges and agrees that if any of the provisions of clauses
(a) and (b) of this Section 6 shall ever be deemed to exceed the
time, activity, or geographic limitations permitted by applicable
law, then such provisions shall be and hereby are reformed to the
maximum time, activity, or geographical limitations permitted by
applicable law.
e. The Executive and the Company hereby acknowledge that it may be
appropriate from time to time to modify the terms of this Section
6 and the definition of the term "Business" to reflect changes in
the Company's business and affairs so that the scope of the
limitations placed on the Executive's activities by this Section
6 accomplishes the parties' intent in relation to the then
current facts and circumstances. Any such amendment shall be
effective only when completed in writing and signed by the
Executive and the Company.
7. Successors; Binding Agreement.
-----------------------------
a. This Agreement shall be binding upon and shall inure to the
benefit of the Company, its Successors and Assigns and the
Company shall require any Successors and Assigns to expressly
assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform
it if no such succession or assignment had taken place.
b. Neither this Agreement not any right or interest hereunder shall
be assignable or transferable by the Executive, his beneficiaries
or legal representatives, except by will or by the laws of
descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal personal
representative.
8. Fees and Expenses. The Company shall pay all reasonable legal fees
-----------------
and related expenses (including but not limited to the costs of
experts, accountants and counsel) incurred by the Executive as they
become due as a result of any of the following: (a) the preparation,
negotiation, counsel, and execution of this Agreement; (b) the
termination of the Executive's employment (including all such fees and
expenses, if any, incurred in contesting or disputing any such
termination of employment); or (c) the Executive seeking to obtain or
enforce any right or benefit provided by this Agreement.
10
<PAGE>
9. Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in this Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly
given when personally delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed to the respective
addresses last given by each party to the other; provided, however,
-------- -------
that all notices to the Company shall be directed to the attention of
the Chairman of Board with a copy to the Secretary of the Company.
All notices and communications shall be deemed to have been received
on the date of delivery thereof.
10. Settlement of Claim. The Company's obligation to make the payments
-------------------
provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances,
including, without limitation, any set-off, counterclaim, recoupment,
defense or other right that the Company may have against the Executive
or others. The Company may, however, withhold from any benefits
payable under this Agreement all federal, state, city, or other taxes
as shall be required pursuant to any law or governmental regulation or
ruling.
11. Modification and Waiver. No provisions of this Agreement may be
-----------------------
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by the Executive and the
Company. No waiver by any party hereto at any time of any breach by
the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall
be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
12. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Georgia without
giving effect to the conflict of laws principles thereof. Any action
brought by any party to this Agreement shall be brought and maintained
in a court of competent jurisdiction in State Georgia.
13. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other
provisions hereof.
14. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto and supersedes all prior agreement, if any,
understandings and arrangements, oral or written, between the parties
hereto with respect to the subject matter hereof.
15. Headings. The headings of Sections herein are included solely for
--------
convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
11
<PAGE>
16. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
17. Piggyback Registration Rights.
-----------------------------
a. Rights. Subject to the provision of this Section 17, if the
------
Company proposes to make a registered public offering or shares
of its Common Stock excluding an Initial Public Offering, of any
of its securities under the Act (whether to be sold by it or by
one or more third parties), other than an offering registered on
Form S-8, Form S-4, or comparable forms, the Company shall, not
less than 45 days prior to the proposed filing date of the
registration form, given written notice of the proposed
registration to the Executive, and at the written request of the
Executive delivered to the Company within 15 days after the
receipt of such notice, shall, subject to the provisions of
subsection (b) below, include in such registration and offering,
and in any underwriting of such offering, all shares of Common
Stock as may have been designated in the Executive's request.
b. Offering Reduction. If a registration in which the Executive has
------------------
the right to participate pursuant to this Section 17 is an
underwritten offering, and if the managing underwriters determine
in their reasonable discretion, that the number of securities
requested to be included in such registration exceeds the number
that can be sold in such offering, then the Company shall include
in such registration only the number of shares of Common Stock
requested to be sold by the Company as the managing underwriters
shall determine; and the Executive and all other persons who have
exercised registration rights with respect to the proposed
offering shall participate in the offering in proportion to the
number of shares of Common Stock so requested by each of them to
be so included.
18. Other Registration Issues.
-------------------------
a. The Company shall have no obligation to include shares of Common
Stock owned by the Executive in a registration statement pursuant
to Section 17 hereof, unless and until the Executive has
furnished the Company with all information and statements about
or pertaining to the Executive in such reasonable detail as is
reasonably deemed by the Company to be necessary or appropriate
with respect to the preparation of the registration statement.
Whenever the Executive has requested that any shares of Common
Stock be registered pursuant to Section 17 hereof, subject to the
provisions of those Sections, the Company shall, as expeditiously
as reasonably possible:
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(i) prepare and file with the SEC a registration statement
with respect to such shares and use its best efforts to
cause such registration statement to become effective as
soon as reasonably practicable thereafter (provided that
before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company shall
furnish counsel for the Executive with copies of all such
documents proposed to be filed);
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and prospectus
used in connection therewith as may be necessary to keep
such registration statement effective for a period of not
less than nine (9) months or until the underwriters have
completed the distribution described in such registration
statement, whichever occurs first;
(iii) furnish to the Executive such number of copies of such
registration statement, each amendment and supplement
thereto, the prospectus included in such registration
statement (including each preliminary prospectus), and
such other documents as the Executive may reasonably
request;
(iv) use its best efforts to register or qualify such shares
under such other securities or Blue Sky Laws of such
jurisdictions as the Executive reasonably requests (and
to maintain such registrations and qualifications
effective for a period of nine months or until the
underwriters have completed the distribution of such
shares, whichever occurs first), and to do any and all
other acts and things which may be necessary or advisable
to enable the Executive or underwriters to consummate the
disposition in such jurisdictions of such shares;
provided, further, however, that, notwithstanding
anything to the contrary in this Agreement with respect
to the bearing of expenses, if any such jurisdiction
shall require that expenses incurred in connection with
the qualification of such shares in that jurisdiction be
borne in part or full by the Executive, then the
Executive shall pay such expenses to the extent required
by such jurisdiction;
(v) cause all such shares to be listed on securities
exchanges, if any, on which similar securities issued by
the Company are then listed;
(vi) provide a transfer agent and registrar for all such
shares not later than the effective date of such
registration statements;
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(vii) enter into such customary agreements (including an
underwriting agreement in customary form) and take all
such other actions as the Executive and underwriters
reasonably request (and subject to approval by the
Company's counsel) in order to expedite or facilitate the
disposition of such shares; and
(viii) make available for inspection by the Executive, by any
underwriter participating in any distribution pursuant to
such registration statement, and by any attorney,
accountant or other agent retained by the Executive or
underwriter, or by any such underwriter, all financial
and other records, pertinent corporate documents, and
properties (other than confidential intellectual
property) of the Company; provided, however, that the
Company may condition delivery of any information,
records or corporate documents upon the receipt from the
Executive and the underwriter and their counsel,
accountants, advisors and agents, of a confidentiality
agreement in form and substance acceptable to the Company
and its counsel in the exercise of their exclusive
discretion.
b. Holdback Agreement. In the event that the Company effects an
------------------
underwritten public offering of any of the Company's equity
securities, the Executive agrees, if requested by the managing
underwriters, not to effect any sale or distribution, including
any sale pursuant to Rule 144 under the Act, of any equity
securities (except as party of such underwritten offering) during
the 180-day period commencing with the effective date of the
registration statement for such offering.
c. Stockholder Expenses. If, pursuant to Section 17 hereof, shares
--------------------
of Common Stock owned by the Executive are included in a
registration statement, then the Executive shall pay all transfer
taxes, if any, relating to the sale of its shares, the fees and
expenses of his own counsel, and its pro rata portion of any
underwriting discounts, fees or commissions or the equivalent
thereof.
d. The Company's Expenses. Except for the fees and expenses
----------------------
specified in Section 18(c) hereof and except as provided below in
this Section 18(d), the Company shall pay all expenses incident
to the registration and to the Company's performance of or
compliance with this Agreement, including, without limitation,
all registration and filing fees, fees and expenses of compliance
with securities or Blue Sky Laws, underwriting discounts, fees
and commissions (other than the Executive's pro rata portion of
any underwriting discounts or commissions or the equivalent
thereof), printing expenses, messenger and delivery expenses, and
fees and expenses of counsel
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for the Company and all independent certified public accountants
and other persons retained by the Company. If the Company shall
previously have paid, pursuant to this Section 18(d), the
expenses of a registration, then the Executive shall pay all
expenses described in this Section 18(d) (but not expenses
described in Section 18(e) hereof).
e. Other. With respect to any registration pursuant to Section 17
-----
hereof, the Company shall pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties) and the expenses
and fees for listing the securities to be registered on exchanges
on which similar securities issued by the Company are then
listed.
f. Indemnity. In the event that any shares of Common Stock owned by
---------
the Executive are offered or sold by means of a registration
statement pursuant to Section 17 hereof, the Company agrees to
indemnify and hold harmless the Executive and each person, if
any, who controls or may control the Executive within the meaning
of the Act (the Executive and any such other persons being
hereinafter referred to individually as an "Indemnified Person"
and collectively as "Indemnified Persons") from and against all
demands, claims, actions or causes of action, assessments,
losses, damages, liabilities, costs, and expenses, including,
without limitation, interest, penalties, and reasonable attorneys
fees and disbursements, asserted against, resulting to, imposed
upon or incurred by such Indemnified Person, jointly or
severally, directly or indirectly (hereinafter referred to in
this Section 18(f) in the singular as a "claim" and in the plural
as "claims"), based upon, arising out of, or resulting from any
untrue statement or alleged untrue statement of a material fact
contained in the registration statement, any preliminary or final
prospectus contained therein, or any amendment or supplement
thereto, or any document incident to registration or
qualification of any such shares, or any omission or alleged
omission to state therein a material fact necessary to make the
statements made therein, in the light of the circumstances under
which they were made, not misleading, or any violation by the
Company of the Act of any state securities or Blue Sky Laws,
except insofar as such claim is based upon, arises out of or
results from information developed or certified by the Executive
for use in connection with the registration statement or arises
out of or results from the omission of information known to the
Executive prior to the violation or alleged violation. The
Executive agrees to indemnify and hold harmless the Company, its
officers and directors, and each person, if any, who controls or
may control the Company within the meaning of the Act (the
Company, its officers and directors, and any such persons also
being hereinafter referred to individually in this context as an
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"Indemnified Person" and collectively as "Indemnified
Persons"(from and against all claims based upon, arising out of,
or resulting from any untrue statement of a material fact
contained in the registration statement, or any omission to state
therein a material fact necessary in order to make the statement
made therein, in the light of the circumstances under which they
were made, not misleading, to the extent that such claim is based
upon, arises out of, or results from information developed or
certified by the Executive for use in connection with the
registration statement or arises out of, or results from an
omission of information known to the Executive prior to the
violation or alleged violation; provided, however, that the
maximum amount of liability in respect of such indemnification
shall be limited to an amount equal to the net proceeds actually
received by the Company or the Executive from the sale of such
shares effected pursuant to such registration. The
indemnifications set forth herein shall be in addition to any
liability the Company or the Executive may otherwise have to the
Indemnified Persons. Promptly after actually receiving definitive
notice of any claim in respect of which an Indemnified Person may
seek indemnification under this Section 18(f), such Indemnified
Person shall submit written notice thereof to either the Company
or the Executive, as the case may be (sometimes being hereinafter
referred to as an "Indemnifying Person"). The omission of the
Indemnified Person so to notify the Indemnifying Person of any
such claim shall not relieve the Indemnifying Person from any
liability it may have hereunder except to the extent that (a)
such liability was caused or increased by such omission, or (b)
the ability of the Indemnifying Person to reduce such liability
was materially adversely affected by such omission. In addition,
the omission of the Indemnified Person to notify the Indemnifying
Person of any such claim shall not relieve the Indemnifying
Person to notify the Indemnifying Person of any such claim shall
not relieve the Indemnifying Person from any liability it may
have otherwise hereunder. The Indemnifying Person shall have the
right to undertake, by counsel or representatives of its own
choosing, the defense, compromise or settlement (without
admitting liability of the Indemnified Person) of any such claim
asserted, such defense, compromise or settlement to be undertaken
at the expense and risk of the Indemnifying Person, and the
Indemnified Person shall have the right to engage separate
counsel, at its own expense, whom counsel for the Indemnifying
Person shall keep informed and consult with in a reasonable
manner. In the event the Indemnifying Person shall elect not to
undertake such defense by its own representatives, the
Indemnifying Person shall give prompt written notice of such
election to the Indemnified Person, and the Indemnified Person
shall give prompt written notice os such election to the
Indemnified Person, and the Indemnified Person shall undertake
the defense, compromise or settlement (without admitting
liability of the Indemnified Person) thereof on behalf of and for
the account and risk of the
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Indemnifying Person by counsel or other representatives designed
by the Indemnified Person. In the event that any claim shall
arise out of a transaction or cover any period or periods wherein
the Company and the Executive shall each be liable hereunder for
part of the liability or obligation arising therefrom, then the
parties shall, each choosing its own counsel and bearing its own
expenses, defend such claims, and no settlement or compromise of
such claim may be made without the joint consent or approval of
the Company and the Executive. Notwithstanding the foregoing, no
Indemnifying Person shall be obligated hereunder with respect to
amounts paid in settlement of any claim if such settlement is
effected without the consent of such Indemnifying Person (which
consent shall not be unreasonably withheld).
19. Definitions. For purposes of this Agreement, the following terms shall
-----------
have the following meanings:
i. "Accrued Compensation" shall mean the aggregate amount of all
amounts earned or accrued through the Termination Date but not
paid as of the Termination Date including (i) base salary and
other amounts set forth in Sections 3.e., f., g., and h., (ii)
reimbursement for expenses incurred by the Executive on behalf of
the Company during the period ending on the Termination Date and
not otherwise reimbursed hereunder, and (iii) bonuses and
incentive compensation (other than the Pro Rata Bonus).
ii. "Act" shall mean the Securities Act of 1933, as amended.
iii. "Adequate Justification" shall mean the occurrence after a Change
in Control of any of the following events or conditions: (i) a
material failure of the Company to comply with the terms of this
Agreement; (ii) any relocation of the Executive outside the
Atlanta, Georgia metropolitan area; or (iii) other than as
provided for herein, the removal of the Executive from the
position and/or duties described above or any other substantial
diminution in the Executive's authority or the Executive's
responsibilities that is not approved by a majority of the members
of the Board.
iv. "Bonus Amount" shall mean the greater of (i) the most recent annual
bonuses paid or payable to the Executive, or (ii) the average of
the annual bonuses paid or payable to the Executive during all
previous fiscal years ended prior to the Termination Date.
v. "Business" shall mean the design, development, marketing and
implementation of electronic banking software and services for
financial institutions.
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vi. "Bylaws" shall mean the Bylaws of the Company, as amended,
supplemented or otherwise modified form time to time.
vii. "Cause" shall mean the occurrence of any of the following:
1. any act that constitutes, on the part of the Executive, fraud
or gross malfeasance of duty; provided, however, that such
conduct shall not constitute Cause:
(1.) unless (1) there shall have been delivered to the
Executive a written notice setting forth with
specificity the reasons that the Board believes the
Executive's conduct constitutes the criteria set forth
in clause (i), (2) the Executive shall have been
provided the opportunity, if such behavior is
susceptible to cure, to cure the specific inappropriate
behavior within 30 days following written notice, (3)
after such 30-day period, the Board of Directors
determines that the behavior has not been cured, and (4)
the termination is evidenced by a resolution adopted in
good faith by two-thirds of the members of the Board
(other than the Executive); or
(2.) if such conduct (1) was believed by the Executive in
good faith to have been in or not opposed to the
interests of the Company, and (2) was not intended to
and did not result in the direct or indirect gain to or
personal enrichment of the Executive; or
(ii) the conviction (from which no appeal may be or is timely
taken) or plea of other than "not guilty" of the Executive
of a felony or misdemeanor if such misdemeanor involves
moral turpitude; or
(iii) the material breach of this Agreement by the Executive,
upon forty-five (45) days written notice thereof and chance
to cure therein.
10. A "Change in Control" shall mean the occurrence during the Term of
any of the following events:
(1) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by
any "Person" (as the term "person" is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange act of 1934
(the "1934 Act")) immediately after which such Person has
"Beneficial Ownership" (within the
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<PAGE>
meaning of Rule 13d-3 promulgated under the 1934 Act) of 35%
or more of the combined voting power of the Company's then
outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, Voting
Securities that are acquired in a "Non-Control Acquisition"
(as defined below) shall not constitute an acquisition that
would cause a Change in Control. A "Non-Control Acquisition"
shall mean an acquisition by (1) an employee benefit plan
(or a trust forming a part thereof) maintained by (x) the
Company or (y) any corporation or other Person of which a
majority of its voting power or its equity securities or
equity interest is owned directly or indirectly by the
Company (a "Subsidiary"), (2) the Company or any Subsidiary,
or (3) any Person in connection with a "Non-Control
Transaction" (as defined below);
(ii) The individuals who, as of the date of the Initial Public
Offering, are members of the Board (the "Incumbent Board")
cease for any reason to constitute at least two-thirds of
the Board following the date of the Initial Public Offering;
provided, however, that if the election, or nomination for
election by the Company's stockholders, of any new director
was approved by a vote of at least two-thirds of the
Incumbent Board, such new director shall, for purposes of
this Agreement, be considered as a member of the Incumbent
Board; provided, further, however, that no individual shall
be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an
actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the 1934 Act) or other actual
or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board (a "Proxy Contest")
including by reason of any agreement intended to avoid or
settle any Election contest or Proxy Contest; or
(iii) Approval by stockholders of the Company of:
(A.) A merger, consolidation, or reorganization involving
the Company, unless
(1) the stockholders of the Company, immediately
before such merger, consolidation or
reorganization, own, directly or indirectly,
immediately following such merger, consolidation
or reorganization, own at least two-thirds of the
combined voting power of the outstanding voting
securities of the corporation resulting form such
merger or consolidation or
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<PAGE>
reorganization (the "Surviving Corporation") in
substantially the same proportion as their
ownership of the Voting Securities immediately
before such merger, consolidation or
reorganization, and
(2) the individuals who were members of the Incumbent
Board immediately prior to the execution of the
agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds
of the members of the board of directors of the
Surviving Corporation.
