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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
FORM 10-K/A
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 0-27925
NETZEE, INC.
(Exact name of registrant as specified in its charter)
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GEORGIA 58-2488883
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6190 POWERS FERRY ROAD, SUITE 400 30339
ATLANTA, GEORGIA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (770) 850-4000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
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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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant as of March 20, 2000 was: $182,876,635.
The number of shares of Netzee, Inc. common stock outstanding as of March
20, 2000 was 21,705,083.
Documents incorporated by reference: None.
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INDEX
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PART I:
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 16
Item 3. Legal Proceedings........................................... 17
Item 4. Submission of Matters to a Vote of Security Holders......... 17
PART II:
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 17
Item 6. Selected Financial Data..................................... 21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 24
Item 7A. Qualitative and Quantitative Disclosures Regarding Market
Risk........................................................ 40
Item 8. Financial Statements and Supplementary Data................. 40
Item 9. Disagreements on Accounting and Financial Disclosure........ 40
PART III:
Item 10. Directors and Executive Officers of the Registrant.......... 41
Item 11. Executive Compensation...................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 49
Item 13. Certain Relationships and Related Transactions.............. 50
PART IV:
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 54
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EXPLANATORY NOTE
We have filed this amendment to our Form 10-K pursuant to the SEC's
requirements primarily in order to include information in Part III of this Form
10-K that, pursuant to General Instruction H to the Form 10-K, has been omitted.
We will not file our proxy statement by May 1, 2000, as required by General
Instruction H for incorporation of Part III information into the Form 10-K from
the proxy statement. All other information in this Form 10-K/A is substantially
identical to that contained in the Form 10-K that we filed with the SEC on March
29, 2000.
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
This Form 10-K contains statements which constitute forward-looking
statements within the meaning of 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
Netzee, Inc. and our management. The words "may," "will," "anticipate,"
"believe," "intend," "expect," "estimate," "plan," "strategy" and similar
expressions are intended to identify forward-looking statements. These
statements are based upon a number of assumptions and estimates that are subject
to significant uncertainties, many of which are beyond our control. These
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 our brief operating history and our
ability to achieve or maintain profitability; the integration of acquired assets
and businesses; our ability to achieve, manage or maintain growth and execute
our business strategy successfully; our dependence on developing, testing,
implementing, and our ability to successfully market and sell, enhanced and new
products and services; risks associated with possible system failures and rapid
changes in technology; our ability to retain existing customers and execute
agreements with new customers; our ability to sell our products and services to
financial institution customers and their customers; our ability to respond to
competition; the volatility associated with Internet-related companies; and
various other factors discussed in detail in this Form 10-K and our other
filings with the Securities and Exchange Commission, including the risks
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors That May Affect Our Future Results of
Operations or Financial Condition." We do not undertake any obligation to update
or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or future operating results.
GENERAL
Our mission is to offer Internet products and services that meet the retail
and wholesale needs of community financial institutions in the United States
with assets of less than $10 billion. As of December 31, 1999, we had
relationships to provide our products and services to over 7,000 community
financial institutions. As of December 31, 1999, we had over 700 interactive
customers, which are institutions under contract to utilize one or more of our
Internet or voice response products and services. More than 450 customers have
contracted for one or more of our Internet products, and more than 350 of these
customers were implemented as of year-end 1999.
We provide a retail suite of integrated Internet banking products and
services and Internet commerce solutions to community financial institutions.
The retail suite provides cost-effective, outsourced, secure and scalable
Internet banking and commerce solutions that enable community financial
institutions to offer to their customers a wide array of financial products and
services over the Internet. These products and services are branded with the
financial institution's own name and contain each institution's logo, colors and
other distinctive branding characteristics. This branded solution enables
community financial institutions to provide their customers with the convenience
of Internet banking without losing the personal relationship and service
associated with the local community financial institution.
Complementing this retail suite, we offer to community financial
institutions custom web site design, implementation and marketing services,
telephone banking products and Internet access services. Our broad
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range of products and services are designed to enable a community financial
institution to compete effectively with the services offered by both larger and
Internet-based financial institutions.
Our Internet commerce product, Banking on Main Street(TM), enables a
community financial institution to place its business customers on the Internet
through the creation of individualized web sites. Links to these web sites are
incorporated into the community financial institution's home page. The community
financial institution's web site, therefore, becomes a central Internet
marketplace where consumers and businesses may conduct banking and Internet
commerce transactions, where local businesses may sell their products and
services, and where national vendors may access this entire group of customers,
all under the trusted brand name of the community financial institution.
Beginning in December 1999, we began to market and sell a wholesale group
of products and services that helps fulfill the operational needs and regulatory
requirements of financial institutions. Our wholesale suite of products and
services enables financial institutions to create internal efficiencies and
provides employees with information to better manage banking operations. These
applications provide for:
- streamlined electronic regulatory reporting;
- Internet-based bond portfolio and asset/liability management analytic
tools; and
- access to key information and services from various providers of
financial information via the Internet.
With respect to our retail suite of products and services, we currently
earn substantially all of our revenues from recurring monthly service fees, flat
monthly per user fees and per transaction charges. With respect to our wholesale
suite of products and services, we earn substantially all of our revenues from
annual, quarterly and monthly subscription fees paid by financial institutions
who use these applications. We expect to derive little or no revenue from
up-front software or implementation fees.
We are focused on increasing our community financial institution customer
base, expanding relationships with our existing community financial institution
customers, and increasing the penetration of our products and services with
community financial institution customers.
FORMATION OF NETZEE
Netzee was formed as a Georgia corporation in August 1999 to be merged with
Direct Access Interactive, Inc. ("Direct Access" or the "Predecessor"), a
company that was formed in October 1996 to provide Internet and telephone
banking products and services. The InterCept Group, Inc. ("InterCept") acquired
Direct Access as a wholly-owned subsidiary in March 1999. InterCept currently
owns approximately 35% of our common stock.
In August 1999, Direct Access acquired SBS Corporation ("SBS") in a merger.
Immediately after the merger, Direct Access sold all of the assets of SBS, other
than its Internet and telephone banking assets, to InterCept. Based in
Birmingham, Alabama, SBS provided automated technology products and services,
including Internet and telephone banking systems, to community financial
institutions nationwide.
In September 1999, Direct Access was merged into Netzee, with Netzee being
the surviving corporation. On that same day, Netzee acquired the Internet
banking divisions of each of TIB The Independent BankersBank ("TIB"), a Texas
state chartered and Federal Reserve member bank, and The Bankers Bank, a Georgia
state chartered and Federal Reserve member bank. A "bankers' bank" is a bank
that exclusively serves and is owned by other financial institutions.
In September 1999, Netzee also acquired all of the ownership interests in
Call Me Bill, LLC ("Call Me Bill"). Based in Elizabethtown, Kentucky, Call Me
Bill provides 24-hour electronic bill payment services to financial
institutions' customers. We have integrated these services into our Internet
banking solution.
In September 1999, Netzee also acquired Dyad Corporation ("Dyad"). Based in
Norcross, Georgia, Dyad developed proprietary loan application, approval and
fulfillment software that is being integrated into our Internet banking
solution.
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In December 1999, a wholly-owned subsidiary of Netzee acquired certain of
the assets and liabilities of DPSC Software, Inc. ("DPSC"). Located near Los
Angeles, California, DPSC provided regulatory reporting and support applications
designed to meet the needs of community financial institutions. As of December
15, 1999, DPSC had over 7,000 financial institutions as customers.
RECENT ACQUISITION
In March 2000, Netzee completed the acquisition of substantially all of the
assets of Digital Visions, Inc. ("DVI"). Based in Minneapolis, Minnesota, DVI
provided Internet-based financial information tools for community financial
institutions. As consideration for this acquisition, we issued 838,475 shares of
common stock. We also issued options to purchase 70,419 shares of common stock
in exchange for the cancellation of options to purchase DVI common stock. In
addition, we assumed approximately $4.5 million in liabilities. DVI also has the
right to receive up to 628,272 additional shares of our common stock if certain
revenue targets are met in fiscal years 2000 and 2001.
INDUSTRY OVERVIEW
The Internet and E-Commerce
The Internet has emerged as the fastest growing global communications and
transactional medium in history and is dramatically changing the way people and
businesses share information and conduct commerce. International Data
Corporation, a leading provider of research for the information technology
industry, estimates that the number of Internet users worldwide will increase
from approximately 142 million in 1998 to 502 million by 2003, a compound
average growth rate of approximately 29%. This growth is being driven by a
number of factors, including:
- an expanding base of personal computers in the home and workplace;
- an increasing general awareness of the Internet and e-commerce among
consumer and business users;
- improvements in network and communications infrastructure and security;
- easier, faster and less expensive access to the Internet and commercial
on-line services; and
- the introduction of alternative Internet-enabled devices, such as
televisions and hand-held computers.
Businesses have also embraced the Internet as an important means of
communicating and conducting transactions. Many companies' web sites are
interactive and transaction-based, enabling them to provide a wide range of
e-commerce applications. International Data Corporation estimates that revenue
from business to consumer e-commerce will increase from approximately $15
billion in 1998 to more than $177 billion in 2003, a compound annual growth rate
of approximately 64%. International Data Corporation estimates that revenue from
business to business e-commerce will increase from approximately $35 billion in
1998 to more than $1.1 trillion in 2003, a compound annual growth rate of
approximately 100%.
Internet Banking
Consumers, businesses and financial institutions are recognizing that the
Internet is a powerful and efficient medium for the delivery of banking
services. These services include Internet banking, bill payment, bill
presentment and other services for individuals, and cash management, payroll and
other services for the commercial customers of financial institutions. Consumers
and small businesses are increasing their demand for Internet banking as a
convenient and cost-effective method to monitor financial accounts and transact
business 24 hours a day, seven days a week. Additionally, unlike personal
computer banking, which requires users to load specialized software onto their
computers, Internet banking provides the flexibility to perform a wide range of
transactions from any personal computer or Internet-enabled device delivered
through a browser. International Data Corporation estimates that there were
approximately 8 million users banking over the Internet in the United States at
the end of 1998, and projects that the number will increase to approximately 40
million by 2003, a compound annual growth rate of approximately 38%.
