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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
Or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____,
19_____.
Commission file number: 0-27925
- --------------------------------------------------------------------------------
Netzee, Inc.
(Exact name of registrant as specified in its charter)
Georgia 58-2488883
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2410 Paces Ferry Road, 150 Paces Summit, Atlanta, Georgia 30339
(Address of principal executive offices)
(770) 805-2100
(Registrant's telephone number including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of December 22, 1999, there were 20,395,855 shares of the Registrant's Common
Stock outstanding.
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NETZEE, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 2
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Default upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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 NETZEE, INC.
------------ -------------
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,985 $ 288,995
Accounts receivable, net of allowance for doubtful accounts of $10,000 and $286,750
at December 31, 1998 and September 30, 1999, respectively 35,780 636,539
Leases receivable, current 0 323,571
Prepaid and other current assets 0 416,213
------------ ------------
Total current assets 49,765 1,665,318
Property and equipment, net 15,006 725,682
Intangible assets, net of accumulated amortization of $21,985 and
$4,402,992 at December 31, 1998 and September 30,1999, respectively 28,886 94,020,562
Leases receivable, net of current portion 0 932,999
------------ ------------
Total assets $ 93,657 $ 97,344,561
============ ============
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 165,089 $ 684,903
Line of credit 199,973 0
Current portion of related-party loans from shareholder 79,500 0
Deferred revenue 103,913 2,173,832
------------ ------------
Total current liabilities 548,475 2,858,735
Related-party loans from shareholder 0 31,524,798
Deferred revenue, net of current 0 738,104
------------ ------------
Total liabilities 548,475 35,121,637
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' (DEFICIT) EQUITY:
Preferred stock, no par value, 5,000,000 shares authorized, no
shares issued and outstanding 0 0
Common stock, no par value; 40,000,000 shares authorized,
8,000,000 shares issued and outstanding at December 31, 1998; no par
value, 70,000,000 shares authorized,
15,395,855 shares issued and outstanding at September 30, 1999 50,871 83,630,906
Notes receivable from shareholders 0 (3,453,405)
Deferred stock compensation 0 (9,899,533)
Accumulated deficit (505,689) (8,055,044)
------------ ------------
Total shareholders' (deficit) equity (454,818) 62,222,924
------------ ------------
Total liabilities and shareholders' (deficit) equity $ 93,657 $ 97,344,561
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
2
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The nine month period ended September 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 Netzee, Inc. 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 NETZEE, INC. PREDECESSOR NETZEE, INC.
------------- ------------- ------------------------------- --------------
FOR THE PERIOD FOR THE PERIOD
THREE MONTHS THREE MONTHS NINE MONTHS FROM JANUARY FROM MARCH 1,
ENDED ENDED ENDED 1, 1999 TO 1999 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, FEBRUARY 28, SEPTEMBER 30,
1998 1999 1998 1999 1999
------------- ------------- ------------- -------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Monthly maintenance and service $ 33,621 $ 520,450 $ 91,406 $ 33,082 $ 606,513
License, hardware and installation 220,186 69,397 372,591 57,080 233,869
----------- ------------ ----------- ----------- -----------
Total revenues 253,807 589,847 463,997 90,162 840,382
----------- ------------ ----------- ----------- -----------
Operating expenses:
Cost of services, license, hardware,
installation and maintenance 149,663 490,528 355,264 44,358 616,982
Selling and marketing 22,315 601,362 67,409 12,350 728,953
General and administrative 89,259 454,521 269,634 49,399 591,240
Amortization of stock-based
compensation 0 2,114,567 0 0 2,114,567
Depreciation and amortization 3,984 4,305,792 10,712 2,476 4,499,064
----------- ------------ ----------- ----------- -----------
Total operating expenses 265,221 7,966,770 703,019 108,583 8,550,806
----------- ------------ ----------- ----------- -----------
Operating loss (11,414) (7,376,923) (239,022) (18,421) (7,710,424)
Interest expense (3,786) (344,192) (16,959) (3,469) (344,620)
----------- ------------ ----------- ----------- -----------
Net loss $ (15,200) $ (7,721,115) $ (255,981) $ (21,890) $(8,055,044)
=========== ============ =========== =========== ===========
Basic and diluted net loss per share (1) $ (0.00) $ (0.64) $ (0.03) $ (0.86)
=========== ============ =========== ===========
Weighted average common shares
outstanding (1)(2) 8,000,000 11,986,670 8,000,000 9,343,494
=========== ============ =========== ===========
</TABLE>
(1) Weighted average common shares shown for the period from March
1, 1999 to September 30, 1999 is calculated by assuming a
calculation period from January 1, 1999 to September 30, 1999.
Basic and diluted net loss per share for the period from March
1, 1999 to September 30, 1999 is calculated from net loss for
the period from January 1, 1999 to February 28, 1999 and the
period from March 1, 1999 to September 30, 1999 divided by
weighted average shares as noted.
(2) Weighted average common shares outstanding for the three
months and nine months ended September 30, 1998, reflect the
initial investment of The InterCept Group, Inc. ("InterCept")
in the Predecessor. InterCept was the former parent company of
the Predecessor and owned all of its capital stock prior to
September 3, 1999.
The accompanying notes are an integral part of these statements.
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The nine month period ended September 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 Netzee, Inc. 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 NETZEE, INC.
------------------------------------------ ------------------
FOR THE FOR THE FOR THE
NINE MONTHS PERIOD FROM PERIOD FROM
ENDED JANUARY 1, 1999 TO MARCH 1, 1999 TO
SEPTEMBER 30, 1998 FEBRUARY 28, 1999 SEPTEMBER 30, 1999
------------------ ------------------ ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (255,981) $ (21,890) $ (8,055,044)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 10,712 2,476 4,499,064
Stock compensation expense 0 0 2,114,567
Interest income on shareholder notes 0 0 (65,105)
Changes in assets and liabilities, net of effect of
acquisitions:
Prepaids and other 0 0 (145,695)
Accounts receivable (2,740) 12,606 (183,564)
Leases receivable 0 0 (202,464)
Accounts payable and accrued liabilities 46,538 (42,889) 110,856
Deferred revenues 3,406 41,222 298,210
------------ ------------ ------------
Net cash used in operating activities (198,065) (8,475) (1,629,175)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired 0 0 (29,336,906)
Purchase of property, equipment and capitalized
software (23,731) 0 (1,203,034)
------------ ------------ ------------
Net cash used in investing activities (23,731) 0 (30,539,940)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from shareholder 0 0 1,132,310
Borrowings from shareholder 0 0 30,873,202
Increase (decrease) in line of credit 199,973 0 (277,473)
Sale of common stock 0 0 726,561
Increase (decrease) in related-party loans from
shareholder of predecessor entity 27,500 (2,000) 0
------------ ------------ ------------
Net cash provided by (used in) financing activities 227,473 (2,000) 32,454,600
------------ ------------ ------------
NET INCREASE (DECREASE) IN
CASH 5,677 (10,475) 285,485
CASH, beginning of period 28,057 13,985 3,510
------------ ------------ ------------
CASH, end of period $ 33,734 $ 3,510 $ 288,995
============ ============ ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid for interest $ 8,969 $ 2,971 $ 12,515
NON-CASH INVESTING ACTIVITIES:
Stock issued for acquisitions 0 0 64,010,575
Stock issued in connection with
marketing agreements, net of cash paid 0 0 1,079,096
Exercise of stock options for notes receivable 0 0 93,300
Stock issued for notes receivable 0 0 3,295,000
</TABLE>
The accompanying notes are an integral part of these statements.
4
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NETZEE, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Netzee, Inc. ("Netzee" or the "Company") is a 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. The
Company provides cost-effective, outsourced, secure and expandable solutions
that enable community financial institutions to offer their customers a wide
array of financial products and services over the Internet. Complementing our
Internet banking system, the Company offers community financial institutions
custom web site design, implementation and marketing services, telephone banking
products and Internet access services.
Direct Access Interactive, Inc. ("Direct Access") was incorporated on October
10, 1996. 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. On August 6, 1999, Direct Access purchased the remote
banking operations of SBS Corporation ("SBS Corp"). Direct Access was later
merged with and into Netzee. On September 3, 1999, Netzee purchased the Internet
banking divisions of The Independent BankersBank ("TIB") and The Bankers Bank
("The Bankers Bank"), all the assets and liabilities of Dyad Corporation and
subsidiaries ("Dyad"), and all the equity interests of Call Me Bill LLC ("Call
Me Bill"). SBS Corp, TIB, The Bankers Bank, Dyad and Call Me Bill are
collectively referred to as the "Acquired Entities." The Company completed its
initial public offering of common stock on November 9, 1999.
BASIS OF PRESENTATION
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 nine months ended September
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.
The Acquired Entities noted above were accounted for by the purchase method of
accounting. Accordingly, the results of operations of the Acquired Entities have
been included in the consolidated financial statements from their respective
dates of acquisition.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments, which are of a normal recurring nature, to present fairly in all
material respects the Company's financial position, results of operations, and
cash flows at the dates and for the periods presented. Interim results are not
necessarily indicative of results to be expected for a 12-month period. The
interim financial statements should be read in conjunction with the Company's
Registration Statement on Form S-1 (Registration Number 333-87089) as declared
effective by the Securities and Exchange Commission on November 8, 1999.
5
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2. REVENUE RECOGNITION
The Company's revenue historically resulted from (1) fees for 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
revenue from software license fees was recognized in accordance with SOP No.
97-2, "Software Revenue Recognition," in 1998 and for the nine months ended
September 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. Subsequent to June 30, 1999, the
Company did not charge a license fee at the beginning of the contract and
collected fees for services rendered on a monthly basis. The revenue from these
arrangements is recognized as the services are rendered, typically on a monthly
basis.
Deferred revenue represents the liability for amounts collected prior to
completion of performance for telephone and Internet banking maintenance
service. The balance largely consists of annual billings collected in advance
and recognized ratably over the subsequent twelve months.
3. BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share has been computed in accordance with SFAS
No. 128, "Earnings per Share," using net loss divided by the weighted average
number of shares of common stock outstanding for the period presented.
Potentially dilutive options to purchase 1,849,500 shares of common stock with a
weighted average exercise price of $3.96 per share outstanding at September 30,
1999, were excluded from the presentation of diluted net loss per share, as they
are antidilutive due to the net loss. There were no options or warrants
outstanding as of September 30, 1998.
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4. RELATED-PARTY LOANS FROM SHAREHOLDER
In August and September 1999, the Company entered into three promissory notes
with InterCept for an aggregate principal amount of $28.9 million. The proceeds
from these notes were used to fund the Company's acquisitions of SBS, Call Me
Bill and Dyad. InterCept also loaned the Company approximately $5.0 million to
fund working capital and general corporate requirements through the date of our
initial public offering. All of the notes outstanding accrued interest at a rate
of prime plus 2%. The promissory notes to InterCept matured upon the closing of
the Company's initial public offering on November 15, 1999.
5. PRO FORMA RESULTS
The following summary presents unaudited pro forma results of operations
assuming that the acquisitions discussed in Note 1 occurred as of January 1,
1998 and January 1, 1999:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Total Revenue $ 2,296,000 $ 3,027,000
Net Loss $(29,260,000) $(33,239,000)
Net Loss Per Share $ (1.90) $ (2.16)
</TABLE>
These pro forma results do not purport to represent what the Company's results
of operations would have been had the acquisitions occurred as of such date, nor
what results will be for any future period.
6. SUBSEQUENT EVENTS
LINE OF CREDIT AGREEMENT AND ISSUANCE OF WARRANTS
On October 18, 1999, the Company entered into a $3,000,000 line of credit
facility with an affiliated company of a director of Netzee. The line of credit
facility bears interest at the prime rate and terminates on September 30, 2002.
In conjunction with the line of credit facility, the Company issued warrants to
purchase 461,876 shares of common stock at an exercise price of $3.25 per share.
The Company recorded deferred financing costs for the difference between the
fair value of common stock and the exercise price of the warrants.
In December 1999, Netzee terminated this line of credit facility.
INITIAL PUBLIC OFFERING (IPO)
On November 9, 1999, the Company commenced its initial public offering. The
Company issued 4,400,000 shares of common stock (including the exercise of a
portion of the underwriter's over-allotment option) at an offering price of $14
per share. Net proceeds from the offering were approximately $55,450,000 after
deducting underwriters' discounts, commissions and expenses of the offering. The
Company used the proceeds to repay principal and accrued interest owed to
InterCept, to repay working capital advances and accrued interest to InterCept
and to acquire DPSC Software, Inc. as discussed below.
ACQUISITION OF DPSC SOFTWARE, INC.
In December 1999, the Company acquired DPSC Software, Inc., a provider of
specialized software for community banks and savings and loans, in exchange for
approximately $18.5 million cash, 500,000 shares of Series A 8% cumulative
convertible preferred stock, 525,000 shares of common stock, the payment of
other acquisition costs and the assumption of certain operating liabilities.
The acquisition was accounted for using the purchase method of accounting.
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LINE OF CREDIT AGREEMENT WITH INTERCEPT
In December 1999, the Company received a commitment for a $15 million line of
credit from InterCept. The line of credit will bear interest at prime plus 2%
with a term of three years and will be secured by substantially all assets of
the Company. The proceeds will be used to fund working capital needs. Obtaining
the line of credit is subject to the completion and execution of definitive
legal documentation.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The following discussion contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These statements include all statements that are not statements of historical
fact regarding the intent, belief or expectations of the Company and its
management with respect to, among other things: (1) whether we can successfully
combine the operations we have acquired, and operations we may acquire, to
create or continue improvements in our financial condition; (2) the anticipated
impact of certain events and circumstances; (3) trends affecting the Company's
operations, financial condition and business; (4) the Company's growth and
operating strategies and (5) the continued and future acceptance of demand for
our products and services by our customers. The words "may," "will,"
"anticipate," "believe," "intend," "plan," "allow," "strategy" and similar
expressions are intended to identify such forward-looking statements. Such
forward-looking statements are not guarantees of future performance and actual
results may differ materially from those projected in the forward-looking
statements as a result of risks related to the integration of acquired assets
and businesses; the Company's ability to achieve, manage or maintain growth and
execute its business strategy successfully; its dependence on developing,
testing and implementing enhanced and new products and services; the Company's
ability to sell its products and services to financial institution customers and
their customers; the Company's ability to respond to competition; the volatility
associated with Internet-related companies; and various other factors discussed
in detail in this Form 10-Q and in the Company's Registration Statement on Form
S-1 (Registration No. 333-87089), as declared effective by the Securities and
Exchange Commission on November 8, 1999.
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.
Direct Access, our predecessor entity, was acquired by InterCept 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. We have
accounted for all of our acquisitions to date using the purchase method of
accounting. On August 6, 1999, our predecessor, Direct Access, acquired the
remote banking operations of SBS Corporation. This acquisition provided us with
additional customers, and strategic marketing partners and our Banking on Main
StreetTM 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 the approximately 1,300 community financial institution
customers of these two bankers' banks, as well as to 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 collectively 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 Entities.
As a result of the acquisition of the Acquired Entities and other related stock
issuances, InterCept's ownership interest in Netzee was reduced below 50
percent. Netzee completed its initial public offering on November 9, 1999. The
Company issued 4,400,000 shares of common stock (including the exercise of a
portion of the underwriter's over-allotment option) at an offering price of $14
per share. Net proceeds from the offering were approximately $55,450,000 after
deducting underwriters' discounts, commissions and expenses of the offering. The
Company used the proceeds to repay principal and accrued interest owed to
InterCept and to acquire DPSC Software, Inc.
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We have historically derived our revenues from software license, hardware and
implementation fees for our Internet and telephone banking products and
services. Historically, we 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.
During the third quarter of 1999, we changed our pricing policies for our
existing products and services and modified the pricing policies of the Acquired
Entities to match more closely our new pricing policies. These pricing policies
are summarized as follows:
Internet Banking. We do not charge an up-front implementation fee.
Depending on the number of Internet services purchased by the community
financial institution, we 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 charge a fixed monthly fee for providing telephone
banking products, but do not 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 telephone
banking products will continue to decrease as a percentage of total revenues.
Our cost of services, license, hardware, implementation and maintenance 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.
Although we have experienced significant growth in customers and revenues, we
have incurred substantial operating losses and negative cash flows from
operations due to the changes in our pricing structure. We incurred net losses
of approximately $256,000 for the nine months ended September 30, 1998 and
approximately $8.1 million for the nine months ended September 30, 1999.
Depreciation, amortization and the amortization of stock-based compensation
accounted for 82% of the net loss for the nine months ended September 30, 1999.
We expect to continue to incur substantial operating losses and negative cash
flows for the foreseeable future.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
Revenues
Total revenues increased approximately $336,000 or 132% from approximately
$254,000 for the three months ended September 30, 1998 to approximately $590,000
for the three months ended September 30, 1999. This increase consisted of an
increase of approximately $487,000 in monthly maintenance and service revenues
due primarily to the increase in the number of financial institution customers
obtained from the Acquired Entities. This increase was offset by a decrease of
approximately $151,000 in license, hardware and installation revenues due to the
change in pricing structure previously discussed.
Cost of services, license, hardware, implementation and maintenance
Total cost of services, license, hardware, implementation and maintenance
increased approximately $341,000 or 228% from approximately $150,000 for the
three months ended September 30, 1998 to approximately $491,000 for the three
months ended September 30, 1999. The increase in the cost of services, license,
hardware, implementation and maintenance was due to an increase in the number of
new
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institutional customers and an increase in the total number of institutions to
which the company was providing services.
Selling and marketing expenses
Selling and marketing expenses include marketing expenses, sales commissions,
and sales employee compensation and benefits. Commissions are paid to sales
personnel based on products and services sold. Total selling and marketing
expenses increased approximately $579,000 from approximately $22,000 for the
three months ended September 30, 1998 to approximately $601,000 for the three
months ended September 30, 1999. The increase in selling and marketing expenses
was due to an increase in sales personnel and sales commissions due to
additional sales.
General and administrative expenses
General and administrative expenses include employee compensation and benefits
and general office expenses incurred in the ordinary course of business. General
and administrative expenses increased approximately $365,000 or 409% from
approximately $89,000 for the three months ended September 30, 1998 to
approximately $454,000 for the three months ended September 30, 1999. The
increase in general and administrative expenses was due to increases in overall
business and operating activities and an increase in the number of employees
obtained primarily from the Acquired Entities.
Amortization of stock-based compensation
Stock-based compensation consists of amortization of deferred compensation for
certain stock options granted with an exercise price below the initial public
offering price and compensation expense for stock sold to an employee at a price
below the initial public offering price. Stock-based compensation expense
increased to $2,115,000 for the three months ended September 30, 1999 from $0
for the three months ended September 30, 1998. The increase was due to
compensation expense related to stock options granted and stock sold to an
employee at a price below the initial public offering price.
Depreciation and amortization
Depreciation and amortization consists of depreciation of property and equipment
and amortization of intangible assets. Total depreciation and amortization
increased approximately $4,302,000 from approximately $4,000 for the three
months ended September 30, 1998 to approximately $4,306,000 for the three months
ended September 30, 1999. This increase was due primarily to the amortization of
the intangible assets from the acquisition of the Acquired Entities.
Interest expense, net
Total net interest expense increased approximately $340,000 from approximately
$4,000 for the three months ended September 30, 1998 to approximately $344,000
for the three months ended September 30, 1999. The increase was due primarily to
additional debt incurred by the Company in connection with the acquisitions of
the Acquired Entities during the three months ended September 30, 1999.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
The discussion below of our results of operations for the nine months ended
September 30, 1999 is presented by combining the period from January 1, 1999 to
February 28, 1999 and the period from March 1, 1999 to September 30, 1999.
Revenues
Total revenues increased approximately $467,000 or 101% from approximately
$464,000 for the nine months ended September 30, 1998 to approximately $931,000
for the nine months ended September 30, 1999. This increase consisted of an
increase of approximately $548,000 in monthly maintenance and
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<PAGE> 13
service revenues due primarily to the increase in the number of financial
institution customers obtained from the Acquired Entities. This increase was
offset by a decrease of approximately $81,000 in license, hardware and
implementation revenues.
Cost of services, license, hardware, implementation and maintenance
Total cost of services, license, hardware, implementation and maintenance
increased approximately $306,000 or 86% from approximately $355,000 for the nine
months ended September 30, 1998 to approximately $661,000 for the nine months
ended September 30, 1999. The increase in the cost of services, license,
hardware, implementation, and maintenance was due to an increase in the number
of new institutional customers and an increase in the total number of
institutions to which the company was providing services.
Selling and marketing expenses
Selling and marketing expenses include marketing expenses, sales commissions,
and sales employee compensation and benefits. Commissions are paid to sales
personnel based on products and services sold. Total selling and marketing
expenses increased approximately $674,000 from approximately $67,000 for the
nine months ended September 30, 1998 to approximately $741,000 for the nine
months ended September 30, 1999. The increase in selling and marketing expenses
was due to an increase in sales personnel and sales commissions due to
additional sales.
General and administrative expenses
General and administrative expenses include employee compensation and benefits
and general office expenses incurred in the ordinary course of business. General
and administrative expenses increased approximately $371,000 or 138% from
approximately $270,000 for the nine months ended September 30, 1998 to
approximately $641,000 for the nine months ended September 30, 1999. The
increase in general and administrative expenses was due to increases in overall
business and operating activities and an increase in the number of employees
obtained primarily from the Acquired Entities.
Amortization of stock-based compensation
Stock-based compensation consists of amortization of deferred compensation for
certain stock options granted with an exercise price below the initial public
offering price and compensation expense for stock sold to an employee at a price
below the initial public offering price. Stock-based compensation expense
increased from $0 for the nine months ended September 30, 1998 to $2,115,000 for
the nine months ended September 30, 1999. The increase was due to compensation
expense related to stock options issued and stock sold to an employee at a price
below the initial public offering price.
Depreciation and amortization
Depreciation and amortization consists of depreciation of property and equipment
and amortization of intangible assets. Total depreciation and amortization
increased approximately $4,491,000 from approximately $11,000 for the nine
months ended September 30, 1998 to approximately $4,502,000 for the nine months
ended September 30, 1999. This increase was due primarily to the amortization of
the intangible assets from the acquisition of the Acquired Entities.
Interest expense, net
Total net interest expense increased approximately $331,000 from approximately
$17,000 for the nine months ended September 30, 1998 to approximately $348,000
for the nine months ended September 30, 1999. The increase was due primarily to
additional debt incurred by the Company during the three months ended September
30, 1999.
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<PAGE> 14
Liquidity and Capital Resources
Prior to the acquisition by InterCept, the Predecessor financed operations
through contributions from shareholders and draws on a line of credit. Upon the
Predecessor's acquisition by InterCept, the line of credit was paid in full and
terminated. Subsequent to the acquisition by InterCept, operations were financed
through cash flow from operations and contributions and borrowings from
InterCept, as discussed below.
Our operating activities used cash of approximately $198,000, $8,000 and
$1,629,000 for the nine months ended September 30, 1998, the period from January
1, 1999 to February 28, 1999, and the period from March 1, 1999 to September 30,
1999, respectively. Cash used in operating activities for the nine months ended
September 30, 1998, the period from January 1, 1999 to February 28, 1999, and
the period from March 1, 1999 to September 30, 1999 resulted primarily from our
net losses.
Our investing activities used cash of approximately $24,000, $0, and $30,540,000
for the nine months ended September 30, 1998, the period from January 1, 1999 to
February 28, 1999, and the period from March 1, 1999 to September 30, 1999,
respectively. The cash used in investing activities primarily resulted from the
acquisitions of the Acquired Entities and the purchase of property, equipment
and external software development, primarily in the three months ended September
30, 1999.
Our financing activities generated cash of approximately $227,000 and
$32,455,000 for the nine months ended September 30, 1998 and for the period from
March 1, 1999 to September 30, 1999 and used cash of approximately $2,000 for
the period from January 1, 1999 to February 28, 1999. The cash generated by
financing activities for the nine months ended September 30, 1998 resulted
primarily from increased borrowings under the line of credit and loans from
shareholders, and the cash generated by financing activities during the period
from March 1, 1999 to September 30, 1999 resulted primarily from borrowings and
contributions from InterCept and sales of common stock.
On August 6, 1999 and September 1, 1999, we entered into three promissory notes
with InterCept for an aggregate principal amount of approximately $28.9 million.
We used the proceeds of these three promissory notes to fund our acquisitions of
SBS, Call Me Bill and Dyad. These notes bore interest at a rate of prime plus 2%
per year. InterCept also agreed to loan us additional funds to the extent
necessary to fund our working capital and general corporate requirements prior
to the date of our initial public offering. We had borrowed approximately $5.0
million from InterCept on this basis through the date of our initial public
offering. All outstanding balances due to InterCept were repaid with proceeds
from our initial public offering.
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.
On November 9, 1999, the Company commenced its initial public offering. The
Company issued 4,400,000 shares of common stock (including the partial exercise
of the underwriters' over-allotment option) at an offering price of $14 per
share. Net proceeds from the offering were approximately $55,450,000 after
deducting underwriters' discounts, commissions and expenses of the offering.
In December 1999, the Company acquired DPSC Software, Inc., a provider of
specialized software for community banks and savings and loans, in exchange for
approximately $18.5 million cash, 500,000 shares of Series A 8% cumulative
convertible preferred stock, 525,000 shares of common stock and the payment of
other acquisition costs of approximately $1.0 million.
In December 1999, the Company received a commitment for a $15 million line of
credit from InterCept. The line of credit will bear interest at prime plus 2%
with a term of three years and will be secured by
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<PAGE> 15
substantially all assets of the Company. The proceeds will be used to fund
working capital needs. Obtaining the line of credit is subject to the
completion and execution of definitive legal documentation.
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.
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<PAGE> 16
Additionally, Call Me Bill and the Internet banking operations of TIB and The
Bankers Bank have updated all of their products and services and believe them to
be year 2000 compliant. 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, we believe that a year 2000 failure of Dyad's
system will not materially affect our operations.
Internal Operations. We have tested the systems and technologies supporting our
internal operations, including computers and related software, and
non-information technology systems, such as security, telephone, heating and air
conditioning equipment. We believe that 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, we believe that our internal
operations should be substantially year 2000 compliant.
Third Party Compliance. 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 December 1999, we had incurred approximately $64,000 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, 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, except those which are capital in nature.
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 contract breaches
resulting from year 2000 disruptions;
- the impairment of long-lived assets that must be reclassified
to reflect a shortened life span 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.
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<PAGE> 17
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 have been developed to mitigate the risks
associated with a year 2000 systems failure. Depending on the systems affected
and the severity of the problem, our finalized contingency plans include the
replacement of affected equipment and software, use of year 2000 compliant
backup equipment and emergency allocation of personnel to address year 2000
issues. However, the implementation of our contingency plans 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not use derivative financial instruments in our operations and do not have
operations subject to fluctuations in foreign currency exchange rates.