(A transaction described in clauses (1) and (2)
shall herein be referred to as a "Non-Control
Transaction")
(B) A complete liquidation or dissolution of the Company; or
(C) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person
(other than a transfer to a Subsidiary).
Notwithstanding anything contained in this Agreement to the
contrary, if the Executive's employment is terminated prior to a
Change in Control and the Executive reasonably demonstrates that
such termination (A) was at the request of a third party who has
indicated an intention or taken steps reasonably calculated to
effect a Change in Control and who effectuates a Change in Control
(a "Third Party") or (B) otherwise occurred in connection with, or
in anticipation of, a Change in Control that actually occurs, then
for all purposes of this Agreement, the date of a Change in Control
with respect to the Executive shall mean the date immediately prior
to the date of such termination of the Executive's employment.
k. "Compensation Committee" shall mean the compensation committee of
the Board.
l. "Competing Business" shall mean any business that, in whole or in
part, is the same or substantially the same as the Business, unless
such Business is operated and/or conducted by an affiliate of the
Company.
m. "Disability" shall mean the inability of the Executive to perform
substantially all of his current duties as required hereunder for a
continuous period of 90 days because of mental or physical
condition, illness or injury.
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<PAGE>
n. "Initial Public Offering" shall mean the closing of the first
public offering of the Company's common stock registered under the
Act in which aggregate proceeds to the Company, net of all
underwriting discounts and commissions and other expenses of
issuance and distribution as stated in the prospectus relating to
such offering, are equal to at least twelve million dollars
($12,000,000).
o. "Notice of Termination" shall mean a written notice of termination
from the Company or the Executive, as the case may be, that
specifies an effective date of termination, indicates the specific
termination provision in this Agreement relied upon, and sets forth
in reasonable detail the facts and circumstances claimed to provide
a basis for termination of the Executive's employment under the
provision so indicated.
p. "Pro Rata Bonus" shall mean an amount equal to the Bonus Amount
multiplied by a fraction the numerator of which is the number of
days in the fiscal year through the Termination Date and the
denominator of which is 365.
q. "Successors and Assigns" shall mean a corporation or other entity
acquiring all or substantially all the assets and business of the
Company (including this Agreement), whether by operation of law or
otherwise.
r. "Termination Date" shall mean, in the case of the Executive's
death, his date of death, and in all other cases, the date
specified in the Notice of Termination.
[Continued on the next page.]
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IN WITNESS WHEREOF, the Company and Executive have caused this Agreement to
be executed, effective as of the Effective Date.
COMPANY:
Netzee, Inc.
by: /s/ Glenn W. Sturm
--------------------------
Name: Glenn W. Sturm
------------------------
Title: Chief Executive Officer
-----------------------
EXECUTIVE:
/s/ C. Michael Bowers
------------------------------
C. Michael Bowers
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<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into by
-------------------------
and between NETZEE, INC., a Georgia corporation (the "Company"), and DAVID W.
BRASFIELD, an individual resident of the State of Georgia (the "Executive"), to
be effective as of the 1/st/ day of September, 1999 (the "Effective Date").
The Company desires to employ the Executive as its Senior Executive Vice
President of Sales and Marketing and the Executive is willing to serve the
Company on the terms and conditions provided herein.
Defined Terms: Capitalized terms used in this Agreement that are not otherwise
- -------------
defined herein are defined at Section 19 hereof.
1. Employment. The Company hereby employs the Executive, and the Executive
----------
hereby agrees to serve the Company, as the Senior Executive Vice
President of Sales and Marketing of the Company, upon the terms and
conditions set forth herein. The Executive shall be the only Senior
Executive Vice President of Sales and Marketing of the Company. The
Executive shall have such authority and responsibilities as are
consistent with his position as provided herein and as may be set forth
in the Bylaws or assigned by the Chief Executive Officer of the Company
(the "CEO") from time to time. The Executive shall report to the CEO.
The Executive shall devote his full business time, attention, skill, and
efforts to the performance of his duties hereunder, except during
periods of illness or periods of vacation and leaves of absence
consistent with Company policy. This employment relationship between the
Executive and the Company shall be exclusive; provided, however, the
Executive may devote reasonable periods of time (and be exclusively
entitled to all compensation and other income related thereto) to
continue to provide consulting services to other persons and
organizations, to serve as a director or advisor to other organizations,
to perform charitable and other community activities, and to manage his
personal investments; provided, further, however, that such activities
do not interfere with the performance of his duties hereunder and are
not adverse to the interests of the Company.
Unless otherwise agreed to by the Executive, the Executive shall be
headquartered at the Company's offices in and around the metropolitan
area of Atlanta, Georgia, but shall do such traveling as is reasonably
required of him in the performance of his duties.
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<PAGE>
2. Term. Unless earlier terminated as provided herein, the Executive's
----
employment under this Agreement shall commence as of the Effective Date
and shall continue for a period of two (2) years (the "Initial Term");
provided, however, the Company may extend the Initial Term for another
two (2) years (the "Extended Term") upon (i) written notice to the
Executive on or before January 15, 2001, and (ii) a minimum of a seven
percent (7%) increase to the Executive's then existing base salary (as
described at Section 3.a. below). (The Initial Term and the Extended
Term shall be individually and collectively referred to herein as the
"Term.")
3. Compensation and Benefits.
-------------------------
1. The Company shall pay to the Executive a base salary at a rate of
not less than $185,000 per annum, in accordance with the salary
payment practices of the Company in effect from time to time.
On or before each September 1/st/ of the Term (beginning September
1, 2000) the CEO (or Compensation Committee) shall review the base
salary of the Executive and increase (but not decrease) such base
salary by an amount determined in the discretion of the CEO (or
Compensation Committee).
2. For each year of the Term, the Executive shall be eligible to
participate in any management incentive programs established by the
Company and to receive incentive compensation based upon achievement
of targeted levels of performance and such other criteria as the CEO
(or Compensation Committee) may establish from time to time. In
addition, the CEO (or the Compensation Committee) shall annually
consider (on or before each September 1st) the Executive's
performance and determine if additional bonus is appropriate.
3. The Executive may participate in any executive stock incentive plans
established by the Company from time to time and shall be eligible
for the grant of stock options, stock, and/or other awards provided
thereunder. Additionally, the Board (or the Compensation Committee),
upon recommendation by the CEO, shall annually consider (on or
before each September 1/st/) the Executive's performance and
determine if additional grants of stock options, stock, and/or other
awards are appropriate.
4. The Executive shall continue to participate in all retirement,
welfare, deferred compensation, life and health insurance (including
health insurance for Executive's spouse and his dependants), and
other benefit plans or programs of the Company now or hereafter
applicable to the Executive or applicable generally to executives of
the Company or to a class of executives that includes senior
executives of the Company; provided, however, that during
2
<PAGE>
any period during the Term that the Executive is subject to a
Disability, and during the 180-day period of physical or mental
infirmity leading up to the Executive's Disability, the amount of
the Executive's compensation provided under Section 3.a. shall be
reduced by the sum of the amounts, if any, paid to the Executive for
the same period under any disability benefit or pension plan of the
Company or any of its subsidiaries.
5. The Company shall provide to the Executive an automobile owned or
leased by the Company of a make and model appropriate to the
Executive's status (in the reasonable business judgment of the
Executive) or, in lieu thereof at the Executive's option, shall
provide the Executive with an monthly allowance of not less than
$1,000 to partially cover the cost of an automobile owned or leased
by the Executive.
6. The Executive shall be entitled to three (3) weeks paid vacation (in
addition to Company-wide holiday periods) each year during the Term,
to be taken in accordance with the Company's vacation policies for
executives, as in effect from time to time.
7. The Company shall reimburse the Executive's expenses for dues and
capital assessments (but not initiation fees) of one (1) country and
(1) dining club membership currently held (or to be held) by the
Executive; provided, however, that if the Executive during the term
of his employment with the Company ceases his membership in any such
clubs and any bonds or other capital payments made by the Company
are repaid to the Executive, the Executive shall pay over such
payments to the Company.
8. The Company shall reimburse the Executive for first-class travel and
accommodations, seminar, and other expenses related to the
Executive's duties that are incurred and accounted for in accordance
with the practices of the Company, as in effect from time to time.
Upon the prior approval of the CEO, the Executive shall be entitled
to personal use of assets of the Company, free of charge or
assessment, whether or not such personal use is separate or in
conjunction with a business purpose.
9. The Company agrees that the Executive shall be entitled to invest in
venture capital and similar investments whether or not the Company
also participates in such investments.
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<PAGE>
4. Termination.
-----------
1. The Executive's employment under this Agreement may be terminated
prior to the end of the Initial Term, or if extended, the
Extended Term, only as follows:
(1) upon the death of the Executive;
(2) by the Company due to the Disability of the Executive upon
delivery of a Notice of Termination to the Executive;
(3) by the Company for Cause upon delivery of a Notice of
Termination to the Executive;
(4) by the Company without Cause upon delivery of a Notice of
Termination;
(5) following a Change in Control, by the Executive for any reason
upon delivery of a Notice of Termination to the Company within
a 90-day period beginning on the 30th day after any
occurrence of a Change in Control or within a 90-day period
beginning on the one year anniversary of the occurrence of any
Change in Control; and
(6) by the Executive upon a material breach of this Agreement by
the Company, upon delivery of a Notice of Termination to the
Company at least thirty (30) days prior to the Termination
Date and chance to cure therein.
2. If the Executive's employment with the Company shall be terminated
during the Term (i) by reason of the Executive's death, or (ii) by
the Company for Disability or Cause, the Company shall pay to the
Executive (or in the case of his death, the Executive's estate)
within 15 days after the Termination Date, a lump sum cash payment
equal to the Accrued Compensation and, if such termination is other
than by the Company for Cause, the Pro Rata Bonus.
3. If the Executive's employment with the Company shall be terminated
during the Term pursuant to Sections 4.a. (iv), (v), or (vi), the
Executive shall be entitled to all of the following:
(1) the Company shall pay to the Executive in cash, as a lump-
sum, within 15 days of the Termination Date, an amount equal
to all
4
<PAGE>
Accrued Compensation and the Pro Rata Bonus;
(2) the Company shall pay to the Executive in cash, as a lump-sum,
within 15 days of the Termination Date, an amount equal to the
base salary (as described in Section 3.a.), then in effect,
that would otherwise have been payable to the Executive during
the Term if such Term was not earlier terminated; provided,
however, if the otherwise remaining Term is less than 365
days, such remaining Term shall automatically be deemed to be
365 days;
(3) the Company shall pay to the Executive in cash, as a lump-sum,
within 15 days of the Termination Date an amount equal to the
product of the Bonus Amount, multiplied by the number of
months that were otherwise remaining in the Term, divided by
12;
(4) the Company shall pay to the Executive in cash, as a lump-
sum, within 15 days of the Termination Date, an amount equal
to those amounts described in Sections 3.e. and 3.g. that
would have otherwise been payable during the Term if such
Term was not earlier terminated;
(5) the restrictions on any outstanding incentive awards
(including stock options) granted to the Executive under any
Company plan or arrangement shall lapse and such incentive
award shall become 100% vested, and all stock options and
stock appreciation rights granted to the Executive by the
Company shall become immediately exercisable and shall become
100% vested; and
(6) upon a Termination Date occurring prior to the earlier of (A)
an Initial Public Offering, or (B) the date in which the
Company becomes subject to the reporting requirements set
forth in the Securities Exchange Act of 1934, the Company
shall, within 15 days after the Termination Date, offer to
repurchase all of the Company's capital stock and other debt
and securities of the Company (collectively, the "Company
Equity") then owned by the Executive, at a purchase price
equal to the Fair Market Value of such Company Equity, as
determined in accordance with the provisions below. The
question of the Fair Market Value of the Company Equity shall
be submitted to three impartial and reputable appraisers. The
Executive and the Company shall each select one appraiser, and
such appraisers shall select a third, independent appraiser.
The three appraisers shall thereafter proceed as expeditiously
as possible to determine (by concurrence of a majority of such
appraisers) the Fair Market Value
5
<PAGE>
of the Company Equity, and the appraisers shall deliver an
appraisal report to the Executive and the Company as soon as
practicable after it is completed. The determination of the
question of the Fair Market Value of the Company Equity by
such appraisers shall be final and binding on the Executive
and the Company for purposes of this Agreement. The Company
shall pay the reasonable fees and expenses of such appraisers.
For the purposes hereof, "Fair Market Value" shall mean the
relevant percentage of the fair value of the business of the
Company represented by the Company Equity as to which such
determination is being made, which shall be determined on a
going concern basis and as between a willing seller and a
willing buyer, taking into account the Company's financial
condition, performance, market share and other relevant
criteria, but not taking into account the absence of a public
market for the shares or that the shares constitute a minority
interest in the Company.
4. The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other
employment or otherwise, and no such payment shall be offset nor
reduced by the amount of any compensation or benefits provided to
the Executive in any subsequent employment.
5. In the event that any payment or benefit (within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended
(the "Code")) to the Executive or for his benefit paid or payable or
distributed or distributable pursuant to the terms of this Agreement
or otherwise in connection with, or arising out of, his employment
with the Company or a change in ownership or effective control of
the Company or of a substantial portion of its assets ( a "Payment"
or "Payments"), would be subject to the excise tax imposed by
Section 4999 of the Code and/or any interest or penalties are
incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the
Executive shall promptly receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of
all taxes (including any interest or penalties, other than interest
and penalties imposed by reason of the Executive's failure to file
timely a tax return or pay taxes shown due on his return, imposed
with respect to such taxes and the Excise Tax, including any Excise
Tax imposed upon the Gross-Up Payment, the Executive would retain an
amount equal to such original payment or benefit.
6. The severance pay and benefits provided for in this Section 4 shall
be in lieu of any other severance or termination pay to which the
Executive may be
6
<PAGE>
entitled under any Company severance or termination plan, program,
practice or arrangement. The Executive's entitlement to any other
compensation or benefits shall be determined in accordance with the
Company's executive benefit plans and other applicable programs,
policies and practices then in effect.
5. Protection of Trade Secrets and Confidential Information.
--------------------------------------------------------
1. Through exercise of his rights and performance of his obligations
under this Agreement, Executive will be exposed to "Trade Secrets"
and "Confidential Information" (as those terms are defined below).
"Trade Secrets" shall mean information or data or of about the
Company or any affiliated entity, including, but not limited to,
technical or nontechnical data, formulas, patterns, compilations,
programs, devices, methods, techniques, drawings, processes,
financial data, financial plans, products plans, or lists of actual
or potential customers, clients, distributors, or licensees, that:
(i) derive economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from their
disclosure or use; and (ii) are the subject of efforts that are
reasonable under the circumstances to maintain their secrecy. To the
extent that the foregoing definition is inconsistent with a
definition of "trade secret" mandated under applicable law, the
latter definition shall govern for purposes of interpreting
Executive's obligations under this Agreement. Except as required to
perform his obligations under this Agreement or except with
Company's prior written permission, Executive shall not use,
redistribute, market, publish, disclose or divulge to any other
person or entity any Trade Secrets of the Company. The Executive's
obligations under this provision shall remain in force (during and
after the Term) for so long as such information or data shall
continue to constitute a "trade secret" under applicable law.
Executive agrees to cooperate with any and all confidentiality
requirements of the Company and Executive shall immediately notify
the Company of any unauthorized disclosure or use of any Trade
Secrets of which Executive becomes aware.
2. The Executive agrees to maintain in strict confidence and, except as
necessary to perform his duties for the Company, not to use or
disclose any Confidential Business Information at any time during
the term of his employment and for a period of one year after the
later of (i) the Executive's last date of employment and (ii) the
last day of the period with respect to which the Executive received
compensation by reason of his termination of employment.
"Confidential Business Information" shall mean any non-public
information of a competitively sensitive or personal nature, other
than Trade Secrets, acquired by the Executive, directly or
indirectly, in connection
7
<PAGE>
with the Executive's employment (including his employment with the
Company prior to the date of this Agreement), including (without
limitation) oral and written information concerning the Company or
its affiliates relating to financial position and results of
operations (revenues, margins, assets, net income, etc.), annual and
long-range business plans, marketing plans and methods, account
invoices, oral or written customer information, and personnel
information. Confidential Business Information also includes
information recorded in manuals, memoranda, projections, minutes,
plans, computer programs, and records, whether or not legended or
otherwise identified by the company and its affiliates as
Confidential Business Information, as well as information that is
the subject of meetings and discussions and not so recorded;
provided, however, that Confidential Business Information shall not
include information that is generally available to the public, other
than as a result of disclosure, directly or indirectly, by the
Executive, or was available to the Executive on a non-confidential
basis prior to its disclosure to the Executive.