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In addition to customer demand, financial institutions are motivated to
provide Internet banking solutions to retain existing customers, attract new
customers, provide additional non-interest sources of revenues and reduce costs.
International Data Corporation also estimates the number of financial
institutions offering on-line banking services will increase from 1,150 in 1998
to 15,845 by 2003, and that these services will be offered primarily via the
Internet. Financial institutions have been faced with the loss of their
traditional customer bases due, in part, to customer demand for comprehensive
financial services from a single provider. The Internet provides the platform to
market traditional banking products and services and the flexibility to expand
into non-traditional banking services, such as brokerage services, insurance and
bill presentment. Internet banking also allows a financial institution to
collect and analyze customer data for use in targeted marketing programs.
Internet Banking for Community Financial Institutions
According to Online Banking Report, over 50% of the 100 largest banks in
the United States offer Internet banking. By contrast, only approximately 5% of
community financial institutions in the United States currently offer Internet
banking. According to the Federal Deposit Insurance Corporation (the "FDIC") and
the National Credit Union Administration, there are approximately 8,540 banks,
1,630 thrifts and 10,750 credit unions in the United States with assets of less
than $10 billion each. As a result of the adoption of Internet banking services
by their larger competitors and the growth of e-commerce, community financial
institutions are under increasing pressure to offer Internet-based home and
business banking services. Community financial institutions realize that if
their product and service offerings are inadequate, they risk losing customers
to larger institutions, Internet-only banks, investment and brokerage companies,
retailers, insurance companies or locally competitive community financial
institutions that offer these services.
Community financial institutions face many hurdles in providing a
comprehensive Internet banking solution to their retail and business banking
customers. In particular, competition from other bank and non-bank financial
institutions has eroded profit margins and has forced community financial
institutions to focus on reducing non-interest related costs. Therefore, these
institutions often lack the capital and human resources to develop and maintain
the necessary technology and infrastructure, to design in-house, on-line banking
services, and to provide integrated customer support for their on-line banking
services.
Because of these capital and human resources constraints, we believe that
many community financial institutions require a low-cost, outsourced
Internet-based banking solution. This solution must be implemented rapidly and
cost-effectively and must interface with the institution's existing core
processing system. A community financial institution's Internet banking system
must be secure, reliable and scalable. In addition, the Internet solution must
provide the flexibility to add new products and services such as e-commerce and
other non-traditional banking service offerings.
THE NETZEE SOLUTION
We provide products and services that fulfill the retail and wholesale
needs of community financial institutions. Our retail suite provides Internet
banking and commerce solutions that enable community financial institutions to
offer to their customers a wide array of financial products and services over
the Internet, while our wholesale suite helps fulfill the operational needs and
regulatory requirements of financial institutions.
Our Internet banking solutions consist of (1) our Internet banking and
commerce products and services, (2) implementation, web site design and support
and other related services and (3) data centers that support and host these
products and services. The data centers interface with a community financial
institution's existing computer hardware and core processing systems, as well as
with the financial institution's customers. The data centers contain the web
servers, computers, data storage, retrieval and security systems, and support
personnel necessary to operate the Internet-based systems. This solution offers
a wide array of Internet-based functions, including products and services for
the financial institution, and its home and business banking customers. Each
community financial institution can choose the products and services that best
fit its customer base and its internal requirements, and can easily customize
our system to add new or different
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functions. We have also designed these Internet-based systems with the
flexibility to accommodate increased numbers of users.
Our products and services offer the following features:
Internet Banking Services in an Outsourced Community Environment. Our
Internet-based retail suite gives community financial institutions the
ability to provide the convenience of on-line banking services while
maintaining personal relationships and affording quality service to their
customers. Each community financial institution can create a customized and
branded Internet banking system, with its trademarks, logo, colors and
other distinctive features. Additionally, the community financial
institution's customers perceive that they are interacting with their
community financial institution. This allows the community financial
institution to compete more effectively in its market, to improve its
customer relations, to increase its customer base, to offer its customers
additional products and services, and to increase its non-interest income.
We provide all of the proprietary software and the hardware necessary
to operate Internet-based systems. Community financial institutions that
use our solution do not need to develop in-house software, purchase or
maintain expensive equipment, or hire a technical staff. We also offer
customers web site design, development and hosting. We generally waive
up-front implementation costs, which makes our products and services an
affordable outsourced solution for many community financial institutions
concerned with the cost of implementing Internet technology. Compared with
installing in-house Internet systems, we can significantly reduce the time
and expense necessary to implement, upgrade and support an Internet
solution. We have implemented data encryption and firewall technology to
shield our core Internet servers from unauthorized access. We have been
certified by ICSA, a company that has developed standards for testing the
security of a product against internationally accepted risk-reduction
criteria.
Gateway to Internet Commerce. Our retail suite of Internet banking
products and services includes Banking on Main Street(TM), which is a
branded Internet commerce enhancement that enables community financial
institutions to provide their customers an easily accessible gateway to a
branded Internet-based network of products and services offered by both
national companies and local merchants. Additionally, through Banking on
Main Street(TM), businesses can increase their customer base and sales by
using the Internet. In addition to standard financial account services,
community financial institutions can offer their commercial customers
Internet commerce accounts that include a customized web page and a
"storefront" on the Internet. This product allows community financial
institutions to develop stronger relationships with their commercial
customers by providing their businesses direct access to a rapidly growing
number of Internet users.
Internet Access and Telephony Services. Through a five-year strategic
alliance with UUNet Technologies, Inc. ("UUNet"), a wholly-owned subsidiary
of MCI WORLDCOM, Inc., announced in January 2000, we will offer a
comprehensive suite of communications products and Internet access services
to community financial institutions. As our customer, the community
financial institution will be able to offer both its retail and commercial
business customers Internet access services and discounted telephony
services. The various services are co-branded with the community financial
institution's name. We will pay UUNet a fee for our right to market and
sell these services, and we also will pay commissions to community
financial institutions with respect to our sales of these Internet access
services to their customers.
Regulatory Reporting and Support Applications. Several applications
within our wholesale suite provide financial institutions with software to
complete certain required regulatory reports and related tasks in an
electronic medium. These applications are being converted to Internet-based
applications.
Bond Accounting, Portfolio and Asset/Liability Management
Analytics. These analytical tools, accessible via the Internet, allow a
financial institution to complete bond accounting, risk assessment and
other management functions related to the financial operations of the
institution. The portfolio and asset/
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liability analytics provide risk assessment and portfolio analysis relative
to the possible effects of potential transactions and fluctuations in
interest rates.
Access to Critical Information Sources. Through our Banc Mall(TM) and
PortPro Mall(TM) products, employees of our financial institution customers
can access sources of critical information via the Internet, enabling the
financial institutions to streamline their operating functions. Available
information services include vehicle valuations, credit reports, industry
and economic forecasts, and title and lien search information.
Marketing and Consulting Services. We also provide marketing and
sales training programs for community financial institutions and their
customers. These programs are specifically designed to increase usage of
our Internet-based products and services by a community financial
institution's customer base.
Compatibility with Existing Core Processing Software. Our
Internet-based systems are designed to work with different types of core
processing software and data processing services. At present, we have
successfully installed Internet banking products and services that
interface with approximately 41 different core processing environments.
Further, we believe that we have the ability to interface our products with
many other core processing systems with nominal effort and expense. We also
design these systems so that they work with other banking functions that
the financial institution may support, such as loan application and check
imaging services.
THE NETZEE STRATEGY
Our mission is to offer products and services that meet the retail and
wholesale needs of community financial institutions. We provide an innovative
gateway to the Internet by combining Internet banking products and services with
Internet commerce capabilities and other Internet-based products. Community
financial institutions can utilize these products and services to create new
banking relationships and enhance relationships with their existing customers.
We also provide our customers with a suite of wholesale products and services
that helps fulfill the operational needs and regulatory requirements of
financial institutions. Our goal is to become the leading provider of these
retail and wholesale products and services to community financial institutions
by:
Increasing Revenue from Existing Customers. We currently serve over
7,000 institutional customers. One of our primary objectives is to
cross-market our products and services to existing institutional customers.
Additionally we anticipate that we will actively market our products and
services to the institutional customer's potential end users. We provide
institutional customers with marketing assistance programs and related
support services in order to increase the number of users of our on-line
banking systems. We use our client marketing and consulting personnel to
encourage community financial institutions to advertise and promote their
on-line systems effectively. Additionally, our base of commercial and
consumer end users provides a significant audience to which regional and
national advertising campaigns can be directed. We anticipate that this
targeted marketing will provide an additional source of revenue.
Capitalizing on Strategic Marketing Alliances with Bankers' Banks and
Other Partners. We plan to increase our customer base by entering into
additional strategic marketing alliances with bankers' banks, commercial
regional banks, national broker dealers, developers of core processing
software and Internet-related service providers. Our existing strategic
partners have business relationships with numerous financial institutions
to which they will exclusively market our Internet banking solution. We
also intend to expand our existing sales force to increase opportunities
with existing strategic partners as well as to develop new strategic
alliances.
Expanding Internet Commerce Products. With the addition of our
wholesale suite of products and services, we continue to build upon our
retail suite of Internet-based applications available to the community
financial institution market. Our strategy is to provide customers with a
comprehensive set of Internet commerce and Internet-enabled tools to help
them remain competitive in today's rapidly
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changing business environment. We believe that access to information for
better and quicker decision-making, coupled with streamlining portions of
normal operations, will provide value to our customers. In addition to
traditional on-line banking services, we intend to provide community
financial institutions with access to new products and services, such as
loan origination and processing, insurance, brokerage, bill presentment,
electronic safe deposit boxes and additional Internet commerce
opportunities.