Borrowings from InterCept accrue interest at a fluctuating rate based on the
prime rate. As of September 30, 1999, we had approximately $31,525,000
outstanding under this facility which exposes the Company to interest rate risk.
Changes in interest rates which dramatically increase the interest rate on the
credit facility would make it more costly to borrow under that facility and may
impede our acquisition and growth strategies if we determine that costs
associated with borrowing funds are too high to implement these strategies.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ISSUANCES OF UNREGISTERED SECURITIES PRIOR TO INITIAL PUBLIC OFFERING
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 Netzee stock
options to purchase 1,019,500 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 7, 1999, Netzee issued 31,100 shares of common stock to
certain former employees of Call McBill, LLC who certified to Netzee
that they qualified as "accredited investors" as defined in Regulation
D of 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 Securities Act of 1933.
Netzee received a total of $750,000 in consideration for these shares.
(8) On October 18, 1999, Netzee issued a warrant to purchase 461,876
shares of common stock at an exercise price of $3.25 price 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. The line of credit agreement
was terminated by Netzee in December 1999.
(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.
(10) On November 9, 1999, Netzee issued to certain employees, directors
and consultants of Netzee stock options to purchase 287,000 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 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.
INITIAL PUBLIC OFFERING
On November 8, 1999, the Company's Registration Statement on Form S-1 (File No.
333-87089) was declared effective by the Securities and Exchange Commission.
Pursuant to this registration statement, the Company registered in the aggregate
5,115,378 shares of common stock, no par value per share, including (1)
4,000,000 shares to be sold by the Company, (2) 667,223 shares of common stock
to be issued pursuant to the exercise by the managing underwriters of an
over-allotment option and (3) 448,155 shares to be sold by selling shareholders.
The aggregate offering price of the amount of securities registered for sale by
the Company and the selling shareholders was $65,341,122 and $6,274,170,
respectively.
On November 9, 1999, the Company commenced its initial public offering of common
stock. Pursuant to this offering, the Company sold an aggregate of 4,400,000
shares of common stock, including 400,000 shares of common stock issued by the
Company pursuant to the partial exercise of the over-allotment option. In
addition, the selling shareholders sold 448,155 shares of common stock. The
managing
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<PAGE> 18
underwriters in the offering were The Robinson-Humphrey Company, LLC, J.C.
Bradford & Co. and SunTrust Equitable Securities Corporation. All 4,848,155
shares of common stock that were sold pursuant to this registration statement
were sold at a price of $14.00 per share. The Company and the selling
shareholders received gross proceeds of $61,600,000 and $6,274,140,
respectively, from the sale of the shares in the initial public offering.
Offering proceeds to the Company, net of approximately $4,312,000 in aggregate
underwriting discounts and commissions and approximately $1,838,000 in other
related expenses, were approximately $55,450,000. Offering proceeds to the
selling shareholders, net of $439,162 in aggregate underwriting discounts and
commissions, were $5,834,978.
Net offering proceeds received on November 15, 1999 from the initial public
offering were used to (1) repay approximately $28.9 million in principal and
accrued interest on promissory notes payable to InterCept, which at the time was
the beneficial owner of approximately 39% of the Company's common stock; (2)
repay approximately $5.0 million in working capital advances and accrued
interest to InterCept; and (3) fund the Company's acquisition of DPSC Software,
Inc. on December 15, 1999.
The Company used the remainder of the net proceeds of the offering for sales and
marketing efforts and product development during the fourth quarter of 1999.
None of the net offering proceeds of the Company's initial public offering have
been or will be paid directly or indirectly to any director or officer of the
Company or their associates, persons owning 10% or more of any class of the
Company's equity securities, or an affiliate of the Company other than as
described above and as compensation to officers of the Company in the ordinary
course of business.
EMPLOYEE OPTION AND SHARE GRANT
On November 15, 1999, Netzee issued to an employee of Netzee 75,000 shares of
common stock.
The issuance of these securities in the transaction described above was deemed
to be exempt from the Securities Act in reliance on section 4(2) of the
Securities Act and the rules thereunder, as a transaction by an issuer not
involving any public offering. Appropriate legends were affixed to the share
certificates issued in the transaction described above.
SALE OF SECURITIES TO SHAREHOLDERS OF DPSC SOFTWARE, INC.
On December 15, 1999, the Company issued 525,000 shares of common stock and
500,000 shares of Series A 8% Convertible Preferred Stock (the "Preferred
Stock") in connection with the acquisition of the assets of DPSC Software, Inc.
("DPSC"). Of these shares, 131,250 shares of common stock and 125,000 shares of
Preferred Stock were placed in escrow for indemnification and other purposes. In
connection with these issuances, the Company also granted to the former
shareholders of DPSC demand and piggyback registration rights with respect to
the shares of common stock issued in the acquisition and the shares of common
stock that may be received upon the conversion of the Preferred Stock into
common stock.
The Preferred Stock entitles the holder thereof to receive cumulative cash
dividends when, as and if declared by the Board of Directors of the Company at
the rate of 8% per year. Dividends shall accrue each day and must be paid in
full before any dividend may be paid on any stock ranking junior to the
Preferred Stock, including the common stock. The Preferred Stock is also
entitled to receive a preferential liquidation payment upon the liquidation,
dissolution or winding up of the Company for any reason. This payment must be
made before the payment or distribution of any assets of the Company in
liquidation to the holders of any stock ranking junior to the Preferred Stock,
including the common stock. The shares of Preferred Stock are immediately
convertible into an aggregate of 411,067 shares of common stock, subject to
certain anti-dilution adjustments. The Preferred Stock is also redeemable at the
option of the Company if the average closing price of the common stock for any
four week period equals or exceeds $26.00 per share.
The shares of common and preferred stock issued in this transaction were not
registered under the Securities Act of 1933, as amended, in reliance upon the
exemption provided by section 4(2) thereof and Rule 506 of Regulation D
promulgated thereunder, as a transaction by an issuer not involving any public
offering. Appropriate legends were affixed to the share certificates issued by
the Company in this transaction and the Company did not engage in any general
solicitation or advertising in connection with offers or sales of these
securities.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 2, 1999, the shareholders of the Company unanimously approved and
adopted the Netzee, Inc. 1999 Stock Option and Incentive Plan (the "Plan"). This
action was taken by written consent in lieu of holding a special meeting of the
shareholders.
On September 2, 1999, the shareholders of the Company unanimously approved and
adopted the contribution of the Internet banking divisions of each of TIB and
The Bankers Bank to the Company. This action was taken by written consent in
lieu of holding a special meeting of the shareholders.
On September 2, 1999, the shareholders of the Company unanimously approved and
adopted the merger of Dyad Corporation with and into the Company. This action
was taken by written consent in lieu of holding a special meeting of the
shareholders.
On November 3, 1999, the holders of at least a majority of the shares of issued
and outstanding common stock of the Company took the following actions by
written consent in lieu of holding a special meeting of the shareholders:
(1) Article XI of the Articles of Incorporation was amended to
require the unanimous written consent of all shareholders in
order to take action by written consent and without a meeting.
(2) A form of Indemnification Agreement to be entered into between
the Company and some or all of its officers and directors, as
may be determined in the sole discretion of the Board of
Directors, was approved and adopted.
(3) The shareholders ratified and approved the Plan.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- --------------------------------------------------------------
<S> <C>
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 TIB The
Bankers Bank.
2.4* Asset Contribution Agreement, dated September 3, 1999, by and
among The InterCept Group, Inc., Netzee, Inc. and 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.
2.8 Asset Purchase Agreement, dated December 15, 1999, by and
among Netzee, Inc., Netcal, Inc. and DPSC Software, Inc.
</TABLE>
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<PAGE> 20
<TABLE>
<S> <C>
3.1 Amended Articles of Incorporation of Netzee, Inc., as amended
to date.
3.2* Amended and Restated Bylaws of Netzee, Inc.
4.1* Form of Netzee, Inc. common stock certificate
4.2 Form of Netzee, Inc. Series A 8% Convertible Preferred Stock
certificate
4.3* Registration Rights Agreement, dated August 6, 1999, by and
among Netzee, Inc. (as successor to Direct Access Interactive,
Inc.) and each of the former shareholders of SBS Corporation.
4.4* Registration Rights Agreement, dated September 3, 1999, by and
among Netzee, Inc., The Bankers Bank and TIB The Independent
BankersBank.
4.5* Registration Rights Agreement, dated August 31, 1999, by and
among Netzee, Inc. and each of the former shareholders of Dyad
Corporation.
4.6* Agreement, dated September 3, 1999, by and between Netzee,
Inc. and Sirrom Investments, Inc., regarding registration
rights of Sirrom.
4.7* Registration Rights Agreement, dated October 18, 1999, by and
between Netzee, Inc. and Kellett Partners, L.P.
4.8* Warrant, dated October 18, 1999, issued to Kellett Partners,
L.P.
4.9 Registration Rights Agreement, dated December 15, 1999, by and
between Netzee, Inc. and each of the former shareholders of
DPSC Software, Inc.
10.1* Netzee, Inc. 1999 Stock Option and Incentive Plan.
10.2* Option Agreement, dated July 1, 1999, by and between Netzee,
Inc. (as successor to Direct Access Interactive, Inc.) and
Glenn W. Sturm.
10.3* Option Agreement, dated July 1, 1999, by and between Netzee,
Inc. (as successor to Direct Access Interactive, Inc.) and
John W. Collins.
10.4* Option Agreement, dated July 1, 1999, by and between Netzee,
Inc. (as successor to Direct Access Interactive, Inc.) and
Richard S. Eiswirth.
10.5* Employment Agreement, dated September 1, 1999, by and between
Netzee, Inc. and Glenn W. Sturm.
10.6* Employment Agreement, dated September 1, 1999, by and between
Netzee, Inc. and C. Michael Bowers.
10.7* Employment Agreement, dated September 1, 1999, by and between
Netzee, Inc. and David W. Brasfield.
10.8* Employment Agreement, dated September 1, 1999, by and between
Netzee, Inc. and Richard S. Eiswirth.
10.9* Form of Indemnification Agreement to be entered into between
Netzee, Inc. and each of its executive officers and directors.
10.10* 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.
10.11* 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.
10.12* 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.
10.13* Promissory Note, dated September 1, 1999, from John W. Collins
as maker, to Netzee, Inc. (as successor to Direct Access
Interactive, Inc.).
10.14* Promissory Note, dated September 1, 1999, from Glenn W. Sturm
as maker, to Netzee, Inc. (as successor to Direct Access
Interactive, Inc.).
10.15* Promissory Note, dated September 1, 1999, from Donny R.
Jackson as maker, to Netzee, Inc. (as successor to Direct
Access Interactive, Inc.).
10.16* Promissory Note, dated September 1, 1999, from Richard S.
Eiswirth as maker, to Netzee, Inc. (as successor to Direct
Access Interactive, Inc.).
10.17* Line of Credit Agreement, dated October 18, 1999, by and
between Netzee, Inc. and Kellett Partners, L.P.
</TABLE>
19
<PAGE> 21
<TABLE>
<S> <C>
10.18+* General Marketing Agent Agreement, dated September 3, 1999, as
amended, by and between Netzee, Inc. and TIB The Independent
BankersBank.
10.19+* General Marketing Agent Agreement, dated September 3, 1999, as
amended, by and between Netzee, Inc. and The Bankers Bank.
10.20* Sublease, dated September 1, 1999, by and between The Bankers
Bank and Netzee, Inc.
10.21* Commercial Lease, dated January 9, 1998, by and between DMB,
LLC and Netzee, Inc. (as successor to Direct Access
Interactive, Inc. (as successor to SBS Corporation)).
10.22 Employment Agreement, between Bruce Gall and Netcal, Inc.
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
</TABLE>
- ------------
* Previously filed as an exhibit to Netzee, Inc.'s Registration
Statement on Form S-1 (File No. 333-87089).
+ Portions of this exhibit have been omitted pursuant to a
confidential treatment request granted by the Securities and
Exchange Commission on November 8, 1999.
(b) Reports on Form 8-K.
There were no reports on Form 8-K that were filed during the quarter
ended September 30, 1999.
20
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NETZEE, INC.
Date: December 22, 1999 /s/ Richard S. Eiswirth
-----------------------------------------------
Executive Vice President, Chief Financial
Officer and Secretary
(Principal Financial and Accounting Officer and
Duly Authorized Officer)
21
<PAGE> 1
EXHIBIT 2.8
ASSET PURCHASE AGREEMENT
DECEMBER 15, 1999
BY AND BETWEEN
NETZEE, INC.,
NETCAL, INC.
(GEORGIA CORPORATIONS)
AND
DPSC SOFTWARE, INC.
(A CALIFORNIA CORPORATION)
AND
SHAREHOLDERS OF SELLER
(____________ RESIDENTS)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
ARTICLE 1 - SALE AND PURCHASE.....................................................................................1
(a) Purchase and Sale; Included Assets..............................................................1
(b) Intent of the Parties...........................................................................4
(c) Title to and Transfer of Assets.................................................................4
(d) Excluded Assets.................................................................................4
ARTICLE 2 - ASSUMPTION OF LIABILITIES BY THE PURCHASER............................................................4
(a) Assumed Liabilities.............................................................................4
(i) Trade Payables..............................................................................5
(ii) Contracts..................................................................................5
(iii) Other Accrued Liabilities.................................................................5
(iv) Certain Employee Benefits..................................................................5
(b) Liabilities Not Assumed.........................................................................5
ARTICLE 3 - PURCHASE PRICE AND PAYMENT............................................................................7
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SHAREHOLDERS.....................................9
(a) Corporate Existence.............................................................................9
(b) Corporate Power; Authorization; Enforceable Obligations.........................................9
(c) No Conflict.....................................................................................9
(d) Required Government Consents...................................................................10
(e) Required Contract Consents.....................................................................10
(f) Title to Tangible Property.....................................................................10
(g) Condition of Property..........................................................................10
(h) Inventory......................................................................................11
(i) Intellectual Property..........................................................................11
(i) Ownership..................................................................................11
(ii) Procedures for Copyright Protection.......................................................11
(iii) Procedures for Trade Secret Protection...................................................11
(iv) Ownership of Software.....................................................................12
(v) Absence of Claims..........................................................................12
(vi) Adequacy of Technical Documentation.......................................................12
(vii) Third-Party Components in Software.......................................................12
(viii) Third-Party Interests or Marketing Rights in Software...................................12
(j) Contracts - General............................................................................13
(k) Leases.........................................................................................13
(l) Accounts Receivable............................................................................13
(m) Financial Statements...........................................................................13
(n) Undisclosed Liabilities........................................................................13
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
(o) Conduct of Business............................................................................14
(i) Ordinary Course of Business: No Removal or Disposal of Assets.............................14
(ii) No Material Adverse Change................................................................14
(iii) Absence of Particular Events.............................................................14
(p) Major Vendors and Customers....................................................................14
(q) Litigation.....................................................................................14
(r) Court Orders, Decrees, and Laws................................................................15
(i) Compliance With Laws.......................................................................15
(ii) Adequacy of Authorizations................................................................15
(iii) Environmental Matters....................................................................15
(s) Taxes and Tax Returns..........................................................................16
(t) Personnel and Compensation.....................................................................17
(i) List of Personnel..........................................................................17
(ii) Compensation, etc.........................................................................17
(iii) Retirement Plans.........................................................................17
(iv) Pension Benefit Guaranty Corporation......................................................17
(v) No Accumulated Deficiency..................................................................17
(vi) Submission to Purchaser for Review........................................................18
(vii) Multi-employer Plan......................................................................18
(viii) Adequate Reserves for Welfare Plans.....................................................18
(ix) Compliance with Laws......................................................................18
(u) Insurance Policies.............................................................................18
(v) Sufficiency of Rights..........................................................................19
(w) Broker's or Finder's Fees......................................................................19
(x) Related-Party Transactions.....................................................................19
(y) Bank Accounts..................................................................................19
(z) Year 2000 Matters..............................................................................19
(aa) No Fraudulent Transfer.........................................................................20
(bb) Disclosure.....................................................................................20
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.......................................................20
(a) Securities Act Compliance......................................................................20
(b) Access to Information..........................................................................21
(c) Experience; Investment.........................................................................21
(d) No Prior Convictions...........................................................................22
(e) Tax Advice.....................................................................................22
(f) Shareholders' Authority........................................................................22
(g) Ownership......................................................................................22
(h) No Options, Etc................................................................................22
(i) Waiver of Dissenter's Rights...................................................................23
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF PARENT.............................................................23
(a) Corporate Existence............................................................................23
(b) Corporate Power and Authorization..............................................................23
(c) Validity of Contemplated Transactions, etc.....................................................23
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
(d) Broker's or Finder's Fees......................................................................24
(e) Capitalization.................................................................................24
(f) SEC Reports....................................................................................24
(g) Compliance with Applicable Laws................................................................24
(h) Litigation.....................................................................................24
(i) Required Government Consents...................................................................25
(j) Required Contract Consents.....................................................................25
(k) Obligations of Purchaser.......................................................................25
(l) No Material Adverse Change.....................................................................25
(m) Disclosure.....................................................................................25
ARTICLE 7 - CONDITIONS TO CLOSING................................................................................26
(a) Conditions to Seller's Obligations.............................................................26
(b) Conditions to Parent's and Purchaser's Obligations.............................................26
ARTICLE 8 - CLOSING 30...........................................................................................29
(a) Closing........................................................................................29
(b) Actions at Closing.............................................................................29
(i) Copies of Consents.........................................................................29
(ii) Conveyance Instruments....................................................................29
(iii) Assumption Agreement(s) .................................................................29
(iv) Legal Opinions............................................................................29
(v) Lease......................................................................................29
(vi) Post-Closing Agreement....................................................................29
(c) Delivery of Purchase Price.....................................................................29
(d) Further Assurances.............................................................................29
ARTICLE 9 - COVENANTS OF PARENT, PURCHASER AND SELLER FOLLOWING CLOSING..........................................30
(a) Purchaser's Cooperation........................................................................30
(b) Allocation of Purchase Price...................................................................30
(c) Maintenance of Books and Records...............................................................30
(d) UCC Matters....................................................................................30
(e) Covenant Not to Compete........................................................................31
(f) Nonsolicitation of Personnel...................................................................31
(g) Maintain Corporate Status......................................................................31
(h) Reservation of Shares..........................................................................31
ARTICLE 10 - INDEMNIFICATION.....................................................................................31
(a) Indemnification by Seller and Shareholders.....................................................31
(i) Breach of Obligation.......................................................................32
(ii) Excluded Liabilities......................................................................32
(iii) Failure to Obtain Consents...............................................................32
(iv) Violations of Fraudulent Conveyance Laws..................................................32
(v) Incidental Matters.........................................................................32
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
(b) Indemnification by Purchaser...................................................................32
(i) Breach of Obligation.......................................................................32
(ii) Assumed Liabilities.......................................................................32
(iii) Post-Closing Operations..................................................................32
(c) Notice of Claim................................................................................32
(d) Defense........................................................................................33
(e) Manner of Indemnification by Seller............................................................33
(f) Limitations....................................................................................33
(i) Threshold..................................................................................33
(ii) Time of Assertion.........................................................................33
(iii) Exclusive Remedy.........................................................................34
(g) Recovery of Attorney Fees For Frivolous Actions................................................34
(h) Arbitration....................................................................................34
ARTICLE 11 - CONFIDENTIALITY.....................................................................................34
ARTICLE 12 - GENERAL RELEASE AND COVENANT NOT TO SUE.............................................................34
ARTICLE 13 - MISCELLANEOUS.......................................................................................35
(a) Sales, Transfer and Documentary Taxes, etc.....................................................35
(b) Expenses.......................................................................................35
(c) Contents of Agreement; Parties in Interest; etc................................................35
(d) Waiver.........................................................................................36
(e) Notices........................................................................................36
(f) Georgia Law to Govern..........................................................................37
(g) No Benefit to Others...........................................................................37
(h) Headings, Gender and "Person"..................................................................37
(i) Schedules and Exhibits.........................................................................38
(j) Severability...................................................................................38
(k) Counterparts...................................................................................38
(m) Assistance of Counsel..........................................................................38
(n) Time of the Essence............................................................................38
(o) Execution by Facsimile.........................................................................38
</TABLE>
iv
<PAGE> 6
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "AGREEMENT"), is made and entered
into as of the 15th day of December, 1999, by and between Netzee, Inc., a
Georgia corporation (the "PARENT"), Netcal, Inc., a Georgia corporation (the
"PURCHASER"), DPSC Software, Inc., a California corporation (the "SELLER") and
the shareholders of the Seller named on the signatures pages hereto
(collectively, the "SHAREHOLDERS").
RECITALS
The Seller is engaged principally in the business of developing,
marketing and distributing software and providing related products and services
to financial institutions, including marketing and distributing internet banking
software and other products of third parties (collectively, the "BUSINESS").
The Purchaser desires to purchase, and the Seller desires to sell, all
of the assets of Seller associated with the Business, and Seller desires to
transfer, and Purchaser desires to assume, certain liabilities of Seller arising
in connection with the Business, all upon the terms and conditions and subject
to the limited exceptions set forth herein.
The boards of directors of Parent, Purchaser and Seller, as well as the
Shareholders and the sole shareholder of Purchaser, have approved the
transactions described in this Agreement.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, and agreements of the parties hereinafter set forth, the
parties hereto, intending to be legally bound, do hereby agree as follows:
ARTICLE 1
SALE AND PURCHASE
(a) Purchase and Sale; Included Assets. Upon the terms and subject
to the conditions of this Agreement, Purchaser agrees to purchase, accept, and
acquire from Seller, and Seller agrees to sell, transfer, assign, convey, and
deliver to Purchaser, at the Closing (as defined in Section 8(a) hereof), all
right, title, and interest in and to all of the rights and assets, real,
personal, and mixed, tangible or intangible, used directly or indirectly in or
otherwise relating primarily to the Business, whether now owned or hereafter
acquired, as owned or held by Seller, except as expressly excluded by Section
1(d) below. Subject to such express exclusion and qualification, the foregoing
rights and assets shall hereinafter collectively be referred to as the "ASSETS."
As used herein, the "DETERMINATION DATE" means the date of this Agreement, or if
another date is specifically identified in a Schedule as the Determination Date
for purposes of the Assets described in such Schedule, such other specified
date. Without in any way limiting the
<PAGE> 7
generality of the foregoing, the Assets shall include all of Seller's right,
title and interest in and to the following, wherever located:
(i) All accounts, accounts receivable, notes, notes
receivable, instruments, drafts, documents, chattel paper and other receivables
and rights to the payment of money or receipt of other benefit with respect to
the Business which remains uncollected or unreceived on the Closing Date (as
defined in Section 8(a) hereof), whether or not evidenced by a writing or
reflected in Seller's financial statements provided to Purchaser and disclosed
in Schedule 4(m) (the "ACCOUNTS RECEIVABLE") including the Accounts Receivable
disclosed in Schedule 1(a)(i).
(ii) All of the Seller's service, license, marketing and
other similar agreements and sales contracts used directly or indirectly in or
otherwise relating primarily to the Business (the "LICENSE AGREEMENTS"),
including, without limitation, the License Agreements disclosed in Schedule
1(a)(ii);
(iii) All of Seller's fixed assets, goods, equipment and
other property used directly or indirectly in or otherwise relating primarily to
the Business (the "EQUIPMENT"), including, without limitation, the Equipment
disclosed in Schedule 1(a)(iii);
(iv) All inventories of Seller and all unused or reusable
materials, work in process, damaged or unfinished goods and supplies, in each
case to the extent used directly or indirectly in or otherwise relating
primarily to the Business (the "INVENTORY"). As of the Determination Date, the
Inventory consists of the Inventory disclosed in Schedule 1(a)(iv);
(v) All patents, trademarks, service marks, trade names,
domain names, copyrights and general intangibles (including registrations,
licenses, and applications pertaining thereto); all technologies, methods,
formulations, data bases, trade secrets, know-how, inventions and other
intellectual property now existing or under development; all internet domain
names and registrations, including "www.dpscsoftware.com"; all software,
programs, databases and other intellectual property rights, whether owned or
leased, pursuant to which Seller operates the Business and its website at
www.dpscsoftware.com; and all computer software (including technical
documentation and user reference manuals and related object and source codes),
in each case as used directly or indirectly in or otherwise relating primarily
to the Business, including, but not limited to, the software and other
intellectual property disclosed in Schedule 1(a)(v) (collectively, the
"INTELLECTUAL PROPERTY");
(vi) All office furniture and fixtures used directly or
indirectly in or otherwise relating primarily to the Business (the "OFFICE
FURNITURE"). As of the Determination Date, the Office Furniture consists of all
items disclosed in Schedule 1(a)(vi);
2
<PAGE> 8
(vii) The entire leasehold, rental or other interest
arising under or pursuant to leases of:
(A) real property, including buildings, structures,
and other improvements located thereon, fixtures contained therein, and
appurtenances thereto, and easements and other rights relative thereto;
(B) equipment, including computer hardware and
associated telecommunications equipment, media, and tools;
(C) office furniture; and
(D) other personalty,
in each case as used directly or indirectly in or otherwise relating
primarily to the Business (the "LEASES"). As of the Determination Date,
the Leases consist of all leases disclosed in Schedule 1(a)(vii);
(viii) All contracts, agreements, licenses, commitments,
arrangements, and permissions entered into in connection with or otherwise
relating primarily to the Business (the "GENERAL CONTRACTS"), which items are
disclosed in Schedule 1(a)(viii), to the extent not otherwise classified as
License Agreements, Leases or Insurance Policies (as defined herein);
(ix) All business and marketing records, including
accounting and operating records, asset ledgers, inventory records, reports,
budgets, personnel records, payroll records, customer lists, copies of
employment and consulting agreements, supplier lists, information and data
respecting leased or owned equipment, files, correspondence and mailing lists,
advertising materials and brochures, and other business records used directly or
indirectly in or otherwise relating primarily to the Business, in whatever form
they exist (the "BUSINESS RECORDS");
(x) All governmental approvals, authorizations,
certifications, consents, variances, permissions, licenses, and permits to or
from, or filings, notices, or recordings to or with, U.S. federal, state, and/or
local governmental authorities as well as states and jurisdictions outside of
the U.S. (the "AUTHORIZATIONS"), as used directly or indirectly in or otherwise
relating primarily to the Business ,but subject, as to the reassignability to
Purchaser, to the procurement of the Required Government Consents (as defined
herein). As of the Determination Date, the Authorizations consist of the items
disclosed in Schedule 1(a)(x);
(xi) The deposits, deposit accounts, prepaid expense
items, and investments that are disclosed in Schedule 1(a)(xi) plus all other
cash, cash equivalents, deposits, deposit accounts, and investments, and all
other products and proceeds of any Assets, arising from the Business on or after
the Determination Date;
(xii) All insurance and reinsurance, surety, bonding, or
indemnity policies, binders, or contracts, and the benefits of any prior
insurance coverage to the extent still available,
3
<PAGE> 9
as established or obtained with respect to the Business or the Assets (the
"INSURANCE POLICIES"). As of the Determination Date, the Insurance Policies
consist of the items disclosed in Schedule 1(a)(xii); and
(xiii) All claims Seller may have against any person
relating to or arising from the Assets or the Business, including rights to
recoveries for damages or defective goods, to refunds, insurance claims, and
choses in action ("SELLER CLAIMS"), but not including any Seller Claims under or
in connection with the Excluded Assets.