3. Upon termination of employment, the Executive shall leave with the
Company all business records relating to the Company and its
affiliates including, without limitation, all contracts, calendars,
and other materials or business records concerning its business or
customers, including all physical, electronic, and computer copies
thereof, whether or not the Executive prepared such materials or
records himself. Upon such termination, the Executive shall retain
no copies of any such materials.
4. As set forth above, the Executive shall not disclose Trade Secrets
or Confidential Business Information. However, nothing in this
provision shall prevent the Executive from disclosing Trade Secrets
or Confidential Business Information pursuant to a court order or
court-issued subpoena, so long as the Executive first notifies
(unless such notice is impracticable or impossible) the Company of
said order or subpoena in sufficient time to allow the Company to
seek an appropriate protective order. The Executive agrees that if
he receives any formal or informal discovery request, court order,
or subpoena requesting that he disclose Trade Secrets or
Confidential Business Information, he will immediately notify the
Company and provide the Company with a copy of said request, court
order, or subpoena.
6. Non-Solicitation and Related Matters.
------------------------------------
1. If the Executive is terminated for Cause or if the Executive resigns
without Adequate Justification, then for a period of two years
following the date of termination, the Executive shall not (except
on behalf of or with the prior written consent of the Company)
either directly or indirectly, on the
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<PAGE>
Executive's own behalf or in the service or on behalf of others, (i)
solicit, divert, or appropriate to or for a Competing Business, or
(ii) attempt to solicit, divert, or appropriate to or for a
Competing Business, any person or entity that was a customer or
prospective customer of the Company on the date of termination and
with whom the Executive had direct material contact within twelve
months of the Executive's last date of employment.
2. If the Executive is terminated for Cause or if the Executive resigns
without Adequate Justification, then for a period of two years
following the date of termination, the Executive shall not, either
directly or indirectly, on the Executive's own behalf or in the
service or on behalf of others, (i) solicit, divert, or hire away,
or (ii) attempt to solicit, divert, or hire away any employee of, or
consultant to, the Company or any of its affiliates engaged or
experienced in the Business, regardless of whether the employee or
consultant is full-time or temporary, the employment or engagement
is pursuant to written agreement, or the employment is for a
determined period or is at will.
3. The Executive acknowledges and agrees that great loss and
irreparable damage would be suffered by the Company if the Executive
should breach or violate any of the terms or provisions of the
covenants and agreements set forth in this Section 6. The Executive
further acknowledges and agrees that each of these covenants and
agreements is reasonably necessary to protect and preserve the
interests of the Company. The parties agree that money damages for
any breach of clauses (a) and (b) of this Section 6 will be
insufficient to compensate for any breaches thereof, and that the
Executive or any of the Executive's affiliates, as the case may be,
will, to the extent permitted by law, waive in any proceeding
initiated to enforce such provisions any claim or defense that an
adequate remedy at law exists. The existence of any claim, demand,
action, or cause of action against the Company, whether predicated
upon this Agreement or otherwise, shall not constitute a defense to
the enforcement by the Company of any of the covenants or agreements
in this Agreement; provided, however, that nothing in this Agreement
shall be deemed to deny the Executive the right to defend against
this enforcement on the basis that the Company has no right to its
enforcement under the terms of this Agreement.
4. The Executive acknowledges and agrees that: (i) the covenants and
agreements contained in clauses (a) through (e) of this Section 6
are the essence of this Agreement; (ii) that the Executive has
received good, adequate and valuable consideration for each of these
covenants; and (iii) each of these covenants is reasonable and
necessary to protect and preserve the interests and properties of
the Company. The Executive also
9
<PAGE>
acknowledges and agrees that: (i) irreparable loss and damage will
be suffered by the company should the Executive breach any of these
covenants and agreements; (ii) each of these covenants and
agreements in clauses (a) and (b) of this Section 6 is separate,
distinct and severable not only from the other covenants and
agreements but also from the remaining provisions of this Agreement;
and (iii) the unenforceability of any covenants or agreements shall
not affect the validity or enforceability of any of the other
covenants or agreements or any other provision or provisions of this
Agreement. The Executive acknowledges and agrees that if any of the
provisions of clauses (a) and (b) of this Section 6 shall ever be
deemed to exceed the time, activity, or geographic limitations
permitted by applicable law, then such provisions shall be and
hereby are reformed to the maximum time, activity, or geographical
limitations permitted by applicable law.
5. The Executive and the Company hereby acknowledge that it may be
appropriate from time to time to modify the terms of this Section 6
and the definition of the term "Business" to reflect changes in the
Company's business and affairs so that the scope of the limitations
placed on the Executive's activities by this Section 6 accomplishes
the parties' intent in relation to the then current facts and
circumstances. Any such amendment shall be effective only when
completed in writing and signed by the Executive and the Company.
7. Successors; Binding Agreement.
-----------------------------
1. This Agreement shall be binding upon and shall inure to the benefit
of the Company, its Successors and Assigns and the Company shall
require any Successors and Assigns to expressly assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession or assignment had taken place.
2. Neither this Agreement not any right or interest hereunder shall be
assignable or transferable by the Executive, his beneficiaries or
legal representatives, except by will or by the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.
8. Fees and Expenses. The Company shall pay all reasonable legal fees
-----------------
and related expenses (including but not limited to the costs of experts,
accountants and counsel) incurred by the Executive as they become due as
a result of any of the following: (a) the preparation, negotiation,
counsel, and execution of this Agreement; (b) the termination of the
Executive's employment (including all such fees and expenses, if
10
<PAGE>
any, incurred in contesting or disputing any such termination of
employment); or (c) the Executive seeking to obtain or enforce any right
or benefit provided by this Agreement.
9. Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in this Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly
given when personally delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed to the respective
addresses last given by each party to the other; provided, however,
-------- -------
that all notices to the Company shall be directed to the attention of
the Chairman of Board with a copy to the Secretary of the Company.
All notices and communications shall be deemed to have been received
on the date of delivery thereof.
10. Settlement of Claim. The Company's obligation to make the payments
-------------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other
right that the Company may have against the Executive or others. The
Company may, however, withhold from any benefits payable under this
Agreement all federal, state, city, or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
11. Modification and Waiver. No provisions of this Agreement may be
-----------------------
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by the Executive and the
Company. No waiver by any party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time.
12. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Georgia without
giving effect to the conflict of laws principles thereof. Any action
brought by any party to this Agreement shall be brought and maintained
in a court of competent jurisdiction in State Georgia.
13. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions
hereof.
14. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto and supersedes all prior agreement, if any,
understandings and arrangements, oral or written, between the parties
hereto with respect to the subject matter hereof.
11
<PAGE>
15. Headings. The headings of Sections herein are included solely for
--------
convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
16. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
17. Piggyback Registration Rights.
-----------------------------
1. Rights. Subject to the provision of this Section 17, if the Company
------
proposes to make a registered public offering of shares of its
Common Stock, excluding an Initial Public Offering, of any of its
securities under the Act (whether to be sold by it or by one or more
third parties), other than an offering registered on Form S-8, Form
S-4, or comparable forms, the Company shall, not less than 45 days
prior to the proposed filing date of the registration form, given
written notice of the proposed registration to the Executive, and at
the written request of the Executive delivered to the Company within
15 days after the receipt of such notice, shall, subject to the
provisions of subsection (b) below, include in such registration and
offering, and in any underwriting of such offering, all shares of
Common Stock as may have been designated in the Executive's request.
2. Offering Reduction. If a registration in which the Executive has
------------------
the right to participate pursuant to this Section 17 is an
underwritten offering, and if the managing underwriters, determine
in their reasonable discretion, that the number of securities
requested to be included in such registration only exceeds the
number that can be sold in such offering, then the Company shall
include in such registration the number of shares of Common Stock
requested to be sold by the Company as the managing underwriters
shall determine; and the Executive and all other persons who have
exercised registration rights with respect to the proposed offering
shall participate in the offering in proportion to the number of
shares of Common Stock so requested by each of them to be so
included.
18. Other Registration Issues.
-------------------------
1. The Company shall have no obligation to include shares of Common
Stock owned by the Executive in a registration statement pursuant to
Section 17 hereof, unless and until the Executive has furnished the
Company with all information and statements about or pertaining to
the Executive in such reasonable detail as is reasonably deemed by
the Company to be necessary
12
<PAGE>
or appropriate with respect to the preparation of the registration
statement. Whenever the Executive has requested that any shares of
Common Stock be registered pursuant to Section 17 hereof, subject to
the provisions of those Sections, the Company shall, as
expeditiously as reasonably possible:
(1) prepare and file with the SEC a registration statement with
respect to such shares and use its best efforts to cause such
registration statement to become effective as soon as
reasonably practicable thereafter (provided that before filing
a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish counsel for the
Executive with copies of all such documents proposed to be
filed);
(2) prepare and file with the SEC such amendments and supplements
to such registration statement and prospectus used in
connection therewith as may be necessary to keep such
registration statement effective for a period of not less than
nine (9) months or until the underwriters have completed the
distribution described in such registration statement,
whichever occurs first;
(3) furnish to the Executive such number of copies of such
registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement
(including each preliminary prospectus), and such other
documents as the Executive may reasonably request;
(4) use its best efforts to register or qualify such shares under
such other securities or Blue Sky Laws of such jurisdictions
as the Executive reasonably requests (and to maintain such
registrations and qualifications effective for a period of
nine months or until the underwriters have completed the
distribution of such shares, whichever occurs first), and to
do any and all other acts and things which may be necessary or
advisable to enable the Executive or underwriters to
consummate the disposition in such jurisdictions of such
shares; provided, further, however, that, notwithstanding
anything to the contrary in this Agreement with respect to the
bearing of expenses, if any such jurisdiction shall require
that expenses incurred in connection with the qualification of
such shares in that jurisdiction be borne in part or full by
the Executive, then the Executive shall pay such expenses to
the extent required by such jurisdiction;
(5) cause all such shares to be listed on securities exchanges, if
any, on
13
<PAGE>
which similar securities issued by the Company are then
listed;
(6) provide a transfer agent and registrar for all such shares
not later than the effective date of such registration
statements;
(7) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such
other actions as the Executive and underwriters reasonably
request (and subject to approval by the Company's counsel) in
order to expedite or facilitate the disposition of such
shares; and
(8) make available for inspection by the Executive, by any
underwriter participating in any distribution pursuant to such
registration statement, and by any attorney, accountant or
other agent retained by the Executive or underwriter, or by
any such underwriter, all financial and other records,
pertinent corporate documents, and properties (other than
confidential intellectual property) of the Company; provided,
however, that the Company may condition delivery of any
information, records or corporate documents upon the receipt
from the Executive and the underwriter and their counsel,
accountants, advisors and agents, of a confidentiality
agreement in form and substance acceptable to the Company and
its counsel in the exercise of their exclusive discretion.
2. Holdback Agreement. In the event that the Company effects an
------------------
underwritten public offering of any of the Company's equity
securities, the Executive agrees, if requested by the managing
underwriters, not to effect any sale or distribution, including any
sale pursuant to Rule 144 under the Act, of any equity securities
(except as party of such underwritten offering) during the 180-day
period commencing with the effective date of the registration
statement for such offering.
3. Stockholder Expenses. If, pursuant to Section 17 hereof, shares
--------------------
of Common Stock owned by the Executive are included in a
registration statement, then the Executive shall pay all transfer
taxes, if any, relating to the sale of its shares, the fees and
expenses of his own counsel, and its pro rata portion of any
underwriting discounts, fees or commissions or the equivalent
thereof.
4. The Company's Expenses. Except for the fees and expenses specified
----------------------
in Section 18(c) hereof and except as provided below in this Section
18(d), the Company shall pay all expenses incident to the
registration and to the Company's performance of or compliance with
this Agreement, including, without limitation, all registration and
filing fees, fees and expenses of
14
<PAGE>
compliance with securities or Blue Sky Laws, underwriting discounts,
fees and commissions (other than the Executive's pro rata portion of
any underwriting discounts or commissions or the equivalent
thereof), printing expenses, messenger and delivery expenses, and
fees and expenses of counsel for the Company and all independent
certified public accountants and other persons retained by the
Company. If the Company shall previously have paid, pursuant to this
Section 18(d), the expenses of a registration, then the Executive
shall pay all expenses described in this Section 18(d) (but not
expenses described in Section 18(e) hereof).
5. Other. With respect to any registration pursuant to Section 17
-----
hereof, the Company shall pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties) and the expenses
and fees for listing the securities to be registered on exchanges on
which similar securities issued by the Company are then listed.
6. Indemnity. In the event that any shares of Common Stock owned by
---------
the Executive are offered or sold by means of a registration
statement pursuant to Section 17 hereof, the Company agrees to
indemnify and hold harmless the Executive and each person, if any,
who controls or may control the Executive within the meaning of the
Act (the Executive and any such other persons being hereinafter
referred to individually as an "Indemnified Person" and collectively
as "Indemnified Persons") from and against all demands, claims,
actions or causes of action, assessments, losses, damages,
liabilities, costs, and expenses, including, without limitation,
interest, penalties, and reasonable attorneys fees and
disbursements, asserted against, resulting to, imposed upon or
incurred by such Indemnified Person, jointly or severally, directly
or indirectly (hereinafter referred to in this Section 18(f) in the
singular as a "claim" and in the plural as "claims"), based upon,
arising out of, or resulting from any untrue statement or alleged
untrue statement of a material fact contained in the registration
statement, any preliminary or final prospectus contained therein, or
any amendment or supplement thereto, or any document incident to
registration or qualification of any such shares, or any omission or
alleged omission to state therein a material fact necessary to make
the statements made therein, in the light of the circumstances under
which they were made, not misleading, or any violation by the
Company of the Act of any state securities or Blue Sky Laws, except
insofar as such claim is based upon, arises out of or results from
information developed or certified by the Executive for use in
connection with the registration statement or arises out of or
results from the omission of information known to the Executive
prior to the violation or alleged violation. The Executive agrees
15
<PAGE>
to indemnify and hold harmless the Company, its officers and
directors, and each person, if any, who controls or may control the
Company within the meaning of the Act (the Company, its officers and
directors, and any such persons also being hereinafter referred to
individually in this context as an "Indemnified Person" and
collectively as "Indemnified Persons"(from and against all claims
based upon, arising out of, or resulting from any untrue statement
of a material fact contained in the registration statement, or any
omission to state therein a material fact necessary in order to make
the statement made therein, in the light of the circumstances under
which they were made, not misleading, to the extent that such claim
is based upon, arises out of, or results from information developed
or certified by the Executive for use in connection with the
registration statement or arises out of, or results from an omission
of information known to the Executive prior to the violation or
alleged violation; provided, however, that the maximum amount of
liability in respect of such indemnification shall be limited to an
amount equal to the net proceeds actually received by the Company or
the Executive from the sale of such shares effected pursuant to such
registration. The indemnifications set forth herein shall be in
addition to any liability the Company or the Executive may otherwise
have to the Indemnified Persons. Promptly after actually receiving
definitive notice of any claim in respect of which an Indemnified
Person may seek indemnification under this Section 18(f), such
Indemnified Person shall submit written notice thereof to either the
Company or the Executive, as the case may be (sometimes being
hereinafter referred to as an "Indemnifying Person"). The omission
of the Indemnified Person so to notify the Indemnifying Person of
any such claim shall not relieve the Indemnifying Person from any
liability it may have hereunder except to the extent that (a) such
liability was caused or increased by such omission, or (b) the
ability of the Indemnifying Person to reduce such liability was
materially adversely affected by such omission. In addition, the
omission of the Indemnified Person to notify the Indemnifying Person
of any such claim shall not relieve the Indemnifying Person to
notify the Indemnifying Person of any such claim shall not relieve
the Indemnifying Person from any liability it may have otherwise
hereunder. The Indemnifying Person shall have the right to
undertake, by counsel or representatives of its own choosing, the
defense, compromise or settlement (without admitting liability of
the Indemnified Person) of any such claim asserted, such defense,
compromise or settlement to be undertaken at the expense and risk of
the Indemnifying Person, and the Indemnified Person shall have the
right to engage separate counsel, at its own expense, whom counsel
for the Indemnifying Person shall keep informed and consult with in
a reasonable manner. In the event the Indemnifying Person shall
elect not to undertake such defense by its own representatives, the
Indemnifying Person shall give prompt written notice of such
election to the Indemnified Person,
16
<PAGE>
and the Indemnified Person shall give prompt written notice os such
election to the Indemnified Person, and the Indemnified Person shall
undertake the defense, compromise or settlement (without admitting
liability of the Indemnified Person) thereof on behalf of and for
the account and risk of the Indemnifying Person by counsel or other
representatives designed by the Indemnified Person. In the event
that any claim shall arise out of a transaction or cover any period
or periods wherein the Company and the Executive shall each be
liable hereunder for part of the liability or obligation arising
therefrom, then the parties shall, each choosing its own counsel and
bearing its own expenses, defend such claims, and no settlement or
compromise of such claim may be made without the joint consent or
approval of the Company and the Executive. Notwithstanding the
foregoing, no Indemnifying Person shall be obligated hereunder with
respect to amounts paid in settlement of any claim if such
settlement is effected without the consent of such Indemnifying
Person (which consent shall not be unreasonably withheld).