We have designed our Internet banking system to store, access and
process large amounts of information. We believe that this system can
quickly and easily be upgraded to offer new on-line products and services
to a financial institution's customers. We also intend to expand upon and
improve existing technology to enhance the overall functionality and
performance of the system. We believe these improvements will further
enhance our Internet banking system and provide additional services to our
customers.
Creating Branded Electronic Marketplaces. We intend to position the
community financial institution's web site as the destination for on-line
financial and Internet commerce applications. Our Banking on Main
Street(TM) product capitalizes on this opportunity by providing our
customers' commercial clients with a convenient and cost-effective means of
selling their products and services on-line. We utilize and market our
Internet commerce products and services in tandem with our Internet banking
system to offer community financial institutions a complete Internet-based
presence.
PRODUCTS AND SERVICES
Overview
We design, implement and sell products and services designed to meet the
retail and wholesale needs of our community financial institution customers. Our
retail suite provides Internet banking and commerce solutions that enable
community financial institutions to offer to their customers a wide array of
financial products and services over the Internet, while our wholesale suite
helps fulfill the operational needs and regulatory requirements of financial
institutions.
Internet-Based Retail Products and Services
Our retail suite of products and services is designed to meet each of our
customer's specific requirements, including a web site branded under an
individual customer's own name and customized product offerings targeted
directly to a customer's core consumer and business customer bases. As of
December 31, 1999, we have contracted with over 450 customers to provide one or
more Internet products from our retail suite. This retail suite consists of the
following:
- proprietary software;
- interfaces with a customer's core processing systems;
- Internet commerce capabilities;
- Internet access services;
- secure data centers and backup capabilities;
- system maintenance and upgrades;
- training and marketing assistance; and
- web site design, development and hosting.
Our retail products and services enable a community financial institution's
customers to access the following services on-line:
- Account Information. Customers can view balance information for checking
and savings accounts, certificates of deposit, lines of credit,
automobile loans and mortgage loans. Customers can also view year-to-date
interest accrued or paid, interest rates and deposit maturity dates.
- Cash Management. Business customers can monitor their accounts, make tax
payments and execute wire transfers. We also provide a cash concentration
function, which periodically sweeps cash from several bank accounts into
a single interest-bearing account.
- Funds Transfer. Customers can transfer funds among accounts and
establish electronic bill payment.
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- Compatibility with Personal Financial Management Software. Customers can
download their account information into popular personal financial
management software, such as Quicken(R) and Microsoft Money(R).
- Bill Payment. Customers can pay bills electronically 24 hours a day,
seven days a week and can establish future and recurring payments.
- U.S. Series EE Savings Bonds. Customers can purchase Series EE U.S.
Savings Bonds.
- Additional Features. Customers can reorder paper checks, request an
account statement or contact financial institution personnel by e-mail.
Community financial institutions typically enter into three- to five-year
contracts for our Internet banking products and services. Customers pay a
monthly fee under these contracts, based upon the level of usage by their
customers and the types of optional products and services utilized. We also
charge additional fees for optional products and services that our customers
elect to receive, such as consulting and marketing services.
Banking on Main Street(TM) Internet Commerce System
We believe that we are one of the only companies to design, develop and
sell an Internet commerce software package specifically tailored to meet the
needs of community financial institutions and their customers. Banking on Main
Street(TM) expands the gateway to the Internet established through our Internet
banking system.
The Banking on Main Street(TM) program integrates products and services for
both local businesses and consumers into an on-line marketplace. The marketplace
features merchants in a fully Internet commerce-enabled environment and will
offer a "universal shopping cart" for customers. This universal shopping cart
concept will permit users to pay for products and services purchased from
multiple vendors in a single settlement transaction.
The Banking on Main Street(TM) program allows each community financial
institution the ability to offer local and national businesses and vendors the
opportunity to offer their products and services through their own web site,
which is linked to the community financial institution's home page. Community
financial institutions can easily add new local businesses and vendors at any
time. A web site design "wizard" allows community financial institution
employees to design and implement a customized web site for businesses in a
matter of minutes.
We provide users a variety of consumer and small business products and
services over the Internet, including products offered by book, office furniture
and supply, and video and game retailers, as well as payroll, leasing, check
collection and human resource management services.
In addition to the basic software package, we provide each community
financial institution that uses Banking on Main Street(TM) with training and
usage consulting services to teach its employees how to use the system and to
explain all of its features to the community financial institution's commercial
customers.
Telephone Banking Product
We also offer a telephone banking product to provide a community financial
institution's customers with convenient and safe access to information regarding
their accounts from their homes or businesses at any time of day or night. This
product also allows the community financial institution to spend less time
responding to routine account information requests and to devote more time to
developing important personal customer relationships. As of December 31, 1999,
we had more than 400 community financial institution customers under contract to
utilize our telephone banking product. Standard features of this telephone
banking product include:
- account information, such as current balance, interest rates and account
activity for checking and savings accounts, certificates of deposit and
loans;
- fund transfers between accounts;
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- verification for merchants that there are sufficient funds in their
customers' accounts;
- promotional, marketing and community-related messages; and
- time and temperature.
This telephone banking product can be installed in a community financial
institution in less than a week with minimal investment and inconvenience. It
also provides customized messages, menu items and services to meet customers'
individual needs. We charge community financial institution customers who
subscribe to this telephone banking product a recurring monthly fee.
Wholesale Applications
We also design, implement, market, sell and support a suite of regulatory
reporting and support applications to over 7,000 financial institutions. Our
wholesale suite of products and services allows these financial institutions to
submit required annual and quarterly financial reports to the appropriate
government regulatory agencies. The supporting applications provide the
financial institution with an analysis of the financial institution's
performance and how it compares to other institutions in its peer group. Among
other programs, this suite includes the following:
- CallReporter(TM). CallReporter(TM) automates the completion, edit
verification, and electronic submission of the quarterly Federal
Financial Institutions Examination Council ("FFIEC") Call Report. The
Call Report is a detailed Report of Condition (detailed balance sheet and
supporting schedules) and Income Statement. Every insured commercial
financial institution and FDIC-supervised savings institution must submit
this report on a quarterly basis. At present, the CallReporter(TM)
software program is used by over 5,500 financial institutions to complete
and submit the Call Report.
- OTS Reporter(TM). OTS Reporter(TM) automates the completion and
electronic submission of the quarterly thrift financial, consolidated
maturity and cost of funds reports to the Office of Thrift Supervision
("OTS"), which regulates and supervises approximately 1,200 thrifts and
savings and loan associations.
- Riskreporter(TM). Riskreporter(TM), a risk-based capital compliance
system, calculates the required values to complete the Regulatory Capital
Schedule of the FFIEC Call Report. The program also provides financial
institution management with the tools to manage the financial
institution's risk-based compliance requirements.
- Riskmonitor(TM). Riskmonitor(TM) is an asset/liability analysis program
that calculates the impact of potential interest rate changes on the
financial institution's margin and interest income. The report is a
combination of tabular and graphical reports with narratives that provide
the financial institution with the information and tools to respond to
the regulatory requirement of monitoring on a quarterly basis the
financial institution's overall interest rate risk profile.
- PortPro(R) Bond Accounting and Analytics. PortPro(R) offers a
comprehensive set of bond accounting software delivered via the Internet.
This includes summary and detailed management reporting, regulatory
reporting, and import/export capabilities for use with the financial
institution's accounting system. In addition, the software provides risk,
purchase and pro forma analyses based on current bond pricing.
- PALMS(TM) Asset/Liability Management. PALMS(TM) furthers the
capabilities of PortPro(R) by providing reporting and analytics tools for
the financial institution's assets and liabilities. The software allows
for data to be imported from various systems, including the institution's
general ledger, bond accounting system, loan system and deposit system.
Simulations can be run on an asset-by-asset and liability-by-liability
basis.
- Banc Mall(TM) and PortPro Mall(TM). These services provide employees of
the financial institution with Internet-based access to critical data
required for various functions, processes and decision-making. These
include access to vehicle valuations, credit reports, industry and
economic forecasts and title and lien search information.
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<PAGE> 12
RELATED SERVICES
Implementation Services
We provide the implementation services necessary to install our
Internet-based retail suite and to create a customized Internet-based interface
that includes the logo, colors and other distinctive branded characteristics of
the community financial institution. This interface integrates our products and
services with the community financial institution's core processing systems. For
a typical Internet banking system installation, the implementation period is
currently approximately 60 days.
We currently have the ability to interface with approximately 41 core
processing environments. We use existing third-party software and other
application tools to design interfaces with financial institution core
processing systems.
Marketing Services
We provide our financial institution customers with an Internet marketing
package designed to increase the number of their customers who use our Internet
products and services. We charge fees for these services based upon the type and
length of engagement. This marketing package includes the following services:
- Strategic Marketing Services. We provide our customers with strategic
assistance in developing, marketing and supporting the success of their
Internet banking and commerce products and services. We also offer
customized consulting services to community financial institutions that
have specific marketing and training needs. These services allow
financial institutions to conduct effective in-branch and community-wide
promotions of our Internet banking services.
- Advertising and Promotional Efforts. We assist customers in advertising
their on-line services through newspapers, radio, press releases, direct
mail and other media. We also provide customers with in-branch marketing
materials, such as brochures, banners and other promotional items.
- Employee Training. We assist our customers in educating their employees
about the uses and benefits of Internet banking and commerce. Our
employee training guide also explains the financial and security features
of the on-line systems, introduces sales techniques, instructs employees
on how to overcome common customer objections and provides additional
resources for learning about the Internet and on-line banking in general.
Web Site Development and Related Services
Our team of in-house web site designers creates fully interactive and
customized web sites for our community financial institution customers. Working
closely with the customer, the team designs a web site to incorporate the form
and functionality required by the community financial institution, including the
integration of proprietary and value-added financial services such as logos and
other branding methods, application forms, financial calculators and links to
other web sites. We offer basic web site development services without charge and
provides additional enhancement, customization and design services for a fee. We
host and maintain most of our customers' web sites at our data centers.
PRODUCT AND SERVICE DEVELOPMENT
We are continuing to expand and enhance the products and services that we
provide to community financial institutions to enable them to offer a wider
variety of Internet commerce products and services to their customers.