(b) Intent of the Parties. Although the Schedules to this
Agreement are intended to be complete, to the extent any rights or assets of
Seller primarily relate to the Business or are otherwise necessary for the
ownership and use of the Assets and the conduct of the Business, but are not
properly itemized or do not appear in the applicable Schedules where required,
then, unless this Agreement otherwise provides directly for Purchaser to provide
for or obtain such rights or assets in a different way or unless such rights or
assets are specifically included in Excluded Assets, the general language of
Section 1(a) shall govern and such rights and assets shall nonetheless be deemed
transferred to Purchaser at Closing.
(c) Title to and Transfer of Assets. The Seller agrees to convey
to the Purchaser fee simple, good, marketable and unencumbered lien free title
to all of the Assets by appropriate documents of transfer and sale, including
such bills of sale, endorsements and assignments, and other good and sufficient
instruments of bargain and sale, in such form as shall be approved and deemed
appropriate by legal counsel for the Purchaser, and which documents shall
contain covenants of warranty as to title, and which documents shall, in the
opinion of Purchaser's counsel, be sufficient to vest in Purchaser good and
marketable title to the Assets.
(d) Excluded Assets. Notwithstanding the foregoing, the Assets
shall not include any of the following: certificate of incorporation, minute
books, stock books, tax returns, books of account or other records having to do
with corporate organization of Seller; the rights which accrue or will accrue to
Seller under this Agreement; the rights to any of Seller's claims for any
federal, state, local, or foreign tax refunds; or the assets, properties or
rights disclosed in Schedule 1(d) (the "EXCLUDED ASSETS").
ARTICLE 2
ASSUMPTION OF LIABILITIES BY THE PURCHASER
(a) Assumed Liabilities. At and after the Closing, the Purchaser
shall assume and pay in a timely fashion and be responsible for only the
specific obligations and liabilities of the Seller (the "LIABILITIES") that
arise out of the Business or the Assets and that are specifically identified on
Schedule 2(a) (the "ASSUMED LIABILITIES") or are specifically assumed by any
other covenant, agreement or indemnity of Purchaser in this Agreement or the
other Purchase Agreements (as defined in Section 13(c) below) and instruments to
be executed and delivered by Purchaser in connection with this Agreement.
Subject to the express exclusions disclosed in Section 2(b), the Assumed
Liabilities shall include the following:
4
<PAGE> 10
(i) Trade Payables. All accrued trade payables of Seller
arising out of the Business, other than payables owed to the affiliates of
Seller, disclosed in Schedule 2(a)(i);
(ii) Contracts. All payment and performance obligations
arising after the Closing Date and relating to the License Agreements, Leases
and the General Contracts, except to the extent attributable to (A) any breach
or default by Seller under any of the same on or before the Determination Date,
or (B) any material liability or obligation outside the ordinary course of
business not disclosed by Seller pursuant to this Agreement, insofar as
disclosure thereof is required hereunder and Purchaser does not receive property
or services of substantially equivalent value in respect of such liability or
obligation;
(iii) Other Accrued Liabilities. Any other liabilities
pertaining to the Assets recorded on the Seller's most recent balance sheet
delivered to Purchaser and which otherwise relate primarily to the Business,
including any refunds of prepaid amounts owed to customers of the Seller who
terminate their contracts for any reason other than the breach by the Seller of
any agreement with such customer; provided, however, that refunds of such
amounts in excess of $15,000 in the aggregate shall constitute Excluded
Liabilities (as defined below); and
(iv) Certain Employee Benefits. To the extent that an
employee of Seller is offered and accepts employment by Purchaser
contemporaneously with Closing, the accrued but unpaid payroll amounts due to
such employee or a plan administrator for the account of such employee under
disclosed employee benefit plans generally offered to all of Seller's employees
for the current payroll period ending on or after the Closing Date, which Seller
represents are not more than $75,000 in the aggregate. In addition, the
Purchaser agrees to assume a maximum total of $ 60,000 of accrued but unpaid
bonus amounts due to employees of the Seller for service during 1999 but not yet
paid.
(b) Liabilities Not Assumed. Purchaser shall not assume or be
responsible for any of the following liabilities or obligations (the "EXCLUDED
LIABILITIES"):
(i) any product liability or similar claim for injury to
person, business or property, regardless of when made or asserted, which arises
out of or is based upon any express or implied representation, warranty,
agreement or guarantee made by Seller, or alleged to have been made by Seller,
or which is imposed or asserted to be imposed by operation of law, in connection
with any service performed or product sold or leased by or on behalf of Seller
on or prior to the Closing, including without limitation any claim relating to
any product delivered in connection with the performance of such service and any
claim seeking recovery for consequential damages, lost revenue or income;
(ii) sales or use taxes, recapture taxes, other taxes,
assessments and penalties (A) payable with respect to the Business, Assets,
properties or operations of Seller or any member of any affiliated group of
which Seller is a member for any period prior to the date hereof, or (B)
incident to or arising as a consequence of the negotiation or consummation by
Seller, or any member of any affiliated group of which Seller is a member, of
this Agreement
5
<PAGE> 11
and the transactions contemplated hereby. All sales taxes, transfer taxes,
documentary stamp taxes and other similar assessments relating to the sale and
transfer of the Assets pursuant to this Agreement shall be paid by the
Purchaser;
(iii) any liability or obligation under or in connection
with the Excluded Assets;
(iv) any liability or obligation of Seller of any kind,
known or unknown, contingent or otherwise, not either enumerated as an Assumed
Liability in Section 2(a) or resulting from any other covenant, agreement, or
indemnity of Seller in this Agreement or the other Purchase Agreements and
instruments to be executed and delivered by Seller;
(v) any liability or obligation resulting from violations
of any applicable laws or regulations by Seller prior to the Determination Date
or from infringement of third-party rights or interests;
(vi) except to the extent set forth above, any employee
liabilities relating to present and past employees of the Business with respect
to plans, programs, policies, commitments, and other benefit entitlement
established or existing on or prior to Closing (whether or not such liabilities
are accrued or payable at Closing, and whether or not such liabilities are
contingent in nature), including
(A) any liability or obligation for workers'
compensation;
(B) any current or future liabilities to employees
retiring on, before, or after Closing, and their dependents (excluding
employees employed by Purchaser after the Closing and who subsequently
retire);
(C) any current or future liabilities for benefits
that may have been accrued or earned by any employees associated with
the Business on or before Closing under any pension plans relating to
service prior to the Closing Date;
(D) any current or future liabilities for claims
incurred prior to Closing and related expenses with respect to any
employees associated with the Business under any welfare or disability
plans established or existing at or prior to Closing, regardless of
when filed with Purchaser, Seller, or the claims administrator for any
such plan;
(E) any retrospective premium on pension, savings,
thrift, or profit-sharing plan contribution relating to any employees
associated with the Business incurred or accrued prior to the Closing
Date, regardless of when invoiced or recorded; and
(F) any monetary liability for severance payments
that may arise at any time in favor of any of Seller's employees under
any plan, program, policy, commitment, or any other benefit
entitlement, provided such monetary liability relates to periods of
employment prior to the Closing;
6
<PAGE> 12
(vii) any Litigation (as defined herein) pending or
threatened against Seller or the Assets, if the cause of action or activities
giving rise to such litigation arise or accrue prior to the Closing Date;
(viii) any liability or obligation that under generally
accepted accounting principles ("GAAP") would be required to be accrued and
reflected in Seller's most recent balance sheet furnished to Purchaser before
Closing, but is not included therein, regardless of the materiality of such
items individually or in the aggregate;
(ix) any liability or obligation of Seller arising or
incurred in connection with the negotiation, preparation and execution of this
Agreement and the transactions contemplated hereby and fees and expenses of
counsel, accountants and other experts;
(x) any liability or obligation of Seller arising or
incurred in connection with any securities of the Seller, including, but not
limited to, the offer or sale of any securities by Seller, the repurchase by the
Seller of any its securities from its shareholders, and the issuance or payment
of any distributions and/or dividends by Seller to its shareholders;
(xi) any liability or obligation of Seller arising or
incurred in connection with the letter of intent dated February 19, 1999 by and
among Jack Henry & Associates, Inc. and Seller or the Agreement and Plan of
Merger dated on or about April 1, 1999 by and among Jack Henry & Associates,
Inc., JHA Acquisition Corp. and Seller and any other agreements or documents
executed by Seller in connection therewith; and
(xii) any liability or obligation of Seller arising or
incurred in connection with any non-disclosure, confidentiality, no-shop,
standstill or similar agreements which the Seller or any of the Shareholders may
have entered into prior to the date hereof.
ARTICLE 3
PURCHASE PRICE AND PAYMENT
(a) The total purchase price for all of the Assets shall be (1)
$18,500,000 in cash (the "CASH PORTION"), plus (2) 525,000 shares of common
stock, without par value ("COMMON STOCK"), of the Parent (the "COMMON STOCK
PORTION"), plus (3) 500,000 shares of Series A 8% Convertible Preferred Stock,
without par value ("PREFERRED STOCK") of Parent (the "PREFERRED STOCK PORTION")
plus (4) Purchaser's assumption of the Assumed Liabilities (together with the
Cash Portion, the Common Stock Portion and the Preferred Stock Portion, the
"PURCHASE PRICE"). The total Cash Portion shall be paid at the Closing by wire
transfer of same-day funds to an account designated by Seller.
(b) The parties agree that the Purchase Price represents the fair
market value of the Assets. The Purchase Price shall be allocated among the
Assets acquired hereunder as disclosed in Schedule 3. Seller, Shareholders,
Parent and Purchaser each hereby covenant and
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agree that it will not take a position on any income tax return, before any
governmental agency charged with the collection of any income tax, or in any
judicial proceeding that is in any way inconsistent with the terms of this
Article 3.
(c) On the Closing Date, Purchaser shall deliver to the escrow
agent set forth in the Escrow Agreement in the form of Exhibit 3(c) hereto
("ESCROW AGREEMENT") (1) share certificates representing 295,000 shares of
Common Stock and 150,000 shares of Preferred Stock (together, the "ESCROW
AMOUNT") for the escrow established pursuant to the Escrow Agreement. The
amounts placed in escrow include 175,000 shares of Common Stock (the "OTS
PORTION") to be released to Seller upon assignment (including obtaining all
Required Government Consents) to Purchaser of the OTS Contract (as defined
herein), in accordance with the terms of the Escrow Agreement and, if such
assignment of the OTS Contract to Purchaser does not occur during 2000, the OTS
Portion (or proceeds thereof) shall be released from the escrow to the
Purchaser.
(d) The shares of Common Stock and Preferred Stock to be delivered
in connection with this Agreement will be issued in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "SECURITIES
ACT"), by reason of Section 4(2) thereof, Regulation D promulgated thereunder,
or other private offering exemptions, and Purchaser and Parent are relying on
the representations of the Seller and the Shareholders with respect to such
exemptions. Seller and each Shareholder understand and agree that stop transfer
instructions with respect to the shares of Common Stock and Preferred Stock
received by Seller pursuant to this Agreement will be given to Parent's transfer
agent and that there will be placed on the certificates for such shares a legend
stating in substance as follows:
The securities represented hereby have not been registered
under the Securities Act of 1933, as amended, and may not be
offered, sold, transferred or otherwise disposed of unless
registered with the United States Securities and Exchange
Commission and the securities regulatory authorities of
applicable states or unless an exemption from such
registration is available.
The foregoing legends will also be placed on any certificate representing
securities issued subsequent to the original issuance of the Common Stock or
Preferred Stock pursuant to this Agreement as a result of any transfer of such
shares or any stock dividend, stock split or other recapitalization as long as
the Common Stock or Preferred Stock issued to the Seller pursuant to this
Agreement has not been transferred in such manner to justify the removal of the
legend therefrom.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE
SHAREHOLDERS
The Seller and the Shareholders hereby represent and warrant, jointly
and severally, to Parent and Purchaser that, except as set forth on the
disclosure schedules attached hereto, each of which exceptions shall
specifically identify the relevant subsection hereof to which it relates, as
follows:
(a) Corporate Existence. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California. Seller has the corporate power and authority to conduct the
Business and to own and lease all of its properties and assets (including the
Assets) and is duly qualified or licensed to do business and is in good standing
under the laws of each jurisdiction where such qualification is required, except
where the failure to be so qualified would not have a material adverse effect on
its business, operations, properties, assets or condition (financial or
otherwise) (a "MATERIAL ADVERSE EFFECT"). The Seller does not own, directly or
indirectly, any equity or other interest in any corporation, company,
association, partnership, joint venture, or other entity. DPSC Internet, Inc.
has been dissolved and is no longer a validly existing corporation. The Seller
has done business only under its corporate name and DPSC Internet, Inc. for the
five (5) years prior to the Closing Date. Seller has filed all documents
necessary for the dissolution of DPSC Internet, Inc. DPSC Internet, Inc. does
not now own, nor has it ever owned, any of the Assets or conducted any
operations related to the Business.
(b) Corporate Power; Authorization; Enforceable Obligations.
Seller has the corporate power and authority, and the Shareholders have the
power and authority, to execute and deliver this Agreement and the other
Purchase Agreements and instruments to be executed and delivered by them in
connection with the transactions contemplated hereby and thereby and to perform
their obligations hereunder and thereunder. Seller and Shareholders have taken
all necessary action (corporate action in the case of Seller) to authorize the
execution and delivery of this Agreement and such other agreements and
instruments and the consummation of the transactions contemplated hereby and
thereby. This Agreement is, and the other agreements and instruments to be
executed and delivered by the Seller and the Shareholders in connection with the
transactions contemplated hereby shall be, the legal, valid, and binding
obligations of the Seller and the Shareholders, enforceable in accordance with
their terms, except as such enforcement may be subject to or limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or
hereafter in effect and by general principles of equity.
(c) No Conflict. Neither the execution and delivery of this
Agreement and the other Purchase Agreements and instruments to be executed and
delivered in connection with the transactions contemplated hereby or thereby,
nor the consummation of the transactions contemplated hereby or thereby, will
(1) violate any foreign, federal, state, or local law, regulation, ordinance,
zoning requirement, governmental restriction, order, judgment, or decree
(collectively, "LAWS") applicable to the Seller, the Shareholders, the Business,
or the Assets, (2) violate or conflict with any provision of any articles of
incorporation, charter, bylaw or other
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governing or organizational instrument of Seller, or (3) conflict with, result
in the breach of, or constitute a default under any mortgage, indenture,
license, instrument, trust, contract, agreement, or other commitment or
arrangement to which the Seller is a party or by which Seller or any of the
Assets are bound, except where such violation, conflict, breach or default would
not have a Material Adverse Effect on the Business or the Assets.
(d) Required Government Consents. Except for (1) the filing and/or
recording of deeds and other instruments of conveyance, transfer, or assignment
required by federal copyright, patent, or trademark laws or the laws of the U.S.
and non-U.S. jurisdictions and states in which the Assets are located, to occur
upon Closing; (2) any approvals necessary to assign to Purchaser Contract No.
TOT-97-0005/C770005, for the development and distribution of an electronic
software package between the Seller and the Office of Thrift Supervision (the
"OTS CONTRACT"), and (3) the further exceptions disclosed in Schedule 4(d) (the
foregoing items (1) through (3) being referred to herein as the "REQUIRED
GOVERNMENT CONSENTS"), no approval, authorization, certification, consent,
variance, permission, license, or permit to or from, or notice, filing, or
recording to or with, U.S. or non-U.S., federal, state, or local governmental
authorities is necessary for the execution and delivery of this Agreement and
the other Purchase Agreements and instruments to be executed and delivered in
connection with the transactions contemplated hereby or thereby by the Seller or
the Shareholders or the consummation by the Seller or the Shareholders of the
transactions contemplated hereby or thereby, or the ownership and use of the
Assets and the conduct of the Business (including by Purchaser, assuming such
ownership and use is the same as the ownership and use by the Seller).
(e) Required Contract Consents. Except as disclosed in Schedule
4(e) (such scheduled items being referred to herein as the "REQUIRED CONTRACT
CONSENTS"), no approval, authorization, consent, permission, or waiver to or
from, or notice, filing, or recording to or with, any person (other than the
Required Government Consents) is necessary for (1) the execution and delivery of
this Agreement and the other Purchase Agreements and instruments to be executed
and delivered in connection with the transactions contemplated hereby or thereby
by Seller or Shareholders or the consummation by Seller or Shareholders of the
transactions contemplated hereby or thereby; (2) the transfer and assignment to
Purchaser at Closing of the Leases, License Agreements, General Contracts or
Insurance Policies; or (3) the ownership and use of the Assets and the conduct
of the Business (including by Purchaser, assuming such ownership and use is
substantially the same as the ownership and use by the Seller).
(f) Title to Tangible Property. Purchaser at Closing shall obtain
good and marketable title to all of the tangible Assets (i.e., the Equipment,
Inventory, Office Furniture, and Business Records), free and clear of all title
defects, liens, restrictions, claims, charges, security interests, or other
encumbrances of any nature whatsoever, including any mortgages, leases (except
for the Leases disclosed in Schedule 1(a)(vii)), chattel mortgages, conditional
sales contracts, collateral security arrangements, or other title or interest
retention arrangements.
(g) Condition of Property. All of the tangible Assets are in good
operating order, condition, and repair, ordinary wear and tear excepted, and are
suitable for use in the Business in the ordinary course, as presently operated.
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(h) Inventory. All Inventory is of usable quality and includes no
material amount of obsolete or discontinued items or items that cannot be used
by Purchaser in the Business in the ordinary course, consistent with past
practices and uses. All Inventory has been recorded using the "first-in,
first-out" accounting method. Seller maintains Inventory in an amount reasonably
necessary to satisfy delivery or fulfillment obligations under existing customer
orders and contracts.
(i) Intellectual Property. The Intellectual Property includes
certain proprietary application software products and systems which Seller
develops, markets and licenses to financial institutions and other customers
(the "SOFTWARE PROGRAMS"), and in connection therewith the Seller has developed
certain related technical documentation and user reference manuals (the
"DOCUMENTATION"). The Software Programs and the Documentation are collectively
referred to as the "SOFTWARE." The Software Programs are disclosed in Schedule
1(a)(v).
(i) Ownership. Except as set forth in Schedule 4(i)(i),
the Seller owns all of the Intellectual Property and all other proprietary
information used by the Seller in the conduct of the Business. Schedule 1(a)(v)
sets forth all domestic and foreign patents, trademarks, service marks, trade
names and copyrights owned or used by the Seller and all applications therefor
and registrations thereof.
(ii) Procedures for Copyright Protection. Schedule
4(i)(ii) sets forth the form and placement of the proprietary legends and
copyright notices displayed in or on the Software including screen displays. In
no instance has the eligibility of the Software for protection under copyright
law been forfeited to the public domain.
(iii) Procedures for Trade Secret Protection. Neither the
Seller nor any Shareholder has ever disclosed source code for any of the
Software to a third party other than the persons disclosed in Schedule
4(i)(iii), each of which has executed a nondisclosure agreement in favor of the
Seller. The Seller discloses its source code to employees only on a need-to-know
basis in connection with the performance of their duties to the Seller. All
personnel, including employees, agents, consultants, and contractors, who have
contributed to or participated in the conception and development of the
Documentation or Software Programs on behalf of Seller either (1) have been
party to a "work-for-hire" arrangement or agreement with Seller, in accordance
with applicable federal and state law, that has accorded Seller full, effective,
exclusive, and original ownership of all tangible and intangible property
thereby arising, or (2) have executed appropriate instruments of assignment in
favor of Seller as assignee that have conveyed to Seller full, effective, and
exclusive ownership of all tangible and intangible property thereby arising. The
source code and system documentation comprising the Software have at all times
been maintained by the Seller in confidence, and the Seller has not taken (nor
has it failed to take) any action which would be reasonably likely to result in
such source code and system documentation not being protectable as a trade
secret under applicable Laws.
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(iv) Ownership of Software. Except as disclosed in
Schedule 4(i)(iv) and except for independent contractors disclosed in Schedule
4(i)(iii), all persons who have contributed to or participated in the conception
and development of the Software on behalf of the Seller have been full-time
employees of the Seller hired to prepare such works within the scope of
employment. As a consequence, the Seller has all ownership interests in the
Software.
(v) Absence of Claims. Except as disclosed in Schedule
4(i)(v), no claims have been asserted by any person to any rights in the
Software, and to the knowledge of the Seller and the Shareholders, no valid
basis for any such claim exists. To the knowledge of the Seller and the
Shareholders, the use of the Software by the Seller and its licensees does not
infringe on the rights of any person (whether arising under copyright, trade
secret, patent, unfair competition or other Laws that protect intellectual
property rights). To the knowledge of the Seller and the Shareholders, the use
by the Seller of the Intellectual Property does not infringe the rights of any
person, and no claim has been asserted that the use by the Seller of any of the
foregoing infringes the rights of any person. Neither the Seller nor the
Shareholders has received notice of any claim asserted by any person to the
effect that any current or former employee of the Seller has violated the
provisions of any noncompete or nondisclosure agreement with such person, or has
disclosed any proprietary information of such person to the Seller or any third
party.
(vi) Adequacy of Technical Documentation. The Software
includes the source code, system documentation and schematics for all Software
Programs, as well as any programmer comments for documentation and pertinent
commentary or explanation that may be reasonably necessary to render such
materials understandable and usable by a trained computer programmer. The
Software also includes the programs (including compilers), workbenches, tools
and higher level language, if any, used for the development, maintenance and
implementation of the Software Programs.
(vii) Third-Party Components in Software. The Seller has
obtained the right and license to use, copy, modify and distribute any
third-party programming and materials contained in the Software pursuant to the
contracts disclosed in Schedule 4(i)(vii), subject to no further license fee,
royalty or other payment obligations not disclosed in Schedule 4(i)(vii), other
than software maintenance payments customarily associated therewith. The
Software contains no other programming or materials in which any third party
could reasonably claim superior, joint or common ownership, including any right
or license. The Software does not contain derivative works of any programming or
materials not owned in their entirety by the Seller.
(viii) Third-Party Interests or Marketing Rights in
Software. Other than in the ordinary course of business pursuant to the terms of
the agreements listed in Schedule 4(i)(viii), the Seller has not granted,
transferred or assigned any right or interest in the Software to any person.
There are no contracts, agreements, licenses, commitments or arrangements in
effect with respect to the marketing, distribution, licensing or promotion of
the
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Software by any independent salesperson, distributor, sublicensor or other
remarketer or sales organization except as set forth on Schedule 4(i)(viii).
(j) Contracts - General. The License Agreements listed in Schedule
1(a)(ii), the General Contracts disclosed in Schedule 1(a)(viii), and the
Insurance Policies disclosed in Schedule 1(a)(xii) constitute all contracts,
agreements, licenses, and other commitments and arrangements in effect as of the
Determination Date and included in the Assets, other than the Leases addressed
by Section 4(k), that either (1) involve annual expenditure of more than $10,000
or (2) require performance by any party thereto more than six (6) months after
the Closing Date. All such contracts are valid, binding, and enforceable in
accordance with their terms and are in full force and effect. To the best
knowledge of the Seller and the Shareholders, there are no existing defaults by
Seller under any such contracts and no act, event, or omission has occurred
that, whether with or without notice, lapse of time, or both, would constitute a
default thereunder.
(k) Leases. The Leases disclosed in Schedule 1(a)(vii) constitute
all leasing or rental contracts, agreements, and other commitments and
arrangements in effect as of the Determination Date and included in the Assets
that either (1) have an annual rental, in any individual instance, in excess of
$1,000, or (2) remain in effect for a period of twelve (12) months or longer
without allowing Seller (and, following the Closing, Purchaser) to terminate
without penalty for any reason upon the delivery of any required notice. All
Leases are valid, binding, and enforceable in accordance with their terms and
are in full force and effect. To the best knowledge of the Seller and the
Shareholders, there are no existing defaults by Seller thereunder and no act,
event, or omission has occurred that, whether with or without notice, lapse of
time, or both, would constitute a default thereunder.
(l) Accounts Receivable. The Accounts Receivable arose from valid
transactions in the ordinary course of business and no portion of the Accounts
Receivable is subject to counterclaim or setoff. At least 95% of the value of
the Accounts Receivable are collectible in the ordinary course of Seller's
business consistent with past custom and practice (including with respect to
quantity and frequency).
(m) Financial Statements. Schedule 4(m) sets forth unaudited
income statements for Seller for its fiscal years ended June 30, 1997, June 30,
1998 and June 30, 1999 and the five-month period ended November 30, 1999, and an
unaudited balance sheet as of November 30, 1999, each of which have been
prepared in a manner consistent with the principles and procedures employed in
prior periods by Seller (collectively, the "FINANCIAL STATEMENTS"). The
Financial Statements properly reflect all Assets and Assumed Liabilities as are
(or were) then in existence, and the results of operations of Seller for the
periods presented, except for normal year-end adjustments, which are not
material, and the absence of footnotes.
(n) Undisclosed Liabilities. There are no liabilities or
obligations, secured or unsecured (whether absolute, accrued, contingent, or
otherwise, and whether due or to become due), of a nature required by GAAP to be
reflected or reserved against in a balance sheet of the Business, except such
liabilities and obligations that either (1) are accrued and reserved against in
the Financial Statements or (2) have arisen or been incurred in the ordinary
course of business
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since the date of such balance sheet and are reflected and/or accrued and
reserved against in the most recent balance sheet of Seller delivered to
Purchaser at or prior to Closing.
(o) Conduct of Business.
(i) Ordinary Course of Business: No Removal or Disposal
of Assets. Except as disclosed in Schedule 4(o)(i), since November 30, 1999,
Seller has operated the Business in the ordinary course consistent with past
practices, and has not removed or disposed of any assets that were assets of the
Business as of November 30, 1999 except in the ordinary course.
(ii) No Material Adverse Change. Except as disclosed in
Schedule 4(o)(ii), since November 30, 1999, there has been no material adverse
change in the Business or the Assets or in the financial condition, operations,
or prospects of the Business.