19. Definitions. For purposes of this Agreement, the following terms shall
-----------
have the following meanings:
1. "Accrued Compensation" shall mean the aggregate amount of all
amounts earned or accrued through the Termination Date but not paid
as of the Termination Date including (i) base salary and other
amounts set forth in Sections 3.e., f., g., and h., (ii)
reimbursement for expenses incurred by the Executive on behalf of
the Company during the period ending on the Termination Date and not
otherwise reimbursed hereunder, and (iii) bonuses and incentive
compensation (other than the Pro Rata Bonus).
2. "Act" shall mean the Securities Act of 1933, as amended.
3. "Adequate Justification" shall mean the occurrence after a Change in
Control of any of the following events or conditions: (i) a material
failure of the Company to comply with the terms of this Agreement;
(ii) any relocation of the Executive outside the Atlanta, Georgia
metropolitan area; or (iii) other than as provided for herein, the
removal of the Executive from the position and/or duties described
above or any other substantial diminution in the Executive's
authority or the Executive's responsibilities that is not approved
by a majority of the members of the Board with the Executive
abstaining.
4. "Bonus Amount" shall mean the greater of (i) the most recent
annual bonuses paid or payable to the Executive, or (ii) the
average of the annual bonuses paid or payable to the Executive
during all previous fiscal years ended prior to the Termination
Date.
17
<PAGE>
5. "Business" shall mean the design, development, marketing and
implementation of electronic banking software and services for
financial institutions.
6. "Bylaws" shall mean the Bylaws of the Company, as amended,
supplemented or otherwise modified form time to time.
7. "Cause" shall mean the occurrence of any of the following:
1. any act that constitutes, on the part of the Executive,
fraud or gross malfeasance of duty; provided, however, that
such conduct shall not constitute Cause:
(1.) unless (1) there shall have been delivered to the
Executive a written notice setting forth with specificity
the reasons that the Board believes the Executive's
conduct constitutes the criteria set forth in clause (i),
(2) the Executive shall have been provided the
opportunity, if such behavior is susceptible to cure, to
cure the specific inappropriate behavior within 30 days
following written notice, (3) after such 30-day period,
the Board of Directors determines that the behavior has
not been cured, and (4) the termination is evidenced by a
resolution adopted in good faith by two-thirds of the
members of the Board (other than the Executive); or
(2.) if such conduct (1) was believed by the Executive in
good faith to have been in or not opposed to the
interests of the Company, and (2) was not intended to
and did not result in the direct or indirect gain to or
personal enrichment of the Executive; or
(ii) the conviction (from which no appeal may be or is timely
taken) or plea of other than "not guilty" of the Executive of
a felony or misdemeanor if such misdemeanor involves moral
turpitude; or
(iii) the material breach of this Agreement by the Executive, upon
forty-five (45) days written notice thereof and chance to cure
therein.
10. A "Change in Control" shall mean the occurrence during the Term of
any of the following events:
(1) An acquisition (other than directly from the Company) of any
voting
18
<PAGE>
securities of the Company (the "Voting Securities") by any
"Person" (as the term "person" is used for purposes of Section
13(d) or 14(d) of the Securities Exchange act of 1934 (the
"1934 Act")) immediately after which such Person has
"Beneficial Ownership" (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of 35% or more of the combined
voting power of the Company's then outstanding Voting
Securities; provided, however, that in determining whether a
Change in Control has occurred, Voting Securities that are
acquired in a "Non-Control Acquisition" (as defined below)
shall not constitute an acquisition that would cause a Change
in Control. A "Non-Control Acquisition" shall mean an
acquisition by (1) an employee benefit plan (or a trust
forming a part thereof) maintained by (x) the Company or (y)
any corporation or other Person of which a majority of its
voting power or its equity securities or equity interest is
owned directly or indirectly by the Company (a "Subsidiary"),
(2) the Company or any Subsidiary, or (3) any Person in
connection with a "Non-Control Transaction" (as defined
below);
(2) The individuals who, as of the date of the Initial Public
Offering, are members of the Board (the "Incumbent Board")
cease for any reason to constitute at least two-thirds of the
Board following the date of the Initial Public Offering;
provided, however, that if the election, or nomination for
election by the Company's stockholders, of any new director
was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this
Agreement, be considered as a member of the Incumbent Board;
provided, further, however, that no individual shall be
considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board (a "Proxy Contest") including by
reason of any agreement intended to avoid or settle any
Election contest or Proxy Contest; or
(3) Approval by stockholders of the Company of:
(1.) A merger, consolidation, or reorganization involving
the Company, unless
(1) the stockholders of the Company, immediately before
such merger, consolidation or reorganization, own,
directly or indirectly, immediately following such
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<PAGE>
merger, consolidation or reorganization, own at
least two-thirds of the combined voting power of the
outstanding voting securities of the corporation
resulting form such merger or consolidation or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership
of the Voting Securities immediately before such
merger, consolidation or reorganization, and
(2) the individuals who were members of the Incumbent
Board immediately prior to the execution of the
agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds
of the members of the board of directors of the
Surviving Corporation.
(A transaction described in clauses (1) and (2)
shall herein be referred to as a "Non-Control
Transaction")
(2) A complete liquidation or dissolution of the Company; or
(3) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any
Person (other than a transfer to a Subsidiary).
Notwithstanding anything contained in this Agreement to the
contrary, if the Executive's employment is terminated prior to a
Change in Control and the Executive reasonably demonstrates that
such termination (A) was at the request of a third party who has
indicated an intention or taken steps reasonably calculated to
effect a Change in Control and who effectuates a Change in Control
(a "Third Party") or (B) otherwise occurred in connection with, or
in anticipation of, a Change in Control that actually occurs, then
for all purposes of this Agreement, the date of a Change in Control
with respect to the Executive shall mean the date immediately prior
to the date of such termination of the Executive's employment.
11. "Compensation Committee" shall mean the compensation committee of
the Board.
12. "Competing Business" shall mean any business that, in whole or in
part, is the same or substantially the same as the Business, unless
such Business is operated and/or conducted by an affiliate of the
Company.
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<PAGE>
13. "Disability" shall mean the inability of the Executive to perform
substantially all of his current duties as required hereunder for a
continuous period of 90 days because of mental or physical
condition, illness or injury.
14. "Initial Public Offering" shall mean the closing of the first public
offering of the Company's common stock registered under the Act in
which aggregate proceeds to the Company, net of all underwriting
discounts and commissions and other expenses of issuance and
distribution as stated in the prospectus relating to such offering,
are equal to at least twelve million dollars ($12,000,000).
15. "Notice of Termination" shall mean a written notice of termination
from the Company or the Executive, as the case may be, that
specifies an effective date of termination, indicates the specific
termination provision in this Agreement relied upon, and sets forth
in reasonable detail the facts and circumstances claimed to provide
a basis for termination of the Executive's employment under the
provision so indicated.
16. "Pro Rata Bonus" shall mean an amount equal to the Bonus Amount
multiplied by a fraction the numerator of which is the number of
days in the fiscal year through the Termination Date and the
denominator of which is 365.
17. "Successors and Assigns" shall mean a corporation or other entity
acquiring all or substantially all the assets and business of the
Company (including this Agreement), whether by operation of law or
otherwise.
18. "Termination Date" shall mean, in the case of the Executive's death,
his date of death, and in all other cases, the date specified in the
Notice of Termination.
[Continued on the next page.]
21
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IN WITNESS WHEREOF, the Company and Executive have caused this Agreement to
be executed, effective as of the Effective Date.
COMPANY:
Netzee, Inc.
By: /s/ Glenn W. Sturm
--------------------------
Name: Glenn W. Sturm
------------------------
Title: Chief Executive Officer
-----------------------
EXECUTIVE:
/s/ David W. Brasfield
------------------------------
David W. Brasfield
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into by
-------------------------
and between NETZEE, INC., a Georgia corporation (the "Company"), and RICHARD S.
EISWIRTH, JR., an individual resident of the State of Georgia (the "Executive"),
to be effective as of the 1/st/ day of September, 1999 (the "Effective Date").
The Company desires to employ the Executive as its Executive Vice President
of Finance and Chief Financial Officer, and the Executive is willing to serve
the Company on the terms and conditions provided herein.
Defined Terms: Capitalized terms used in this Agreement that are not otherwise
- -------------
defined herein are defined at Section 19 hereof.
1. Employment. The Company hereby employs the Executive, and the Executive
----------
hereby agrees to serve the Company, as the Executive Vice President of
Finance and Chief Financial Officer of the Company, upon the terms and
conditions set forth herein. The Executive shall be the only Executive
Vice President of Finance and Chief Financial Officer of the Company.
The Executive shall have such authority and responsibilities as are
consistent with his position as provided herein and as may be set forth
in the Bylaws or assigned by the Chief Executive Officer of the Company
(the "CEO") from time to time. The Executive shall report to the CEO.
The Executive shall devote his full business time, attention, skill, and
efforts to the performance of his duties hereunder, except during
periods of illness or periods of vacation and leaves of absence
consistent with Company policy. This employment relationship between the
Executive and the Company shall be exclusive; provided, however, the
Executive may devote reasonable periods of time (and be exclusively
entitled to all compensation and other income related thereto) to
continue to provide consulting services to other persons and
organizations, to serve as a director or advisor to other organizations,
to perform charitable and other community activities, and to manage his
personal investments; provided, further, however, that such activities
do not interfere with the performance of his duties hereunder and are
not adverse to the interests of the Company.
Unless otherwise agreed to by the Executive, the Executive shall be
headquartered at the Company's offices in and around the metropolitan
area of Atlanta, Georgia, but shall do such traveling as is reasonably
required of him in the performance of his duties.
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2. Term. Unless earlier terminated as provided herein, the Executive's
----
employment under this Agreement shall commence as of the Effective Date
and shall continue for a period of two (2) years (the "Initial Term");
provided, however, the Company may extend the Initial Term for another
two (2) years (the "Extended Term") upon (i) written notice to the
Executive on or before January 15, 2001, and (ii) a minimum of a seven
percent (7%) increase to the Executive's then existing base salary (as
described at Section 3.a. below). (The Initial Term and the Extended
Term shall be individually and collectively referred to herein as the
"Term.")
3. Compensation and Benefits.
-------------------------
a. The Company shall pay to the Executive a base salary at a rate of
not less than $140,000 per annum, in accordance with the salary
payment practices of the Company in effect from time to time.
On or before each September 1/st/ of the Term (beginning September
1, 2000) the CEO (or Compensation Committee) shall review the base
salary of the Executive and increase (but not decrease) such base
salary by an amount determined in the discretion of the CEO (or
Compensation Committee).
b. For each year of the Term, the Executive shall be eligible to
participate in any management incentive programs established by the
Company and to receive incentive compensation based upon achievement
of targeted levels of performance and such other criteria as the CEO
(or Compensation Committee) may establish from time to time. In
addition, the CEO (or the Compensation Committee) shall annually
consider (on or before each September 1/st/) the Executive's
performance and determine if additional bonus is appropriate.
c. The Executive may participate in any executive stock incentive plans
established by the Company from time to time and shall be eligible
for the grant of stock options, stock, and/or other awards provided
thereunder. Additionally, the Board (or the Compensation Committee),
upon recommendation by the CEO, shall annually consider (on or
before each September 1/st/) the Executive's performance and
determine if additional grants of stock options, stock, and/or other
awards are appropriate.
d. The Executive shall continue to participate in all retirement,
welfare, deferred compensation, life and health insurance (including
health insurance for Executive's spouse and his dependants), and
other benefit plans or programs of the Company now or hereafter
applicable to the Executive or applicable generally to executives of
the Company or to a class of executives that includes senior
executives of the Company; provided, however, that during
2
<PAGE>
any period during the Term that the Executive is subject to a
Disability, and during the 180-day period of physical or mental
infirmity leading up to the Executive's Disability, the amount of
the Executive's compensation provided under Section 3.a. shall be
reduced by the sum of the amounts, if any, paid to the Executive for
the same period under any disability benefit or pension plan of the
Company or any of its subsidiaries.
e. The Company shall provide to the Executive an automobile owned or
leased by the Company of a make and model appropriate to the
Executive's status (in the reasonable of the Executive) or, in lieu
thereof at the Executive's option, shall provide the Executive with
an monthly allowance of not less than $1,000 to partially cover the
cost of an automobile owned or leased by the Executive.
f. The Executive shall be entitled to three (3) weeks paid vacation (in
addition to Company-wide holiday periods) each year during the Term,
to be taken in accordance with the Company's vacation policies for
executives, as in effect from time to time.
g. The Company shall reimburse the Executive's expenses for dues and
capital assessments (but not initiation fees) of one (1) country and
(1) dining club membership currently held (or to be held) by the
Executive; provided, however, that if the Executive during the term
of his employment with the Company ceases his membership in any such
clubs and any bonds or other capital payments made by the Company
are repaid to the Executive, the Executive shall pay over such
payments to the Company.
h. The Company shall reimburse the Executive for first-class travel and
accommodations, seminar, and other expenses related to the
Executive's duties that are incurred and accounted for in accordance
with the practices of the Company, as in effect from time to time.
Further, the Company shall reimburse the Executive for all fees,
dues, seminars (including travel and lodging) and other related
costs and expenses reasonably required by the Executive to maintain
his status as a certified public accountant in each state that the
Executive is, or may be, so certified.
Upon the prior approval of the CEO, the Executive shall be entitled
to personal use of assets of the Company, free of charge or
assessment, whether or not such personal use is separate or in
conjunction with a business purpose.
i. The Company agrees that the Executive shall be entitled to invest in
venture capital and similar investments whether or not the Company
also participates
3
<PAGE>
in such investments.
4. Termination.
-----------
a. The Executive's employment under this Agreement may be terminated
prior to the end of the Initial Term, or if extended, the Extended
Term, only as follows:
(i) upon the death of the Executive;
(ii) by the Company due to the Disability of the Executive upon
delivery of a Notice of Termination to the Executive;
(iii) by the Company for Cause upon delivery of a Notice of
Termination to the Executive;
(iv) by the Company without Cause upon delivery of a Notice of
Termination; and
(v) by the Executive upon a material breach of this Agreement by
the Company, upon delivery of a Notice of Termination to the
Company at least thirty (30) days prior to the Termination
Date and chance to cure therein.
b. If the Executive's employment with the Company shall be terminated
during the Term (i) by reason of the Executive's death, or (ii) by
the Company for Disability or Cause, the Company shall pay to the
Executive (or in the case of his death, the Executive's estate)
within 15 days after the Termination Date, a lump sum cash payment
equal to the Accrued Compensation and, if such termination is other
than by the Company for Cause, the Pro Rata Bonus.
c. If the Executive's employment with the Company shall be terminated
during the Term pursuant to Sections 4.a. (iv) or (v), the Executive
shall be entitled to all of the following:
(i) the Company shall pay to the Executive in cash, as a lump-
sum, within 15 days of the Termination Date, an amount equal
to all Accrued Compensation and the Pro Rata Bonus;
(ii) the Company shall pay to the Executive in cash, as a lump-
sum, within 15 days of the Termination Date, an amount equal
to the base salary (as described in Section 3.a.), then in
effect, that would
4
<PAGE>
otherwise have been payable to the Executive during the Term
if such Term was not earlier terminated; provided, however,
if the otherwise remaining Term is less than 365 days, such
remaining Term shall automatically be deemed to be 365 days;
(iii) the Company shall pay to the Executive in cash, as a lump-
sum, within 15 days of the Termination Date an amount equal
to the product of the Bonus Amount, multiplied by the number
of months that were otherwise remaining in the Term, divided
by 12;
(iv) the Company shall pay to the Executive in cash, as a lump-
sum, within 15 days of the Termination Date, an amount equal
to those amounts described in Sections 3.e. and 3.g. that
would have otherwise been payable during the Term if such
Term was not earlier terminated;
(v) the restrictions on any outstanding incentive awards
(including stock options) granted to the Executive under any
Company plan or arrangement shall lapse and such incentive
award shall become 100% vested, and all stock options and
stock appreciation rights granted to the Executive by the
Company shall become immediately exercisable and shall become
100% vested; and
(vi) upon a Termination Date occurring prior to the earlier of (A)
an Initial Public Offering, or (B) the date in which the
Company becomes subject to the reporting requirements set
forth in the Securities Exchange Act of 1934, the Company
shall, within 15 days after the Termination Date, offer to
repurchase all of the Company's capital stock and other debt
and securities of the Company (collectively, the "Company
Equity") then owned by the Executive, at a purchase price
equal to the Fair Market Value of such Company Equity, as
determined in accordance with the provisions below. The
question of the Fair Market Value of the Company Equity shall
be submitted to three impartial and reputable appraisers. The
Executive and the Company shall each select one appraiser,
and such appraisers shall select a third, independent
appraiser. The three appraisers shall thereafter proceed as
expeditiously as possible to determine (by concurrence of a
majority of such appraisers) the Fair Market Value of the
Company Equity, and the appraisers shall deliver an appraisal
report to the Executive and the Company as soon as
practicable after it is completed. The determination of the
question of the Fair Market Value of the Company Equity by
such appraisers shall be final and binding on the Executive
and the Company for purposes of this
5
<PAGE>
Agreement. The Company shall pay the reasonable fees and
expenses of such appraisers. For the purposes hereof, "Fair
Market Value" shall mean the relevant percentage of the fair
value of the business of the Company represented by the
Company Equity as to which such determination is being made,
which shall be determined on a going concern basis and as
between a willing seller and a willing buyer, taking into
account the Company's financial condition, performance,
market share and other relevant criteria, but not taking into
account the absence of a public market for the shares or that
the shares constitute a minority interest in the Company.
d. The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment
or otherwise, and no such payment shall be offset nor reduced by the
amount of any compensation or benefits provided to the Executive in
any subsequent employment.
e. The severance pay and benefits provided for in this Section 4 shall
be in lieu of any other severance or termination pay to which the
Executive may be entitled under any Company severance or termination
plan, program, practice or arrangement. The Executive's entitlement
to any other compensation or benefits shall be determined in
accordance with the Company's executive benefit plans and other
applicable programs, policies and practices then in effect.