SYSTEMS ARCHITECTURE
Fat Server Architecture
Our computer systems operate in a "fat server" environment. A server is
computer hardware and software attached to a network and shared by multiple
users, or clients. Clients and servers operate in two primary environments: "fat
server" and "thin server." A fat server environment exists where the servers
store and
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<PAGE> 13
process most or all of the information in the network. By contrast, a thin
server environment exists where the clients or other servers process most of the
information in the network.
By using fat server technology, our system can process and store large
amounts of information without having to wait for a financial institution's core
processing system to retrieve the information and relay it back to the central
computer. Fat server technology provides the following important advantages over
thin server technology:
- Greater Ability to Store Information. Because a fat server is required
to perform substantially more tasks than a thin server, it must have
greater storage capabilities than a thin server. This allows the fat
server to retain more financial information for each user than a thin
server. The fat server system currently stores multiple years of customer
data, whereas thin server systems typically provide access to 60 to 90
days of financial data. We believe that the information storage capacity
of a fat server provides a more useful and flexible solution for a
community financial institution's customers.
- Greater Ability to Process Information. Fat servers contain most of the
information processing and analysis applications and are designed to
manipulate and analyze customer account information easily. Financial
institutions can utilize fat server technology to analyze customer
account information efficiently to market and sell a variety of financial
products and services, including loan, brokerage, insurance and tax
services, directly to their customers.
- Greater Ability to Collect Information from Different Sources. Fat
servers are better equipped to collect and consolidate financial
information from several different sources for the end user. For example,
brokerage portfolio, insurance and loan balance information could be
collected from separate sources, transmitted to a server, processed and
organized into a single, easy-to-understand monthly statement that a user
can access and review on-line.
Data Centers
Our Internet banking and commerce services that we provide are hosted and
processed in our three data centers located in Atlanta, Georgia; Birmingham,
Alabama; and Elizabethtown, Kentucky. The data centers contain the web servers
for the system, as well as the communications equipment, data storage, retrieval
and security software and hardware, and support personnel necessary to operate
Internet services for each community financial institution's customers. The data
centers also connect those customers to the community financial institution's
existing core processing systems. Our data centers communicate with a community
financial institution customer by transferring data from the community financial
institution's core system to our servers in the data centers.
We have been certified by ICSA, a company that certifies that a product is
secure based upon internationally accepted security criteria. This certification
means that our operations have been tested by ICSA and have been found to meet
defined standards for risk reduction against a set of known security threats. In
order to maintain this ICSA certification, our operations will be retested
annually and will be subject to spot-checks to verify that we continue to comply
with ICSA's security standards. In addition to ICSA certification, we have also
been examined by federal and state banking authorities, including the Office of
the Comptroller of Currency.
To prevent service interruption and information losses due to power
failures, our data centers are backed up by high-capacity battery systems. These
battery systems provide continuous power to all production systems, including
servers, monitors, telecommunications equipment and individual computers. In the
event of an extended power outage, fuel-powered generators also provide backup
power to the facilities. Each data center also serves as a backup facility to
the other data centers. If one data center should experience a disruption,
network traffic from that data center would be rerouted to one of the other
operational data centers. This redundancy feature minimizes the risk of customer
service disruption and allows for rapid response to an extended power or systems
failure or other interruption. Off-site files are backed up on a daily basis to
minimize the loss of stored customer information and to ensure system integrity
in the event of a disaster.
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<PAGE> 14
SALES AND MARKETING
Overview
Our primary marketing efforts are focused on building awareness of our
products and services among our target group of community financial
institutions, identifying potential customers and establishing new strategic
alliances. Our sales and marketing efforts are conducted through both direct and
indirect channels.
Direct Sales Channel. We use print advertisement, direct mail,
telemarketing and trade shows to develop contacts at the senior officer level of
target community financial institutions. These contacts are then passed along to
regional sales personnel who follow up with the specific contact.
Indirect Sales Channel. Our sales force also uses indirect sales methods
to generate new customers. We engage third parties to refer financial customers
that may be interested in purchasing our products and services. A sales staff
member will then make a presentation to the proposed customer and, if
successful, complete the transaction. We pay these third parties a commission
based on the amount of sales of our products and services that result from their
efforts.
Strategic Marketing Alliances
When evaluating Internet banking solutions, financial institutions usually
focus on the ease of interfacing their existing core processing software with
the Internet banking software. Core processing software is the central software
used by a financial institution that processes information concerning banking
transactions, such as deposits and withdrawals. The link between the core
processing software and the Internet banking software allows for the transfer of
transactional data between both software systems.
We have formed a strategic marketing alliance with InterCept, a provider of
integrated electronic commerce products and services for community financial
institutions, as well as with vendors of core processing software and outsourced
data processing services, all of which market our products and services to their
customer bases. In addition, we have developed relationships with five bankers'
banks to market and promote our services to their customers and shareholders,
all of which are depository institutions.
In September 1999, we entered into a General Marketing Agent Agreement with
each of TIB The Independent Bankers Bank, The Bankers Bank, Pacific Coast
Bankers' Bank and Atlantic Central Bankers' Bank. In January 2000, we also
entered into a similar agreement with the First National Bankers' Bank. Pursuant
to these agreements, each bankers' bank agrees to use its best efforts to
promote and market our Internet banking products and services to community banks
on an exclusive basis. In return, we pay commissions to each of these bankers'
banks for all contracts with the community financial institutions. In addition
to these obligations, each bankers' bank has agreed to conduct its business so
as to maintain and increase our goodwill and reputation.
In March 2000, we expanded our strategic marketing alliances through the
acquisition of DVI. We entered into relationships with 22 commercial regional
banks and broker dealers, pursuant to which each bank and broker dealer agrees
to use its best efforts to promote and market our Internet-based PortPro(R)
services to its financial institution customers. These alliances are with a
variety of banking and brokerage institutions, including First Union Securities,
Inc., First Tennessee Capital Markets, J.C. Bradford & Co., Inc., Zions Bank and
Dain Rauscher, Inc.
CUSTOMERS
Our target market for our retail suite is the approximately 20,000
community financial institutions in the United States with assets of less than
$10 billion each. Within this target market, we focus on (1) independent
community financial institutions, including banks, savings and loan
associations, thrifts, trust companies and credit unions, and (2) financial
institutions that are associated with or shareholders of a bankers' bank, which
in each case rely on one or more of the data processing vendors with which we
have developed interfaces. We seek to expand the number of vendors with which we
have interfaces.
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<PAGE> 15
As of December 31, 1999, we had over 7,000 institutional customers that
bought one or more products from us. Over 700 of these customers were
interactive customers, which are institutions that have purchased either an
Internet or a voice response product. More than 450 customers have contracted
for one or more of our Internet products. For the year ended December 31, 1999,
no individual customer accounted for 10% or more of our total revenues.
COMPETITION
The market for Internet-based banking products and services is highly
competitive, and we expect that competition will intensify in the future. The
market in which we operate is highly fragmented, as more than 100 on-line
service outsourcing companies provide Internet-based banking products and
services in the United States. We face competition from at least five major
sectors:
- Providers of outsourced Internet banking services to community financial
institutions, including, among others, Cavion Technologies, Inc.,
Corillian Corporation, Digital Insight Corporation, FundsXpress, Inc.,
Home Account Network, Inc., Online Resources and Communications
Corporation, Q-Up Systems, Inc., S1 Corporation, Source One Software,
Inc. and Sanchez Computer Associates, Inc.
- Large vendors that offer transaction processing services to financial
institutions and also market their own Internet banking solutions,
including, among others, Electronic Data Systems Corporation, Fiserv
Correspondent Services, Inc., Jack Henry & Associates, Inc. and Marshall
& Ilsley Corporation.
- Large financial institutions that provide competitive products and
services to individuals and businesses, including BankOne, through its
Internet subsidiary, Wingspan bank.com, and Citigroup, Inc., through its
Internet subsidiary, e-Citi. Through their Internet banking products and
services, these large financial institutions can obtain customers from
communities in distant locations, effectively decreasing demand for our
products and services in these markets.
- Other wholesale regulatory support application vendors that provide
similar products and services, including SunGard Financial Services, Inc.
and Sheshunoff Information Services, Inc.
- Internet portals such as E*TRADE, Yahoo!, RealEstate.com, E-LOAN, Lending
Tree.com, and iXL Enterprises, which serve as an alternative to financial
institutions' web sites.
In addition, we could experience competition from our potential customer
financial institutions that develop their own on-line banking solutions and
other Internet-enabled functions. Rather than purchasing Internet-based products
and services from third-party vendors, community financial institutions could
develop, implement and maintain their own services and applications. We also
believe that we face competition from the various competitive alternative
approaches for Internet-based solutions, such as thin servers, fat clients
(personal financial management software) and in-house development. Each of these
alternatives competes with our fat server, outsourced solution.
We believe that our ability to compete successfully depends upon a number
of factors, including, among other things:
- the comprehensiveness, expandability, ease of use and service level of
our products and services;
- our market presence with community financial institutions, which is
enhanced by our strategic marketing alliances;
- our pricing policies compared to the pricing policies of competitors and
suppliers;
- our ability to interface with vendors of core processing software and
services;
- the reliability, security, speed and capacity of our systems and
technical infrastructure;
- the timing of introductions of new products and services by us and our
competitors; and
- our ability to support unique customer requirements.
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<PAGE> 16
We expect competition to increase significantly as new companies enter the
potential market area and current competitors expand their product lines and
services.
INTELLECTUAL PROPERTY
Although we believe that our success depends more upon our technical
expertise than our proprietary rights, our future success and ability to compete
depends in part upon our proprietary technology and proprietary technology we
may license from others. None of our technology is currently patented, except
that we have pending patent applications in both the United States and Canada
with respect to our PALMS(TM) asset/liability management software. Instead, we
rely on a combination of contractual rights and copyright, trademark and trade
secret laws to establish and protect our proprietary technology. We generally
enter into confidentiality agreements with our employees, consultants,
resellers, customers and potential customers. We also limit access to and
distribution of our source code, and we further limit the disclosure and use of
other proprietary information. The steps that we may take in this regard may not
be adequate to prevent misappropriation of our technology or technology we
license from others. Further, our competitors may independently develop
technologies that are substantially equivalent or superior to our technology.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain or use our products or technology or that
which we license from others. In addition, the laws of some foreign countries do
not protect our proprietary rights to the same extent as do the laws of the
United States.