(iii) Absence of Particular Events. Except as disclosed in
Schedule 4(o)(iii), since November 30, 1999, Seller has not (1) suffered any
damage or destruction which could cause a Material Adverse Effect on the
Business or the Assets; (2) increased the compensation payable or to become
payable to employees of Seller or declared any bonus; (3) incurred any liability
or obligation relating to the Business other than in the ordinary course
consistent with past practice; (4) made any change in any method, practice, or
principle of accounting involving the Business or the Assets; (5) paid, loaned,
or advanced any monetary amount or other asset to, or sold, transferred, or
leased any asset to, any employee involved in the Business except for normal
compensation involving salary and benefits; (6) made any commitment which is
reasonably likely to cause economic harm to Seller or Purchaser; or (7) agreed
to take any action described in this Section 4(o)(iii); or (8) made any
distribution (including, but not limited to, S-corporation distributions).
(p) Major Vendors and Customers. Schedule 4(p) lists each supplier
of property or services to, and each licensee or customer of, Seller, to whom
Seller paid or billed in the aggregate $5,000 or more during the most recent
fiscal year, together with, in each case, the amount paid or billed during such
period. To the best knowledge of Seller, there is no reason the relationship
with any such person or entity might not be continued by Purchaser, after its
acquisition of the Business, at substantially the same level of business and on
substantially the same terms as Seller experienced during the twelve (12)-month
period preceding the Closing.
(q) Litigation. Except as disclosed in Schedule 4(q), no claim,
action, suit, proceeding, inquiry, hearing, arbitration, administrative
proceeding, patent infringement claim, or investigation (collectively,
"LITIGATION") is pending, or, to Seller's and each of the Shareholder's best
knowledge, threatened against Seller, its present or former directors, officers,
or employees, affecting, involving, or relating to the Business or any of the
Assets. Neither Seller nor any Shareholder knows of any facts or circumstances
that could reasonably be expected to serve as the basis for Litigation against
Seller (or the Purchaser upon acquisition of the Business), its present or
former directors, officers, or employees, affecting, involving, or relating to
the Business or the Assets.
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(r) Court Orders, Decrees, and Laws
(i) Compliance With Laws. There is no outstanding or, to
Seller's and each of the Shareholder's best knowledge, threatened order, writ,
injunction, or decree of any court, governmental agency, or arbitration tribunal
against Seller affecting, involving, or relating to the Business or the Assets.
Seller is not in violation of any Laws affecting, involving, or relating to the
Business or the Assets, except where noncompliance has no Material Adverse
Effect on the Business or the Assets, and Seller has received no notices of any
such alleged violation. The foregoing shall be deemed to include Laws relating
to the patent, copyright, and trademark laws, state trade secret and unfair
competition laws of the U.S. and foreign jurisdictions, and to all other
applicable laws, including equal opportunity, wage and hour, and other
employment matters, and antitrust and trade regulation laws.
(ii) Adequacy of Authorizations. The Authorizations
constitute all approvals, authorizations, certifications, consents, variances,
permissions, licenses, or permits to or from, or filings, notices, or recordings
to or with, U.S. or non-U.S., federal, state, or local governmental authorities
that are required for the ownership and use of the Assets and the conduct of the
Business under all applicable Laws. Seller is in compliance with all material
terms and conditions of such required Authorizations. All of the Authorizations
are in full force and effect, and, to the best of Seller's and each of the
Shareholder's knowledge, no suspension or cancellation of any of them is being
threatened, nor will any of the Authorizations be affected by the consummation
of the transactions described in this Agreement, except to the extent any such
Authorizations are assignable or transferable only upon receipt of the Required
Government Consents. Seller is in compliance with all other applicable
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables contained in any Laws relating to or
affecting the Business, except where non-compliance would have no Material
Adverse Effect on the Business or Assets.
(iii) Environmental Matters.
(A) The operations of the Seller forming a part of
the Business comply, and have complied, in all material respects with all
applicable Laws relating to pollution or protection of the environment
("ENVIRONMENTAL LAWS").
(B) The Seller has obtained all environmental, health
and safety Licenses and other authorizations necessary for the operation of the
Business, all of which are valid and in good standing and are not subject to any
modification or revocation proceeding, and the Seller is in compliance in all
material respects with all terms and conditions thereof.
(C) Neither the Seller nor any of the Shareholders
has received any notice of any pending or threatened investigation, proceeding
or claim to the effect that the Seller is or may be liable to any person or
entity, or responsible or potentially responsible for the costs of any remedial
or removal action or other cleanup costs, as a result of noncompliance with any
Environmental Laws or arising out of the presence, generation, storage or
disposal of hazardous waste, including liability under the United States
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Comprehensive Environmental Response, Compensation and Liability Act, as
amended, any state superfund law or any Environmental Law, and, to the best
knowledge of the Seller or any of the Shareholders, there is no past or present
action, activity, condition or circumstance that could be expected to give rise
to any such liability on the part of the Seller to any person or entity or for
any such cleanup costs.
(s) Taxes and Tax Returns. Except as disclosed in Schedule 4(s):
(i) Seller has duly filed all returns, declarations,
reports, information returns and statements ("RETURNS") required to be filed by
it in respect of any United States federal, state or local Taxes and has duly
paid all such Taxes due and payable as finally determined by the applicable
governmental authority, other than Taxes which are being contested in good faith
(and disclosed to Parent in writing). As used in this Agreement, "TAX" or
"TAXES" means and includes any and all taxes, fees, levies, assessments, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any governmental authority, including, without
limitation, foreign, domestic, central, local, state or other jurisdictional
taxes or other charges on or with respect to income, estimated income,
franchises, business, occupation, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation, or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer, value
added, or gains taxes; license, registration and documentation fees; and customs
duties, tariffs, and similar charges. Seller has established on its books and
records reserves that are reasonably adequate for the payment of all Taxes not
yet due and payable, but that are incurred in respect of the operation of the
Business through such date.
(ii) Neither Seller nor the Shareholders have received any
notice that any of the Returns of the Seller has been examined by the United
States Internal Revenue Service (the "IRS"), or any other United States federal
or state governmental authority within the past six years. There are no audits
or other governmental authority proceedings currently pending, nor any other
disputes pending with respect to, nor, to the knowledge of Seller and the
Shareholders claims asserted for, Taxes upon Seller greater than $250
individually or $10,000 in the aggregate; nor has Seller given any currently
outstanding waivers or comparable consents regarding the application of any
statute of limitations with respect to any Taxes or Returns. There are no Liens
for Taxes upon the Assets of Seller, except for Liens for Taxes not yet due and
payable or Taxes being properly contested. Any Taxes being properly contested
are disclosed in Schedule 4(s)(ii). Seller has complied in all material respects
with all applicable Laws relating to the payment and withholding of Taxes.
(iii) Seller (i) has not requested any extension of time
within which to file any Return which Return has not since been filed; (ii) is
not a party to any agreement providing for the indemnification, allocation or
sharing of Taxes; (iii) is not required to include in income any adjustment by
reason of a voluntary change in accounting method initiated by Seller (nor does
Seller have any knowledge that any governmental authority has proposed any such
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adjustment or change of accounting method); and (iv) has not been a member of an
affiliated group other than one of which Seller was the common parent.
(t) Personnel and Compensation.
(i) List of Personnel. Seller has delivered to Purchaser
a true and complete list of the names and current compensation levels of (1) all
salaried or annual employees and (2) all independent contractors and/or
consultants involved in the Business.
(ii) Compensation, etc. Except as disclosed in Schedule
4(t)(ii), Seller is not subject to, and has no obligation under, any employment,
consulting, or collective bargaining contracts, deferred compensation, pension
(as defined in Section 3(2) of the Employee Retirement Income Security Act
("ERISA")), profit-sharing, bonus, stock option, stock appreciation, stock
purchase, or other nonqualified benefit or compensation commitments, benefit
plans, arrangements, or plans, including any welfare plans (as defined in
Section 3(1) of ERISA), fringe benefit arrangements, or multi-employer plans (as
defined in Section 3(37)(A) of ERISA) of or pertaining to the present or former
employees involved in the Business. To the extent Seller has in effect any of
the foregoing contracts, plans or arrangements, Seller has complied with all of
its obligations thereunder in all material respects.
(iii) Retirement Plans. Schedule 4(t)(iii) identifies all
of the retirement plans, by plan name and plan year, that Seller has established
for the benefit of persons who are or were involved in the Business as of or
prior to the Closing (the "PLANS"). The Plans and their administration are the
sole responsibility of Seller.
(iv) Pension Benefit Guaranty Corporation. No liability to
the Pension Benefit Guaranty Corporation has been incurred with respect to the
Plans that has not been satisfied by the Seller. All premiums due and payable to
the Pension Benefit Guaranty Corporation with respect to the Plans have been
paid. The Pension Benefit Guaranty Corporation has not instituted proceedings to
terminate any of the Plans. To the knowledge of Seller and the Shareholders, no
event has occurred, and there exists no condition or set of circumstances, that
presents a risk that any past or future termination of any of the Plans could
result in liability on the part of the Seller to the Pension Benefit Guaranty
Corporation. No notice of a reportable event (within the meaning of Section
4043(b) of ERISA) has been filed by the plan administrator of any of the Plans
with the Pension Benefit Guaranty Corporation, nor, to the knowledge of the
Seller and the Shareholders, has any such reportable event occurred.
(v) No Accumulated Deficiency. None of the Plans has an
accumulated funding deficiency, as defined in Section 302(a)(2) of ERISA. In
addition, each of the Plans is fully funded such that assets for each Plan equal
or exceed the present value of accrued benefits based on the actuarial
assumptions disclosed in Schedule 4(t)(v), which assumptions include interest
rates, incidence of turnover, and mortality and disability.
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(vi) Submission to Purchaser for Review. All documents,
including plan and trust instruments, annual reports, and actuarial reports,
relating to the Plans for the Plans' most recently ended Plan years, have been
furnished to Purchaser for its review.
(vii) Multi-employer Plan. Neither Seller or any
predecessor in interest thereto, nor any trade or business under common control
with Seller or any predecessor in interest thereto (within the meaning of
Section 414(i) of the Internal Revenue Code), has ever contributed to, and has
no liability with respect to, any pension Plan that is a Multi-employer Plan for
the benefit of employees involved in the Business.
(viii) Adequate Reserves for Welfare Plans. For welfare
Plans (as defined in Section 3(2) of ERISA) disclosed (or required to be
disclosed) in Schedule 4(t)(viii), reserves have been established by Seller or
its insurance companies at least sufficient to pay all claims incurred under the
provisions of such Plans on or prior to the Closing Date. Seller has not
received notice of, nor does it know any basis for, any retrospective premium
charge for claims relating to any period prior to the Closing Date under such
Plans.
(ix) Compliance with Laws. Seller is in compliance with
all applicable Laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and occupational safety and health
pertaining to the Business and the employees involved in the Business, and is
not engaged in any unfair labor practice within the meaning of Section 8 of the
National Labor Relations Act. There is no unfair labor practice, charge, or
complaint or any other matter against or involving Seller pending or, to the
knowledge of Seller and the Shareholders, threatened before the National Labor
Relations Board or any court of law pertaining to the Business or the employees
involved in the Business. There is no labor strike, dispute, slowdown, or
stoppage pending or, to the knowledge of Seller and the Shareholders, threatened
against Seller pertaining to the Business or the employees involved in the
Business. No certification or decertification question or organizational drive
exists or has existed within the past twelve (12) months respecting the Business
or the employees involved in the Business. Seller has not experienced any
organized work stoppage or other labor difficulty involving the employees of the
Business since Seller's inception. There are no charges, investigations,
administrative proceedings, or formal complaints of discrimination (including
discrimination based upon sex, age, marital status, race, national origin sexual
preference, handicap, or veteran status) pending or, to the knowledge of Seller
and the Shareholders, threatened before the Equal Employment Opportunity
Commission or any federal, state, or local agency or court against Seller
pertaining to the Business or the employees of the Business, and, to the
knowledge of the Seller and the Shareholders, no basis for any such charge,
investigation, administrative proceeding, or complaint exists. There have been
no audits of the equal employment opportunity practices of Seller pertaining to
the Business or the employees involved in the Business.
(u) Insurance Policies. Schedule 1(a)(xii) lists all Insurance
Policies relating to the Business or the Assets in force as of the Determination
Date, naming Seller as an insured or beneficiary or as a loss-payable payee or
for which Seller has paid or is obligated to pay all or part of the premiums.
Other than as disclosed in Schedule 4(u), Seller has not received notice of any
pending or threatened termination or retroactive premium increase with respect
thereto; and
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<PAGE> 24
Seller is in compliance with all material conditions contained therein, the
noncompliance with which could reasonably be expected to result in termination
of insurance coverage or increased premiums for prior or future periods. There
are no pending material claims against such insurance by Seller as to which
insurers have denied liability or are defending under any reservation of rights,
and, to the knowledge of Seller or any Shareholder, there exists no material
claim under such insurance that has not been properly filed by Seller.
(v) Sufficiency of Rights. Except as disclosed in Schedule 4(v),
and assuming (i) the renewal or continuation of all business arrangements
affecting the Business currently in place and (ii) advancements in technology do
not supersede, render materially obsolete or materially affect the marketability
of any of the Software Programs (and, to the best of Seller's and each
Shareholder's knowledge, (x) no reason exists why such renewal or continuation
in favor of Purchaser could be obstructed and (y) no such advancements are
pending or threatened), the Assets constitute all of the properties, rights, and
privileges necessary for the indefinite continuation of the conduct of the
Business by Purchaser in substantially the same manner as it has been operated
by Seller during the twelve (12)-month period preceding the Closing.
(w) Broker's or Finder's Fees. Except for a fee of $200,000
payable by Seller to Mr. J. Scott Schmidt, a director of the Seller, neither
Seller nor any Shareholder has authorized any person to act as broker or finder
or in any other similar capacity in connection with the transactions
contemplated by this Agreement in any manner that may reasonably be expected to
impose liability on Purchaser.
(x) Related-Party Transactions. Except as disclosed in Schedule
4(x), Seller is not a party to any contract, agreement, license, lease, or
arrangement with, and has no other commitment to, directly or indirectly, (1)
any officer or salaried employee of Seller in office within two (2) years of the
date of this Agreement; (2) any corporation, trust, or other entity in which any
such officer or salaried employee has a material equity or participating
interest; or (3) any partnership in which any such officer or salaried employee
has a partnership or participating interest, in each case, relating to or
involving the Business, the Assets, or the Assumed Liabilities, except, in each
instance, for existing compensation arrangements listed herein. Each such
contract, agreement, license, lease, arrangement, and commitment was entered
into by Seller in the ordinary course of business upon terms that are fair and
reasonable to the Seller without regard to the status and relationship of such
other parties.
(y) Bank Accounts. Schedule 4(y) lists all bank, money market,
savings and similar accounts and safe deposit boxes of the Seller, specifying
the account numbers, the authorized signatories or persons having access to
them, and the passwords used to access such accounts, including through voice
response and internet services.
(z) Year 2000 Matters. The Seller has conducted reasonable testing
in conformity with industry standards, including but not limited to the FFIEC
Year 2000 Management Awareness publication issued on May 5, 1997, as amended or
supplemented, to test the Software, the Seller's internal systems and software,
and the network connections it maintains as part of its business to determine
whether they are "Millennium Compliant" and, based upon
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these tests, the Seller and the Shareholders have no knowledge that any of such
Software systems or connections is not "Millennium Compliant." For the purposes
of this Agreement, "MILLENNIUM COMPLIANT" means: (a) the functions,
calculations, and other computing processes of the Software (collectively,
"PROCESSES") perform as designed regardless of the date in time on which the
Processes are actually performed and regardless of the date input to the
Software, whether or not the dates include leap years; (b) the Software can
accept, store, sort, extract, sequence, and otherwise manipulate date inputs and
date values, and return and display date values, as designed and in a materially
accurate manner, regardless of the dates used or format of the date input; (c)
the Software will function without interruptions caused by the date in time on
which the Processes are actually performed or by the date input to the Software;
(d) the Software accepts and responds to four digit year date input in a manner
that resolves any material ambiguities as to the century in an accurate manner;
and (e) the Software displays, prints and provides electronic output of date
information in ways that are unambiguous as to the determination of the century.
The Seller has provided the Purchaser with access to the results of such tests.
(aa) No Fraudulent Transfer. Seller and Shareholders have entered
into this Agreement and the Purchase Agreements without any intent to hinder,
delay or defraud any of their creditors. Seller and Shareholders have received a
reasonably equivalent value in exchange for the Assets transferred to the
Purchaser. Immediately prior to and after the Closing, the sum of the Seller's
assets is and will be greater than all of its debts, and Seller is and will be
generally able to pay its debts as they become due.
(bb) Disclosure. Seller and each Shareholder has completely and
accurately responded to the inquiries and diligence requests of Parent and
Purchaser and their agents, representatives, attorneys and employees in
connection with the transactions contemplated by this Agreement. No
representation, warranty, or statement made by Seller or the Shareholders in
this Agreement, the Purchase Agreements or in any document or certificate
furnished or to be furnished to Purchaser pursuant to this Agreement contains or
will contain any untrue statement or omits or will omit to state any fact
necessary to make the statements contained herein or therein, under the
circumstances in which they were made, not materially misleading. Seller and
each Shareholder has disclosed to Purchaser all facts known or reasonably
available to Seller and the Shareholders that are material to the financial
condition, operation, or prospects of the Business, the Assets, and the Assumed
Liabilities.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
(a) Securities Act Compliance. Each Shareholder acknowledges that
none of the shares of Common Stock or Preferred Stock to be delivered to the
Seller will, at the time of delivery, be registered under the securities laws of
any state or federal authority (the "SECURITIES LAWS"). Each Shareholder
represents and warrants that Seller (and such Shareholder, in the event Seller
transfers such shares to the Shareholders) is acquiring the Common Stock and
Preferred Stock for investment, and not with a view toward, or for resale
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<PAGE> 26
in connection with, a distribution in violation of federal or state securities
laws. Each Shareholder acknowledges that the Common Stock and Preferred Stock
may be sold, pledged, hypothecated, disposed of, or otherwise transferred or
distributed only (i) pursuant to an effective registration statement covering
the security under the Securities Laws, or (ii) pursuant to an exemption from
the registration requirements of the Securities Laws.
(b) Access to Information. Each Shareholder has had access to the
books and records of Parent and has otherwise had access to sufficient
information about Parent upon which to analyze the transactions contemplated by
this Agreement. Each Shareholder has been given the opportunity to ask questions
and receive answers from the officers of Parent concerning the terms and
conditions of the transactions contemplated by this Agreement and the business
and financial condition of Parent. Each Shareholder has had the opportunity to
obtain any additional information he or she deems necessary to verify the
accuracy and completeness of information provided by Parent in connection with
this Agreement and the transactions contemplated hereby.
(c) Experience; Investment. Each Shareholder has such knowledge
and experience in financial and business matters as to enable such Shareholder
(a) to utilize the information made available to him in connection with the
transactions contemplated by this Agreement and the other Purchase Agreements,
(b) to evaluate the merits and risks associated with the acquisition of Common
Stock and Preferred Stock, and (c) to make an informed decision with respect
thereto. Each Shareholder's business and financial experience is such that
Parent and Purchaser could reasonably assume such Shareholder has the capacity
to protect his own interests in connection with the offer, sale and issuance of
the Common Stock. Each Shareholder is financially capable of bearing the risk of
loss of any and all consideration surrendered in exchange for the Common Stock
and Preferred Stock and acknowledges that an investment in the Common Stock and
Preferred Stock involves a high degree of risk, including a possible total loss
of investment, and the purchase price of the Common Stock and Preferred Stock
may not be indicative of the future value of the securities. Each Shareholder
represents that because of one or more of the following criteria, such
Shareholder is an "accredited investor" within the meaning of Regulation D
promulgated by the Securities and Exchange Commission ("SEC") under the
Securities Act, by reason of: (a) the Shareholder is a natural person who has a
net worth or joint net worth with the Shareholder's spouse exceeding $1,000,000
at the time of purchase; (b) the Shareholder is a natural person who had an
individual income in excess of $200,000 in each of the two most recent years or
joint income with that person's spouse in excess of $300,000 in each of those
years and who reasonably expects to reach the same income level in the current
year; (c) the Shareholder is a corporation, partnership or trust with total
assets in excess of $5,000,000; or (d) all of the Shareholder's shareholders,
partners or members, as the case may be, participating in the investment in the
Parent, are "accredited investors." Each Shareholder understands that the
officers, directors, attorneys and other advisors of Parent and Purchaser will
rely upon the representations and warranties made by such Shareholders in this
Agreement in order to establish any necessary exemption from the registration
provisions of the Securities Act and applicable state securities laws.
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(d) No Prior Convictions. No Shareholder has been convicted of,
arrested for, or has any action pending for, a crime involving fraud,
embezzlement or theft or any similar crime.
(e) Tax Advice. Each Shareholder has reviewed with his tax advisor
the United States federal, state, local and foreign tax consequences of an
investment in the Common Stock and Preferred Stock and the transactions
contemplated by this Agreement and the other Purchase Agreements. Such
Shareholder is relying solely on such advisor and not on any statements or
representations of the Parent or Purchaser or any of their agents, and
understands that he or she (and not the Parent, Purchaser or any other person or
entity) shall be responsible for his or her own tax liability that may arise as
a result of this investment or the transactions contemplated by this Agreement
and the other Purchase Agreements.
(f) Shareholders' Authority. Each Shareholder has the right,
power, capacity and authority to execute, deliver and perform this Agreement and
to consummate the transactions contemplated hereby; this Agreement has been duly
and validly executed and delivered by the Shareholder and is entered into
voluntarily without promise or benefit other than as set forth herein; and this
Agreement constitutes the Shareholder's legal, valid and binding obligation,
enforceable in accordance with its terms.
(g) Ownership. Each Shareholder owns, of record and beneficially,
valid title to his/her shares of common stock of Seller, and such shares are
free and clear of all Liens, Claims (as defined below) and encumbrances. Other
than the common stock owned by the Shareholder, the Shareholder does not own,
beneficially or of record, or have any right to acquire, now or in the future,
any shares of stock or other securities of any kind of the Seller. The
Shareholder has not granted nor is he or she bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreement of any
character calling for the transfer, purchase, subscription or issuance of any
shares of capital stock of the Seller or any securities representing the right
to purchase, subscribe or otherwise receive any shares of such capital stock or
any securities convertible into any such shares, and there are no agreements or
understandings with respect to voting any such shares.
(h) No Options, Etc. The Shareholder has not granted nor is he/she
bound by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the transfer, purchase, subscription or
issuance of any shares of capital stock of the Seller or any securities
representing the right to purchase, subscribe or otherwise receive any shares of
such capital stock or any securities convertible into any such shares, and there
are no agreements or understandings with respect to voting any such shares. The
execution, delivery and performance of this Agreement by the Shareholder will
not conflict with or result in a breach of any agreement, instrument, order,
injunction, decree, statute, rule or regulation applicable to the Shareholder or
any of his or her assets. The execution, delivery and performance of this
Agreement by the Shareholder does not require the consent or approval of any
third party or governmental agency or authority which has not been obtained (and
a copy of which is attached hereto).
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(i) Waiver of Dissenter's Rights. Each Shareholder acknowledges
that he/she understands that if such Shareholder were to vote against, or had
voted against, the transactions contemplated by this Agreement, such Shareholder
would be entitled to receive in cash, the "fair market value" of the shares of
common stock of Seller owned by such person, as provided in Section 1300 et seq.
of the California Corporations Code. By such Shareholder's execution and
delivery of this Agreement, such person is knowingly and voluntarily waiving his
or her right to assert such statutory dissenters' rights in connection with this
Agreement.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
The Parent and Purchaser, as applicable, hereby represent and warrant
to the Seller and the Shareholders as follows:
(a) Corporate Existence. Each of Parent and Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Georgia. Each of Parent and Purchaser has the corporate power
and authority to conduct its business and to own and lease all of its properties
and assets. Each of Parent and Purchaser is duly qualified or licensed to do
business and is in good standing under the laws of each jurisdiction where such
qualification is required, except where the failure to be so qualified would not
have a Material Adverse Effect on the Parent or the Purchaser, as the case may
be.
(b) Corporate Power and Authorization. Each of Parent and
Purchaser has the corporate power, authority and legal right to execute, deliver
and perform this Agreement and the other Purchase Agreements and instruments to
be executed and delivered in connection with the transactions contemplated
hereby and thereby. The execution, delivery and performance of this Agreement by
Parent and Purchaser have been duly authorized by all necessary corporate
action. This Agreement has been duly executed and delivered by Parent and
Purchaser and constitutes the legal, valid and binding obligation of Parent and
Purchaser enforceable against Parent and Purchaser in accordance with its terms
except as such enforcement may be subject to or limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, fraudulent
transfer or other similar laws now or hereafter in effect affecting creditors'
rights generally, and by general principles of equity.
(c) No Conflict. The execution, delivery and performance of this
Agreement by Parent and Purchaser does not and will not violate any Laws to
which Parent or Purchaser is subject, and will not violate, conflict with or
result in the breach of any term, condition or provision of, or require the
consent of any other party to, (a) any judgment, order, writ, injunction, decree
or award of any court, arbitrator or governmental or regulatory official, body
or authority which is applicable to Parent or Purchaser, (b) the articles of
incorporation or bylaws of, or any securities issued by, Parent or Purchaser, or
(c) any mortgage, indenture, agreement, contract, commitment, lease, plan or
other instrument, document or understanding, oral or written, to which Parent or
Purchaser is a party or by which Parent or Purchaser is
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otherwise bound, except where the violation, conflict or breach would not have a
Material Adverse Effect on Parent or Purchaser.
(d) Broker's or Finder's Fees. Other than BancBoston Robertson
Stephens Inc., Parent has not authorized any person to act as broker, finder, or
in any other similar capacity in connection with the transactions contemplated
by this Agreement.
(e) Capitalization. The authorized capital stock of the Parent
consists of 70,000,000 shares of Common Stock, 19,795,855 of which are issued
and outstanding as of December 14, 1999, and 5,000,000 shares of preferred
stock, none of which are issued and outstanding. All of the shares of Common
Stock and Preferred Stock to be issued pursuant to this Agreement have been duly
authorized and, upon issuance at Closing, will be validly issued, fully paid and
nonassessable. The Common Stock and Preferred Stock to be issued to the Seller
and the Shareholders will be duly authorized and validly issued, fully paid and
nonassessable, free of preemptive rights and free and clear of all Liens created
by or through Parent (except as set forth in this Agreement).
(f) SEC Reports. Parent represents and warrants to the Seller and
the Shareholders that it is a "reporting issuer" and has a class of securities
registered under Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE Act"). Parent has made all filings with the SEC that it
has been required to make under the Securities Act and the Exchange Act (the
"SEC FILINGS"). None of the reports contained in such SEC Filings, as of their
respective dates (or if amended or superseded by subsequent filing, on the dates
of such filings), contained any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not materially
misleading. The financial statements of Parent contained in such SEC Filings and
reports were prepared in accordance with GAAP consistently applied through the
periods covered thereby (except as may be indicated in the notes to such
financial statements or, in the case of unaudited statements, as permitted by
Form 10-Q promulgated by the SEC) and present fairly the financial condition of
Parent as of the indicated dates and the results of operations of Parent for the
indicated periods and are correct and complete in all material respects. To
Parent's knowledge, since June 30, 1999, no event has occurred for which Parent
is required to file a Form 8-K but has not so filed.