5. Protection of Trade Secrets and Confidential Information.
--------------------------------------------------------
a. Through exercise of his rights and performance of his obligations
under this Agreement, Executive will be exposed to "Trade Secrets"
and "Confidential Information" (as those terms are defined below).
"Trade Secrets" shall mean information or data or of about the
Company or any affiliated entity, including, but not limited to,
technical or nontechnical data, formulas, patterns, compilations,
programs, devices, methods, techniques, drawings, processes,
financial data, financial plans, products plans, or lists of actual
or potential customers, clients, distributors, or licensees, that:
(i) derive economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from their
disclosure or use; and (ii) are the subject of efforts that are
reasonable under the circumstances to maintain their secrecy. To the
extent that the foregoing definition is inconsistent with a
definition of "trade secret" mandated under applicable law, the
latter definition shall govern for purposes of interpreting
Executive's obligations under this Agreement. Except as required to
perform his obligations under this
6
<PAGE>
Agreement or except with Company's prior written permission,
Executive shall not use, redistribute, market, publish, disclose or
divulge to any other person or entity any Trade Secrets of the
Company. The Executive's obligations under this provision shall
remain in force (during and after the Term) for so long as such
information or data shall continue to constitute a "trade secret"
under applicable law. Executive agrees to cooperate with any and all
confidentiality requirements of the Company and Executive shall
immediately notify the Company of any unauthorized disclosure or use
of any Trade Secrets of which Executive becomes aware.
b. The Executive agrees to maintain in strict confidence and, except as
necessary to perform his duties for the Company, not to use or
disclose any Confidential Business Information at any time during
the term of his employment and for a period of one year after the
later of (i) the Executive's last date of employment and (ii) the
last day of the period with respect to which the Executive received
compensation by reason of his termination of employment.
"Confidential Business Information" shall mean any non-public
information of a competitively sensitive or personal nature, other
than Trade Secrets, acquired by the Executive, directly or
indirectly, in connection with the Executive's employment (including
his employment with the Company prior to the date of this
Agreement), including (without limitation) oral and written
information concerning the Company or its affiliates relating to
financial position and results of operations (revenues, margins,
assets, net income, etc.), annual and long-range business plans,
marketing plans and methods, account invoices, oral or written
customer information, and personnel information. Confidential
Business Information also includes information recorded in manuals,
memoranda, projections, minutes, plans, computer programs, and
records, whether or not legended or otherwise identified by the
company and its affiliates as Confidential Business Information, as
well as information that is the subject of meetings and discussions
and not so recorded; provided, however, that Confidential Business
Information shall not include information that is generally
available to the public, other than as a result of disclosure,
directly or indirectly, by the Executive, or was available to the
Executive on a non-confidential basis prior to its disclosure to the
Executive.
c. Upon termination of employment, the Executive shall leave with the
Company all business records relating to the Company and its
affiliates including, without limitation, all contracts, calendars,
and other materials or business records concerning its business or
customers, including all physical, electronic, and computer copies
thereof, whether or not the Executive prepared such materials or
records himself. Upon such termination, the Executive shall retain
no copies of any such materials.
7
<PAGE>
d. As set forth above, the Executive shall not disclose Trade Secrets
or Confidential Business Information. However, nothing in this
provision shall prevent the Executive from disclosing Trade Secrets
or Confidential Business Information pursuant to a court order or
court-issued subpoena, so long as the Executive first notifies
(unless such notice is impracticable or impossible) the Company of
said order or subpoena in sufficient time to allow the Company to
seek an appropriate protective order. The Executive agrees that if
he receives any formal or informal discovery request, court order,
or subpoena requesting that he disclose Trade Secrets or
Confidential Business Information, he will immediately notify the
Company and provide the Company with a copy of said request, court
order, or subpoena.
6. Non-Solicitation and Related Matters.
------------------------------------
a. If the Executive is terminated for Cause, then for a period of two
years following the date of termination, the Executive shall not
(except on behalf of or with the prior written consent of the
Company) either directly or indirectly, on the Executive's own
behalf or in the service or on behalf of others, (i) solicit,
divert, or appropriate to or for a Competing Business, or (ii)
attempt to solicit, divert, or appropriate to or for a Competing
Business, any person or entity that was a customer or prospective
customer of the Company on the date of termination and with whom the
Executive had direct material contact within twelve months of the
Executive's last date of employment.
b. If the Executive is terminated for Cause, then for a period of two
years following the date of termination, the Executive shall not,
either directly or indirectly, on the Executive's own behalf or in
the service or on behalf of others, (i) solicit, divert, or hire
away, or (ii) attempt to solicit, divert, or hire away any employee
of, or consultant to, the Company or any of its affiliates engaged
or experienced in the Business, regardless of whether the employee
or consultant is full-time or temporary, the employment or
engagement is pursuant to written agreement, or the employment is
for a determined period or is at will.
c. The Executive acknowledges and agrees that great loss and
irreparable damage would be suffered by the Company if the Executive
should breach or violate any of the terms or provisions of the
covenants and agreements set forth in this Section 6. The Executive
further acknowledges and agrees that each of these covenants and
agreements is reasonably necessary to protect and preserve the
interests of the Company. The parties agree that money damages for
any breach of clauses (a) and (b) of this Section 6 will be
insufficient to compensate for any breaches thereof, and that the
Executive
8
<PAGE>
or any of the Executive's affiliates, as the case may be, will, to
the extent permitted by law, waive in any proceeding initiated to
enforce such provisions any claim or defense that an adequate remedy
at law exists. The existence of any claim, demand, action, or cause
of action against the Company, whether predicated upon this
Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of any of the covenants or agreements in
this Agreement; provided, however, that nothing in this Agreement
shall be deemed to deny the Executive the right to defend against
this enforcement on the basis that the Company has no right to its
enforcement under the terms of this Agreement.
d. The Executive acknowledges and agrees that: (i) the covenants and
agreements contained in clauses (a) through (e) of this Section 6
are the essence of this Agreement; (ii) that the Executive has
received good, adequate and valuable consideration for each of these
covenants; and (iii) each of these covenants is reasonable and
necessary to protect and preserve the interests and properties of
the Company. The Executive also acknowledges and agrees that: (i)
irreparable loss and damage will be suffered by the company should
the Executive breach any of these covenants and agreements; (ii)
each of these covenants and agreements in clauses (a) and (b) of
this Section 6 is separate, distinct and severable not only from the
other covenants and agreements but also from the remaining
provisions of this Agreement; and (iii) the unenforceability of any
covenants or agreements shall not affect the validity or
enforceability of any of the other covenants or agreements or any
other provision or provisions of this Agreement. The Executive
acknowledges and agrees that if any of the provisions of clauses (a)
and (b) of this Section 6 shall ever be deemed to exceed the time,
activity, or geographic limitations permitted by applicable law,
then such provisions shall be and hereby are reformed to the maximum
time, activity, or geographical limitations permitted by applicable
law.
e. The Executive and the Company hereby acknowledge that it may be
appropriate from time to time to modify the terms of this Section 6
and the definition of the term "Business" to reflect changes in the
Company's business and affairs so that the scope of the limitations
placed on the Executive's activities by this Section 6 accomplishes
the parties' intent in relation to the then current facts and
circumstances. Any such amendment shall be effective only when
completed in writing and signed by the Executive and the Company.
7. Successors; Binding Agreement.
-----------------------------
a. This Agreement shall be binding upon and shall inure to the benefit
of the
9
<PAGE>
Company, its Successors and Assigns and the Company shall require
any Successors and Assigns to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or
assignment had taken place.
b. Neither this Agreement not any right or interest hereunder shall be
assignable or transferable by the Executive, his beneficiaries or
legal representatives, except by will or by the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.
8. Fees and Expenses. The Company shall pay all reasonable legal fees
-----------------
and related expenses (including but not limited to the costs of experts,
accountants and counsel) incurred by the Executive as they become due as
a result of any of the following: (a) the preparation, negotiation,
counsel, and execution of this Agreement; (b) the termination of the
Executive's employment (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination of employment);
or (c) the Executive seeking to obtain or enforce any right or benefit
provided by this Agreement.
9. Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in this Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly
given when personally delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed to the respective
addresses last given by each party to the other; provided, however,
-------- -------
that all notices to the Company shall be directed to the attention of
the Chairman of Board with a copy to the Secretary of the Company. All
notices and communications shall be deemed to have been received on the
date of delivery thereof.
10. Settlement of Claim. The Company's obligation to make the payments
-------------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other
right that the Company may have against the Executive or others. The
Company may, however, withhold from any benefits payable under this
Agreement all federal, state, city, or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
11. Modification and Waiver. No provisions of this Agreement may be
-----------------------
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by the Executive and the
Company. No waiver by any party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed
10
<PAGE>
a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time.
12. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Georgia without
giving effect to the conflict of laws principles thereof. Any action
brought by any party to this Agreement shall be brought and maintained
in a court of competent jurisdiction in State Georgia.
13. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions
hereof.
14. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto and supersedes all prior agreement, if any,
understandings and arrangements, oral or written, between the parties
hereto with respect to the subject matter hereof.
15. Headings. The headings of Sections herein are included solely for
--------
convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
16. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
17. Piggyback Registration Rights.
-----------------------------
a. Rights. Subject to the provision of this Section 17, if the
------
Company proposes to make a registered public offering of shares of
its Common Stock, excluding an Initial Public Offering, of any of
its securities under the Act (whether to be sold by it or by one or
more third parties), other than an offering registered on Form S-8,
Form S-4, or comparable forms, the Company shall, not less than 45
days prior to the proposed filing date of the registration form,
given written notice of the proposed registration to the Executive,
and at the written request of the Executive delivered to the Company
within 15 days after the receipt of such notice, shall, subject to
the provisions of subsection (b) below, include in such registration
and offering, and in any underwriting of such offering, all shares
of Common Stock as may have been designated in the Executive's
request.
b. Offering Reduction. If a registration in which the Executive has
------------------
the right to participate pursuant to this Section 17 is an
underwritten offering, and if the
11
<PAGE>
managing underwriters determine in their reasonable discretion that
the number of securities requested to be included in such
registration exceeds the number that can be sold in such offering,
then the Company shall include in such registration only the number
of shares of Common Stock requested to be sold by the Company as the
managing underwriters shall determine; and the Executive and all
other persons who have exercised registration rights with respect to
the proposed offering shall participate in the offering in
proportion to the number of shares of Common Stock so requested by
each of them to be so included.
18. Other Registration Issues.
-------------------------
a. The Company shall have no obligation to include shares of Common
Stock owned by the Executive in a registration statement pursuant to
Section 17 hereof, unless and until the Executive has furnished the
Company with all information and statements about or pertaining to
the Executive in such reasonable detail as is reasonably deemed by
the Company to be necessary or appropriate with respect to the
preparation of the registration statement. Whenever the Executive
has requested that any shares of Common Stock be registered pursuant
to Section 17 hereof, subject to the provisions of those Sections,
the Company shall, as expeditiously as reasonably possible:
(i) prepare and file with the SEC a registration statement with
respect to such shares and use its best efforts to cause such
registration statement to become effective as soon as
reasonably practicable thereafter (provided that before
filing a registration statement or prospectus or any
amendments or supplements thereto, the Company shall furnish
counsel for the Executive with copies of all such documents
proposed to be filed);
(ii) prepare and file with the SEC such amendments and supplements
to such registration statement and prospectus used in
connection therewith as may be necessary to keep such
registration statement effective for a period of not less
than nine (9) months or until the underwriters have completed
the distribution described in such registration statement,
whichever occurs first;
(iii) furnish to the Executive such number of copies of such
registration statement, each amendment and supplement
thereto, the prospectus included in such registration
statement (including each preliminary prospectus), and such
other documents as the Executive may reasonably request;
12
<PAGE>
(iv) use its best efforts to register or qualify such shares under
such other securities or Blue Sky Laws of such jurisdictions
as the Executive reasonably requests (and to maintain such
registrations and qualifications effective for a period of
nine months or until the underwriters have completed the
distribution of such shares, whichever occurs first), and to
do any and all other acts and things which may be necessary
or advisable to enable the Executive or underwriters to
consummate the disposition in such jurisdictions of such
shares; provided, further, however, that, notwithstanding
anything to the contrary in this Agreement with respect to
the bearing of expenses, if any such jurisdiction shall
require that expenses incurred in connection with the
qualification of such shares in that jurisdiction be borne in
part or full by the Executive, then the Executive shall pay
such expenses to the extent required by such jurisdiction;
(v) cause all such shares to be listed on securities exchanges,
if any, on which similar securities issued by the Company are
then listed;
(vi) provide a transfer agent and registrar for all such shares
not later than the effective date of such registration
statements;
(vii) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such
other actions as the Executive and underwriters reasonably
request (and subject to approval by the Company's counsel) in
order to expedite or facilitate the disposition of such
shares; and
(viii) make available for inspection by the Executive, by any
underwriter participating in any distribution pursuant to
such registration statement, and by any attorney, accountant
or other agent retained by the Executive or underwriter, or
by any such underwriter, all financial and other records,
pertinent corporate documents, and properties (other than
confidential intellectual property) of the Company; provided,
however, that the Company may condition delivery of any
information, records or corporate documents upon the receipt
from the Executive and the underwriter and their counsel,
accountants, advisors and agents, of a confidentiality
agreement in form and substance acceptable to the Company and
its counsel in the exercise of their exclusive discretion.
b. Holdback Agreement. In the event that the Company effects an
------------------
underwritten public offering of any of the Company's equity
securities, the Executive
13
<PAGE>
agrees, if requested by the managing underwriters, not to effect any
sale or distribution, including any sale pursuant to Rule 144 under
the Act, of any equity securities (except as party of such
underwritten offering) during the 180-day period commencing with the
effective date of the registration statement for such offering.
c. Stockholder Expenses. If, pursuant to Section 17 hereof, shares
--------------------
of Common Stock owned by the Executive are included in a
registration statement, then the Executive shall pay all transfer
taxes, if any, relating to the sale of its shares, the fees and
expenses of his own counsel, and its pro rata portion of any
underwriting discounts, fees or commissions or the equivalent
thereof.
d. The Company's Expenses. Except for the fees and expenses
----------------------
specified in Section 18(c) hereof and except as provided below in
this Section 18(d), the Company shall pay all expenses incident to
the registration and to the Company's performance of or compliance
with this Agreement, including, without limitation, all registration
and filing fees, fees and expenses of compliance with securities or
Blue Sky Laws, underwriting discounts, fees and commissions (other
than the Executive's pro rata portion of any underwriting discounts
or commissions or the equivalent thereof), printing expenses,
messenger and delivery expenses, and fees and expenses of counsel
for the Company and all independent certified public accountants and
other persons retained by the Company. If the Company shall
previously have paid, pursuant to this Section 18(d), the expenses
of a registration, then the Executive shall pay all expenses
described in this Section 18(d) (but not expenses described in
Section 18(e) hereof).
e. Other. With respect to any registration pursuant to Section 17
-----
or 18 hereof, the Company shall pay its internal expenses
(including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties) and
the expenses and fees for listing the securities to be registered on
exchanges on which similar securities issued by the Company are then
listed.