GOVERNMENT REGULATION
Regulation of the Financial Services Industry
The financial services industry is subject to extensive and complex federal
and state regulation. Our current and prospective customers, which consist of
community financial institutions such as commercial banks, savings and loans,
credit unions, thrifts, securities brokers, finance companies, other loan
originators, insurers and other providers of financial services, operate in
markets that are subject to rigorous regulatory oversight and supervision. Our
customers must ensure that marketing our products and services to their
customers is permitted by the extensive and evolving regulatory requirements
applicable to those community financial institutions. These laws and regulations
include federal and state truth-in-lending and truth-in-savings rules, usury
laws, the Equal Credit Opportunity Act, the Fair Housing Act, the Electronic
Fund Transfer Act, the Fair Credit Reporting Act, the Bank Secrecy Act and the
Community Reinvestment Act. The compliance of our products and services with
these requirements depends on a variety of factors, including the particular
functionality, the interactive design and the classification of the customer.
Our financial services customers must assess and determine what is required of
them under these regulations and are responsible for ensuring that our system
and the design of their sites conform to their regulatory needs. We do not make
representations to customers regarding applicable regulatory requirements, and
we rely on each customer to identify its regulatory issues and to adequately
specify appropriate responses. It is not possible to predict the impact that any
of these regulations could have on our business.
We are not licensed by the Office of the Comptroller of the Currency, the
Board of Governors of the Federal Reserve System, the Office of Thrift
Supervision, the National Credit Union Administration or other federal or state
agencies that regulate or supervise depository institutions or other providers
of financial services. We are subject to examination by the federal depository
institution regulators under the Bank Service Company Act and the Examination
Parity and Year 2000 Readiness for Financial Institutions Act. These regulators
have broad supervisory authority to remedy any shortcomings identified in any
examination they may conduct. We are also subject to encryption and security
export laws and regulations which, depending on future developments, could
render our business or operations more costly, less efficient or impossible.
Federal, state or foreign authorities could adopt laws, rules or
regulations affecting our business operations, such as requiring compliance with
data, record keeping and other processing requirements. We may become subject to
additional regulation as the market for our business evolves. It is possible
that laws and regulations may be enacted with respect to the Internet, covering
issues such as user privacy, pricing, content, characteristics and quality of
services and products. Existing regulations may be modified.
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For example, we are not subject to the disclosure requirements of
Regulation E of the Federal Reserve Board under the Electronic Fund Transfer
Act, because we do not contract with consumers to provide them with electronic
funds transfer services or provide access devices (such as cards, codes or other
means of accessing accounts to initiate electronic funds transfers) to them.
Regulation E regulates certain electronic funds transfers made by providers of
access devices and electronic fund transfer services. Under Regulation E, our
customers are required, among other things, to provide certain disclosures to
retail customers using electronic transfer services, to comply with certain
notification periods regarding changes in the terms of service provided and to
follow certain procedures for dispute resolution. The Federal Reserve Board
could adopt new rules and regulations for electronic funds transfers that could
lead to increased operating costs and could also reduce the convenience and
functionality of our services, possibly resulting in reduced market acceptance.
The Gramm-Leach-Bliley Act
On November 12, 1999, Congress passed the Gramm-Leach-Bliley Act (the
"Act"), which introduced sweeping changes in the way the financial services
industry is regulated. Among other things, the Act provides for greater
restrictions upon the use and dissemination by financial institutions of
non-public personal financial and other information regarding individuals who
interact with financial institutions for personal, family or household purposes.
The Act regulates the receipt and use of non-public personal financial
information by both financial institutions and non-affiliated third parties to
whom financial institutions may transmit such financial information. A financial
institution is defined broadly as any person that contracts directly with
individuals to provide financial services for personal, family or household
purposes. Because we currently contract directly with individuals to provide
them with such services, we would be subject to regulation under the Act as a
financial institution. Further, because we receive financial information from
our non-affiliated financial institution customers, we would also be regulated
under the Act primarily by the Federal Trade Commission as a non-affiliated
third party.
When we act as a financial institution, the Act would require us to provide
individuals with whom we interact (1) notice of our privacy policies, (2) the
names of non-affiliated third parties to which we may provide non-public
personal information and (3) the opportunity to opt out of having such
information shared, except with respect to information that we may wish to
provide an entity that provides services to us and in certain other
circumstances. Even if that individual does not opt out at that time, he or she
must be free to do so at any time after we provide the individual with the
mandated disclosures.
When we act as a non-affiliated third party providing services to financial
institutions, we would be allowed under the Act to receive non-public personal
information notwithstanding the fact that an individual has exercised his or her
"opt out" rights. However, with respect to our ability to disseminate non-public
personal information, we would be subject to the same restrictions as the
financial institution, and thus would be prohibited from disseminating such
information to others (except as otherwise permitted by the Act) if the customer
has "opted out."
The Act mandates that, no later than May 12, 2000, the various federal
banking authorities, the Securities and Exchange Commission and the Federal
Trade Commission must adopt final rules and regulations to implement these
restrictions, including rules to define the term "non-public personal
information." With the exception of the rulemaking requirements of the Act, the
provisions of the Act will take effect six months after the date on which these
rules are required to be adopted, unless a later effective date is specified in
such rules. At present, these banking authorities and agencies have not adopted
such rules and regulations, although the various banking authorities and the
Federal Trade Commission have already issued proposed rules. Thus, we are unable
to state at this time what effect the Act and, once adopted, the rules and
regulations implementing the Act, may have on:
- our business, results of operations and financial condition;
- the ability of our customers and strategic partners to continue to do
business with us; or
- our ability to attract new customers or strategic partners.
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However, the Act in its present form will restrict or prohibit our ability
to offer third parties access to the financial information generated by our
products and services to the extent that individuals to whom we provide such
products and services, as well as individual customers of financial
institutions, have exercised their "opt out" rights. In addition, we will have
an ongoing obligation to continually inquire of financial institutions as to the
"opt out" status of each individual financial institution customer, who has the
ability to change such status at any time. Further, with respect to the
information of each particular individual, we will be required to comply with
the privacy policies that are adopted by the particular individual's financial
institution, which may be different with respect to each such financial
information. The rules and regulations under the Act, once adopted, may impose
more stringent restrictions or prohibitions on our products, services and
operations. Once effective, it is possible that the Act and the rules that will
be promulgated thereunder could have a material adverse effect upon our
business, results of operations and financial condition.
Finally, the Act specifically allows the states to enact consumer privacy
laws that may be stricter than that the restrictions under the Act and other
federal laws. Several states are already considering such legislation, and it is
possible that every state in which we do business could adopt privacy
legislation that may be as or more restrictive than the Act. To the extent that
additional or more restrictive privacy legislation is adopted by the states,
such legislation could make our operations more difficult or burdensome and
could significantly increase the cost of our existing, or curtail future,
operations. Our responsibilities with respect to compliance with privacy laws
that may vary from state to state could increase the overall costs incurred by
us to provide our products and services on a nationwide basis. In this regard,
the passage of state privacy legislation could have a material adverse effect on
our business, results of operations and financial condition.
Taxation of E-Commerce
A number of proposals at the federal, state and local level and by certain
foreign governments would, if enacted, expand the scope of regulation of
Internet-based financial services and could impose taxes on the sale of goods
and services made over the Internet and certain other Internet activities. Any
development that substantially impairs the growth of the Internet or its
acceptance as a medium for commerce or transaction processing could have a
material adverse effect on our business, financial condition and operating
results.
EMPLOYEES
As of December 31, 1999, we had approximately 145 full-time employees and
five part-time employees. None of our employees is covered by a union or a
collective bargaining agreement. We have not experienced any work stoppages and
we consider relations with our employees to be good.
ITEM 2. PROPERTIES
Our principal executive office consists of 25,179 square feet of leased
space located in Atlanta, Georgia. As of March 20, 2000, we also leased the
following additional locations:
<TABLE>
<CAPTION>
LOCATION PRIMARY USE APPROXIMATE SQUARE FEET
- -------- ----------- -----------------------
<S> <C> <C>
Birmingham, Alabama............ Administration, sales and 15,747
product management
Birmingham, Alabama............ Remote banking center 6,514
Bloomington, Minnesota(1)...... Regulatory reporting and 11,867
support applications
Calabasas Hills, California.... Regulatory reporting and 6,000
support applications
</TABLE>
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<PAGE> 19
<TABLE>
<CAPTION>
LOCATION PRIMARY USE APPROXIMATE SQUARE FEET
- -------- ----------- -----------------------
<S> <C> <C>
Cordova, Tennessee............. Sales and implementation 3,350
Elizabethtown, Kentucky........ Bill payment services 2,600
Lewisville, Texas.............. Sales and implementation 3,660
St. Louis Park, Minnesota(2)... Regulatory reporting and 5,641
support applications
</TABLE>
- ---------------
(1) We entered into this lease on February 4, 2000, effective May 1, 2000.
(2) This lease expires on April 30, 2000 and will not be renewed.
We believe that suitable additional or alternative space will be available
in the future on commercially reasonable terms as needed.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation arising in the normal
course of our business. We are not a party to any litigation, individually or in
the aggregate, that we believe would have a material adverse effect on our
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock, no par value, has been traded on the Nasdaq National
Market under the symbol "NETZ" since November 9, 1999. The low and high sales
prices for our common stock from November 9, 1999 to December 31, 1999, as
reported by the Nasdaq National Market, were $13.0625 and $18.00, respectively.
As of March 20, 2000, our common stock was held of record by approximately 77
persons.