(g) Compliance with Applicable Laws. Parent has all Licenses
required for its business as currently conducted, except to the extent a failure
to hold such Licenses would not have a Material Adverse Effect on Parent,
Purchaser and their subsidiaries, taken as a whole. No proceeding is pending or
threatened seeking the revocation or suspension of any material License. Except
as disclosed by the Parent in Schedule 6(g), the Parent's business has been
operated and maintained in all material respects in compliance with applicable
Laws. The Parent has not received any notices of any allegation of any violation
of any Laws or Licenses.
(h) Litigation. Except as disclosed in Schedule 6(h), as of the
date hereof, there are no administrative or judicial suits, claims, actions or
proceedings pending or, to the knowledge of Parent, threatened, against Parent
which, (a) if determined adversely to Parent's interests,
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Parent believes would have a Material Adverse Effect on Parent, Purchaser and
their subsidiaries, taken as a whole and/or (b) seeking to prevent, hinder,
modify or challenge the transactions contemplated by this Agreement. Parent is
not subject to any outstanding order, writ, judgment, injunction, decree or
arbitration award or order which has a Material Adverse Effect on Parent.
(i) Required Government Consents. Except for (1) the Required
Government Consents, (2) filings of Form D or other notices relating to the
issuance of securities by Parent, and (3) the Nasdaq notification of listing of
additional shares with respect to the Common Stock and Preferred Stock issued
pursuant to this Agreement, no approval, authorization, certification, consent,
variance, permission, license, or permit to or from, or notice, filing, or
recording to or with, U.S. or non-U.S., federal, state, or local governmental
authorities is necessary for (a) the execution and delivery of this Agreement
and the other Purchase Agreements and instruments to be executed and delivered
in connection with the transactions contemplated hereby or thereby by the Parent
or the Purchaser or (b) the consummation by the Parent or the Purchaser of the
transactions contemplated hereby or thereby.
(j) Required Contract Consents. Except for (1) the Required
Contract Consents and (2) the consent of The Robinson-Humphrey Company pursuant
to the underwriting agreement dated November 8, 1999 with respect to Parent's
initial public offering, no approval, authorization, consent, permission, or
waiver to or from, or notice, filing, or recording to or with, any person (other
than the Required Government Consents) is necessary for (a) the execution and
delivery of this Agreement and the other Purchase Agreements and instruments to
be executed and delivered in connection with the transactions contemplated
hereby or thereby by Parent or Purchaser or (b) the consummation by Parent or
Purchaser of the transactions contemplated hereby or thereby.
(k) Obligations of Purchaser. Parent shall take all action
reasonably necessary to cause Purchaser to perform its agreements, covenants,
and obligations under this Agreement in a prompt and timely manner.
(l) No Material Adverse Change. Since the date of the Parent's
most recent SEC Filings, other than as disclosed by Parent in such SEC filings,
in press releases of Parent disseminated to major new wire services or the
Nasdaq, or in this Agreement, there has been no material adverse change in the
business, financial condition or results of operations of Parent, Purchaser and
their subsidiaries, taken as a whole.
(l) Disclosure. Parent and Purchaser have completely and
accurately responded to the inquiries and diligence requests of Seller and the
Shareholders and their agents, representatives, attorneys and employees in
connection with the transactions contemplated by this Agreement. No
representation, warranty, or statement made by Parent or Purchaser in this
Agreement, the Purchase Agreements or in any document or certificate furnished
or to be furnished to Seller and the Shareholders pursuant to this Agreement
contains or will contain any untrue statement or omits or will omit to state any
fact necessary to make the statements contained herein or therein, under the
circumstances in which they were made, not materially misleading. Parent and
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<PAGE> 31
Purchaser have disclosed to Seller and the Shareholders all facts known or
reasonably available to Parent and Purchaser that are material to their
financial condition, operation, or prospects.
ARTICLE 7
CONDITIONS TO CLOSING
(a) Conditions to Seller's Obligations. Each of the obligations of
Seller to be performed hereunder shall be subject to the satisfaction (or waiver
by Seller) at or prior to the Closing Date of each of the following conditions:
(i) Parent's and Purchaser's representations and
warranties contained in this Agreement shall be true on and as of the Closing
Date.
(ii) Parent and Purchaser shall have complied with all
agreements, obligations and conditions required by this Agreement to be
performed or complied with by them on or prior to the Closing.
(iii) Other than approvals required to assign to Purchaser
the OTS Contract, all Required Government Consents and Required Contract
Consents shall have been obtained.
(iv) No Litigation shall be threatened or pending against
Parent or Purchaser before any court or governmental agency that, in the
reasonable opinion of counsel for Seller, could result in the restraint or
prohibition of any such party, or the obtaining of damages or other relief from
such party, in connection with this Agreement or the consummation of the
transactions contemplated hereby.
(v) Purchaser and Parent shall have delivered to Seller
an opinion of counsel to Purchaser and Parent, dated as of the Closing Date, in
form and substance satisfactory to Seller.
(vi) Parent shall have filed with the Georgia Secretary of
State Articles of Amendment to its Articles of Incorporation in the form
attached hereto as Schedule 7(a)(vi) designating the Series A Preferred Stock.
(vii) Purchaser shall have entered into a contract
providing for the employment of Bruce R. Gall by Purchaser in the form attached
hereto as Schedule 7(a)(vii).
(viii) Parent, Seller and the Shareholders shall have
entered into a registration rights agreement in the form attached hereto as
Schedule 7(a)(viii).
(b) Conditions to Parent's and Purchaser's Obligations. Each of
the obligations of Parent and Purchaser to be performed hereunder shall be
subject to the satisfaction (or the waiver by Purchaser or Parent, as
applicable) at or prior to the Closing Date of each of the following conditions:
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(i) Seller's and Shareholders' representations and
warranties contained in this Agreement shall be true on and as of the Closing
Date.
(ii) Seller and Shareholders shall have performed and
complied with all agreements, obligations, and conditions required by this
Agreement to be performed or complied with by them on or prior to the Closing.
(iii) Other than approvals required to assign to Purchaser
the OTS Contract, all Required Government Consents and Required Contract
Consents shall have been obtained.
(iv) No Litigation shall be threatened or pending against
Seller or any Shareholder before any court or governmental agency that, in the
reasonable opinion of counsel for Purchaser, could result in the restraint or
prohibition of any such party, or the obtaining of damages or other relief from
such party, in connection with this Agreement or the consummation of the
transactions contemplated hereby.
(v) Seller shall have provided to Purchaser payoff letters
for all liens, encumbrances and liabilities with respect to the Assets and shall
have paid all amounts required to be paid by Seller with respect thereto.
(vi) [Intentionally omitted].
(vii) Seller shall have delivered to Parent and Purchaser an
opinion of counsel to Seller and the Shareholders, dated as of the Closing Date,
in form and substance satisfactory to Parent and Purchaser.
(viii) Bruce Gall shall have entered into an employment
agreement with Purchaser in the form attached hereto as Schedule 7(a)(viii), the
effectiveness of which shall be expressly contingent upon the occurrence of
Closing.
(ix) Bruce Gall, Kenneth Lemoine, Phillip Templer, and Norma
Gall shall have entered into the non-compete, non-solicitation and
confidentiality agreement attached hereto as Schedule 7(b)(ix).
(x) The employees of Seller identified by the Parent shall
have entered into the work product and confidentiality agreements in the forms
attached hereto as Schedule 7(b)(x).
(xi) Each Shareholder shall have had their spouse execute a
spousal consent in the form attached hereto as Schedule 7(b)(xi).
(xii) The Seller and the Shareholders shall have executed the
Escrow Agreement.
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(xiii) Seller shall have executed and delivered for filing
with the Secretary of State of California Articles of Amendment to effect a
change in the Seller's name from DPSC Software, Inc. to Bruce R. Gall &
Associates, Inc.
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ARTICLE 8
CLOSING
(a) Closing. The closing of the purchase and sale of the Assets
and the transfer and assumption of the Assumed Liabilities (the "CLOSING") shall
take place at the offices of Nelson Mullins Riley & Scarborough, L.L.P.,
Atlanta, Georgia at 10:00 a.m. on December 10, 1999 (the "CLOSING DATE").
(b) Actions at Closing. At Closing, Purchaser and Seller shall
take the following actions, in addition to such other actions as may otherwise
be required under this Agreement:
(i) Copies of Consents. Seller shall deliver to Purchaser
copies of all Required Contract Consents and all Required Government Consents.
(ii) Conveyance Instruments. Seller shall deliver to
Purchaser such warranty deeds, bills of sale, assignments, and other instruments
of conveyance and transfer as Purchaser may reasonably request to effect the
transfer and assignment to Purchaser of the Assets.
(iii) Assumption Agreement(s). Purchaser shall deliver to
Seller one or more assumption agreement(s) in form reasonably acceptable to
Seller, pursuant to which Purchaser assumes and agrees to pay and perform the
Assumed Liabilities.
(iv) Legal Opinions. The parties shall cause their
respective counsel to deliver to the other parties the legal opinions required
under Article 7.
(v) Lease. Seller and Purchaser shall execute all
assignments and other documents required in order to assign the lease for
Seller's principal office to the Purchaser.
(vi) Post-Closing Agreement. The parties shall enter into a
post-closing agreement in the form attached hereto as Schedule 8(a)(xii).
(c) Delivery of Purchase Price. Purchaser shall deliver the Purchase
Price to Seller, subject to deposit of the Escrow Amount with the Escrow Agent
pursuant to the Escrow Agreement.
(d) Further Assurances. At and after the Closing, without further
consideration, each of the parties hereto shall take all such other action and
shall procure or execute, acknowledge, and deliver all such further
certificates, conveyance instruments, consents, and other documents as the other
parties or their counsel may reasonably request (1) to vest in Purchaser, and
perfect and protect Purchaser's right, title, and interest in, and enjoyment of,
the Assets and the Business, (2) to effect Purchaser's assumption, payment of
discharge of all Assumed Liabilities, and/or (3) to ensure more effectively the
compliance of each party with its agreements, covenants, warranties, and
representations under this Agreement.
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ARTICLE 9
COVENANTS OF PARENT, PURCHASER AND SELLER FOLLOWING CLOSING
(a) Purchaser's Cooperation. Purchaser shall use its reasonable
efforts to provide Seller such assistance as it may reasonably request in
connection with matters relating to Taxes, including information with respect to
Seller's preparation of any Returns of Taxes, any audit or other examination by
any taxing authority, any judicial or administrative proceeding relating to
Seller's liability for Taxes, or any claims arising hereunder respecting the
Business. Purchaser shall retain and provide Seller with records or information
which may be relevant to any such Return, audit, examination, proceeding, or
determination, and Purchaser shall retain all such books and records for so long
as necessary in keeping with applicable statutes of limitations.
(b) Allocation of Purchase Price. The Purchase Price shall be
allocated as disclosed in Schedule 3, and all tax returns and reports filed by
Seller and Purchaser with respect to the transactions contemplated by this
Agreement shall be consistent with that allocation.
(c) Maintenance of Books and Records. Each of Seller and Purchaser
shall preserve until the fifth anniversary of the Closing Date all records
possessed or to be possessed by such party relating to any of the Assets,
Assumed Liabilities or Business of Seller prior to the Closing Date. After the
Closing Date, where there is a legitimate purpose, such party shall provide the
other parties with access, upon prior reasonable written request specifying the
need therefor, during regular business hours, to (i) the officers and employees
of such party, and (ii) the books of account and records of such party, but, in
each case, only to the extent relating to the Assets, Assumed Liabilities or
Business of the Seller prior to the Closing Date, and the other parties and
their representatives shall have the right to make copies of such books and
records; provided, however, that the foregoing right of access shall not be
exercisable in such a manner as to interfere unreasonably with the normal
operations and business of such party; and further, provided, that, as to so
much of such information as constitutes trade secrets or confidential business
information of such party, the requesting party and its officers, directors and
representatives will use due care to not disclose such information except (i) as
required by law, (ii) with the prior written consent of such party, which
consent shall not be unreasonably withheld, delayed or conditioned or (iii)
where such information becomes available to the public generally, or becomes
generally known to competitors of such party, through sources other than the
requesting party, its affiliates or its officers, directors or representatives.
Such records may nevertheless be destroyed by a party if such party sends to the
other parties written notice of its intent to destroy records, specifying with
particularity the contents of the records to be destroyed. Such records may then
be destroyed after the 30th day after such notice is given unless another party
objects to the destruction, in which case the party seeking to destroy the
records shall deliver such records to the objecting party.
(d) UCC Matters. From and after the Closing Date, Seller will
promptly refer all inquiries with respect to ownership of the Assets or the
Business to Purchaser. In addition, Seller will execute such documents,
assignments and financing statements as Purchaser may request from time to time
to evidence transfer of the Assets to Purchaser, including any
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<PAGE> 36
necessary assignments of financing statements, assignment of rights or other
similar documents.
(e) Covenant Not to Compete. Seller agrees that for a period of
two (2) years after the Closing Date, neither it nor any of its affiliates will,
directly or indirectly, own, manage, operate, join, control or participate in
the ownership, management, operation or control of, any business whether in
corporate, proprietorship or partnership form or otherwise as more than a five
percent owner in such business where such business is competitive with the
Business. Seller further specifically acknowledges and agrees that the remedy at
law for any breach of the foregoing will be inadequate and that the Purchaser,
in addition to any other relief available to it, shall be entitled to temporary
and permanent injunctive relief without the necessity of proving actual damage.
In the event that the provisions of this Section 9(e) should ever be deemed to
exceed the limitation provided by applicable law, then the parties hereto agree
that such provisions shall be reformed to set forth the maximum limitations
permitted.
(f) Nonsolicitation of Personnel. For a period of two (2) years
after the Closing Date, Seller shall not solicit, divert, or recruit, for its
own benefit or for the benefit of any other person or entity, any employee of
Seller whom Purchaser hires or retains from and after the Closing Date.
(g) Maintain Corporate Status. Seller covenants that it will
continue to exist and shall keep and maintain its present corporate status in
good standing for a minimum of thirteen (13) months following the date of
Closing. Seller covenants not to use in any manner the corporate names
Distributed Planning Systems Corp., DPSC Software, Inc., DPSC Internet, Inc. or
any confusingly similar name (including all related trade names, logos, and
marks) after the Closing Date. Seller and Shareholders covenant to use all
commercially reasonable efforts to dissolve DPSC Internet, Inc.
(h) Reservation of Shares. Parent covenants that it will reserve
and keep available out of its authorized but unissued shares of Common Stock
solely for the purpose of effecting the conversion of the shares of the Series A
Preferred Stock such number of shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all outstanding shares of the Series A
Preferred Stock. If at any time the number of authorized but unissued shares of
Common Stock shall be insufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, Parent agrees to take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
ARTICLE 10
INDEMNIFICATION
(a) Indemnification by Seller and Shareholders. Seller and
Shareholders shall jointly and severally indemnify, defend, and hold harmless
Parent and Purchaser and their respective subsidiaries, successors and permitted
assigns, and the directors, officers, employees and agents
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<PAGE> 37
of each (collectively, the "PURCHASER GROUP"), at, and at any time after, the
Closing, from and against any and all demands, claims, actions, or causes of
action, assessments, losses, damages, liabilities, costs, and expenses,
including reasonable fees and expenses of counsel, other expenses of
investigation, handling, and litigation, and settlement amounts, together with
interest and penalties (collectively, a "LOSS" or "LOSSES"), asserted against,
resulting to, imposed upon, or incurred by the Purchaser Group, directly or
indirectly, by reason of, resulting from, incident to or arising in connection
with any of the following:
(i) Breach of Obligation. Any breach of any representation,
warranty, or agreement of Seller or Shareholders contained in or made pursuant
to this Agreement and the other Purchase Agreements, including the agreements
and other instruments contemplated hereby and thereby;
(ii) Excluded Liabilities. Any liabilities or obligations of
any kind or nature whatsoever, whether accrued, absolute, contingent, or
otherwise, known or unknown, arising out of or in connection with any Excluded
Assets, or the conduct of the Business or the ownership or use of the Assets
prior to the Closing Date, except for the Assumed Liabilities;
(iii) Failure to Obtain Consents. Any failure to obtain the
Required Government Consents or the Required Contract Consents prior to Closing
or within the time allowed by the Post-Closing Agreement, as the case may be;
(iv) Violations of Fraudulent Conveyance Laws. Any failure
to comply with any fraudulent conveyance or similar laws relating to notices to
creditors; and
(v) Incidental Matters. [Intentionally omitted].
(b) Indemnification by Purchaser. Purchaser shall indemnify,
defend, and hold harmless Seller, each Shareholder, each director, officer,
employee and agent of Seller, and their respective heirs, successors, and
permitted assigns (collectively, the "SELLER GROUP"), at, and at any time after,
the Closing, from and against any and all Losses asserted against, resulting to,
imposed upon, or incurred by the Seller Group, to the extent arising from any of
the following:
(i) Breach of Obligation. Any breach of any representation,
warranty, or agreement of Parent or Purchaser contained in or made pursuant to
this Agreement or the Assumption Agreement, including the agreements and other
instruments contemplated hereby;
(ii) Assumed Liabilities. Any of the Assumed Liabilities;
and
(iii) Post-Closing Operations. The ownership and operation
of the Assets and Business from and after the Closing Date.
(c) Notice of Claim. The party entitled to indemnification
hereunder (the "CLAIMANT") shall promptly deliver to the party liable for such
indemnification hereunder (the "OBLIGOR") notice in writing (the "REQUIRED
NOTICE") of any claim for recovery under Section
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<PAGE> 38
10(a) or Section 10(b), specifying in reasonable detail the nature of the Loss,
and, if known, the amount, or an estimate of the amount, of the liability
arising therefrom (the "CLAIM"). The Claimant shall provide to the Obligor as
promptly as practicable thereafter information and documentation reasonably
requested by the Obligor to support and verify the claim asserted, provided
that, in so doing, it may restrict or condition any disclosure in the interest
of preserving privileges of importance in any foreseeable litigation.
(d) Defense. If the facts pertaining to the Loss arise out of the
claim of any third party (other than a member of the Purchaser Group or Seller
Group, whichever is entitled to indemnification for such matter) and
indemnification is available by virtue of the circumstances of the Loss, the
Obligor must assume the defense or the prosecution thereof, including the
employment of counsel or accountants, at its cost and expense. If representation
of both the Obligor and the Claimant by such counsel would be inappropriate due
to actual or potential differing interests between the Obligor and the Claimant
in such proceeding (such as the availability of defenses to the Claimant), the
Claimant (together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the reasonable fees and expenses to be paid by the Obligor. The
Claimant shall have the right to determine and adopt (or, in the case of a
proposal by Obligor, to approve) a settlement of such matter in its reasonable
discretion, except that Claimant need not consent to any settlement that (1)
imposes any nonmonetary obligation or (2) Obligor does not agree to pay in full.
The Obligor shall not be liable for any settlement of any such claim effected
without its prior written consent, which shall not be unreasonably withheld,
delayed or conditioned. Whether or not the Obligor chooses to so defend or
prosecute such claim, all the parties hereto shall cooperate in the defense or
prosecution thereof and shall furnish such records, information, and testimony,
and attend such conferences, discovery proceedings, hearings, trials, and
appeals, as may be reasonably requested in connection therewith.
(e) Manner of Indemnification by Seller. Where Seller and/or the
Shareholders are obligated to indemnify the Purchaser, Parent or any other
member of the Purchaser Group under Section 10(a), such Claim shall be satisfied
pursuant to the Escrow Agreement. Following termination of the Escrow Agreement,
such Claim shall be satisfied by Seller and the Shareholders, at the option of
the relevant member of the Purchaser Group, by paying to that person in cash an
amount equal to the applicable Loss.
(f) Limitations. Notwithstanding anything in this Article 10 to
the contrary:
(i) Threshold. No indemnification or any other claim for
damages under this Agreement or any other instrument or agreement to be executed
and delivered by the parties hereto in connection with the transactions
contemplated hereby shall be payable by any party to any other party until (and
then only to the extent that) the total of all Losses from such claim equals or
exceeds $50,000.
(ii) Time of Assertion. No indemnification shall be payable
by any party with respect to matters as to which it has not received notice from
the Claimant within two (2) years after the Closing Date, except that there
shall be no limitation on the time during which
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<PAGE> 39
indemnification may be sought or obtained for (1) Losses based on Excluded
Liabilities; or (2) any instance of fraud or any knowing and willful breach by
any party of any provision of this Agreement or any other instrument or
agreement to be executed and delivered by such party in connection with the
transactions contemplated hereby.
(iii) Exclusive Remedy. The parties hereto acknowledge and
agree that this Article 10 is the exclusive remedy of the parties hereto for
damages for breach or misrepresentation of or under this Agreement, other than a
claim or interpleader based on Purchaser's failure to discharge the Assumed
Liabilities or Seller's failure to discharge the Excluded Liabilities.
(g) Recovery of Attorney Fees For Frivolous Actions. Claimant
shall be entitled to recover its reasonable out-of-pocket costs (including court
costs and actual attorney fees) incurred in pursuing any Claim defended by the
Obligor on frivolous grounds or opposed for the purpose of delay or harassment.
(h) Arbitration. In the event of a dispute in which the parties
involved cannot reach agreement as to the claim in question or their liability
under this Article 10, then the disputed amount of the claim of indemnification
or their liability hereunder shall be submitted to and settled by arbitration in
accordance with the then prevailing commercial arbitration rules of the American
Arbitration Association. Such arbitration shall be held in a mutually acceptable
locale (other than Los Angeles, California or Atlanta, Georgia) before a panel
of three (3) arbitrators, one selected by each of the parties and the third
selected by mutual agreement of the first two, and all of whom shall be
independent and impartial under the rules of the American Arbitration
Association. The decision of the arbitrators shall be final and binding as to
any matter submitted under this Agreement.
ARTICLE 11
CONFIDENTIALITY
Following the Closing, the terms of that certain Confidentiality
Agreement dated as of November 22, 1999 (the "CONFIDENTIALITY AGREEMENT"), a
copy of which is attached hereto as Exhibit 11 and is incorporated herein by
reference, shall continue to be applicable to the Seller and the Parent.
ARTICLE 12
GENERAL RELEASE AND COVENANT NOT TO SUE
The Seller and the Shareholders hereby acknowledge and agree that the
transactions contemplated by this Agreement are in the best interest of the
Seller and each of the Shareholders. As part of the agreements set forth herein
and in consideration of Parent's and Purchaser's agreements hereunder, to the
fullest extent permitted by law, the Seller and Shareholders hereby fully and
forever release, remise, acquit and discharge the Purchaser,
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<PAGE> 40
Parent and their past, present and future subsidiaries, officers, directors,
employees, shareholders, attorneys, agents, successors, assigns, representatives
and other affiliates (collectively, the "PURCHASER RELEASEES") of and from all
claims (as defined by Section 101 of the United States Bankruptcy Code, as
amended), debts, demands, actions, causes of action, suits, accounts, damages
and liabilities of every name and nature, both at law and in equity, whether
known or unknown, that the Seller and the Shareholders now have, ever had or
may, at any time, claim to have had against any of the Purchaser Releasees;
provided, however, that such release shall not apply (1) to any breach by any
party of its representations, warranties and agreements set forth in this
Agreement or the Purchase Agreements to which it is a party or (2) to any claims
based upon or arising out of facts, conduct, acts or omissions by the Parent or
Purchaser first occurring or accruing from and after Closing. Furthermore,
Seller and each Shareholder hereby covenants not to sue, institute, cause to be
instituted or in any way participate in, any legal or administrative proceeding
against any Purchaser Releasee with respect to any of the foregoing; provided,
however, that such covenant shall not apply to any breach by any party of its
representations, warranties and agreements set forth in this Agreement or the
Purchase Agreements to which it is a party. Each of the Seller and the
Shareholders represent and warrant to the Purchaser Releasees that they have not
voluntarily or involuntarily assigned or suffered any transfer of any of the
claims, debts, demands, actions, causes of action, suits, accounts, damages and
liabilities to any other person or entity, and agree to indemnify and hold
harmless the Purchaser Releasees from and against any loss, damage, liability,
cost and expense (including, but not limited to, attorneys' fees incurred in
connection therewith or in connection with enforcing this indemnity) asserted
against, imposed on or incurred by the Purchaser Releasees by reason of any of
the foregoing which were effectively or purportedly assigned or transferred by
the Seller or the Shareholder. To the fullest extent permitted by law,
Shareholders hereby waive the benefits of California Civil Code ss. 1542 and any
other applicable statute or regulation governing general releases or creditors'
rights.
ARTICLE 13
MISCELLANEOUS
(a) Sales, Transfer and Documentary Taxes, etc. Seller shall pay all
federal, state and local sales, documentary and other transfer taxes, if any,
due as a result of the purchase, sale or transfer of the Assets in accordance
herewith whether imposed by law on Seller or Purchaser, and Seller shall
indemnify, reimburse and hold harmless Purchaser in respect of the liability for
payment of or failure to pay any such taxes or the filing of or failure to file
any reports required in connection therewith.
(b) Expenses. Except as otherwise provided in this Agreement, each
party hereto shall pay its own expenses incidental to the preparation of this
Agreement, the carrying out of the provisions of this Agreement and the
consummation of the transactions contemplated hereby.
(c) Contents of Agreement; Parties in Interest; etc. This Agreement,
which includes the Schedules, Exhibits and the other documents, agreements,
certificates and
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<PAGE> 41
instruments executed and delivered pursuant to or in connection with this
Agreement (collectively, the "PURCHASE AGREEMENTS") sets forth the entire
understanding and agreement of the parties hereto with respect to the
transactions contemplated hereby. It shall not be assigned, amended or modified
except by written instrument duly executed by each of the parties hereto. Any
and all prior or contemporaneous negotiations, agreements, representations,
warranties and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded in their entirety by this
Agreement and the other Purchase Agreements and shall not create any liability
on the part of any party hereto in favor of any other party (or parties), except
as otherwise expressly set forth herein and in the other Purchase Agreements.
(d) Waiver. Any term or provision of this Agreement may be waived at
any time by the party entitled to the benefit thereof by a written instrument
duly executed by such party.
(e) Notices. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted hereunder shall be in writing
and shall be deemed given only if delivered personally or sent by telecopier,
air courier, telegram or by registered or certified mail, postage prepaid, as
follows:
if to Parent or the Purchaser before December 20, 1999:
Netzee, Inc.
Netcal, Inc.