f. Indemnity. In the event that any shares of Common Stock owned by
---------
the Executive are offered or sold by means of a registration
statement pursuant to Section 17 hereof, the Company agrees to
indemnify and hold harmless the Executive and each person, if any,
who controls or may control the Executive within the meaning of the
Act (the Executive and any such other persons being hereinafter
referred to individually as an "Indemnified Person" and collectively
as "Indemnified Persons") from and against all demands, claims,
actions or causes of action, assessments, losses, damages,
liabilities, costs,
14
<PAGE>
and expenses, including, without limitation, interest, penalties,
and reasonable attorneys fees and disbursements, asserted against,
resulting to, imposed upon or incurred by such Indemnified Person,
jointly or severally, directly or indirectly (hereinafter referred
to in this Section 18(f) in the singular as a "claim" and in the
plural as "claims"), based upon, arising out of, or resulting from
any untrue statement or alleged untrue statement of a material fact
contained in the registration statement, any preliminary or final
prospectus contained therein, or any amendment or supplement
thereto, or any document incident to registration or qualification
of any such shares, or any omission or alleged omission to state
therein a material fact necessary to make the statements made
therein, in the light of the circumstances under which they were
made, not misleading, or any violation by the Company of the Act of
any state securities or Blue Sky Laws, except insofar as such claim
is based upon, arises out of or results from information developed
or certified by the Executive for use in connection with the
registration statement or arises out of or results from the omission
of information known to the Executive prior to the violation or
alleged violation. The Executive agrees to indemnify and hold
harmless the Company, its officers and directors, and each person,
if any, who controls or may control the Company within the meaning
of the Act (the Company, its officers and directors, and any such
persons also being hereinafter referred to individually in this
context as an "Indemnified Person" and collectively as "Indemnified
Persons"(from and against all claims based upon, arising out of, or
resulting from any untrue statement of a material fact contained in
the registration statement, or any omission to state therein a
material fact necessary in order to make the statement made therein,
in the light of the circumstances under which they were made, not
misleading, to the extent that such claim is based upon, arises out
of, or results from information developed or certified by the
Executive for use in connection with the registration statement or
arises out of, or results from an omission of information known to
the Executive prior to the violation or alleged violation; provided,
however, that the maximum amount of liability in respect of such
indemnification shall be limited to an amount equal to the net
proceeds actually received by the Company or the Executive from the
sale of such shares effected pursuant to such registration. The
indemnifications set forth herein shall be in addition to any
liability the Company or the Executive may otherwise have to the
Indemnified Persons. Promptly after actually receiving definitive
notice of any claim in respect of which an Indemnified Person may
seek indemnification under this Section 18(f), such Indemnified
Person shall submit written notice thereof to either the Company or
the Executive, as the case may be (sometimes being hereinafter
referred to as an "Indemnifying Person"). The omission of the
Indemnified Person so to notify the Indemnifying Person of any such
claim shall not relieve the Indemnifying Person from any liability
it may have
15
<PAGE>
hereunder except to the extent that (a) such liability was caused or
increased by such omission, or (b) the ability of the Indemnifying
Person to reduce such liability was materially adversely affected by
such omission. In addition, the omission of the Indemnified Person
to notify the Indemnifying Person of any such claim shall not
relieve the Indemnifying Person to notify the Indemnifying Person of
any such claim shall not relieve the Indemnifying Person from any
liability it may have otherwise hereunder. The Indemnifying Person
shall have the right to undertake, by counsel or representatives of
its own choosing, the defense, compromise or settlement (without
admitting liability of the Indemnified Person) of any such claim
asserted, such defense, compromise or settlement to be undertaken at
the expense and risk of the Indemnifying Person, and the Indemnified
Person shall have the right to engage separate counsel, at its own
expense, whom counsel for the Indemnifying Person shall keep
informed and consult with in a reasonable manner. In the event the
Indemnifying Person shall elect not to undertake such defense by its
own representatives, the Indemnifying Person shall give prompt
written notice of such election to the Indemnified Person, and the
Indemnified Person shall give prompt written notice os such election
to the Indemnified Person, and the Indemnified Person shall
undertake the defense, compromise or settlement (without admitting
liability of the Indemnified Person) thereof on behalf of and for
the account and risk of the Indemnifying Person by counsel or other
representatives designed by the Indemnified Person. In the event
that any claim shall arise out of a transaction or cover any period
or periods wherein the Company and the Executive shall each be
liable hereunder for part of the liability or obligation arising
therefrom, then the parties shall, each choosing its own counsel and
bearing its own expenses, defend such claims, and no settlement or
compromise of such claim may be made without the joint consent or
approval of the Company and the Executive. Notwithstanding the
foregoing, no Indemnifying Person shall be obligated hereunder with
respect to amounts paid in settlement of any claim if such
settlement is effected without the consent of such Indemnifying
Person (which consent shall not be unreasonably withheld).
19. Definitions. For purposes of this Agreement, the following terms shall
-----------
have the following meanings:
a. "Accrued Compensation" shall mean the aggregate amount of all
amounts earned or accrued through the Termination Date but not paid
as of the Termination Date including (i) base salary and other
amounts set forth in Sections 3.e., f., g., and h., (ii)
reimbursement for expenses incurred by the Executive on behalf of
the Company during the period ending on the Termination Date and not
otherwise reimbursed hereunder, and (iii) bonuses
16
<PAGE>
and incentive compensation (other than the Pro Rata Bonus).
b. "Act" shall mean the Securities Act of 1933, as amended.
c. "Bonus Amount" shall mean the greater of (i) the most recent annual
bonuses paid or payable to the Executive, or (ii) the average of the
annual bonuses paid or payable to the Executive during all previous
fiscal years ended prior to the Termination Date.
d. "Business" shall mean the design, development, marketing and
implementation of electronic banking software and services for
financial institutions.
e. "Bylaws" shall mean the Bylaws of the Company, as amended,
supplemented or otherwise modified form time to time.
f. "Cause" shall mean the occurrence of any of the following:
1. any act that constitutes, on the part of the Executive, fraud
or gross malfeasance of duty; provided, however, that such
conduct shall not constitute Cause:
(1.) unless (1) there shall have been delivered to the
Executive a written notice setting forth with
specificity the reasons that the Board believes the
Executive's conduct constitutes the criteria set forth
in clause (i), (2) the Executive shall have been
provided the opportunity, if such behavior is
susceptible to cure, to cure the specific inappropriate
behavior within 30 days following written notice, (3)
after such 30-day period, the Board of Directors
determines that the behavior has not been cured, and (4)
the termination is evidenced by a resolution adopted in
good faith by two-thirds of the members of the Board
(other than the Executive); or
(2.) if such conduct (1) was believed by the Executive in
good faith to have been in or not opposed to the
interests of the Company, and (2) was not intended to
and did not result in the direct or indirect gain to or
personal enrichment of the Executive; or
(ii) the conviction (from which no appeal may be or is timely
taken) or plea of other than "not guilty" of the Executive of
a felony or misdemeanor if such misdemeanor involves moral
turpitude; or
17
<PAGE>
(iii) the material breach of this Agreement by the Executive, upon
forty-five (45) days written notice thereof and chance to cure
therein.
k. "Compensation Committee" shall mean the compensation committee of
the Board.
l. "Competing Business" shall mean any business that, in whole or in
part, is the same or substantially the same as the Business, unless
such Business is operated and/or conducted by an affiliate of the
Company.
m. "Disability" shall mean the inability of the Executive to perform
substantially all of his current duties as required hereunder for a
continuous period of 90 days because of mental or physical
condition, illness or injury.
n. "Initial Public Offering" shall mean the closing of the first public
offering of the Company's common stock registered under the Act in
which aggregate proceeds to the Company, net of all underwriting
discounts and commissions and other expenses of issuance and
distribution as stated in the prospectus relating to such offering,
are equal to at least twelve million dollars ($12,000,000).
o. "Notice of Termination" shall mean a written notice of termination
from the Company or the Executive, as the case may be, that
specifies an effective date of termination, indicates the specific
termination provision in this Agreement relied upon, and sets forth
in reasonable detail the facts and circumstances claimed to provide
a basis for termination of the Executive's employment under the
provision so indicated.
p. "Pro Rata Bonus" shall mean an amount equal to the Bonus Amount
multiplied by a fraction the numerator of which is the number of
days in the fiscal year through the Termination Date and the
denominator of which is 365.
q. "Successors and Assigns" shall mean a corporation or other entity
acquiring all or substantially all the assets and business of the
Company (including this Agreement), whether by operation of law or
otherwise.
r. "Termination Date" shall mean, in the case of the Executive's death,
his date of death, and in all other cases, the date specified in the
Notice of Termination.
[Continued on the next page.]
18
<PAGE>
IN WITNESS WHEREOF, the Company and Executive have caused this Agreement to
be executed, effective as of the Effective Date.
COMPANY:
Netzee, Inc.
by: /s/ Glenn Sturm
-------------------------
Name: Glenn Sturm
-----------------------
Title: Chief Executive Officer
------------------------
EXECUTIVE:
/s/ Richard S. Eiswirth, Jr.
------------------------------
Richard S. Eiswirth, Jr.
19
<PAGE>
EXHIBIT 10.18
LINE OF CREDIT AGREEMENT
THIS LINE OF CREDIT AGREEMENT (this "Agreement") is dated as of October 18,
1999, by and between NETZEE, INC., a Georgia corporation (the "Borrower") and
KELLETT PARTNERS, L.P., a Georgia limited partnership (the "Lender").
Section 1. Definitions. The following terms have the meaning set forth
-----------
below, unless the context otherwise requires:
"Advance" means any advance by the Lender to or for the benefit of the
Borrower under the Line of Credit.
"Applicable Law" means all provisions of any constitution, statute, law,
rule, regulation, decision, order, decree, judgment, release, license, permit,
stipulation or other official pronouncement enacted, promulgated or issued by
any governmental authority.
"Business Day" means any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of the State of Georgia or is a day on which
banking institutions located in such state are closed.
"Event of Default" has the meaning set forth in Section 6.
"Line of Credit" means the revolving line of credit opened by the Lender in
favor of the Borrower pursuant to this Agreement.
"Line of Credit Limit" means $3,000,000.
"Loan Documents" means this Agreement and any other documents evidencing
the Advances and the other Obligations.
"Obligations" means the principal of, and interest on, the Advances,
together with all other amounts owing by the Borrower to the Lender under this
Agreement.
"Person" means any individual, corporation, partnership, both general and
limited, limited liability company, association, trust or other entity or
organization, including any government or political subdivision or any agency or
instrumentality thereof.
"Prime Rate" as of the date hereof or as of the date of any adjustment in
the interest rate hereunder, as the case may be, means the Prime Rate as
published on such date in the "MONEY RATES" column of The Wall Street Journal,
-----------------------
regardless of the stated effective date thereof. If a range of rates is so
published, the "Prime Rate" shall be the mid-point of such range. The Prime Rate
initially shall be established on the date hereof and shall be adjusted on the
first business day of each month hereafter, except that if The Wall Street
---------------
Journal is not published on such business day, then
1
<PAGE>
the Prime Rate shall be adjusted on the next business day on which The Wall
--------
Street Journal is published.
- -------------
"Subsidiary" means, with respect to any Person, a corporation or other
entity, whether incorporated or unincorporated, of which at least a majority of
the securities or interests having by the terms thereof voting power to elect a
majority of the board of directors or others performing similar functions with
respect to such corporation or other entity is at that time, directly or
indirectly, owned or controlled by such Person, or by one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries.
"Subsidiaries" means all such corporations or other entities.
"Termination Date" means September 30, 2002.
Section 2. The Line of Credit.
---------- ------------------
(a) Commitment to Lend. Subject to the terms and conditions of this
------------------
Agreement, the Lender agrees to make Advances to the Borrower upon the
Borrower's request made in the manner described below, during the period
commencing on the date hereof and ending on the Termination Date. The aggregate
principal amount of all outstanding Advances shall not at any time exceed the
Line of Credit Limit. The principal amount of any Advances that are repaid by
the Borrower pursuant to Section 2(e) may, subject to the terms and conditions
hereof, be reborrowed.
(b) Method of Borrowing. To request an Advance, the Borrower shall give
-------------------
the Lender a written borrowing notice (a "Notice of Borrowing") on or before
4:00 p.m. (Atlanta time) not less than two (2) Business Days prior to the
proposed borrowing date, specifying the borrowing date, the purpose of the
Advance and the principal amount of such Advance.
(c) Disbursements. Not later than 1:00 p.m. (Atlanta time) on the
-------------
borrowing date specified, the Lender shall disburse the amount of such Advance
in immediately available funds to such account as the Borrower shall from time
to time designate.
(d) Mandatory Payment and Termination of Commitment. The Line of Credit
-----------------------------------------------
shall terminate and the unpaid principal balance thereof and all accrued and
unpaid interest thereon shall be immediately due and payable in full on the
Termination Date.
(e) Voluntary Repayments. The Borrower shall have the right at any time,
--------------------
and from time to time, to repay all or a portion of any outstanding Advances or
all or any portion of any outstanding accrued interest, in each case without
premium or penalty. All prepayments shall be allocated first to accrued
interest and then to principal.
(f) Interest. Interest on the outstanding principal amount of the Line of
--------
Credit shall accrue at a variable rate per annum equal to the Prime Rate, as
adjusted from time to time in accordance with the definition thereof. Interest
shall be computed on the basis of a 365 or 366 day year, as applicable, for the
actual number of days elapsed. All accrued interest shall be due and payable in
full on March 1, June 1, September 1 and December 1 of each year during the term
hereof or on the Termination Date.
2
<PAGE>
(g) Termination of Commitment. In no event shall any Advances be made on
-------------------------
or after the Termination Date.
Section 3. Conditions. The obligation of the Lender to make each
----------
Advance is subject to the satisfaction of the following additional conditions:
(a) no event which, but for the passing of time or giving of notice, would
constitute an Event of Default hereunder shall have occurred and remained in
existence at the time of such Advance; and
(b) all of the representations and warranties of the Borrower made herein
shall be true and correct in all material respects as of the date of such
Advance.
Section 4. Representations and Warranties. In order to induce the Lender
------------------------------
to make Advances hereunder, the Borrower represents and warrants as of the date
hereof as follows:
(a) Power and Authority. The Borrower has all requisite power and
-------------------
authority to execute, deliver and perform its obligations under the Loan
Documents.
(b) Due Authorization, Etc. The Borrower's execution, delivery and
-----------------------
performance of the Loan Documents have been duly authorized by all necessary
action on the part of the Borrower, and each of the Loan Documents has been duly
executed and delivered by the Borrower.
(c) Enforceability. Each Loan Document constitutes a valid and binding
--------------
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, except as such enforceability may be subject to general principles of
equity and to bankruptcy, insolvency and similar laws affecting the enforcement
of creditors' rights generally.
(d) Organization. The Borrower is a duly organized and validly existing
------------
Georgia corporation in good standing.
(e) Pending or Threatened Litigation. There are no pending or, to the
--------------------------------
Borrower's knowledge, threatened actions or proceedings before any court or
administrative or governmental agency that are likely to materially adversely
affect the financial condition or business operations of the Borrower and its
Subsidiaries, taken as a whole.
(f) Defaults. There is no event which is, or which with notice or lapse of
--------
time or both would be, an Event of Default hereunder.
All of the foregoing representations and warranties shall be deemed made on
the date hereof and on the date of each Advance.
3
<PAGE>
Section 5. Covenants. The Borrower agrees that until the Termination
---------
Date and thereafter until all of the Advances, together with all accrued but
unpaid interest thereon and all other amounts owing hereunder, shall have been
paid in full:
(a) Use of Proceeds. The Borrower shall use the proceeds of each Advance
---------------
for ordinary course working capital purposes, including capital purchases.
(b) Notice of Default. Promptly upon any officer of the Borrower obtaining
-----------------
knowledge of the occurrence of any Event of Default, the Borrower shall deliver
to the Lender a certificate of the Borrower's chief executive officer specifying
the nature and period of existence thereof and what action the Borrower has
taken, is taking and proposes to take with respect thereto.
(c) Existence. The Borrower shall, and shall cause each of its
---------
Subsidiaries to, at all times preserve and keep in full force and effect its
existence and all rights and franchises material to its business.
(d) Compliance with Laws. The Borrower shall, and shall cause each of its
--------------------
Subsidiaries to, comply in all material respects with the requirements of all
Applicable Laws in all jurisdictions in which the Borrower or such Subsidiary is
now doing business or may hereafter be doing business.
(e) Board Representation. The Lender shall have the right to designate one
--------------------
member of the Borrower's board of directors, and the Borrower shall use its best
efforts to cause the Lender's designee to be appointed or elected to, and to
remain a member of, the Borrower's board of directors.
Section 6. Events of Default. The occurrence of any one or more of the
-----------------
following events shall constitute an Event of Default by the Borrower under this
Agreement:
(a) the Borrower fails to pay the principal or accrued interest on the Line
of Credit when due (and such failure continues for a period of five (5) days);
(b) the Borrower breaches or otherwise fails to perform or observe any
covenant or agreement contained in this Agreement and such failure to perform or
observe is not cured within thirty (30) days after the Borrower receives notice
of the occurrence thereof;
(c) any representation, warranty or information contained in this Agreement
or required to be furnished to the Lender hereunder, is false or misleading in
any material respect on the date made or furnished;
(d) the Borrower or any of its material Subsidiaries makes an assignment
for the benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is entered
adjudicating the Borrower or such Subsidiary bankrupt or insolvent; or any order
for relief with respect to the Borrower is entered under the United States
Bankruptcy Code; or the Borrower or any of its Subsidiaries petitions or applies
to any tribunal for the appointment of a custodian, trustee, receiver or
liquidator of the Borrower, or of any substantial part of the assets of the
Borrower or such Subsidiary, or commences any proceeding relating to the
4
<PAGE>
Borrower or any of its Subsidiaries under any bankruptcy reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against the Borrower or any of its Subsidiaries and
either (i) the Borrower or such Subsidiary by any act indicates its approval
thereof, consents thereto or acquiesces therein or (ii) such petition,
application or proceeding is not dismissed within sixty (60) days;
(e) any money judgments, writs or warrants of attachment, or similar
process are entered or filed against the Borrower or any of its Subsidiaries or
any of its assets having a value equal to or exceeding $500,000, and remained
undischarged, unvacated, unbonded and unstayed for a period of thirty (30) days;
(f) any order, judgment or decree is entered against the Borrower or any of
its Subsidiaries decreeing the dissolution or split up of the Borrower or such
Subsidiary and such order remains undischarged or unstayed for a period in
excess of thirty (30) days; or
(g) either (i) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934 (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities
of the Borrower where such acquisition causes such Person to own more than fifty
percent (50%) of the combined voting power of the then outstanding voting
securities of the Borrower entitled to vote generally in the election of
directors, other than acquisitions by The Intercept Group, Inc. or its
affiliates, or (ii) the acquisition by a third party not affiliated with the
Borrower of all or substantially all of the Borrower's assets.