DIVIDENDS ON SHARES OF OUR CAPITAL STOCK
We have not paid cash dividends on our common stock and do not anticipate
paying any such dividends on our common stock in the foreseeable future. On
January 31, 2000, we paid a dividend of approximately $24,200 on our Series A
preferred stock for the period from December 15, 1999 to December 31, 1999.
RECENT SALES OF UNREGISTERED SECURITIES
Formation and Related Issuances
On September 3, 1999, in connection with the merger of Direct Access with
and into Netzee, we issued 11,735,000 shares of common stock to the former
shareholders of Direct Access. We also issued options to purchase in the
aggregate 610,000 shares of common stock at exercise prices of $2.00 and $3.11
per share to
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<PAGE> 20
persons who had been issued options to purchase Direct Access common stock.
These options vest and become exercisable as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT TO OPTIONS GRANTED VESTING SCHEDULE
- ------------------------------------------- ----------------
<S> <C>
270,000...................................... These options will vest and become
exercisable in three equal installments on
the first, second and third anniversaries of
the date of grant.
200,000(1)................................... One fourth of these options vested and became
immediately exercisable as of the date of
grant, 75,000 shares subject to this option
became immediately exercisable on November
15, 1999 and the remainder will vest and
become exercisable in three equal
installments on the first, second and third
anniversaries of the date of grant.
170,000...................................... One half of these options vested as of
November 15, 1999. The remainder will vest
and become exercisable in three equal
installments on the first, second and third
anniversaries of the date of grant.
</TABLE>
- ---------------
(1) In August 1999, 30,000 of these options were exercised prior to being
assumed by Netzee.
On September 3, 1999, in connection with the merger of Dyad with and into
Netzee, we issued 618,137 shares to certain former shareholders of Dyad.
On September 3, 1999, we issued 1,361,000 shares of common stock to each of
TIB and The Bankers Bank in connection with the acquisition of the Internet
banking divisions of each of these bankers' banks.
On September 9, 1999, we sold 31,100 shares of common stock to certain
former employees of Call Me Bill, LLC for $10.50 per share.
Option Issuances to Employees, Directors and Consultants
On September 7, 1999, we issued to certain of our executive officers,
directors and employees options to purchase an aggregate of 220,000 shares of
common stock at an exercise price of $3.11 per share. No shares of common stock
have been issued pursuant to the exercise of these options. These options vest
and become exercisable as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT TO OPTIONS GRANTED VESTING SCHEDULE
- ------------------------------------------- ----------------
<S> <C>
200,000...................................... One half of these options vested and became
immediately exercisable on November 15, 1999.
The remainder will vest and become
exercisable in three equal installments on
the first, second and third anniversaries on
the date of grant.
20,000....................................... Two fifths of these options vested and became
immediately exercisable on November 15, 1999.
The remainder will vest and become
exercisable in three equal installments on
the first, second and third anniversaries of
the date of grant.
</TABLE>
18
<PAGE> 21
On September 7, 1999, we issued to certain of our directors, employees and
consultants options to purchase an aggregate of 1,019,000 shares of common stock
at an exercise price of $5.00 per share. We have issued 500 shares of common
stock pursuant to the exercise of these options. These options vest and become
exercisable as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT TO OPTIONS GRANTED VESTING SCHEDULE
- ------------------------------------------- ----------------
<S> <C>
629,000...................................... These options will vest and become
exercisable in three equal installments on
the first, second and third anniversaries of
the date of grant.
280,000...................................... One fourth of these options vested and became
exercisable on the date of grant. The
remainder will vest and become exercisable in
three equal installments on the first, second
and third anniversaries of the date of grant.
100,000...................................... One half of these options vested and became
immediately exercisable on November 15, 1999.
The remainder will vest and become
exercisable in three equal installments on
the first, second and third anniversaries of
the date of grant.
10,000....................................... One third of these options vested and became
immediately exercisable on November 15, 1999.
One-third of these options will vest and
become exercisable on the first anniversary
of the date of grant. The remaining one-third
of these options will vest and become
exercisable on the second anniversary of the
date of grant.
</TABLE>
On October 19, 1999, we issued to certain of our executive officers and
directors options to purchase an aggregate of 330,000 shares of common stock, at
an exercise price of $14.00 per share. No shares of common stock have been
issued pursuant to the exercise of these options. These options vest and become
exercisable as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT TO OPTIONS GRANTED VESTING SCHEDULE
- ------------------------------------------- ----------------
<S> <C>
250,000...................................... These options vested and became immediately
exercisable on November 15, 1999.
80,000....................................... One fourth of these options vested and became
immediately exercisable on the date of grant.
The remainder of these options will vest and
become exercisable in three equal
installments on the first, second and third
anniversaries of the date of grant.
</TABLE>
On November 9, 1999, we issued to certain of our employees, officers and
consultants options to purchase an aggregate of 327,000 shares of common stock
at exercise prices of $5.00 and $14.00 per share. No shares of common stock have
been issued pursuant to the exercise of these options. These options vest and
become exercisable as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT TO OPTIONS GRANTED VESTING SCHEDULE
------------------------------------------- ----------------
<S> <C>
322,000...................................... These options will vest and become
exercisable in three equal installments on
the first, second and third anniversaries of
the date of grant.
5,000........................................ These options vest and become exercisable in
twelve equal monthly installments beginning
on the date of grant and ending one year
after the date of grant.
</TABLE>
19
<PAGE> 22
On November 9, 1999, we issued an award of 75,000 shares of restricted
stock to one of our executive officers. The restricted stock will vest in three
equal installments over a three-year period from the date of grant so long as
the executive officer is employed by Netzee or a subsidiary as of each such
vesting date. Upon termination of the executive officer's employment, all shares
of stock under this award that have not vested will be forfeited as of the date
of such termination.
Between November 15, 1999 and November 29, 1999, we issued to certain of
our employees options to purchase in the aggregate 11,000 shares of common stock
at exercise prices ranging from $14.19 to $15.00 per share. No shares of common
stock have been issued pursuant to the exercise of these options. The options
will vest and become exercisable in three equal installments on the first,
second and third anniversaries of the date of grant.
In December 1999, we issued to certain of our employees options to purchase
in the aggregate 298,500 shares of common stock at exercise prices ranging from
$14.19 to $14.75 per share. No shares of common stock have been issued pursuant
to the exercise of these options. These options will vest and become exercisable
in three equal installments on the first, second and third anniversaries of the
date of grant.
In January 2000, we issued to certain of our employees options to purchase
in the aggregate 62,000 shares of common stock at exercise prices ranging from
$15.25 to $15.94 per share. No shares of common stock have been issued pursuant
to the exercise of these options. These options will vest and become exercisable
in three equal installments on the first, second and third anniversaries of the
date of grant.
In March 2000, we issued to an officer options to purchase an aggregate of
100,000 shares of common stock at $22.125 per share. No shares of common stock
have been issued pursuant to the exercise of these options. These options vest
and become exercisable in two equal installments on the first and second
anniversaries of the date of grant.
On February 11, 2000, Netzee filed a registration statement on Form S-8 to
register up to 4,816,768 shares of common stock issuable under the Netzee, Inc.
1999 Stock Option and Incentive Plan (the "Plan"). As of March 20, 2000, 75,000
shares of restricted stock and options to purchase an aggregate of 3,170,919
shares of common stock have been awarded under the Plan, of which options to
purchase 500 shares have been exercised and options to purchase 7,500 shares
have been forfeited to us.
Issuances to DPSC Software, Inc.
On December 15, 1999, we 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 substantially all the assets and the
assumption of certain of the liabilities of DPSC relating to its business of
developing, marketing and distributing financial institution software and
related products and services. Of these shares, 295,000 shares of common stock
and 150,000 shares of Preferred Stock were placed in escrow for indemnification
and other purposes, of which 175,000 shares of common stock have been released
from such escrow. In connection with these issuances, we 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 our Board of Directors 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 Netzee for any reason. This payment must be made before the payment or
distribution of any assets of Netzee 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 our option if the average closing price of our
common stock for any four week period equals or exceeds $26.00 per share.
20
<PAGE> 23
Issuances Pursuant to the Acquisition of Digital Visions, Inc.
On March 7, 2000, we issued 838,475 shares of common stock in connection
with the acquisition of substantially all the assets of DVI. Of these shares,
83,847 shares were placed in escrow for indemnification and other purposes. We
also granted to DVI the right to receive up to 628,272 shares of common stock
upon the attainment of certain revenue targets in fiscal years 2000 and 2001. We
also issued options to purchase 70,419 shares of our common stock in exchange
for the cancellation of options to purchase DVI common stock. In connection with
the acquisition of DVI, we issued 8,377 shares of our common stock to a
financial advisor.
Other Issuances
On September 9 and 10, 1999, we issued 289,617 shares of common stock to
persons who certified to Netzee that they were "accredited investors" as defined
in Regulation D of the Securities Act. We received a total of $585,000 in
consideration for these shares.
On October 18, 1999, we issued an immediately exercisable warrant to
purchase up to 461,876 shares of common stock at an exercise price of $3.25 per
share. We issued this warrant as consideration for extending a $3,000,000
three-year line of credit to us, which was terminated as of December 15, 1999.
On March 2, 2000, the holders of this warrant exercised it in full and received
in the aggregate 461,876 shares of common stock.
The issuances of the securities in all of the transactions described in
"Recent Sales of Unregistered Securities" were deemed to be exempt from
registration under the Securities Act in reliance on sections 3(b) and 4(2) of
the Securities Act, including Rules 506 and 701 promulgated thereunder, and the
Commission's interpretations of such provisions, as transactions by an issuer
not involving any public offering. All recipients of common and preferred stock
described above were persons whom we believed were accredited investors within
the meaning of Regulation D of the Securities Act. Appropriate legends were
affixed to the share certificates issued in the transactions described above and
we did not engage in any general solicitation or advertising in connection with
offers or sales of these securities.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data is qualified by
reference to, and should be read in conjunction with, our Consolidated Financial
Statements and the related Notes thereto and other financial information
included elsewhere in this Annual Report on Form 10-K, as well as with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7. The selected consolidated financial data prior to
February 28, 1999 reflect the financial position and results of operations of
our predecessor, Direct Access, which was formed in October 1996. We acquired
Direct Access on March 9, 1999; however, the financial data below is presented
as if the acquisition occurred on March 1, 1999. The activity between March 1,
1999 and March 9, 1999 was immaterial. The purchase method of accounting was
used to record the assets and liabilities of Direct Access. The selected
consolidated financial data of our predecessor on or before February 28, 1999 is
not comparable in all material respects with our financial information after
February 28, 1999.