2410 Paces Ferry Road
150 paces Summit
Atlanta, GA 30339
(770) 805-2152
Attention: Chief Executive Officer, President and
Chief Financial Officer
if to Parent or the Purchaser beginning December 20, 1999:
Netzee, Inc.
Netcal, Inc.
6190 Powers Ferry Road
Suite 400
Atlanta, GA 30339
(770) 200-3442
Attention: Chief Executive Officer, President and
Chief Financial Officer
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With a copy to:
Susan L. Spencer, Esq.
Nelson Mullins Riley & Scarborough, L.L.P.
First Union Plaza, Suite 1400
999 Peachtree Street, N.E.
Atlanta, GA 30309
(404) 817-6165
(404) 817-6050 (facsimile)
If to Seller or Shareholders, to:
Bruce R. Gall
27200 Agoura Road, Suite 100
Calabasas Hills, CA 91301
(818) 880-9274
With a copy to:
Ronald K. Fujikawa, Esq.
Kinsella, Boesch, Fujikawa & Towle, LLP
1901 Avenue of the Stars, Seventh Floor
Los Angeles, California 90067
(310) 201-2000
(310) 284-6018 (facsimile)
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communication will be deemed to have been given as of
the date so delivered, transmitted by facsimile, telegraphed or mailed, as the
case may be.
(f) Georgia Law to Govern. This Agreement shall be governed by and
interpreted and enforced in accordance with the laws of the State of Georgia,
without regard to its conflict of law principles.
(g) No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their respective heirs, executors, administrators, legal
representatives, successors and assigns, and nothing contained in this Agreement
or the other Purchase Agreements shall be construed as conferring any rights on
any other persons.
(h) Headings, Gender and "Person". All section headings contained in
this Agreement are for convenience of reference only, do not form a part of this
Agreement and shall not affect in any way the meaning or interpretation of this
Agreement. Words used herein, regardless of the number and gender specifically
used, shall be deemed and construed
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<PAGE> 43
to include any other number, singular or plural, and any other gender,
masculine, feminine, or neuter, as the context requires. Any reference to a
"PERSON" herein shall include an individual, firm, corporation, partnership,
trust, governmental authority or body, association, unincorporated organization
or any other entity. The "KNOWLEDGE" of a person shall include the current
actual awareness of such person, such person's officers charged with the
responsibility for the matters qualified by the use of the term "KNOWLEDGE" and
such matters as would be revealed by a review of such person's records.
(i) Schedules and Exhibits. All Exhibits and Schedules referred to
herein are incorporated herein by reference and are intended to be and hereby
are specifically made a part of this Agreement.
(j) Severability. The invalidity or unenforceability of any provision
of this Agreement in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(k) Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered by the parties. It shall
not be necessary in making proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
(m) Assistance of Counsel. Each party hereto acknowledges that they
have had the assistance of counsel in negotiating and preparing the terms of
this Agreement; therefore, this Agreement shall be construed without regard to
any presumption or other rule requiring construction against the party causing
the Agreement to be drafted.
(n) Time of the Essence. Time is of the essence of this Agreement.
(o) Actions and Proceedings. The Seller and Shareholders consent to the
exclusive jurisdiction and venue of the courts of any county in the State of
Georgia and the United States District Court for any District of Georgia in any
action or judicial proceeding seeking an injunction or other equitable relief or
to enforce an arbitration award in favor of Parent or Purchaser. The Seller and
each Shareholder agree that any forum other than the State of Georgia is an
inconvenient forum and that a suit (or non-compulsory counterclaim) seeking an
injunction or other equitable relief or to enforce an arbitration award in favor
of Parent or Purchaser brought by the Seller and/or any Shareholder against
Purchaser, or any member of the Purchaser Group in a court of any state other
than the State of Georgia should be forthwith dismissed or transferred to a
court located in the State of Georgia.
(p) Execution by Facsimile. Any party may deliver an executed copy of
this Agreement and any documents contemplated hereby by facsimile transmission
to another party,
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and such delivery shall have the same force and effect as any other delivery of
a manually signed copy of this Agreement or of such other documents.
[Signatures follow on next page]
39
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have duly executed this Asset
Purchase Agreement on the date first written above:
"Purchaser"
Netcal, Inc.
/s/ Richard S. Eiswirth
------------------------------------------
By: Richard S. Eiswirth
--------------------------------------
Title: CFO and V.P.
-----------------------------------
"Seller"
DPSC Software, Inc.
/s/ Bruce Gall
------------------------------------------
By: Bruce Gall
--------------------------------------
Title: President
-----------------------------------
"Shareholders"
Gall Family Trust
By: /s/ Norma Gall, Trustee
--------------------------------------
Norma Gall, Trustee
By: /s/ Bruce Gall, Trustee
--------------------------------------
Bruce Gall, Trustee
/s/ Bruce Gall
------------------------------------------
Bruce Gall
/s/ Kristen N. Gall
------------------------------------------
Kristin N. Gall
/s/ James H. Jones
------------------------------------------
James H. Jones
/s/ Kenneth Lemoine
------------------------------------------
Kenneth Lemoine
/s/ David F. Potter
------------------------------------------
David F. Potter
/s/ Charles Stephens
------------------------------------------
Charles Stephens
/s/ Phillip Templer
------------------------------------------
Phillip Templer
40
<PAGE> 46
"Parent"
Netzee, Inc.
/s/ Glenn W. Sturm
------------------------------------------
By: Glenn W. Sturm
--------------------------------------
Title: Chief Executive Officer
-----------------------------------
41
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION OF NETZEE, INC.
ARTICLE I.
The name of the Corporation is Netzee, Inc.
ARTICLE II.
The purpose of the Corporation is to engage in any lawful act or
Business Corporation Code (the "GBCC").
ARTICLE III.
The total number of shares of stock that the Corporation is authorized
to issue is Seventy-Five Million (75,000,000) shares, of which and Five
Million(5,000,000) shares are Preferred Stock (the "Preferred Stock"), all of
which shares are without par value. The designations, preferences, limitations
and relative rights of or on the Common Stock and the Preferred Stock are as
set forth below and are otherwise subject to applicable law. The Common Stock
(a) shall be one and the same class, (b) subject to the rights of the holders
of Preferred Stock, if any, shall have full and unlimited voting rights (with
each share having one vote on each matter submitted to shareholders for vote),
and(c) subject to the rights of the holders of Preferred Stock, if any, shall
have equal rights of participation in dividends and distributions and shall
been titled to receive the net assets of the Corporation ratably upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation. The Board of Directors is authorized, by causing appropriate
articles of amendment to be filed pursuant to the applicable law of the State
of Georgia, to divide the Preferred Stock into series and to determine the
preferences, limitations and relative rights thereof, including but not limited
to dividend rights, dividend rates, conversion rights, voting rights
(including, without limitation, the election of a specified number of directors
by the holders of one or more such series), redemption rights, and liquidation
preferences; to fix the number of shares constituting any such series and the
designation thereof; and to increase or decrease the number of shares of any
such series (but not below the number of shares thereof then issued).
ARTICLE IV.
The street address of the initial registered office of the Corporation
is 3150 Holcomb Bridge Road, Suite 310, Norcross, Gwinnett County, Georgia
30071,and the initial registered agent of the Corporation at such address is
C.Michael Bowers.
ARTICLE V.
The name and address of the incorporator are:
Mark D. Wasserman
Sutherland Asbill & Brennan LLP
999 Peachtree Street, N.E., Suite 2300
Atlanta, Georgia 30309-3996
ARTICLE VI.
<PAGE> 2
The mailing address of the Corporation's initial principal office will
be:
3150 Holcomb Bridge Road, Suite 310
Norcross, Georgia 30071
ARTICLE VII.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the Bylaws of the Corporation.
ARTICLE VIII.
A director of the Corporation shall not be personally liable to the
Corporation or to its shareholders for monetary damages for any action taken,
or any failure to take any action, as a director, except liability: (a) for any
appropriation, in violation of his or her duties, of any business opportunity
of the Corporation, (b) for acts or omissions that involve intentional
misconductor a knowing violation of law, (c) for the types of liability set
forth in Section 14-2-832 of the GBCC, or (d) for any transaction from which the
director received an improper personal benefit. If the GBCC is hereafter
amended to further eliminate or limit the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited
to the fullest extent permitted by the GBCC, as so amended, without further
action by the shareholders. Any repeal or modification of this Article VIII
shall not adversely affect the elimination or limitation of liability or
alleged liability pursuant hereto of a director of the Corporation for or with
respect to any alleged act or omission of the director occurring prior to such
repeal or modification.
ARTICLE IX.
The Board of Directors shall consist of such number of directors as
fixed or changed from time to time by the Board of Directors and shall be
divided into three classes: Class I, Class II and Class III, which shall be as
nearly equal in number as possible. Each director shall serve for a term ending
on the date of the third annual meeting of shareholders following the annual
meeting at which such director was elected; provided, however, that each
initial director in Class I shall hold office until the first annual meeting of
shareholders after his election; each initial 2 director in Class II shall hold
office until the second annual meeting of shareholders after his election; and
each initial director in Class III shall hold office until the third annual
meeting of shareholders after his election. Despite the expiration of a
director's term, each director shall serve until his successor is elected and
qualified or until his earlier death, resignation or removal. The number of
directors may be increased or decreased from time to time by resolution of the
Board of Directors; provided, however, that the total number of directors at
any time shall not be less than three unless these Articles of Incorporation
are amended to delete the classification of the Board of Directors. Any
vacancies in the Board of Directors for any reason, and any directorships
resulting from any increase in the authorized number of directors, may be
filled by the Board of Directors, acting by a majority of the directors then in
office, although less than a quorum, and any directors chosen to fill a vacancy
shall hold office until the next election of the class for which such directors
shall have been chosen and until their successors shall be elected and
qualified, and any directors chosen by reason of an increase in the number
<PAGE> 3
of directors shall hold office until the next election of directors by the
shareholders and until their successors shall be elected and qualified. Subject
to the foregoing and the GBCC, at each annual meeting of shareholders the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting.
ARTICLE X.
In discharging the duties of their respective positions and in
determining what is believed to be in the best interests of the Corporation,
the Board of Directors, committees of the Board of Directors and individual
directors, in addition to considering the effects of any action on the
Corporation or its shareholders, may consider the interests of the employees,
customers, suppliers and creditors of the Corporation and its subsidiaries, the
communities in which offices or other establishments of the Corporation and its
subsidiaries are located, and all other factors such directors consider
pertinent; provided, however, that this Article X shall be deemed solely to
grant discretionary authority to the directors and shall not be deemed to
provide any constituency any right to be considered.
ARTICLE XI.
The shareholders of the Corporation shall have the right to take
action in lieu of a meeting only by one or more consents in writing signed by
all of the shareholders entitled to vote on such action.
ARTICLE XII.
Any shares of the Corporation reacquired by the Corporation shall
become treasury shares.
ARTICLE XIII.
The affirmative vote of at least 66 2/3% of the directors is required
for the following actions by the Corporation to be submitted to a vote of the
shareholders:
(a) a sale of all or substantially all of the assets of the
Corporation;
(b) a liquidation or dissolution of the Corporation; or
(c) the merger, consolidation or reorganization of the Corporation,
unless the shareholders of the Corporation immediately prior to such
transaction own at least a majority of the combined voting power of the
corporation resulting from such merger, consolidation or reorganization;
provided, further, that the affirmative vote of the holders of 66 2/3% of the
outstanding Common Stock is required for shareholder approval of any action
outlined in the clauses above.
ARTICLE XIV.
The undersigned incorporator does hereby undertake to publish a notice
of the filing with the Secretary of State of the State of Georgia of these
Articles of Incorporation as required by O.C.G.A. (S) 14-2-201.1(b).
DULY EXECUTED and delivered by the undersigned incorporator on August 25,
1999.--
<PAGE> 4
/s/ Mark Wasserman
-------------------
Mark D. Wasserman, as Incorporator
* * * * *
4
ARTICLES OF AMENDMENT
OF
NETZEE, INC.
I.
The name of the Corporation, which was incorporated under the Georgia
Business Corporation Code, is Netzee, Inc.
II.
The first amendment adopted is to delete Article XIII of the Articles
of Incorporation of the Corporation in its entirety.
III.
The second amendment adopted is to amend Article XI of the Articles of
Incorporation of the Corporation by deleting the text of Article XI in its
entirety and substituting therefor the following text:
"The shareholders of the Corporation shall have the right to take
action without a meeting by one or more consents in writing signed by
persons entitled to vote at a meeting shares having voting power to
cast not less than the minimum number (or numbers, in the case of
voting by groups) of votes that would be necessary to authorize or
take the action at a meeting at which all shareholders entitled to
vote were present and voted."
IV.
Such amendment was adopted by the sole incorporator on September 1,
1999.
V.
No shares of the Corporation having been issued, the amendments were
adopted by the sole incorporator without shareholder action, which action was
not required pursuant to O.C.G.A. (S) 14-2-1005.
DULY EXECUTED and delivered by the sole incorporator on September 1, 1999.
/s/ Mark Wasserman
------------------------------
Mark D. Wasserman, Esq.
As Incorporator
<PAGE> 5
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION OF
NETZEE, INC.
In accordance with Sections 14-2-602 and 14-2-1006 of the Georgia
Business Corporation Code (the "Code"), Netzee, Inc. (the "Corporation"), a
corporation organized and existing under and by virtue of the Code, DOES HEREBY
CERTIFY:
1. The name of the Corporation is Netzee, Inc.
2. The following resolution setting forth an amendment to the
Corporation's Articles of Incorporation has been duly adopted
by the Board of Directors:
RESOLVED, THAT ARTICLE III OF THE CORPORATION'S
ARTICLES OF INCORPORATION IS HEREBY AMENDED BY ADDING THE
FOLLOWING PROVISIONS TO THE END THEREOF: "THE CORPORATION IS
AUTHORIZED TO ISSUE 500,000 SHARES OF SERIES A 8% CONVERTIBLE
PREFERRED STOCK, WITHOUT PAR VALUE PER SHARE (THE "SERIES A
PREFERRED STOCK"). THE SERIES A PREFERRED STOCK SHALL HAVE
THE PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS SET FORTH ON
EXHIBIT A HERETO."
3. The "Exhibit A" referenced in the foregoing resolution is
included in these Articles of Amendment and is the same
"Exhibit A" as is attached hereto.
4. The foregoing resolution containing the amendment was duly
adopted on December 14, 1999, by the Corporation's Board of
Directors in accordance with the provisions of Sections
14-2-602 and 14-2-1002 of the Code. This amendment was
adopted by the Corporation's Board of Directors without
shareholder action and such shareholder action was not
required.
<PAGE> 6
IN WITNESS WHEREOF, the Corporation has caused this Amendment to be
signed by the undersigned duly authorized officer, this 15th day of December,
1999.
NETZEE, INC.
By: /s/ Richard S. Eiswirth
---------------------------------
Name (print): Richard S. Eiswirth
------------------------
Title: CFO and EVP
-------------------------------
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<PAGE> 7
EXHIBIT A
DESIGNATIONS OF PREFERENCES,
LIMITATIONS, AND RELATIVE RIGHTS OF
SERIES A PREFERRED STOCK OF NETZEE, INC.
For the purposes of these Designations, the following terms shall have
the meanings specified:
"Articles of Incorporation" shall mean the Articles of Incorporation
of the Corporation, as amended.
"Board of Directors" shall mean the board of directors of the
Corporation.
"Bylaws" shall mean the bylaws of the Corporation, as amended.
"Common Stock" shall mean the common stock, no par value per share, of
the Corporation.
"Conversion Notice" shall have the meaning provided in Subsection
(d)(3) hereof.
"Conversion Price" shall have the meaning provided in Subsection
(d)(1) hereof.
"Conversion Rate" shall have the meaning provided in Subsection (d)(1)
hereof.
"Conversion Rights" shall have the meaning provided in Section (d)
hereof.
"Conversion Shares" shall mean the shares of Common Stock into which
each share of Series A Preferred Stock is convertible pursuant to Section (d)
of these Designations.
"Corporation" shall mean Netzee, Inc., a Georgia corporation.
"Designations" shall mean the terms, preferences, limitations and
relative rights of the Series A Preferred Stock established hereby and set
forth hereinafter.
"Liquidation" shall have the meaning provided in Section (b) hereof.
"Redemption Notice" shall have the meaning provided in Subsection
(d)(6) hereof.
<PAGE> 8
"Redemption Price" shall have the meaning provided in Subsection
(d)(6) hereof.
"Series A Preferred Stock" shall mean the 500,000 shares of Series A
8% Convertible Preferred Stock, without par value per share, hereby designated.
"Original Issue Date" shall mean, with respect to each share of Series
A Preferred Stock, the date on which such share of Series A Preferred Stock is
first issued by the Corporation.
"Securities Act" shall mean the federal Securities Act of 1933, as
amended.
"Stated Value" per share of the Series A Preferred Stock shall mean
the per share issue price for any share of Series A Preferred Stock (as
adjusted pursuant to Section (d)(5) hereof after the Original Issue Date). The
initial Stated Value per share of Series A Preferred Stock is $13.00.
The Designations granted to and imposed upon the Series A Preferred
Stock are as follows:
(a) Dividend Rights. The following dividend rights shall apply to
the Series A Preferred Stock:
(1) The holders of then outstanding shares of Series A
Preferred Stock shall be entitled to receive cumulative cash dividends
when, as and if declared by the Board of Directors out of any funds
legally available therefor at the rate of eight percent (8%) per
annum, or $1.04 per share of Series A Preferred Stock based upon the
initial Stated Value per share.
(2) Dividends shall accrue on each share of Series A
Preferred Stock from the Original Issue Date, and shall accrue from
day to day, whether or not earned or declared and whether or not there
shall be funds legally available for the payment of such dividends.
Such dividends shall be cumulative so that, if such dividends in
respect of any previous or current quarterly dividend period, at the
rate specified above, shall not have been paid or declared and a sum
sufficient for the payment thereof set apart, the deficiency shall
first be fully paid before any dividend or other distribution shall be
paid on or declared and set apart for the Common Stock or any other
stock ranking junior to the Series A Preferred Stock. Any accumulation
of dividends on the Series A Preferred Stock shall not bear interest.
(3) Unless full dividends on the Series A Preferred Stock
for all past dividend periods and the then current dividend period
shall have been paid or declared and a sum sufficient for the payment
above set apart, no cash dividend
-2-
<PAGE> 9
shall be paid or declared on Common Stock or any or any other stock
ranking junior to the Series A Preferred Stock as to liquidation
preference.
(4) Each dividend shall be paid to the holders of record of
the Series A Preferred Stock as they shall appear on the stock
register of the Corporation on such record date, not exceeding 45 days
nor less than 10 days preceding a dividend payment date, as shall be
fixed by the Board of Directors or a duly authorized committee
thereof.
(b) Liquidation Rights. Subject to the rights of any class of
stock of the Corporation senior to the Series A Preferred Stock, in the event
of the liquidation, dissolution or winding up for any reason, including,
without limitation, bankruptcy, of the Corporation or any of the Corporation's
subsidiaries, the assets of which constitute all or substantially all the
assets of the business of the Corporation and its subsidiaries taken as a whole
(each such event referred to as a "Liquidation"), the holders of the
outstanding shares of Series A Preferred Stock shall, at their election, be
entitled to receive in exchange for and in redemption of each share of their
Series A Preferred Stock, and on a parity with the holders of any capital stock
ranking pari passu to the Series A Preferred Stock by reason of their ownership
thereof, from any funds or assets legally available for distribution to
shareholders, that portion of such funds, proceeds or assets in an amount equal
to a fraction,
(1) the numerator of which is the number of Conversion
Shares to which the holder of such share of Series A Preferred Stock
would be entitled by virtue of converting such share; and
(2) the denominator of which is the aggregate of the number
of Conversion Shares, shares of Common Stock outstanding, and all
other shares of outstanding capital stock of any series the holders of
which are entitled to participate in the proceeds of a Liquidation;
provided, however, that, notwithstanding the foregoing, the amount payable to
such holder of a share of Series A Preferred Stock in the event of a
Liquidation shall not be less than, and shall be increased if necessary (with
sums payable to holders of shares of any other capital stock junior to be the
Series A Preferred Stock to be reduced ratably per share as necessary) to
equal, the Stated Value plus declared but unpaid dividends payable with respect
to such Series A Preferred Stock.
All the preferential amounts to be paid to the holders of Series A
Preferred Stock under this Section (b) shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of shares of
Common Stock or any class or series of stock of the Corporation ranking junior
to Series A Preferred Stock in connection with a Liquidation as to which this
Section (b) applies. If the assets or surplus funds to be distributed to the
holders of Series A Preferred Stock are insufficient to permit the
-3-
<PAGE> 10
payment to such holders of the full amounts payable to such holders, the assets
and surplus funds legally available for distribution shall be distributed
ratably among the holders of Series A Preferred Stock in proportion to the full
amount each such holder is otherwise entitled to receive.
(c) Voting Rights. The Series A Preferred Stock shall be
non-voting.
(d) Conversion. The holders of Series A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(1) Conversion Rate.
(A) For purposes of this Section (d), the shares of
Series A Preferred Stock shall be convertible, at the times
and under the conditions described in this Section (d)
hereafter, at the rate (the "Conversion Rate") of one share
of Series A Preferred Stock to the number of shares of Common
Stock that equals the quotient obtained by dividing the
Stated Value by the Conversion Price (defined hereinafter).
Thus, the aggregate number of shares of Common Stock to which
a holder of Series A Preferred Stock shall be entitled upon
any conversion provided for in this Section (d) shall be the
product obtained by multiplying the Conversion Rate by the
number of shares of Series A Preferred Stock being converted.
Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of the surrender
of the shares of Series A Preferred Stock to be converted in
accordance with the procedures described in Subsection (d)(4)
below. The "Conversion Price" shall equal 110% of the closing
price per share of the Common Stock on the Original Issue
Date as reported on the Nasdaq National Market, except as
otherwise adjusted as provided hereafter in this Section (d).
(B) No fractional shares of Common Stock shall be
issued upon conversion of Series A Preferred Stock, and any
shares of Series A Preferred Stock surrendered for conversion
that would otherwise result in a fractional share of Common
Stock shall be redeemed in cash at the then effective
Conversion Price per share, payable as promptly as possible
when funds are legally available therefor.
(2) Optional Conversion. Subject to Subsection (d)(3)
below, each share of Series A Preferred Stock shall be convertible, at
the option of the holder thereof, at any time after issuance, in whole
or in part, at the office of the Corporation or any transfer agent for
the Series A Preferred Stock, into Common Stock at the then effective
Conversion Rate; provided, however, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates evidencing
-4-
<PAGE> 11
such shares of Series A Preferred Stock so converted are surrendered
to the Corporation in accordance with the procedures described in
Subsection (d)(3) below.
(3) Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to receive certificates representing
the shares of Common Stock into which shares of Series A Preferred
Stock are converted in accordance with Subsection (d)(2) above, such
holder shall surrender the certificate or certificates for such shares
of Series A Preferred Stock, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series A Preferred Stock,
and shall give written notice to the Corporation at such office of the
name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued, if different
from the name shown on the books and records of the Corporation (the
"Conversion Notice"). The Conversion Notice shall also contain such
representations as may reasonably be required by the Corporation to
the effect that the shares to be received upon conversion are not
being acquired and will not be transferred in any way that might
violate the then applicable securities laws. The Corporation shall, as
soon as practicable thereafter and in no event later than thirty (30)
days after the delivery of said certificates and Conversion Notice,
issue and deliver at such office to such holder of Series A Preferred
Stock, or to the nominee or nominees of such holder as provided in the
Conversion Notice, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as
aforesaid. The conversion shall be effective at the time the
Corporation accepts the Conversion Notice as being proper in form and
substance. The person or persons entitled to receive the shares of
Common Stock issuable upon a conversion pursuant to Subsection (d)(2)
above shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of the effective date of
conversion pursuant to this Section (d). All certificates issued upon
the exercise or occurrence of the conversion shall contain a legend
governing restrictions upon such shares imposed by law or agreement of
the holder or his or its predecessors, successors or permitted
assigns.
(4) Adjustment for Subdivisions or Combinations of Common
Stock. In the event the Corporation at any time, or from time to time,
after the Original Issue Date effects a subdivision or combination of
the outstanding Common Stock into a greater or lesser number of shares
without a proportionate and corresponding subdivision or combination
of the outstanding Series A Preferred Stock, then and in each such
event the Stated Value (and therefore, the Conversion Price and the
corresponding Conversion Rate) shall be decreased or increased
proportionately, as appropriate, so that the number of Conversion
Shares to which a holder of Series A Preferred Stock shall be entitled
upon conversion shall equal (at no additional consideration per share)
such number of shares of Common Stock as such holder would have been
entitled to receive
-5-
<PAGE> 12
after such subdivision or combination if such holder had converted his
or its shares of Series A Preferred Stock into Common Stock
immediately prior to such subdivision or combination.
(5) Adjustments for Dividends, Distributions and Other
Common Stock Equivalents. In the event that the Corporation at any
time, or from time to time, after the Original Issue Date shall make
or issue, or fix a record date to determine the holders of Common
Stock entitled to receive, a dividend or other distribution payable in
Additional Shares of Common Stock (defined below) or the holders of
Common Stock entitled to receive other securities or rights
convertible or exercisable into, or otherwise entitling the holder
thereof to receive, Additional Shares of Common Stock (such other
securities or rights being hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder of
such Common Stock Equivalents or the Additional Shares of Common
Stock, and without a proportionate and corresponding dividend or other
distribution to holders of Series A Preferred Stock, then and in each
such event the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained
therein for subsequent adjustment of such number) of Common Stock
issuable in payment of such dividend or distribution or upon
conversion or exercise of such Common Stock Equivalents shall be
deemed, for purposes of this Subsection (d)(5), to be issued and
outstanding as of the time of such issuance or, in the event such a
record date shall have been fixed, as of the close of business on such
record date. In each such event the Conversion Price shall be
decreased as of the time of such issuance or, in the event such a
record date shall have been fixed, as of the close of business on such
record date, by multiplying the Conversion Price by a fraction,
(A) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding, or deemed
pursuant to the terms hereof to be issued and outstanding as
provided above, immediately prior to the time of such
issuance or the close of business on such record date; and
(B) the denominator of which shall be the total
number of shares of Common Stock (i) issued and outstanding
or deemed pursuant to the terms hereof to be issued and
outstanding, as provided above (not including any shares
described in clause (ii) immediately below), immediately
prior to the time of such issuance or the close of business
on such record date, plus (ii) the number of shares of Common
Stock issuable in payment of such dividend or distribution
with respect to the shares of Common Stock described in
(B)(i) above or upon conversion or exercise of such Common
Stock Equivalents;
-6-
<PAGE> 13
provided, however, that (i) if such record date shall have been fixed
and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefor, the Conversion Price (and the
corresponding Conversion Rate) shall be recomputed accordingly as of
the close of business on such record date and thereafter the
Conversion Price (and the corresponding Conversion Rate) shall be
adjusted pursuant to this Subsection (d)(5) as of the time of actual
payment of such dividend or distribution; or (ii) if such Common Stock
Equivalents provide, with the passage of time or otherwise, for any
decrease in the number of shares of Common Stock issuable upon
conversion or exercise thereof (or upon the occurrence of a record
date with respect thereto), the Conversion Price (and the
corresponding Conversion Rate) computed upon the original issue
thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon
any such decrease becoming effective, be recomputed to reflect such
decrease insofar as it affects the rights of conversion or exercise of
the Common Stock Equivalents then outstanding; or (iii) upon the
expiration of any rights of conversion or exercise under any
unexercised Common Stock Equivalents, the Conversion Price (and the
corresponding Conversion Rate) computed upon the original issue
thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon
such expiration, be recomputed as if the only Additional Shares of
Common Stock issued were the shares of such stock, if any, actually
issued upon the conversion or exercise of such Common Stock
Equivalents; or (iv) in the event of issuance of Common Stock
Equivalents that expire by their terms not more than ninety (90) days
after the date of issuance thereof, no adjustments of the Conversion
Price (or the corresponding Conversion Rate) shall be made until the
expiration or exercise of all such Common Stock Equivalents, whereupon
the adjustment otherwise required by this Subsection (d)(5) shall be
made in the manner provided herein. For purposes of this Subsection
(d)(5), Common Stock deemed issued and outstanding shall include
shares of Common Stock into which the then outstanding shares of
Series A Preferred Stock could be converted if fully converted on the
day immediately preceding the given date, and shares of Common Stock
that could be obtained through the exercise or conversion of all other
rights, options, and convertible securities on the day immediately
preceding the given date.