Section 7. Remedies on Default. Upon the occurrence of an Event of
-------------------
Default, the Lender shall have the following rights and remedies:
(a) Termination; Acceleration. The Lender may cease making Advances to the
-------------------------
Borrower and may declare the entire outstanding Obligations immediately due and
payable and may pursue any and all actions to collect and enforce the collection
of such amounts; provided that upon the occurrence of an Event of Default
described in Section 6(d), the Lender's obligation to make Advances shall
automatically terminate and all outstanding Obligations shall become immediately
due and payable without any notice or action whatsoever by the Lender.
(b) Other Remedies; Cumulative. The Lender may exercise any and all other
--------------------------
rights and remedies available to it under the Loan Documents or under Applicable
Law; and the Lender's rights and remedies under this Agreement, the other Loan
Documents and Applicable Law are cumulative and not exclusive of any other right
or remedy which the Lender may have at law or at equity.
Section 8. Miscellaneous.
-------------
(a) Collection Expenses. The Borrower shall pay to the Lender all out-of-
-------------------
pocket expenses incurred by the Lender, including reasonable and actual
attorney's fees and expenses, in connection with any Event of Default and
collection and other enforcement proceedings resulting
5
<PAGE>
therefrom, including out-of-pocket expenses incurred in enforcing this Agreement
and the other Loan Documents.
(b) Survival. The representations, warranties, covenants and agreements
--------
contained in this Agreement shall survive the closing of the transactions
contemplated by this Agreement, and the remedies of a party for breaches of such
representations, warranties, covenants or agreements shall not be affected by
any investigation by, or knowledge of, the non-breaching party prior to the date
of this Agreement.
(c) Further Assurances. Upon the execution of this Agreement and
------------------
thereafter, each party to this Agreement shall do such things as may be
reasonably requested by the other party in order more effectively to consummate
or document the transactions contemplated by this Agreement.
(d) Notices. Unless otherwise specifically provided herein, any notice or
-------
other communication required or permitted to be given under this Agreement shall
be in writing addressed to the respective party as set forth below and may be
personally served, sent by facsimile, telex or overnight courier service or
United States mail and shall be deemed to have been given: (a) if delivered by
courier, when delivered; (b) if delivered by telecopy or telex, on the date of
transmission if transmitted on a Business Day before 4:00 p.m. (Atlanta, Georgia
time) or, if not, on the next succeeding Business Day; (c) if delivered by
overnight courier, one (1) Business Day after delivery to such courier properly
addressed; or (d) if by U.S. Mail, four (4) Business Days after depositing in
the United States mail, with postage prepaid and properly addressed.
Notices shall be addressed as follows:
If to the Borrower: Netzee, Inc.
2410 Paces Ferry Road
150 Paces Summit
Atlanta, Georgia 30339
Attention: Richard S. Eiswirth
Facsimile No.: 770 805-2156
With a copy to: Sutherland, Asbill & Brennan LLP
999 Peachtree Street, N.E.
Suite 2300
Atlanta, Georgia 30309
Attention: Mark D. Kaufman
Facsimile No.: 404-853-8806
If to the Lender: Kellett Partners, L.P.
200 Galleria Parkway
Suite 1800
Atlanta, Georgia 30339
Attention: Gary Sledge
Facsimile No.: 770-956-7412
6
<PAGE>
With a copy to: Powell, Goldstein, Frazer & Murphy LLP
191 Peachtree Street, N.E.
16th Floor
Atlanta, Georgia 30303
Attention: Thomas R. McNeill
Facsimile No.: 404-572-6999
or to such other address as the party addressed shall have previously designated
by written notice to the serving party, given in accordance with this Section
8(d). A notice not given as provided above shall, if it is in writing, be
deemed given if and when actually received by the party to whom given.
(e) Time of the Essence. Time is of the essence of each and every
-------------------
provision of this Agreement.
(f) Assignment; Successors in Interest. The Borrower may not assign,
----------------------------------
transfer or delegate any of its rights or obligations under this Agreement or
the other Loan Documents without the prior written consent of the Lender. The
Lender may assign or grant participations in this Agreement and the other Loan
Documents and the Borrower's obligations hereunder and thereunder without the
Borrower's consent. Any other assignments or participations may be made only
with the prior written consent of the Borrower. This Agreement is binding upon
the parties to this Agreement and their respective successors and assigns, and
inures to the benefit of the parties to this Agreement and their respective
permitted successors and assigns. References to a party to this Agreement are
also references to any permitted successor or assign of such party. An
Affiliate of Lender means a person or entity controlled by, controlling or under
common control of the Lender.
(g) Number; Gender; Captions. 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 are inserted only as a matter of convenience and for reference
and in no way affect the scope of this Agreement or the intent of its
provisions.
(h) Severability. In the event that any court of competent jurisdiction
------------
shall determine that any provision of this Agreement that is not essential to
accomplishing the purposes of the parties hereto is invalid, such determination
shall not affect the validity of any other provision of this Agreement, which
shall remain in full force and effect and which shall be construed as to be
valid under Applicable Law.
(i) Remedies Cumulative. The remedies of a party to this Agreement
-------------------
provided in this Agreement are cumulative and shall not exclude any other
remedies to which any party to this Agreement may be lawfully entitled, under
this Agreement or Applicable Law, and the exercise of a remedy shall not be
deemed an election excluding any other remedy (any such claim by the other party
to this Agreement being hereby waived).
7
<PAGE>
(j) Integration; Amendment; Waiver. This Agreement (a) constitutes the
------------------------------
entire agreement of the parties to this Agreement with respect to its subject
matter, (b) supersedes all prior agreements, if any, of the parties to this
Agreement with respect to its subject matter, and (c) may not be amended except
in writing signed by the party to this Agreement against whom the change is
being asserted. The failure of any party to this Agreement at any time or times
to require the performance of any provision of this Agreement shall in no manner
affect the right to enforce the same; and no waiver by any party to this
Agreement of any provision (or of a breach of any provision) of this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
or construed either as a further or continuing waiver of any such provision or
breach or as a waiver of any other provision (or of a breach of any other
provision) of this Agreement.
(k) Controlling Law. This Agreement shall be construed and enforced in
---------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the laws
of the State of Georgia, without giving effect to provisions thereof regarding
conflict of laws.
(l) Copies. This Agreement 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 or its terms to produce or account for more than one of such
copies.
[Remainder of this page intentionally left blank]
8
<PAGE>
DULY EXECUTED and delivered by the parties to this Agreement as of the date
first set forth above.
BORROWER:
NETZEE, INC.
By: /s/ Richard S. Eiswirth Jr.
--------------------------------
Name: Richard S. Eiswirth Jr.
Title: CFO & EVP
LENDER:
KELLETT PARTNERS, L.P.
By: /s/ Gary Sledge
--------------------------------
Name: Gary Sledge
Title: CFO
9
<PAGE>
EXHIBIT 10.19
GENERAL MARKETING AGENT AGREEMENT
NETZEE, INC. a Georgia Corporation ("Servicer") and the undersigned ("Agent"),
in consideration of their obligations in this Agreement and intending to be
legally bound, agree as follows:
1. Definitions: For purposes of this Agreement:
a) "End-User" shall mean, an end-user bank or savings bank that meets the
qualifications and criteria applicable to such offering establishment
by servicer for solicitation by Agent from time to time.
b) "Master Services Agreement" shall mean the contract in the form, and
containing the terms and conditions (including price and payment
terms), established by Servicer from time to time for internet
banking, commercial cash management and telephone banking products or
services ("Services") provided or made available to End-Users.
c) A Master Services Agreement shall be "obtained from an End-User" if,
and only if, the Master Services Agreement has been executed by an
authorized representative of the End-User.
d) "Term" shall mean that period commencing on the date hereof and
lasting for a period of twelve complete months and any subsequent
renewal period.
2. Appointment: Subject to the terms of this Agreement, Servicer engages Agent
to solicit End-Users to enter into Master Services Agreements with Servicer for
its Services. Agent shall be the exclusive agent to solicit End-Users with
respect to their proposed installation and use of the Services in Texas, and
shall be a nonexclusive agent in all other locations. Servicer reserves the
right to change the terms and conditions of its Master Services Agreement at any
time. Servicer agrees to provide thirty (30) days notice to Agent of any
substantive changes. Agent represents and warrants to Servicer that it has the
authority to enter into this Agreement and to perform its terms fully.
3. Nature of Relationship: Agent agrees not to market, endorse, affirmative
promote, or advertise or otherwise solicit End-Users on behalf of, any Services
that are the same or similar to or that are competitive with the Services during
the Term of this Agreement and for any period for which Servicer pays Agent any
sums pursuant to this Agreement. Agent shall be an independent contractor.
Nothing in this Agreement shall be construed to create any other relationship.
Agent is hereby advised that, as an independent contractor, it has certain
responsibilities under the federal and state tax laws.
[MATERIAL HAS BEEN DELETED FROM THIS EXHIBIT PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST]
<PAGE>
4. Responsibilities of Agent: The duties of Agent shall be to:
a) Use its commercially reasonable efforts to solicit End-Users to enter
into Master Services Agreement;
b) Conduct its business so as to maintain and increase the goodwill and
reputation of Servicer;
c) Pay all expenses incurred by Agent in the performance of its duties
under this Agreement, including (1) dues and fees for membership in
any local, state, or national trade association or attendance at
seminars or conventions; (2) local and long-distance transportation
expenses: and (3) expenses in connection with the solicitation of End-
Users and the operation of Agent's business, including telephone,
delivery, entertainment, and promotional expenses; and
d) Use only promotional material mutually agreed upon for purposes of
promotion of the Servicer's business.
5. Limits of Authority: Neither Agent nor Servicer shall, without prior
written approval from an authorized representative of the other party, take any
of the following actions:
a) Incur any expense or obligation, contractual or otherwise, in the name
of or on behalf of the other party; or
b) Disseminate any printed material regarding the other party or its
business or Servicer's business other than promotional and advertising
material which has been delivered by the other party for such use.
6. Payment of Commissions: Agent shall be compensated by Servicer for its
Services by commissions on any Master Services Agreements for End-Users located
within Texas and on the basis of commissions earned on any Master Services
Agreement for End-Users located elsewhere. Commissions and requirements are set
forth in a Commission Schedule attached hereto as Exhibit "A". The payment of
any commissions to Agent shall be subject to all of the terms and conditions of
this Agreement.
7. Statements: Servicer shall mail Agent a monthly statement showing
commissions earned within twenty days after the end of each month. At no time
shall Servicer be obligated to reimburse Agent for any expenses unless it agrees
to do so in writing. Payment of the amounts reflected in such monthly statement
shall be made within ten days after its transmittal.
8. Sales Support: Servicer shall provide sales support to Agent including
promotional materials and sales representatives as reasonably required by Agent
and agreed to by Servicer.
<PAGE>
9. Voluntary Termination: Prior to completion of the initial Term or any
renewal Term, either Servicer or Agent may terminate this agreement at any time
without cause by giving the other party sixty (60) days prior written notice.
The payment of commissions shall continue through the term of any Master
Services Agreement entered into pursuant to this Agreement between Servicer and
an End-User in the event of any termination provided that a party terminating
the Agreement for just cause pursuant to Section 10 may cease all commission
payments.
10. Involuntary Termination: Either party may terminate this Agreement
immediately, without notice to either party for just cause. A termination shall
be deemed "for just cause" if the other party:
a) Breaches any provision of this Agreement which breach is not
reasonably cured within sixty (60) days of written notice thereof by
the non-breaching party;
b) Violates any material law or regulation; or
c) Commits any willful or dishonest act that could injure the other
party.
In addition, this Agreement shall terminate at such time as the Icom B
and Icom C products are distributed to the Agent by the Servicer following
the Agent's exercise of its put right pursuant to Section 5 of that
certain Agreement between Agent and Servicer dated the date hereof.
11. Confidentiality and Non-Solicitation Obligations:
a) Agent acknowledges that Servicer has a proprietary interest in the
association of its agents and personnel and the business of the
customers with whom such agents and personnel interact. Accordingly,
Agent shall provide Servicer with the benefit of all work and customer
contact information relevant to the business of Servicer throughout
the term of this Agreement. Agent shall maintain in strict confidence,
and shall not use or disclose except to its regulatory authorities, as
required by law or legal process, and as required to perform its
duties for Servicer, all Trade Secrets of Servicer. This obligation
shall apply during and after the term of this Agreement for so long as
the pertinent information or data remain Trade Secrets, and shall
apply regardless of whether the Trade Secrets are in written or
tangible form. For purposes of this Agreement, a Trade Secret is
defined to consist of legally protected rights in confidential
information and "trade secrets" under applicable law. Without limiting
the generality of the foregoing, Trade Secrets of Servicer include
nonpublic information regarding the Servicer from which Servicer
derives value, including account invoices, training and educational
manuals, administrative manuals, customer lists and
<PAGE>
information, software and other technology used in Servicer's
business, business plans, financial information and projections, and
prospective customer leads developed by Servicer, regardless of
whether computer or electronically accessible "on-line". However,
Trade Secrets do not include information Agent possesses or acquires
independently of Agent's activities or duties as an agent of Servicer
or which are in the public domain, provided Agent does not receive
such information from a person under an obligation to Servicer or its
affiliates, contractual or otherwise, to keep such information
confidential. The foregoing obligations shall continue to apply after
termination of this Agreement for two (2) years.
b) During the Term hereof and for a period of two years after the
termination of Agent's engagement for any reason, Agent shall not
directly or indirectly, through one or more intermediaries or
otherwise, solicit or attempt to solicit (1) Customers, to induce or
encourage them to acquire or obtain from anyone other than the
Servicer, internet banking, commercial cash management or telephone
banking services or products competitive with or substitute for any
Services, or (2) any individual who is at any time during such period
an employee of the Servicer or its affiliates for the purpose of
providing internet banking, commercial cash management or telephone
banking services or products that are the same or similar to the
Services. For purposes of this section, a "Customer" refers to any
person or group of persons with whom Agent has or had material contact
with regard to selling, delivery or support of Services or with
respect to which Agent has received any commissions under this
Agreement, during the period of six (6) months preceding the
termination of this Agreement for any reason.
c) Agent agrees that Servicer shall own and retain all right, title, and
interest in and to all software, systems and related documentation,
and all copyright, trade secret, patent and other intellectual
property rights contained in or used as any part of the Services.
Agent agrees to take such further action and execute such further
documentation as Servicer may reasonably request to give effect to
this Section 11.
12. Return of Materials: Upon the request of Servicer and, in any event, upon
the termination of Agent's engagement, Agent shall deliver to Servicer all
memoranda, notes, records, drawings, manuals, disks, other media and documents
pertaining to Servicer's business or Agent's activities or duties, including all
copies, extracts, summaries, and analyses thereof. This obligation shall not
apply to publicly distributed documentation, or internal business or personal
records of Agent's own creation that do not contain Servicer Trade Secrets.
<PAGE>
13. Limitation of Liability: OTHER THAN AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, SERVICER SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS AND WARRANTIES OF
ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, BUT NOT LIMITED TO, ANY
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL,
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES RESULTING FROM THE USE, OR
INABILITY TO USE, THE SERVICES OR ARISING OUT OF ANY OTHER CIRCUMSTANCES
ASSOCIATED WITH THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION DAMAGES BASED ON LOSS OF PROFIT, LOSS OR INTERRUPTION OF DATA OR
COMPUTER TIME, ALTERATION OR ERRONEOUS TRANSMISSION OF DATA, EVEN IF A PARTY IS
ADVISED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES. A party's total liability
to the other party under any provision of this Agreement or for any and all
claims, losses or damages relating to the Services (whether based on tort,
contract, or any other theory), other than claims based upon the willful
misconduct of such party, shall be limited to the amount of commissions paid by
Servicer to Agent for the Services during the six (6) months preceding the
assertion of such claims, losses or damages. The parties acknowledge that each
of them relied upon the inclusion of this limitation in consideration of
entering into this Agreement.
14. Remedies: In the event of any breach by either party identified in Section
10 of this Agreement, or in the event of breach by Agent of the terms of Section
11 of this Agreement, the resulting injuries to the other party would be
difficult to estimate accurately, but it is certain that injury or damages will
result to the business of the other party. Both parties agree that, in the event
of any such breach, the non-breaching party shall be entitled, in addition to
any available legal or equitable remedies or damages, to an injunction to
restrain the violation or anticipated violation thereof. Should the non-
breaching party have any basis to seek such legal or equitable action, the
breaching party shall pay any and all attorney fees and court costs that the
other party may incur. The non-breaching party's rights under this section shall
be in addition to every other remedy (equitable, statutory, legal or
contractual) to which the non-breaching party may be entitled.
15. Miscellaneous: No assignment by Agent or Servicer of this Agreement or any
commissions due hereunder shall be valid unless approved in advance by an
authorized officer of Servicer or Agent, as the case may be. No modification or
waiver of any provision of this Agreement shall be binding on Servicer unless
made in writing and signed by an authorized officer of Servicer. This Agreement
is governed by the laws of the State of Georgia as it
<PAGE>
applies to a contract executed, delivered, and performed in such state. This
Agreement supersedes and replaces any agreement previously entered into between
Agent and Servicer with respect to the Services. Servicer's failure to enforce
any provision of this Agreement shall not constitute a waiver of any provision
of this Agreement. The provisions of this Agreement shall be deemed severable.