The selected consolidated financial data as of December 31, 1997, 1998 and
1999, for the period from inception (October 10, 1996) to December 31, 1996, for
the years ended December 31, 1997 and 1998, for the period from January 1, 1999
to February 28, 1999 and for the period from March 1, 1999 to December 31, 1999,
have been derived from our consolidated financial statements, which have been
audited by Arthur Andersen LLP, independent public accountants. The selected
consolidated financial data as of December 31, 1996, have been derived from our
unaudited consolidated financial statements and, in the opinion of
21
<PAGE> 24
management, include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the information.
<TABLE>
<CAPTION>
PREDECESSOR NETZEE, INC.
-------------------------------------------------------------- -----------------
FOR THE PERIOD
FROM INCEPTION FOR THE PERIOD FOR THE PERIOD
(OCTOBER 10, FROM JANUARY FROM MARCH 1,
1996) TO YEAR ENDED YEAR ENDED 1, 1999 TO 1999 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, FEBRUARY 28, DECEMBER 31,
1996 1997 1998 1999 1999(1)
-------------- ------------- ------------ -------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Monthly maintenance and
service................... $ 4 $ 59 $ 136 $ 33 $ 1,738
License, hardware and
implementation............ 41 583 455 57 522
------ ------ ------ ----- ---------
Total revenues....... 45 642 591 90 2,260
Operating expenses:
Costs of service, license,
hardware, implementation
and maintenance........... 50 422 465 44 1,914
Selling and marketing........ 12 77 111 12 2,575
General and administrative,
excluding amortization of
stock-based
compensation.............. 36 231 332 49 1,845
Amortization of stock-based
compensation.............. 0 0 0 0 4,592
Depreciation................. 2 11 15 3 190
Amortization................. 0 0 0 0 12,863
------ ------ ------ ----- ---------
Total operating
expenses........... 100 741 923 108 23,979
------ ------ ------ ----- ---------
Operating loss................. (55) (99) (332) (18) (21,719)
Interest expense, net.......... 0 0 (20) (4) (671)
------ ------ ------ ----- ---------
Loss before extraordinary
loss......................... (55) (99) (352) (22) (22,390)
Extraordinary loss............. 0 0 0 0 (4,519)
------ ------ ------ ----- ---------
Net loss before preferred
dividends.................... (55) (99) (352) (22) (26,909)
Preferred dividends............ 0 0 0 0 (24)
------ ------ ------ ----- ---------
Net loss attributable to common
shareholders................. $ (55) $ (99) $ (352) $ (22) $ (26,933)
====== ====== ====== ===== =========
Basic and diluted loss per
share before extraordinary
item(2)...................... (0.01) (0.01) (0.04) (1.94)
Extraordinary loss per share... 0 0 0 (0.40)
------ ------ ------ ---------
Basic and diluted net loss per
share(2)..................... $(0.01) $(0.01) $(0.04) $ (2.34)
====== ====== ====== =========
Weighted average common shares
outstanding(2)(3)............ 8,000 8,000 8,000 11,542
</TABLE>
- ---------------
(1) On August 6, 1999, we acquired SBS in a transaction accounted for as a
purchase, and its results of operations have been included in our
consolidated financial statements since the date of acquisition. On
September 3, 1999, we acquired Call Me Bill, Dyad and the Internet banking
divisions of TIB and The Bankers Bank, in transactions accounted for as
purchases, and their results of operations have been included in our
consolidated financial statements since the date of acquisition. On December
15, 1999, we
22
<PAGE> 25
acquired DPSC in a transaction accounted for as a purchase, and its results
of operations have been included in our consolidated financial statements
since the date of acquisition. See Note 3 of the Notes to Consolidated
Financial Statements.
(2) Weighted average common shares shown for the period from March 1, 1999 to
December 31, 1999 is calculated by assuming a calculation period from
January 1, 1999 to December 31, 1999. Basic and diluted net loss per share
for the period from March 1, 1999 to December 31, 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 December 31, 1999 divided by weighted average
shares as noted.
(3) Weighted average common shares outstanding for the years ended December 31,
1997 and 1998, reflect the initial investment of 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.
<TABLE>
<CAPTION>
PREDECESSOR NETZEE, INC.
-------------------- ------------
DECEMBER 31, DECEMBER 31,
-------------------- ------------
1996 1997 1998 1999
---- ----- ----- ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS):
Cash........................................................ $ 13 $ 28 $ 14 $ 11,255
Working capital............................................. (53) (94) (499) 4,798
Total assets................................................ 72 88 94 143,244
Long-term debt, net of current portion...................... 0 0 0 12,173
Total shareholders' (deficit) equity........................ (4) (103) (455) 120,380
</TABLE>
23
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the related notes and other financial
information included elsewhere in this Annual Report. This discussion also
contains certain forward-looking statements which are subject to, but not
limited to, the risks and uncertainties included in "Factors That May Affect
Future Our Results of Operations or Financial Condition" below and elsewhere in
this Annual Report.
OVERVIEW
Netzee is a provider of retail and wholesale products and services and
Internet commerce solutions to meet the needs of community financial
institutions in the United States with assets of less than $10 billion. We
provide cost-effective, outsourced, secure and scalable retail solutions that
enable financial institutions to offer their customers a wide array of financial
products and services over the Internet. In addition, we provide a wholesale
group of products and services that fulfills the operational and regulatory
requirements of financial institutions.
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 existing Internet banking
operations. We have accounted for each of these acquisitions to date using the
purchase method of accounting.
On August 6, 1999, Direct Access acquired the remote banking operations of
SBS Corporation ("SBS"). This acquisition provided Direct Access with additional
customers, strategic marketing partners and the Banking on Main Street(TM)
Internet 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 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 was added to our existing suite of
products and services. On September 3, 1999, we also acquired Call Me Bill and
Dyad. Call Me Bill provides electronic bill payment services and Dyad provided
loan application, procurement and fulfillment software. As a result of these
acquisitions and other related stock issuances, InterCept's ownership interest
in Netzee was reduced below 50 percent.
We completed our initial public offering in November 1999. We 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. Our
net proceeds from the offering were approximately $54.9 million after deducting
underwriters' discounts, commissions and expenses of the offering. The proceeds
were used to repay principal and accrued interest owed to InterCept, to fund
working capital requirements, and to acquire DPSC.
On December 15, 1999, we acquired DPSC, which provided regulatory reporting
and portfolio management software primarily to community financial institutions.
This acquisition provided an enhanced group of products to further differentiate
us from our competition and allowed us access to the more than 7,000 financial
institutions currently utilizing DPSC's specialized software.
We collectively refer to Call Me Bill, DPSC, Dyad, the remote banking
operations of SBS, and the Internet banking divisions of the two bankers' banks
as the "Acquired Entities."
We have historically derived our revenues from software license, hardware
and implementation fees for Internet and telephone banking products and
services. Historically, software license, hardware and implementation fees were
recognized upon implementation, and maintenance and service fees were recognized
on a monthly basis as the services were provided.
24
<PAGE> 27
During the third and fourth quarter of 1999, we changed pricing policies
for our existing retail 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 charge a fixed monthly fee based on the number
of Internet services purchased by the financial institution and variable
fees that are based on the number of end users and the number of
transactions. We generally provide 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. We do not charge additional fees based on the
number of financial institution customers who actually use the telephone
banking product.
Regulatory Reporting and Support Applications. We charge an annual
software subscription fee based on the software products purchased.
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. We also believe that Internet
banking products and services, Internet commerce solutions and regulatory
reporting and support applications will comprise a significantly greater
percentage of total revenues in the future, and that telephone banking products
will continue to decrease as a percentage of total revenues.
Our costs of service, license, hardware, implementation and maintenance are
comprised of the initial equipment and personnel costs required to implement
Internet and telephone banking for the financial institution, production and
shipping expenses associated with our regulatory reporting and support
applications, and the ongoing personnel and system maintenance costs associated
with our data centers.
Although we have experienced significant growth in customers and revenues,
we have incurred substantial operating losses and negative cash flows from
operations due to changing pricing structure, increasing the sales staff,
expanding data center operations, and increasing the support staff required to
support our rapid growth. We expect to continue to incur substantial operating
losses and negative cash flows in the foreseeable future.