As used herein, "Additional Shares of Common Stock" shall
mean, with respect to such adjustments to be made to the Conversion
Price and the Conversion Rate, either shares of Common Stock issued
subsequent to the Original Issue Date, or, with respect to the
issuance of Common Stock Equivalents, the maximum number of shares (as
set forth in the instrument relating thereto without regard to any
provisions contained therein for subsequent adjustment of such number)
of Common Stock issuable in exchange for, upon conversion of, or upon
exercise of such Common Stock Equivalents.
-7-
<PAGE> 14
The foregoing notwithstanding, no adjustment of the
Conversion Price and the Conversion Rate shall be made pursuant to
this Section (d) as a result of the issuance or deemed issuance of:
(A) any shares of Common Stock upon the conversion
of shares of Series A Preferred Stock;
(B) securities of the Corporation offered to the
public pursuant to an effective registration statement under
the Securities Act;
(C) the Corporation's securities pursuant to the
acquisition by the Corporation of any product, technology,
know-how or another corporation by merger, purchase of all or
substantially all of the securities or assets, or any other
acquisition or reorganization;
(D) any shares of Common Stock as a result of the
adjustments to the Conversion Price and the Conversion Rate
under this Section (d);
(E) any shares of Common Stock issued at any time
following the Original Issue Date pursuant to options,
warrants or rights (other than options, warrants or rights
granted to all holders of Common Stock on a pro-rata basis in
proportion to their ownership) granted either before or after
the Original Issue Date to purchase shares of such Common
Stock; or
(F) any shares of Common Stock issued pursuant to
the exchange, conversion or exercise of Common Stock
Equivalents that have previously been incorporated into
computations hereunder on the date when such Common Stock
Equivalents were issued.
(6) Redemption. The Series A Preferred Stock is
redeemable by the Corporation, in whole or in part, at any time or
from time to time after issuance at the option of the Corporation, on
at least ten (10) but not more than ninety (90) days' written notice
(the "Redemption Notice"), if the average closing price per share of
Common Stock, as reported on the exchange or quotation system with the
largest volume with respect to the Common Stock, for any four (4) week
period equals or exceeds $26.00 per share. With respect to any such
redemption, shares of Series A Preferred Stock will be redeemable at
the Stated Value per share, plus accrued but unpaid dividends to the
date of redemption (the "Redemption Price"). The Redemption Price is
payable at the option of the Corporation in cash or in shares of
Common Stock at the Conversion Rate as
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<PAGE> 15
determined in Subsection (d)(1) above; provided, however, that if the
Corporation provides notice of payment of the Redemption Price in
cash, the holders of Series A Preferred Stock shall have the option to
receive payment of the Redemption Price in shares of Common Stock by
providing notice of the election to receive payment in shares of
Common Stock within five (5) business days after the date of the
Redemption Notice.
(7) De Minimis Adjustments. No adjustment to the Conversion
Price (and, thereby, the Conversion Rate) shall be made if such
adjustment would result in a change in the Conversion Price of less
than $0.01, but any lesser adjustment shall be carried forward and
shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustments so carried forward,
shall amount to $0.01 or more.
(8) Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to
this Section (d), the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms
hereof and cause independent public accountants selected by the
Corporation to verify such computation and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of Series A Preferred
Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii)
the Conversion Price and the Conversion Rate at that time in effect,
and (iii) the number of shares of Common Stock and the amount, if any,
of other property that at that time would be received upon the
conversion of Series A Preferred Stock.
(9) Notices of Record Date. In the event of any taking by
the Corporation of a record of the holders of any series or class of
securities other than Series A Preferred Stock for the purpose of
determining the holders thereof who are entitled to receive any
dividend or other distribution, Common Stock Equivalents or any right
to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other
right, the Corporation shall mail to each holder of Series A Preferred
Stock, at least ten (10) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for
the purpose of such dividend, distribution or rights, and the amount
and character of such dividend, distribution or rights.
(10) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose
of effecting the conversion of the shares of the Series A Preferred
Stock such number of shares of Common
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<PAGE> 16
Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock;
and if at any time the number of authorized but unissued shares of
Common Stock shall be insufficient to effect the conversion of all
then outstanding shares of the Series A Preferred Stock, the
Corporation shall take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
(e) Protective Provisions. In addition to any other rights provided
by law, so long as any shares of Series A Preferred Stock are then outstanding,
except where the vote or written consent of the holders of a greater number of
shares is required by law or by another provision of the Articles of
Incorporation, without first obtaining the affirmative vote or written consent
of the holders of a majority of the total number of shares of Series A
Preferred Stock outstanding, voting together as a single class, the Corporation
shall not:
(1) amend or repeal any provision of, or add any provision
to, the Articles of Incorporation or the Bylaws, or file any
certificate of designations, preferences, limitations and relative
rights of any series or class of preferred stock, if such action would
materially and negatively alter or change the preferences, rights,
privileges or powers of, or restrictions provided for the benefit of,
holders of Series A Preferred Stock;
(2) increase or decrease the authorized number of shares of
the Series A Preferred Stock;
(3) take any action that would alter or change the
preferences, rights, privileges or powers of, or restrictions provided
for the benefit of holders of Series A Preferred Stock in one or more
of the ways set forth in Section 14-2-1004(a) of the Code; or
(4) amend the provisions of this Section (e).
(f) Reorganization, Mergers, Consolidations, Sale of Assets. If at
any time or from time to time after the Original Issue Date there shall be a
capital reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for elsewhere in
this Section (f)) or a merger, consolidation or statutory share exchange of the
Corporation with or into another corporation, or the sale of all or
substantially all of the Corporation's properties and assets to any other
person, then, as a part of such reorganization, merger, consolidation, share
exchange or sale, provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock the number of shares of stock or other securities or
property of the Corporation, or of the successor corporation resulting from
such merger, consolidation, exchange or sale, to which a holder of that number
of shares of Common
-10-
<PAGE> 17
Stock deliverable upon conversion of the Series A Preferred Stock would have
been entitled on such capital reorganization, merger, consolidation, exchange
or sale. In any such case, appropriate adjustment shall be made in the
application of the provisions of Section (d) with respect to the rights of the
holders of the Series A Preferred Stock after the reorganization, merger,
consolidation, exchange or sale to the end that the provisions of Section (d)
(including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon conversion of the Series A Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
(g) Notices. Any notice required by the provisions hereof to be
given to the holders of shares of Series A Preferred Stock shall be deemed
given (i) on the date of delivery, if such notice is hand-delivered to such
holder or (ii) on the third business day following (and not including) the date
on which such notice is either sent via express courier such as United Parcel
Service or Federal Express or deposited in the United States Mail, first-class,
postage prepaid, and addressed to each holder of record at his address
appearing on the books of the Corporation. Notice by any other means shall not
be deemed effective until actually received.
(h) No Reissuance of Preferred Stock. No share or shares of Series
A Preferred Stock acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Corporation shall
be authorized to issue.
-11-
<PAGE> 1
EXHIBIT 4.2
[NUMBER A-2] [SHARES 350,000]
NETZEE, INC.
INCORPORATED UNDER THE LAWS OF GEORGIA
AUTHORIZED 500,000 SHARES OF SERIES A 8% CONVERTIBLE PREFERRED STOCK,
WITHOUT PAR VALUE
THIS CERTIFIES THAT Bruce R. Gall & Associates, Inc., f/k/a DPSC Software, Inc.
is the owner of Three hundred fifty Thousand fully paid and non-assessable
Shares of the above Corporation transferable only on the books of the
Corporation by the holder hereof in person or by duly authorized Attorney upon
surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
DATED December 15, 1999
---------------------------
/s/ /s/
- ------------------------- -----------------------------
Secretary Chairman of the Board
[SEAL]
<PAGE> 2
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED,
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION AND THE SECURITIES REGULATORY
AUTHORITIES OF APPLICABLE STATES OR UNLESS AN EXEMPTION FROM SUCH SECURITIES
LAWS IS AVAILABLE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF
A REGISTRATION RIGHTS AGREEMENT DATED DECEMBER 15, 1999 BETWEEN THE HOLDER
HEREOF, BRUCE R. GALL & ASSOCIATES, INC., AND NETZEE, INC. COPIES OF THE
REGISTRATION RIGHTS AGREEMENT MAY BE OBTAINED AT THE PRINCIPAL EXECUTIVE
OFFICES OF NETZEE, INC.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may also
be used though not in the list.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ............Custodian............(Minor)
TEN ENT - as tenants by the entireties Under Uniform Gifts to Minors Act...................(State)
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
</TABLE>
<TABLE>
<S> <C> <C>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
For value received, the undersigned hereby sells, assigns and transfers unto --------------------------------------
| |
| |
- ---------------------------------------------------------------------------- --------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- -----------------------------------------------------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------------------------------------------------
represented by the within Certificate, and hereby irrevocably constitutes and appoints
---------------------------------
Attorney to transfer the said
- -----------------------------------------------------------------------------------------
shares on the books of the within-named Corporation with full power of substitution in the premises.
Dated,
----------------------------------
In presence of - -------------------------------------------------
- ---------------------------------------------------------
</TABLE>
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular without alteration
or enlargement, or any change whatever.
<PAGE> 1
EXHIBIT 4.9
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), is dated and
effective as of December 15th, 1999, by Netzee, Inc., a Georgia corporation
(the "Company"), DPSC Software, Inc., a California corporation ("Seller") and
the persons named on the signature page hereto (collectively, the
"Shareholders" and each, a "Shareholder"). The Company, the Seller and the
Shareholders are hereinafter collectively called the "Parties."
WHEREAS, the Company, Netcal, Inc., a Georgia corporation
("Purchaser"), Seller and the Shareholders have entered into an Asset Purchase
Agreement dated as of December 15th, 1999 (the "Purchase Agreement"), pursuant
to which, among other things, the Company has agreed to issue shares of the
Company's common stock, without par value (the "Common Stock") and shares of
the Company's Series A 8% Convertible Preferred Stock, without par value (the
"Preferred Stock"), which are convertible into shares of Common Stock pursuant
to the terms of the Articles of Amendment to the Company's Articles of
Incorporation filed on or about the date hereof designating the preferences,
limitations and relative rights of the Preferred Stock (the "Designations");
and
WHEREAS, the Seller will acquire a total of 525,000 shares of Common
Stock and 500,000 shares of Preferred Stock, subject to an escrow of a portion
of such shares pursuant to the Purchase Agreement; and
WHEREAS, the Company, the Seller and the Shareholders desire to
provide for the rights of the Seller and the Shareholders with respect to the
registration of the shares of Common Stock to be received by Seller and/or the
Shareholders pursuant to the Purchase Agreement and pursuant to the conversion
of shares of Preferred Stock held by them.
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, with no stop order having
been issued with respect thereto;
(d) "Registrable Securities" means shares of Common Stock
(i) issued or issuable to the Seller pursuant to the Purchase Agreement and as
may be distributed to the Shareholders by the Seller, (ii) issued upon
conversion of the Preferred Stock, or (iii) issued as a dividend or other
distribution with respect to, or in exchange or replacement of, the
Registration Rights Agreement Page 1 of 14
<PAGE> 2
foregoing, including in connection with any stock split, recapitalization or
other similar corporate activity, but Registrable Securities shall not include
any other shares of Common Stock acquired by the Seller or the Shareholders
other than the foregoing;
(e) "Holder" means the Seller and any Shareholder, if the
Seller or such Shareholder holds Registrable Securities or Preferred Stock;
provided, however, that any person who acquires any of the Registrable
Securities or Preferred Stock 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 (other than pursuant to a distribution from the Seller to the Shareholders
pursuant to an exemption from registration) 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 Purchase
Agreement.
2. Registration Under 1933 Act.
(a) Demand Registration. By written notice delivered to
the Company on or before February 1, 2000, the Holders of at least 50% of the
Preferred Stock outstanding can request that the Company register all of the
shares of Common Stock issuable upon conversion of the Preferred Stock plus up
to an additional 100,000 shares of the Common Stock issued pursuant to the
Purchase Agreement (collectively, the "Demand Shares"). Upon receipt of such
notice, the Company shall use all commercially reasonable efforts to (1) file a
registration statement on Form S-1 with respect to the Demand Shares as soon as
possible after the Company's audited consolidated financial statements for the
fiscal year ended December 31, 1999 are available and, in any event, on or
before March 31, 2000 and (2) effect the registration of the Demand Shares.
(b) Limitations on Company's Obligation.
(i) Except as set forth below, the Company is
obligated to effect only one (1) registration pursuant to Section 2(a). A
registration shall be deemed not to have been made for the purposes of Section
2(a) in the event that, prior to the sale of all Demand Shares (A) a
registration requested pursuant to Section 2(a) fails to become effective, (B)
a stop order shall have been issued by the Commission or (C) the registration
shall have been terminated prior to the Commission's declaration of
effectiveness with respect thereto.
(ii) A registration under Section 2(a) shall be
conditioned upon the Holder's participation in an underwritten offering and the
inclusion of such Holder's Demand Shares in such underwriting. The Company
shall have the right to select the underwriter(s) for such offering, provided
that the lead managing underwriter is affiliated with an entity that serves as
a market maker for the Common Stock and that regularly publishes research
reports regarding the Company. All Holders proposing to distribute their Demand
Shares through
Registration Rights Agreement Page 2 of 14
<PAGE> 3
such underwriting shall (together with the Company and the other Holders
distributing their Demand Shares through such underwriting) participate in the
underwriting by entering into or completing, at the request of the underwriter
or underwriters selected for such underwriting by the Company, an underwriting
agreement, questionnaires, powers of attorney and indemnities in their
customary form.
(c) The Company shall be entitled to include in any
registration statement filed pursuant to Section 2(a) shares of Common Stock to
be sold by the Company for its own account or for the account of other
shareholders (collectively, "Other Shares"); provided that if the managing
underwriters advise the Company in writing that, in their opinion, the number
of securities requested to be included in any 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 Demand Shares and (2) second,
the number of Other Shares requested to be included, which in the opinion of
such underwriters can be sold, in accordance with the priority provisions of
Section 9(a) hereof.
(d) The Company shall be entitled to postpone for a
reasonable period of time (but, except as otherwise provided in this Agreement,
not exceeding one hundred twenty (120) days) the filing of any registration
statement otherwise required to be prepared and filed by it pursuant to this
Section 2, if the Company has determined, in good faith and in the exercise of
reasonable judgment, that such action would materially delay or interfere with
any material financing, acquisition, corporate reorganization or other
transaction involving the Company then pending or contemplated, and if the
Company so notifies the Holders of Demand Shares in writing of such
determination and agrees to resume such registration as soon as possible after
any such material financing, acquisition, corporate reorganization or other
transaction is complete or terminated.
(e) If a postponement under Section 2(d) occurs, the
Holders shall continue to have the piggyback registration rights set forth in
Section 3 during such postponement.
(f) If a registration statement pursuant to this Section 2
does not become effective within twelve (12) months after the initial filing
thereof as a result of any reason other than a material adverse development in
the business or condition (financial or other) of the Company or other acts or
matters within the control of the Company, or if such registration statement is
abandoned or withdrawn at the request of the Holders, then, unless the Holders,
promptly upon receipt of a request therefor, supported by an invoice setting
forth the expenses in reasonable detail, reimburse the Company for the
registration expenses in respect of such registration statement, the Company
shall be deemed to have satisfied its obligation pursuant to this Section 2.
(g) Notwithstanding anything in this Agreement to the
contrary, the Company shall not be obligated to take any action to effect any
registration, qualification or compliance pursuant to Section 2 in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process or to register as a dealer or to cause
any officer or employee of the Company to register as a salesman in effecting
such registration, qualification, or compliance.
Registration Rights Agreement Page 3 of 14
<PAGE> 4
3. Piggyback Registration. Subject to the other provisions hereof,
if 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
fifteen (15) days after the date of any such notice by the Company, the Company
shall use all commercially reasonable efforts to cause to be included in such
registration under the 1933 Act all the Registrable Securities that each such
Holder has requested be registered. Subject to the limitations referred to in
Section 9(b) hereof, the decision not to include any Registrable Securities in
a registration under this Section 3 shall not constitute a waiver of Holder's
right to include his, her or its Registrable Securities in a subsequent
registration pursuant to this Section 3.
4. Obligations of the Company. Whenever required under this
Agreement to use all commercially reasonable efforts to effect the registration
of any Registrable Securities, the Company shall, as expeditiously as
reasonably possible:
(a) Prepare and file with the Commission a registration
statement covering such Registrable Securities and use all commercially
reasonable efforts to cause such registration statement to be declared
effective by the Commission as expeditiously as possible and to keep such
registration effective 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, however, that
the foregoing periods may be superseded (but in no event shortened) in an
underwriting agreement executed by the Company and the Holders with respect to
the registration of Demand Shares pursuant to Section 2(a) hereof, and
provided, further, that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company will furnish to each Holder
of Registrable Securities covered by such registration statement and the
underwriters, if any, copies of all such documents proposed to be filed
(excluding exhibits, unless any such person shall specifically request
exhibits), which documents will be subject to the review of such Holders and
underwriters. The Company agrees that it will not file such registration
statement or any amendment thereto or any prospectus or any supplement thereto
(including any documents incorporated by reference therein) with the Commission
if the information in such registration statement or prospectus concerning a
particular selling Holder has changed and such Holder or the underwriters, if
any, shall reasonably object; provided, that the Company may file and amend the
registration statement under this clause if it removes the Holder and any
incorrect or outdated information from the registration statement before such
filing or amendment.
(b) Prepare and file with the Commission such amendments
and post-effective amendments to such registration statement as may be
necessary to keep such registration statement effective during the period
referred to in Section 3(a) and to comply with the provisions of the 1933 Act
with respect to the disposition of all securities covered by such registration
statement, and cause the prospectus to be supplemented by any required
prospectus
Registration Rights Agreement Page 4 of 14
<PAGE> 5
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
included in such registration.
(d) Use all commercially reasonable efforts to register
and qualify the Registrable Securities under such other securities laws of such
jurisdictions as shall be reasonably requested by any selling Holder and do any
and all other acts and things which may be reasonably necessary or advisable to
enable such selling Holder to consummate the disposition of the Registrable
Securities owned by such Holder in such jurisdictions; provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to transact business or to file a general consent to service of
process in any such counties, states or jurisdictions; and provided further
that (anything in this Agreement to the contrary notwithstanding with respect
to the bearing of expenses) if any jurisdiction in which the Registrable
Securities shall be qualified shall require that expenses incurred in
connection with the qualification of the Registrable Securities in that
jurisdiction be borne by selling shareholders, then such expenses shall be
payable by the selling Holders pro rata, to the extent required by such
jurisdiction, including but not limited to filing fees and expenses of counsel
and other advisors and any commissions or discounts related to the registration
of Registrable Securities in such other jurisdictions.
(e) Promptly notify each selling Holder of such
Registrable Securities at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act of the happening of any event as a
result of which the prospectus included in such registration statement contains
an untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading and, at the request of any such Holder, the
Company will prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading.
(f) Provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement.
(g) Enter into such customary agreements (including
underwriting agreements in customary form for a secondary offering) and take
all such other actions as the Holders of a majority of the Registrable
Securities being sold or the underwriters, if any, reasonably request in order
to expedite or facilitate the disposition of such Registrable Securities
included in such registration.
(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
Registration Rights Agreement Page 5 of 14
<PAGE> 6
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 Holder, underwriter, attorney, accountant or agent in
connection with such registration statement.
(i) Promptly notify the Holders of Registrable Securities
and the underwriters, if any, of the following events and (if requested by any
such person) confirm such notification in writing: (1) the filing of the
prospectus or any prospectus supplement and the registration statement and any
amendment or post-effective amendment thereto and, with respect to the
registration statement or any post-effective amendment thereto, the declaration
of the effectiveness of such documents, (2) any requests by the Commission for
amendments or supplements to the registration statement or the prospectus or
for additional information, (3) the issuance or threat of issuance by the
Commission of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings for that purpose and (4) the
receipt by the Company of any notification with respect to the suspension of
the qualification of the Registrable Securities for sale in any jurisdiction or
the initiation or threat of initiation of any proceeding for such purpose.
(j) Cooperate with the selling Holders of Registrable
Securities and the underwriters, if any, to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold and
not bearing any restrictive legends, and enable such Registrable Securities to
be in such lots and registered in such names as the underwriters may request at
least two business days prior to any delivery of Registrable Securities to the
underwriters.
(k) Provide a CUSIP number for all Registrable Securities
not later than the effective date of the registration statement.
(l) Prior to the effectiveness of the registration
statement and any post-effective amendment thereto and at each closing of an
underwritten offering, (1) obtain "cold comfort" letters and updates thereof
from the Company's independent certified public accountants, such letters to be
in customary form and covering matters of the type customarily covered in "cold
comfort" letters to underwriters in connection with primary underwritten
offerings; (2) obtain an opinion of counsel to the Company, addressed to the
selling Holders and underwriters, in form and substance reasonably satisfactory
to the underwriters and including such matters as are customarily covered by
such opinions in underwritten public offerings; and (3) deliver such documents
and certificates as may be reasonably requested by the Holders of a majority of
the Registrable Securities being sold and by the underwriters, if any, to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company and such Holder.
(m) Cause all such Registrable Securities registered
pursuant to the terms hereof to be listed on each securities exchange on which
similar securities issued by the Company are then listed.
5. Termination of Registration. At any time before or after the
filing of a registration statement, the Company may, in its sole discretion,
abandon or terminate such registration
Registration Rights Agreement Page 6 of 14
<PAGE> 7
without the consent of the Holders with no liability to the Holders or any
third party arising therefrom, except to the extent otherwise provided herein.
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 reasonably request and as
shall be required or, in the opinion of the Company, reasonably necessary to
effect the registration of such Holder's Registrable Securities.
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 4(e) hereof or upon receipt of a
request from the managing underwriters to refrain from selling Registrable
Securities in such registration, such Holder will forthwith discontinue
disposition of Registrable Securities until such Holder's receipt of copies of
a supplemented or amended prospectus contemplated by Section 4(e) hereof, or
until it is advised in writing (the "Advice") by the Company that the use of
the prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in the prospectus,
and, if so directed by the Company, such Holder will deliver to the Company (at
the expense of the Company) all copies, other than permanent file copies then
in such Holder's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event the
Company shall give any such notice or in the event the Holders refrain from
selling any Registrable Securities in such registration at the request of the
managing underwriters of the Common Stock (or other securities) of the Company,
then, in each such case, the time periods mentioned in Section 4(a) hereof
shall be extended by the number of days during the period from and including
the date of the giving of such notice pursuant to Section 4(e) hereof (or the
date of any such underwriter's request) 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 4(e) hereof or the
Advice (or shall be notified by the underwriter that such Holder is permitted
to resume the sale of the Registrable Securities covered by such registration
statement).
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 4(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. Subject to
the terms of Section 2(c) hereof, if the managing underwriters advise the
Company in writing that, in their opinion, the number of securities requested
to be included in any such registration exceeds the number
Registration Rights Agreement Page 7 of 14
<PAGE> 8
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 holding registration rights senior in
priority to those granted under this Agreement, if any, and (3) third, 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, whether or not such selling shareholders have been given
registration rights by the Company, on the basis of the number of shares of
Common Stock owned by each selling shareholder. The priorities described in
this paragraph are subject to the rights of the Holders described in Section
2(c) with respect to a registration effected pursuant to Section 2(a).
(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 (whether or not
subject to applicable volume limitations thereunder).
(b) The Company shall not be obligated to register the
Registrable Securities of any Holder in connection with the proposed
registration if, within the six months prior to the time of such 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 ("Rule 144") 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:
(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 reporting requirements; and
(ii) furnish to any Holder so long as such Holder
owns any of the Registrable Securities forthwith upon request (A) a written
statement by the Company that it has complied with the reporting requirements
of Rule 144 and the 1934 Act (at any time for which it remains subject to such
reporting requirements), (B) a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed by the
Registration Rights Agreement Page 8 of 14
<PAGE> 9
Company and (C) such other information as may be reasonably requested by any
Holder in availing such Holder of any rule or regulation of the Commission
permitting the selling of any such securities without registration.
11. Lock-up Agreement. As a condition to the exercise of any
registration rights hereunder, each Holder hereby agrees in connection with any
registration of its Registrable Securities not to sell, make any short sale of,
pledge, grant any option for the purchase of or otherwise dispose of or reduce
its, his or her risk of ownership with respect to any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company or the underwriters, as the case may be, for 180 days
following the offering. Each Holder agrees to execute and deliver a lock-up
agreement (setting forth the above restrictions in greater detail) if requested
by the underwriters or the Company in connection with any offering of
Registrable Securities; provided that, all officers and directors of the
Company, and all other Persons with registration rights similar to those rights
of the Holders enter into similar lock-up agreements.
12. Put Right.
(a) If any Preferred Stock remains outstanding on or after
thirty (30) months' after the Original Issuance Date (as defined in the
Designations), each Holder of Preferred Stock shall have the right (the "Put
Right") to require the Company to purchase all (but not less than all) of the
shares of Preferred Stock then held by such Holder at a price equal to the
Stated Value (as defined in the Designations) per share, plus accrued but
unpaid dividends thereon (the "Purchase Price"), payable by the Company in
cash. The Purchase Price shall be adjusted appropriately to reflect stock
splits, dividends and other similar transactions as described in Subsection
(d)(5) of the Designations. Any Holder who desires to exercise a Put Right
shall deliver to the Company written notice of exercise of the Put Right and a
statement certifying the number of shares of Preferred Stock then owned by such
Holder (the "Exercise Notice").