In the event that any provision of this Agreement is determined to be
unenforceable or invalid, such provision shall nonetheless be enforced to the
fullest extent permitted by applicable law, and such determination shall not
affect the validity and enforceability of any other remaining provisions of this
Agreement. This Agreement, together with all exhibits and schedules attached
hereto and all writings incorporated herein by reference, constitutes the entire
agreement between Agent and Servicer with respect to the subject matter of this
Agreement.
Servicer: Agent:
Netzee, Inc. TIB The Independent BankersBank
By: /s/ Glenn W. Sturm By: /s/ Gayle M. Earls
--------------------------- -----------------------------
Title: Chief Executive Officer Title: Gayle M. Earls
------------------------ --------------------------
Date: 9-2-99 Date: 9-3-99
------------------------ ---------------------------
<PAGE>
EXHIBIT A
---------
[MATERIAL DELETED PURSUANT TO CONFIDENTIAL TREATMENT REQUEST]
<PAGE>
Netzee, Inc.
2410 Paces Ferry Road
Atlanta, Georgia 30339
October 20, 1999
TIB The Independent Bankers Bank
350 Phelps Court, Suite 200
P.O. Box 560528
Dallas, Texas 75356
Re: Amendment to General Marketing Agent Agreement between Netzee, Inc.
and TIB The Independent Bankers Bank (TIB), dated September 2, 1999
and the Icom B Marketing Agreement between Netzee and TIB, dated
September 3, 1999
Dear Ladies and Gentlemen:
This letter serves to modify the General Marketing Agent Agreement and the
Icom B Marketing Agreement. To clarify the intention of Netzee and TIB with
respect to Netzee's and TIB's responsibilities and obligations in the marketing
and sale of the products and services of Netzee and the Icom B product, Netzee
and TIB agree to the following:
1. The General Marketing Agent Agreement is amended as follows:
a. The second sentence of Section 2 of the General Marketing Agent
Agreement is deleted and replaced with the following to clarify that
TIB's agency is not exclusive:
"TIB shall be an agent for Netzee for the solicitation of End-Users with
respect to their proposed installation and use of the Services."
b. Section 6 of the General Marketing Agent Agreement is deleted and
replaced with the following to make the agreement consistent with the
commission schedule that is attached to the agreement:
"TIB shall be compensated by Netzee for End-Users solicited by TIB who
execute a Master Services Agreement pursuant to a Commission Schedule
attached hereto as Exhibit "A." The payment of any commissions to TIB
shall be subject to all of the terms and conditions of this Agreement."
2. Section 8 of the Icom B Marketing Agreement is deleted from the
Icom B Marketing Agreement and shall be of no further force or effect.
This deletion is made to make the Icom B Marketing Agreement consistent
with Section 3 of the General Marketing Agent Agreement, which states that
TIB will not market any product or service competitive with Netzee's
products and services.
Netzee, Inc.
By: /s/ Richard E. Eiswirth Jr.
------------------------------
Richard E. Eiswirth Jr.
Chief Financial Officer and
Executive Vice President
Agreed and accepted this 20th day of October,
for good and valuable consideration
TIB The Independent Bankers Bank
By: /s/ Gayle M. Earls
-------------------------------
Name: /s/ Gayle M. Earls
-----------------------------
Title: President and Chief
Executive Officer
----------------------------
<PAGE>
EXHIBIT 10.20
GENERAL MARKETING AGENT AGREEMENT
NETZEE, INC. a Georgia Corporation ("Servicer") and the undersigned ("Agent"),
in consideration of their obligations in this Agreement and intending to be
legally bound, agree as follows:
1. Definitions: For purposes of this Agreement:
a) "End-User" shall mean, an end-user bank or savings bank that meets the
qualifications and criteria applicable to such offering establishment
by servicer for solicitation by Agent from time to time.
b) "Master Services Agreement" shall mean the contract in the form, and
containing the terms and conditions (including price and payment
terms), established by Servicer from time to time for internet
banking, commercial cash management and telephone banking products or
services ("Services") provided or made available to End-Users.
c) A Master Services Agreement shall be "obtained from an End-User" if,
and only if, the Master Services Agreement has been executed by an
authorized representative of the End-User.
d) "Term" shall mean that period commencing on the date hereof and
lasting for a period of twelve complete months and any subsequent
renewal period.
2. Appointment: Subject to the terms of this Agreement, Servicer engages Agent
to solicit End-Users to enter into Master Services Agreements with Servicer for
its Services. Agent shall be the exclusive agent to solicit End-Users with
respect to their proposed installation and use of the Services in Georgia, North
Carolina, South Carolina, Alabama and Tennessee, and shall be a nonexclusive
agent in all other locations. Servicer reserves the right to change the terms
and conditions of its Master Services Agreement at any time. Servicer agrees to
provide thirty (30) days notice to Agent of any substantive changes. Agent
represents and warrants to Servicer that it has the authority to enter into this
Agreement and to perform its terms fully.
3. Nature of Relationship: Agent agrees not to market, endorse, affirmative
promote, or advertise or otherwise solicit End-Users on behalf of, any Services
that are the same or similar to or that are competitive with the Services during
the Term of this Agreement and for any period for which Servicer pays Agent any
sums pursuant to this Agreement. Agent shall be an independent contractor.
Nothing in this Agreement shall be construed to create any other relationship.
Agent is hereby advised that, as an independent contractor, it has certain
responsibilities under the federal and state tax laws.
[PORTIONS OF THIS DOCUMENT HAVE BEEN DELETED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST]
<PAGE>
4. Responsibilities of Agent: The duties of Agent shall be to:
a) Use its commercially reasonable efforts to solicit End-Users to enter
into Master Services Agreement;
b) Conduct its business so as to maintain and increase the goodwill and
reputation of Servicer;
c) Pay all expenses incurred by Agent in the performance of its duties
under this Agreement, including (1) dues and fees for membership in
any local, state, or national trade association or attendance at
seminars or conventions; (2) local and long-distance transportation
expenses: and (3) expenses in connection with the solicitation of End-
Users and the operation of Agent's business, including telephone,
delivery, entertainment, and promotional expenses; and
d) Use only promotional material mutually agreed upon for purposes of
promotion of the Servicer's business.
5. Limits of Authority: Neither Agent nor Servicer shall, without prior
written approval from an authorized representative of the other party, take any
of the following actions:
a) Incur any expense or obligation, contractual or otherwise, in the name
of or on behalf of the other party; or
b) Disseminate any printed material regarding the other party or its
business or Servicer's business other than promotional and advertising
material which has been delivered by the other party for such use.
6. Payment of Commissions: Agent shall be compensated by Servicer for its
Services by commissions on any Master Services Agreements for End-Users located
within Georgia, North Carolina, South Carolina, Alabama and Tennessee and on the
basis of commissions earned on any Master Services Agreement for End-Users
located elsewhere. Commissions and requirements are set forth in a Commission
Schedule attached hereto as Exhibit "A". The payment of any commissions to Agent
shall be subject to all of the terms and conditions of this Agreement.
7. Statements: Servicer shall mail Agent a monthly statement showing
commissions earned within twenty days after the end of each month. At no time
shall Servicer be obligated to reimburse Agent for any expenses unless it agrees
to do so in writing. Payment of the amounts reflected in such monthly statement
shall be made within ten days after its transmittal.
8. Sales Support: Servicer shall provide sales support to Agent including
promotional materials and sales representatives as reasonably required by Agent
and agreed to by Servicer.
<PAGE>
9. Voluntary Termination: Prior to completion of the initial Term or any
renewal Term, either Servicer or Agent may terminate this agreement at any time
without cause by giving the other party sixty (60) days prior written notice.
The payment of commissions shall continue through the term of any Master
Services Agreement entered into pursuant to this Agreement between Servicer and
an End-User in the event of any termination provided that a party terminating
the Agreement for just cause pursuant to Section 10 may cease all commission
payments.
10. Involuntary Termination: Either party may terminate this Agreement
immediately, without notice to either party for just cause. A termination shall
be deemed "for just cause" if the other party:
a) Breaches any provision of this Agreement which breach is not
reasonably cured within sixty (60) days of written notice thereof by
the non-breaching party;
b) Violates any material law or regulation; or
c) Commits any willful or dishonest act that could injure the other
party.
In addition, this Agreement shall terminate at such time as the Icom B
and Icom C products are distributed to the Agent by the Servicer following
the Agent's exercise of its put right pursuant to Section 5 of that certain
Agreement between Agent and Servicer dated the date hereof.
11. Confidentiality and Non-Solicitation Obligations:
a) Agent acknowledges that Servicer has a proprietary interest in the
association of its agents and personnel and the business of the
customers with whom such agents and personnel interact. Accordingly,
Agent shall provide Servicer with the benefit of all work and customer
contact information relevant to the business of Servicer throughout
the term of this Agreement. Agent shall maintain in strict confidence,
and shall not use or disclose except to its regulatory authorities, as
required by law or legal process, and as required to perform its
duties for Servicer, all Trade Secrets of Servicer. This obligation
shall apply during and after the term of this Agreement for so long as
the pertinent information or data remain Trade Secrets, and shall
apply regardless of whether the Trade Secrets are in written or
tangible form. For purposes of this Agreement, a Trade Secret is
defined to consist of legally protected rights in confidential
information and "trade secrets" under applicable law. Without limiting
the generality of the foregoing, Trade Secrets of Servicer include
nonpublic information regarding the Servicer from which Servicer
derives value, including
<PAGE>
account invoices, training and educational manuals, administrative
manuals, customer lists and information, software and other technology
used in Servicer's business, business plans, financial information and
projections, and prospective customer leads developed by Servicer,
regardless of whether computer or electronically accessible "on-line".
However, Trade Secrets do not include information Agent possesses or
acquires independently of Agent's activities or duties as an agent of
Servicer or which are in the public domain, provided Agent does not
receive such information from a person under an obligation to Servicer
or its affiliates, contractual or otherwise, to keep such information
confidential. The foregoing obligations shall continue to apply after
termination of this Agreement for two (2) years.
b) During the Term hereof and for a period of two years after the
termination of Agent's engagement for any reason, Agent shall not
directly or indirectly, through one or more intermediaries or
otherwise, solicit or attempt to solicit (1) Customers, to induce or
encourage them to acquire or obtain from anyone other than the
Servicer, internet banking, commercial cash management or telephone
banking services or products competitive with or substitute for any
Services, or (2) any individual who is at any time during such period
an employee of the Servicer or its affiliates for the purpose of
providing internet banking, commercial cash management or telephone
banking services or products that are the same or similar to the
Services. For purposes of this section, a "Customer" refers to any
person or group of persons with whom Agent has or had material contact
with regard to selling, delivery or support of Services or with
respect to which Agent has received any commissions under this
Agreement, during the period of six (6) months preceding the
termination of this Agreement for any reason.
c) Agent agrees that Servicer shall own and retain all right, title, and
interest in and to all software, systems and related documentation,
and all copyright, trade secret, patent and other intellectual
property rights contained in or used as any part of the Services.
Agent agrees to take such further action and execute such further
documentation as Servicer may reasonably request to give effect to
this Section 11.
12. Return of Materials: Upon the request of Servicer and, in any event, upon
the termination of Agent's engagement, Agent shall deliver to Servicer all
memoranda, notes, records, drawings, manuals, disks, other media and documents
pertaining to Servicer's business or Agent's activities or duties, including all
copies, extracts, summaries, and analyses thereof. This obligation shall not
apply to publicly distributed documentation, or internal business or personal
records of Agent's own creation that do not contain Servicer Trade Secrets.
<PAGE>
13. Limitation of Liability: OTHER THAN AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, SERVICER SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS AND WARRANTIES OF
ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, BUT NOT LIMITED TO, ANY
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL,
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES RESULTING FROM THE USE, OR
INABILITY TO USE, THE SERVICES OR ARISING OUT OF ANY OTHER CIRCUMSTANCES
ASSOCIATED WITH THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION DAMAGES BASED ON LOSS OF PROFIT, LOSS OR INTERRUPTION OF DATA OR
COMPUTER TIME, ALTERATION OR ERRONEOUS TRANSMISSION OF DATA, EVEN IF A PARTY IS
ADVISED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES. A party's total liability
to the other party under any provision of this Agreement or for any and all
claims, losses or damages relating to the Services (whether based on tort,
contract, or any other theory), other than claims based upon the willful
misconduct of such party, shall be limited to the amount of commissions paid by
Servicer to Agent for the Services during the six (6) months preceding the
assertion of such claims, losses or damages. The parties acknowledge that each
of them relied upon the inclusion of this limitation in consideration of
entering into this Agreement.
14. Remedies: In the event of any breach by either party identified in Section
10 of this Agreement, or in the event of breach by Agent of the terms of Section
11 of this Agreement, the resulting injuries to the other party would be
difficult to estimate accurately, but it is certain that injury or damages will
result to the business of the other party. Both parties agree that, in the event
of any such breach, the non-breaching party shall be entitled, in addition to
any available legal or equitable remedies or damages, to an injunction to
restrain the violation or anticipated violation thereof. Should the non-
breaching party have any basis to seek such legal or equitable action, the
breaching party shall pay any and all attorney fees and court costs that the
other party may incur. The non-breaching party's rights under this section shall
be in addition to every other remedy (equitable, statutory, legal or
contractual) to which the non-breaching party may be entitled.
15. Miscellaneous: No assignment by Agent or Servicer of this Agreement or any
commissions due hereunder shall be valid unless approved in advance by an
authorized officer of Servicer or Agent, as the case may be. No modification or
waiver of any provision of this Agreement shall be binding on Servicer unless
made in writing and
<PAGE>
signed by an authorized officer of Servicer. This Agreement is governed by the
laws of the State of Georgia as it applies to a contract executed, delivered,
and performed in such state. This Agreement supersedes and replaces any
agreement previously entered into between Agent and Servicer with respect to the
Services. Servicer's failure to enforce any provision of this Agreement shall
not constitute a waiver of any provision of this Agreement. The provisions of
this Agreement shall be deemed severable. In the event that any provision of
this Agreement is determined to be unenforceable or invalid, such provision
shall nonetheless be enforced to the fullest extent permitted by applicable law,
and such determination shall not affect the validity and enforceability of any
other remaining provisions of this Agreement. This Agreement, together with all
exhibits and schedules attached hereto and all writings incorporated herein by
reference, constitutes the entire agreement between Agent and Servicer with
respect to the subject matter of this Agreement.
Servicer: Agent:
Netzee, Inc. . The Bankers Bank
By: /s/ Glenn W. Sturm By: /s/ Kevin Tweddle
----------------------------- ---------------------------
Title: Glenn W. Sturm Title: SVP/CEO
----------------------------- ---------------------------
Chief Executive Officer
Date: 9-2-99 Date: 9/2/99
----------------------------- ---------------------------
<PAGE>
EXHIBIT A
---------
[MATERIAL DELETED PURSUANT TO CONFIDENTIAL TREATMENT REQUEST]
<PAGE>
Netzee, Inc.
2410 Paces Ferry Road
Atlanta, Georgia 30339
October 20, 1999
The Bankers Bank
2410 Paces Ferry Road
600 Paces Ferry Summit
Atlanta, Georgia 30339
Re: Amendment to General Marketing Agent Agreement between Netzee, Inc.
and The Bankers Bank (TBB), dated September 2, 1999 and the Icom B
Marketing Agreement between Netzee and TBB, dated September 3, 1999
Dear Ladies and Gentlemen:
This letter serves to modify the General Marketing Agent Agreement and
the Icom B Marketing Agreement. To clarify the intention of Netzee and TBB with
respect to Netzee's and TBB's responsibilities and obligations in the marketing
and sale of the products and services of Netzee and the Icom B product, Netzee
and TBB agree to the following:
1. The General Marketing Agent Agreement is amended as follows:
a. The second sentence of Section 2 of the General Marketing
Agent Agreement is deleted and replaced with the following to clarify
that TBB's agency is not exclusive:
"TBB shall be an agent for Netzee for the solicitation of End-Users with
respect to their proposed installation and use of the Services."
b. Section 6 of the General Marketing Agent Agreement is deleted
and replaced with the following to make the agreement consistent with
the commission schedule that is attached to the agreement:
"TBB shall be compensated by Netzee for End-Users solicited by TBB who
execute a Master Services Agreement pursuant to a Commission Schedule
attached hereto as Exhibit "A." The payment of any commissions to TBB
shall be subject to all of the terms and conditions of this Agreement."
2. Section 8 of the Icom B Marketing Agreement is deleted from
the Icom B Marketing Agreement and shall be of no further force or
effect. This deletion is made to make the Icom B Marketing Agreement
consistent with Section 3 of the General Marketing Agent Agreement,
which states that TBB will not market any product or service competitive
with Netzee's products and services.
<PAGE>
Netzee, Inc.
By: /s/ Richard S. Eiswirth, Jr.
----------------------------
Richard S. Eiswirth, Jr.
CFO & EVP
Agreed and accepted this 20th day of October,
for good and valuable consideration
The Bankers Bank
By: /s/ Tom A. Bryan
------------------
Name: Tom A. Bryan
------------------
Title: Sr. Vice-President
------------------
<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.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
October 18, 1999