(b) Provided the Holder exercises the Put Right in
accordance with Section 12(a) above, the Company shall set a date for purchase
which date must be within sixty (60) days after the receipt by the Company of
the Exercise Notice. On such purchase date, upon the receipt of documentation
from the Holder reasonably satisfactory to the Company, including properly
executed stock powers and written representations and warranties from such
Holder regarding (1) such Holder's ownership, free of all liens and
encumbrances, of the shares of Preferred Stock subject to the Put Right, (2)
such Holder's capacity and authority to sell the shares of Preferred Stock, and
(3) other representations and warranties reasonably required by the Company,
the Company shall pay to each Holder who exercises a Put Right an amount in
cash equal to the aggregate Purchase Price to which such Holder is entitled in
exchange for such Holder's shares of Preferred Stock.
13. 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 will
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
Registration Rights Agreement Page 9 of 14
<PAGE> 10
or liabilities, joint or several, to which they may become subject under the
1933 Act, the 1934 Act and/or applicable state securities laws insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based on any untrue or alleged untrue statement of any material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made 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 the Company will reimburse each such
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this Section 13(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, conditioned or delayed) nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that
it arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in connection with such
registration statement, preliminary prospectus, final prospectus, or amendments
or supplements thereto, in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
or on behalf of any such Holder or controlling person.
(b) To the full extent permitted by law, each Holder
requesting or joining in a registration under this Agreement will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls the
Company within the meaning of the 1933 Act, and any underwriter for the Company
(within the meaning of the 1933 Act), each other selling Holder and each
person, if any, who controls such other selling Holder within the meaning of
Section 15 of the 1933 Act against any losses, claims, damages or liabilities,
joint or several, to which the Company or any of the foregoing persons or
entities may become subject, under the 1933 Act, the 1934 Act and/or applicable
state securities laws, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were made,
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, underwriter, selling Holder or
controlling person of any of the foregoing in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 13(b) shall not
Registration Rights Agreement Page 10 of 14
<PAGE> 11
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, conditioned or delayed).
(c) Notwithstanding anything in this Section 13 to the
contrary, 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
net 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 13 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 13, notify the indemnifying
party in writing of the commencement thereof or knowledge thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
it would be inappropriate for the counsel representing the indemnifying party
to represent such indemnified parties due to actual or potential differing
interests between such indemnified party and any other party represented by
such counsel in such proceeding (such as the availability of defenses to one or
more but not all such 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 or its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 13, 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 13.
14. Remedies. In addition to being entitled to exercise all rights
provided in this Agreement and the Purchase 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.
15. Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of
Holders of at least a majority of the outstanding Registrable Securities,
voting together as a single class.
16. 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:
Registration Rights Agreement Page 11 of 14
<PAGE> 12
(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 16, which address initially is, with respect to the
Shareholders, the address set forth in the Purchase Agreement, with a copy
(which shall not constitute notice) to the Shareholders' respective counsel as
identified therein; and
(b) if to the Company, initially at its address set forth
in the Purchase Agreement and thereafter at such other address, notice of which
is given in accordance with the provisions of this Section 16, with a copy
(which shall not constitute notice) to the Company's counsel as identified in
the Purchase Agreement.
(c) All such notices and communications shall be deemed to
have been duly given or made when personally delivered, the day of guaranteed
delivery by such overnight courier service or when transmitted to the specified
telecopy number and confirmed by telephone, in each case addressed to the
respective parties as set forth above.
17. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
18. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
19. 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.
20. Arbitration. In the event of a dispute in which the parties
involved cannot reach agreement, the dispute shall be submitted to and settled
by arbitration in accordance with the then prevailing commercial arbitration
rules of the American Arbitration Association. Such arbitration shall be held
in a mutually acceptable locale (other than Los Angeles, California or Atlanta,
Georgia) before a panel of three (3) arbitrators, one selected by each of the
parties and the third selected by mutual agreement of the first two, and all of
whom shall be independent and impartial under the rules of the American
Arbitration Association. The decision of the arbitrators shall be final and
binding as to any matter submitted under this Agreement.
21. 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.
22. Entire Agreement. This Agreement (together with the Purchase
Agreement and such other agreements as specifically referred to in the Purchase
Agreement) is intended by the parties as a final expression of their agreement
and intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, warranties or undertakings, other
Registration Rights Agreement Page 12 of 14
<PAGE> 13
than those set forth or referred to herein with respect to the registration
rights granted by the Company with respect to any Registrable Securities held
by the Holders. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
23. No Assignment; Parties Benefited. None of the Parties may assign
its rights, duties or obligations under this Agreement without the express
written consent of the other Parties; provided, however, that the Company may
assign this Agreement to an affiliated company or the purchaser of all or
substantially all of the Company's assets provided such purchaser or affiliated
company (1) has a class of securities traded on a national securities exchange
or the Nasdaq National Market, (2) is a reporting Company which is current in
filing all required reports under the 1934 Act and (3) agrees in writing, a
copy of which is delivered to the Holders at least five (5) business days'
prior to such assignment, to assume the Company's obligations hereunder; and
provided, further, that the rights and obligations of the original Holders
under Section 3 may be transferred from such original Holders to the purchaser
of at least 20% of all Registrable Securities outstanding on the date of this
Agreement, provided such purchaser (1) is not engaged in a business which is
competitive with the Company's business in any material respect, (2) agrees in
writing to be bound by the terms and conditions hereof and (3) the Holders
provide at least five (5) business days' advance written notice to the Company
of such assignment, including the identity of the purchaser. Any attempted
assignment outside the foregoing provisos without the written consent of the
non-assigning party 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 begin on next page]
Registration Rights Agreement Page 13 of 14
<PAGE> 14
The Parties have executed this Registration Rights Agreement as of the
date first above written.
"Company"
Netzee, Inc.
/s/ Glenn W. Sturm
-----------------------------------
By: Glenn W. Sturm
-------------------------------
Title: Chief Executive Officer
----------------------------
"Seller"
DPSC Software, Inc.
/s/ Bruce Gall
-----------------------------------
By: Bruce Gall
Title: President
"Shareholders"
Gall Family Trust
By: /s/ Norma Gall, Trustee
-------------------------------
Norma Gall, Trustee
By: /s/ Bruce Gall, Trustee
-------------------------------
Bruce Gall, Trustee
/s/ Bruce Gall
-----------------------------------
Bruce Gall
/s/ Kristen Gall
-----------------------------------
Kristin N. Gall
/s/ James H. Jones
-----------------------------------
James H. Jones
/s/ Kenneth Lemoine
-----------------------------------
Kenneth Lemoine
/s/ David F. Potter
-----------------------------------
David F. Potter
/s/ Charles Stephens
-----------------------------------
Charles Stephens
/s/ Phillip Templer
-----------------------------------
Phillip Templer
Registration Rights Agreement Page 14 of 14
<PAGE> 1
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made by and between
Netcal, Inc., a Georgia corporation (the "COMPANY"), and Bruce Gall, an
individual resident of the State of California (the "EMPLOYEE"), as of the 15th
day of December, 1999. Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to such terms in the Purchase Agreement.
WHEREAS, the Employee has been employed by DPSC Software, Inc., a
California corporation ("SELLER"); and
WHEREAS, pursuant to an Asset Purchase Agreement dated as of December
__, 1999 (the "PURCHASE AGREEMENT"), by and among the Seller, the Company,
Netzee, Inc., a Georgia corporation ("PARENT"), and the Shareholders of the
Seller, Seller is selling substantially all of its assets to Purchaser; and
WHEREAS, following the transactions contemplated by the Purchase
Agreement, the Company will employ the Employee; and
WHEREAS, the Employee is willing to serve the Company on the terms and
conditions herein provided; and
WHEREAS, the Purchase Agreement provides that it is a condition
precedent to the obligations of the parties to the Purchase Agreement to
consummate the transactions contemplated by the Purchase Agreement that the
Company and the Employee shall have entered into this Agreement.
NOW THEREFORE, in consideration of the foregoing, and the mutual
premises and covenants and agreements contained herein and subject to the
conditions contained herein, the parties agree as follows:
ARTICLE I - EMPLOYMENT TERMS
Section 1.1 Employment. The Company shall employ the Employee, and
the Employee shall serve the Company, as its President upon the terms and
conditions set forth herein. The Employee shall report to the Parent's Chief
Executive Officer and to the Board of Directors of the Company. The Employee
shall have such authority and responsibilities consistent with his position
with DPSC Software, Inc., immediately prior to the Effective Time and as
assigned by the Chief Executive Officer of the Parent from time to time
reasonably consistent with the Employee's title and commonly incident to the
Employee's position, including executive responsibilities for the financial
condition and operating results of the Company, mergers and acquisitions
activity for the Parent and the Company and bank-level strategic relationship
development and maintenance for the Parent and the Company. The Employee shall
devote his full business time, attention, skill and efforts to the performance
of his
<PAGE> 2
duties hereunder, except during periods of illness or periods of vacation and
leaves of absence consistent with Company policy, as amended from time to time.
The Employee may 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 in conflict
or competitive with, or adverse to, the interests of the Company. For purposes
of this Section 1.1, the Company acknowledges and agrees that Employee's
ownership of not more than five percent (5%) of the outstanding common stock of
a publicly-traded company shall not be deemed to violate the terms hereof.
Section 1.2 Term. Unless earlier terminated as provided herein,
the term of Employee's employment ("TERM") under this Agreement shall be for a
period beginning on the date hereof and continuing until December 31, 2000 and
shall thereafter automatically renew for additional periods of one year unless
either party provides notice of non-renewal at least 60 days prior to the
expiration of the then-current Term.
Section 1.3 Compensation and Benefits.
(a) The Company shall pay the Employee a salary at a rate of
$150,000 per annum in accordance with the salary payment practices of the
Company. In addition, the Employee shall be paid an earnout payment related to
the transactions contemplated in the Purchase Agreement of $150,000 if the
Company's net revenues for the calendar year ended December 31, 2000 equal or
exceed $5.5 million. Any earnout payment which is earned under the foregoing
shall be paid to Employee on or before April 15, 2001. The Employee's base
salary shall be adjusted by applicable cost of living increases as reported by
the federal government from year to year. The Chief Executive Officer of the
Company may recommend to the Board of Directors of the Company additional
increases in Employee's base salary or other bonus compensation if such officer
determines in his discretion that an increase or additional bonus is
appropriate.
(b) The Employee shall be entitled to participate in all
retirement, life and health insurance, disability and other similar benefit
plans or programs of the Company or the Parent now or hereafter available to
the Employee or available generally to employees of the Parent and its
subsidiaries in comparable positions; provided, however, that during any period
during the Term that the Employee is disabled, and during the 120-day period of
physical or mental infirmity leading up to the Employee's Disability, the
amount of the Employee's compensation provided under this Section 1.3 shall be
reduced by the sum of the amounts, if any, paid to the Employee for the same
period under any disability benefit or pension plan of the Company, Parent or
any of their subsidiaries; provided that, no such credit or deduction shall be
made with respect to any disability payments or benefits received by Employee
under disability policies paid for by him; or (v) is required to be disclosed
pursuant to judicial order or other appropriate judicial process.
(c) The Company shall reimburse the Employee for all reasonable
ordinary and necessary travel, seminar and other expenses related to the
Employee's duties which are incurred and accounted for in accordance with the
reimbursement practices of the Company.
2
<PAGE> 3
(d) Employee shall be entitled to four (4) weeks paid vacation
annually during the Term of employment by the Company hereunder.
(e) Employee shall be nominated as a member of the Board of
Directors of the Company, which shall serve as the executive management
committee for the Company. Upon termination of Employee's employment with the
Company for any reason, Employee shall be deemed to resign, automatically and
with no further action required, as a director of the Company.
ARTICLE II - COVENANTS OF EMPLOYEE
Section 2.1 Confidentiality. Employee recognizes the interest of
the Company in maintaining the confidential nature of its proprietary and other
business and commercial information. In connection therewith, Employee
covenants that during the term of his employment with the Company under this
Agreement, and for a period of two (2) years thereafter, Employee shall not,
directly or indirectly, except as authorized by the Company's Board of
Directors, publish, disclose or use for his own benefit or for the benefit of a
business or entity other than the Company or otherwise, any secret or
confidential matter, or proprietary or other information not in the public
domain that was acquired by Employee during his employment, relating to the
Company's, Parent's or any of its or their subsidiaries' businesses,
operations, customers, suppliers, products, employees, financial affairs or
industry practices, technology, know-how or intellectual property or other
similar information (the "PROPRIETARY INFORMATION"). Proprietary Information
does not include information that: (i) is filed with the SEC and which is not
subject to a request for confidential treatment made to the SEC or any other
government agency or authority; (ii) becomes generally available to the public
other than as a result of an improper disclosure by the Employee; (iii) was
available to the Employee prior to its disclosure to the Employee (provided the
Employee has no knowledge that such information was obtained, directly or
indirectly, from a source that was bound by a confidentiality agreement with or
other obligation of secrecy to the Parent, the Company, or their
representatives); (iv) becomes available to the Employee, directly or
indirectly, from a source other than the Parent, the Company, or their
representatives or employees, provided that such source is not known by the
Employee to be bound by a confidentiality agreement with or other obligation of
secrecy to the Parent, the Company or their representatives or affiliates; or
(v) is required to be disclosed pursuant to judicial order or other appropriate
judicial process.
Employee will abide by the Company's and Parent's lawful policies and
regulations, as established from time to time by the boards of directors of
Parent and/or Company, for the protection of its Proprietary Information.
Employee acknowledges that all records, files, data, documents and the like
relating to suppliers, customers, costs, prices, systems, methods, personnel,
technology and other materials relating to the Company, Parent or their
affiliated entities shall be and remain the sole property of the Company,
Parent and/or such affiliated entity and shall, upon the request of the Company
or Parent, turn over all copies of such Proprietary Information to the Company
or Parent (together with a written statement certifying as to his compliance
with the foregoing).
3
<PAGE> 4
Section 2.2 Non-Solicitation of Customers. During the Term, and
for a period of two (2) years thereafter, Employee shall not directly or
indirectly, through one or more intermediaries or otherwise, solicit or attempt
to solicit Customers, to induce or encourage them to acquire or obtain from
anyone other than the Company or Parent, services competitive with, substitute
for or similar to any Company Services. For purposes of this Section, a
"CUSTOMER" refers to any person, group of persons or entity with whom Employee
has or had direct material contact with regard to selling, maintenance,
delivery or support of Company Services, including servicing such person's,
group's or entity's account, during the period of one (1) year preceding the
date hereof (it being presumed that, because of Employee's position as a senior
officer with the Company, all customers of the Company at any time during the
one (1) year period prior to the date hereof constitute Customers); and
"COMPANY SERVICES" refers to the services that the Company performed, offered
or sold within six (6) months prior to the date hereof. Related Person may, if
such Related Person reasonably believes a Company Service is no longer offered
by the Company, request a written acknowledgement by Company to the effect that
such Company Service is, in fact, no longer offered by the Company (which
acknowledgement shall not be unreasonably withheld, conditioned or delayed)
and, upon receipt of such acknowledgement from the Company, Related Person
shall not be restricted under this Section 1.2 with respect to the Company
Service (and only that Company Service) for which such written acknowledgement
by Company is made.
Section 2.3 Non-Solicitation of Employees. During the Term and for
a period of two (2) years thereafter, Employee shall not, directly or
indirectly, through one or more intermediaries or otherwise, induce, solicit
for employment, or assist others in inducing or soliciting for employment any
individual who is at any time during such period an employee of the Company,
Parent or any of their subsidiaries for the purpose of providing services that
are the same or similar to the Company.
Section 2.4 Trade Secrets. Employee shall not, at any time, use or
disclose any Trade Secrets (as defined under applicable law) of Company,
Parent, or any of their subsidiaries, except in fulfillment of his duties as an
employee of the Company, Parent or any affiliate thereof, for so long as the
pertinent information or data remain Trade Secrets, whether or not the Trade
Secrets are in written or tangible form.
Section 2.5 Rights to Work Product. Except as expressly provided
in this Agreement, the Company alone shall be entitled to all benefits, profits
and results arising from or incidental to Employee's Work Product (as defined
below). To the greatest extent possible, any work product, property, data,
documentation or information or materials prepared, conceived, discovered,
developed or created by Employee in connection with performing his employment
responsibilities during the term (including the term of employment with DPSC
Software, Inc.) ("WORK PRODUCT") shall be deemed to be "work made for hire" as
defined in the Copyright Act, 17 U.S.C.A. ss. 101 et seq., as amended, and
owned exclusively and perpetually by the Company. The Company acknowledges that
Employee shall be entitled to use his general knowledge and "know-how," subject
to the limitations and restrictions set forth in this Agreement. Employee
hereby unconditionally and irrevocably transfers and assigns to the Company all
intellectual property or other rights, title and interest Employee may
currently have (or in the future may
4
<PAGE> 5
have) by operation of law or otherwise in or to any Work Product. Employee
agrees to execute and deliver to the Company any transfers, assignments,
documents or other instruments which the Company may deem necessary or
appropriate to vest complete and perpetual title and ownership of any Work
Product and all associated rights exclusively in the Company. The Company shall
have the right to adapt, change, revise, delete from, add to and/or rearrange
the Work Product or any part thereof written or created by Employee, and to
combine the same with other works to any extent, and to change or substitute
the title thereof, and in this connection Employee hereby waives the "moral
rights" of authors as that term is commonly understood throughout the world
including, without limitation, any similar rights or principles of law which
Employee may now or later have by virtue of the law of any locality, state,
nation, treaty, convention or other source. Unless otherwise specifically
agreed, Employee shall not be entitled to any compensation in addition to that
provided for in Section 1 of this Agreement for any exercise by the Company of
its rights set forth in this Section 2.
Section 2.6 Reasonableness of Covenants. Employee agrees and
acknowledges that the covenants contained herein are a part of this Agreement,
are given as of the date of this Agreement and are given in consideration of
his continuing employment with the Company. Employee also acknowledges that
Parent and the Company have a legitimate present and future expectation of
business within the geographic areas presently served by the Company. Employee
acknowledges the reasonableness of the term and scope of the covenants set
forth in this Agreement, and agrees that he will not, in any action, suit or
other proceeding, deny the reasonableness of, or assert the unreasonableness
of, the premises, consideration or scope of the covenants set forth herein.
Employee further acknowledges that complying with the provisions contained in
this Agreement will not preclude him from engaging in a lawful profession,
trade or business, or from becoming gainfully employed in such a way as to
provide a standard of living for himself, the members of his family, and those
dependent upon him of the sort and fashion to which he and they have become
accustomed and may expect.
ARTICLE III - TERMINATION OF EMPLOYMENT
Section 3.1 Termination by Company. Employee's employment may be
terminated by the Company prior to the expiration of the then-current Term by
giving notice during the Term of this Agreement upon the occurrence of one or
more of the following events:
(a) employee's death or disability which renders Employee
incapable of performing his duties for more than one hundred twenty (120)
calendar days within any period of twelve (12) consecutive months;
(b) "FOR CAUSE", which for purposes of this Agreement shall
mean that the Employee shall have:
(i) committed an act of fraud, embezzlement or theft
in connection with his duties or in the course of his employment with the
Company;
5
<PAGE> 6
(ii) inflicted material damage to the Company, Parent
or their subsidiaries or any material asset of the Company or Parent;
(iii) intentionally or in bad faith violated this
Agreement;
(iv) subject to applicable state laws, been indicted
for or convicted of a felony or any similar crime carrying a prison term of at
least one year (regardless of whether imprisonment is actually imposed);
(v) a habitual and debilitating use of alcohol or
drugs; or
(vi) failed to meet performance objectives, as
reasonably determined and articulated by the Company's Chief Executive Officer
and furnished to Employee a reasonable period of time before his performance is
to be judged hereunder; provided, however, that in the event of this subsection
(vi) being the sole reason for a termination for Cause, Employee shall have the
cure provisions and rights provided for in paragraph (c) hereof.
(c) In the event of a good faith determination by the Company's
Chief Executive Officer that the Employee has failed to meet performance
objectives, the Company shall furnish to the Employee in writing a notice of
proposed termination setting forth a specific statement of the deficiencies in
his performance. The Employee shall then have a period of thirty (30) days, or
such longer period as is determined by the Company's Chief Executive Officer,
after the giving of such written notice of proposed termination by the Company
in which to attempt to effect a cure of the specified deficiencies. If at the
end of such period no such cure has been effected to the reasonable
satisfaction of the Company's Chief Executive Officer, then the Employee's
employment may be terminated as of the end of such period. The Company shall be
obligated to provide to the Employee only one such notice of proposed
termination, and if subsequent to effecting a cure of specified deficiencies
the Employee is determined by the Company's Chief Executive Officer to have
again failed to meet performance expectations, then his employment may be
terminated immediately upon the Company's giving of a final notice of
termination to the Employee.
Section 3.2 Termination Without Cause. If the Employee's
employment is terminated prior to the end of the then-current Term without
Cause, the Employee shall be entitled to his then current salary plus the
bonus, if any, to which he would be entitled pursuant to Section 1.3(a) for the
period that would remain under this Agreement if the Employee's employment was
not terminated without Cause; for purposes of the bonus calculations, the net
revenues of the Company as of the date on which termination occurs shall be
annualized for such year. Such severance amounts shall be paid to the Employee
at regular payroll intervals, except that the bonus, if any, will be paid
within 10 days following its calculation by the Chief Financial Officer of the
Company.
6
<PAGE> 7
ARTICLE IV - GENERAL PROVISIONS
Section 4.1 Withholding of Taxes. The Company may withhold from
any amounts payable under this Agreement all federal, state, city or other
taxes and withholdings as shall be required pursuant to any applicable law,
rule or regulation.
Section 4.2 Death or Disability of Employee. If the Employee
should die or become disabled during the term of this Agreement, the unpaid
portion of the salary hereunder shall be paid as a death benefit or disability
benefit, as the case may be, either (i) in a lump sum payment or (ii) over the
remaining term of this Agreement, at the sole option of the Company.
Section 4.3 Notice. For purposes of this Agreement, all
communications including, without limitation, notices, consents, requests or
approvals, provided for herein shall be in writing and shall be deemed to have
been duly given when personally delivered or five (5) business days after
having been mailed by United States registered mail or certified mail, return
receipt requested, postage prepaid, addressed to the Company (to the attention
of the Chief Executive Officer of the Company) at Parent's principal office or
to Employee at his principal residence, or to such other address as any party
may have furnished to the other in writing and in accordance herewith, except
the notices of change of address shall be effective only upon receipt.
Section 4.4 Validity. It is not the intent of any party hereto to
violate any public policy of any jurisdiction in which this Agreement may be
enforced. If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable
or otherwise illegal, the remainder of this Agreement and the application of
such provision to any other person or circumstances shall not be affected, and
the provision so held to be invalid, unenforceable or otherwise illegal shall
be reformed to the extent (and only to the extent) necessary to make it valid,
enforceable and legal; provided, however, if the provision so held to be
invalid, unenforceable or otherwise illegal constituted a material inducement
to a party's execution and delivery of this Agreement, then such provision
shall not be reformed unless prior to any reformation that party agrees to be
bound by the reformation.
Section 4.5 Entire Agreement. This Agreement and the Purchase
Agreement, and the agreements referenced therein supersede any other
agreements, oral or written, between the parties with respect to the subject
matter hereof, and contains all of the agreements and understandings between
the parties with respect to the employment of Employee by the Company. Any
waiver or modification of any term of this Agreement shall be effective only if
it is set forth in a writing signed by both parties hereto.
Section 4.6 Successors and Binding Agreement.
(a) This Agreement shall be binding upon and inure to the
benefit of the Company and any Successor of or to the Company, but shall not
otherwise be assignable or delegable by the Company. "SUCCESSOR" shall mean any
successor in interest, including, without limitation, any entity, individual or
group of persons acquiring directly or indirectly all or substantially all of
the
7
<PAGE> 8
business or assets of the Company, as the case may be, whether by sale,
merger, consolidation, reorganization or otherwise.
(b) The Company shall require any Successor to agree at the
time of becoming a Successor to perform this Agreement to the same extent as
the original parties would be required if no succession had occurred.
(c) This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives, executors,
administrators, heirs, distributee and legatees.
(d) This Agreement is personal in nature and neither of the
parties shall, without the consent of the other, assign, transfer or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in this Section 4.6.
Section 4.7 Captions. The captions in this Agreement are solely
for convenience of reference and shall not be given any effect in the
construction or interpretation of this Agreement.
Section 4.8 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same Agreement.
Section 4.9 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 Employee
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.
Section 4.10 Governing Law; Arbitration. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of California without giving effect to the conflict of laws principles thereof.
Any controversy, claim or dispute arising out of or relating to this Agreement,
or any breach thereof, including without limitation any dispute concerning the
scope of this arbitration clause, shall be settled by arbitration in accordance
with the rules of the American Arbitration Association. Any such arbitration
award may include an award for reasonable attorneys' fees and out-of-pocket
expenses incurred by the prevailing party. The parties indicate their
acceptance of the foregoing arbitration requirement by initialing below:
/s/ Richard S. Eiswirth /s/ Bruce Gall
- ------------------------------- -----------------------------
For the Company Employee
Section 4.11 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.
8
<PAGE> 9
Section 4.12 Prior Agreements Superseded. This Agreement shall not
be effective unless and until the Closing occurs. As of the Closing, this
Agreement shall replace and supersede any and all prior agreements between the
Employee and the Seller or the Company or the Parent, whether written or oral,
in their entirety and such prior agreements shall be of no further force or
effect; provided, however, that the parties acknowledge that their duties and
obligations under this Agreement are in addition to, and not in substitution
for, their duties and obligations under the Non-Solicitation, work Product and
Confidentiality Agreement of even date herewith.
Section 4.13 Execution by Facsimile. Any party may deliver an
executed copy of this Agreement and any documents contemplated hereby by
facsimile transmission to another party, and such delivery shall have the same
force and effect as any other delivery of a manually signed copy of this
Agreement or of such documents.
9
<PAGE> 10
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and its seal to be affixed hereunto by its officers thereunto duly
authorized, and the Employee has signed and sealed this Agreement, effective as
of the date first above written.
NETCAL, INC.
ATTEST:
By: By: /s/ Richard S. Eiswirth
------------------------------ ------------------------------
Name: Name: Richard S. Eiswirth
Title: Title: CFO and V.P.
(CORPORATE SEAL)
EMPLOYEE
/s/ Bruce Gall
----------------------------------
Name: Bruce Gall
10
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