25
<PAGE> 28
RESULTS OF OPERATIONS
The following table sets forth the results of our operations for the years
ended December 31, 1997, 1998 and 1999. These operating results are not
necessarily indicative of our future results.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999(1)
---------- --------- ------------
<S> <C> <C> <C>
REVENUES:
Monthly maintenance and service........................ $ 59,013 $ 136,141 $ 1,770,674
License, hardware and implementation................... 583,086 454,871 579,239
---------- --------- ------------
Total revenues................................. 642,099 591,012 2,349,913
---------- --------- ------------
OPERATING EXPENSES:
Costs of service, license, hardware, implementation and
maintenance......................................... 422,375 465,577 1,958,318
Selling and marketing.................................. 77,050 110,603 2,587,607
General and administrative, excluding amortization of
stock-based compensation............................ 231,147 331,810 1,894,028
Amortization of stock-based compensation............... 0 0 4,591,888
Depreciation........................................... 10,547 14,736 193,000
Amortization........................................... 0 0 12,863,016
---------- --------- ------------
Total operating expenses....................... 741,119 922,726 24,087,857
---------- --------- ------------
Operating loss........................................... (99,020) (331,714) (21,737,944)
Interest expense, net.................................... (117) (20,147) (673,972)
---------- --------- ------------
Loss before extraordinary loss........................... (99,137) (351,861) (22,411,916)
Extraordinary loss....................................... 0 0 (4,518,760)
---------- --------- ------------
Net loss before preferred dividends...................... (99,137) (351,861) (26,930,676)
Preferred dividends...................................... 0 0 (24,200)
---------- --------- ------------
Net loss attributable to common shareholders............. $ (99,137) $(351,861) $(26,954,876)
========== ========= ============
Basic and diluted loss per share before extraordinary
item................................................... $ (0.01) $ (0.04) $ (1.94)
Extraordinary loss per share............................. 0 0 (0.40)
---------- --------- ------------
Basic and diluted net loss per share..................... $ (0.01) $ (0.04) $ (2.34)
========== ========= ============
Cash loss(2)............................................. $ (99,137) $(351,861) $ (4,981,212)
========== ========= ============
Cash loss per share(2)................................... $ (0.01) $ (0.04) $ (0.43)
========== ========= ============
Weighted average common shares outstanding............... 8,000,000 8,000,000 11,542,034
========== ========= ============
</TABLE>
- ---------------
(1) The results of operations for the Predecessor from January 1, 1999 to
February 28, 1999 and the results of operations for Netzee for the period
from March 1, 1999 to December 31, 1999 have been combined for comparative
purposes.
(2) Cash loss is defined as net loss attributable to the common shareholders,
excluding the effect of amortization of intangibles, stock-based
compensation and extraordinary items. Cash loss and cash loss per share are
not measures of financial performance under generally accepted accounting
principles and should not be considered as an alternative either to net loss
attributable to common shareholders as an indicator of our operating
performance, or to cash flow as a measure of our liquidity.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
The Predecessor was acquired on March 9, 1999, which established a new
basis of accounting for certain of our assets and liabilities. The purchase
method of accounting was used to record assets acquired and liabilities assumed
by Netzee. Such accounting generally results in increased amortization reported
in future
26
<PAGE> 29
periods. Although the Predecessor was acquired on March 9, 1999, the financial
statements of the Predecessor have been 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
results of operations for the Predecessor from January 1, 1999 to February 28,
1999 and for Netzee for the period from March 1, 1999 to December 31, 1999 as
shown in our Consolidated Financial Statements have been combined for
comparative purposes.
Revenues
Total revenues increased approximately $1.76 million or 298% from
approximately $591,000 for the year ended December 31, 1998 to approximately
$2.35 million for the year ended December 31, 1999. This increase consisted of
an increase of approximately $1.63 million in monthly maintenance and service
revenues due primarily to the increase in the number of financial institution
customers obtained from the Acquired Entities.
Costs of service, license, hardware, and implementation
Total costs of service, license, hardware and implementation increased
approximately $1.49 million or 321% from approximately $466,000 for the year
ended December 31, 1998 to approximately $1.96 million for the year ended
December 31, 1999. The increase in the costs of service, license, hardware and
implementation was due primarily to an increase in the number of new
institutional customers for which we have installed our products. Additionally,
we experienced increased data center costs required to support the increase in
the total number of institutions to which we provided services.
Selling and marketing expenses
Selling and marketing expenses include marketing and advertising 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 $2.48 million from approximately
$111,000 for the year ended December 31, 1998 to approximately $2.59 million for
the year ended December 31, 1999. The increase in selling and marketing expenses
was due primarily to an increase in sales personnel, an increase in sales
commissions due to additional sales and an increase in advertising expenses.
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 $1.56
million or 471% from approximately $332,000 for the year ended December 31, 1998
to approximately $1.89 million for the year ended December 31, 1999. The
increase in general and administrative expenses was due primarily to increases
in overall business and operating activities and an increase in the number of
employees obtained from the Acquired Entities and added to support our rapid
growth.
Depreciation
Total depreciation increased approximately $178,000 from approximately
$15,000 for the year ended December 31, 1998 to approximately $193,000 for the
year ended December 31, 1999. This increase was due primarily to the
depreciation of acquired assets and from depreciation associated with capital
acquisitions used to support the growth of the Company.
Interest expense, net
Total net interest expense increased approximately $654,000 from
approximately $20,000 for the year ended December 31, 1998 to approximately
$674,000 for the year ended December 31, 1999. The increase was due primarily to
additional debt incurred in connection with the acquisitions of the Acquired
Entities and to fund our operations during the year ended December 31, 1999.
27
<PAGE> 30
Amortization of stock-based compensation
Stock-based compensation consists of amortization of deferred compensation
for certain stock options granted during 1999 with an exercise price below fair
market value, compensation expense for stock sold to an employee at a price
below fair market value, and compensation expense for stock awarded to an
employee. Stock-based compensation expense was $4.59 million for the year ended
December 31, 1999.
Amortization
Amortization of intangible assets relates to purchase accounting
adjustments resulting from our acquisitions. Intangible assets are being
amortized over lives ranging from two to five years. Amortization expense was
$12.86 million for the year ended December 31, 1999.
Extraordinary Loss
The extraordinary loss relates to the termination of a line of credit
agreement in December 1999. To obtain the original line of credit, we issued
warrants and recognized a deferred financing asset related to the warrants. Upon
termination of the line, we incurred a one-time $4.5 million expense
representing the unamortized balance of this asset.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues
Total revenues decreased approximately $51,000 or 8% from approximately
$642,000 for the year ended December 31, 1997 to approximately $591,000 for the
year ended December 31, 1998. License, hardware and implementation revenues
decreased approximately $128,000 from approximately $583,000 for the year ended
December 31, 1997 to approximately $455,000 for the year ended December 31,
1998. The decrease was due to a decrease in sales to new financial institution
customers for the year ended December 31, 1998 as compared to the year ended
December 31, 1997, and was partially offset by an increase in monthly service
fee revenues.
Costs of service, license, hardware, and implementation
The costs of service, license, hardware, and implementation increased
approximately $43,000 or 10% from approximately $422,000 for the year ended
December 31, 1997 to approximately $466,000 for the year ended December 31,
1998. The increase occurred primarily because we provided monthly maintenance
and service to an increased number of customers for the year ended December 31,
1998 as compared to the year ended December 31, 1997.
Selling and marketing expenses
Selling and marketing expenses increased approximately $34,000 or 44% from
approximately $77,000 for the year ended December 31, 1997 to approximately
$111,000 for the year ended December 31, 1998. The increase was due primarily to
an increase in sales personnel and associated sales commissions.
General and administrative expenses
General and administrative expenses increased approximately $101,000 or 44%
from approximately $231,000 for the year ended December 31, 1997 to
approximately $332,000 for the year ended December 31, 1998. The increase in
general and administrative expenses was due primarily to an increase in rent
expense.
Depreciation
Depreciation expense increased approximately $4,000 from approximately
$11,000 for the year ended December 31, 1997 to approximately $15,000 for the
year ended December 31, 1998. This increase was primarily due to depreciation
related to new property and equipment purchases.
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Interest expense, net
Net interest expense increased approximately $20,000 from the year ended
December 31, 1997 to approximately $20,000 for the year ended December 31, 1998
due to the establishment and use of a line of credit to fund our operations.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its 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. Following the acquisition by InterCept, operations were financed
through cash flow from operations and contributions and borrowings from
InterCept, as discussed below.
On August 6, 1999 and September 3, 1999, we issued three promissory notes
to InterCept in 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. All outstanding balances due to
InterCept related to these promissory notes were repaid with proceeds from our
initial public offering.
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. 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.
In November 1999, we completed our initial public offering. We 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. We
received net proceeds from the offering of approximately $54.9 million after
deducting underwriters' discounts, commissions and expenses of the offering.
On December 15, 1999, we acquired DPSC in exchange for approximately $18.5
million in cash, 500,000 shares of Series A 8% cumulative convertible preferred
stock, 525,000 shares of common stock, the payment of other acquisition costs of
approximately $1.0 million, and the assumption of certain operating liabilities.
In conjunction with the acquisition of DPSC, we received a commitment for a
$15 million line of credit from InterCept. Borrowings on the line will bear
interest at a rate of prime plus 2%. As of December 31, 1999, we had borrowed
approximately $11.0 million from InterCept on terms consistent with this
commitment. After December 31, 1999, we repaid a portion of these borrowings
with cash on hand. On March 24, 2000, pending the finalization of the line of
credit, we issued a promissory note to InterCept in the principal amount of
approximately $7.8 million, which reflects the amount borrowed under terms
consistent with the commitment as of that date. This note bears interest at a
rate of prime plus 2% and is secured by substantially all of our assets. Accrued
interest under this note is payable monthly beginning May 1, 2000. These
borrowings are being used to fund working capital requirements.
Our operating activities used cash of approximately $33,000, $226,000 and
$2.5 million for the years ending December 31, 1997, December 31, 1998 and
December 31, 1999, respectively. Cash used in operating activities resulted
primarily from our operating loss.
Our investing activities used cash of approximately $2,000, $18,000, and
$53.2 million for the years ending December 31, 1997, December 31, 1998 and
December 31, 1999, respectively. The cash used in investing activities resulted
from the acquisitions of the Acquired Entities and the purchase of property,
equipment and external software development.
Our financing activities generated cash of approximately $50,000, $229,000
and $66.9 million for the years ending December 31, 1997, December 31, 1998 and
December 31, 1999, respectively. The cash generated by financing activities for
the year ended December 31, 1999 resulted primarily from proceeds from private
placements of common stock, our initial public offering and borrowings from our
line of credit facility.
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We believe that our existing capital resources, together with cash provided
by our operations, will be sufficient to fund our working capital requirements
for the next 12 months. If we expand more rapidly than currently anticipated, if
our working capital requirements exceed our current expectations, or if we make
additional acquisitions, we may need to raise additional capital either through
debt or equity sources before that time. We cannot be sure that we will be able
to obtain the additional financing necessary to satisfy these additional capital
requirements or to implement our growth strategy on acceptable terms or at all.
If we cannot obtain this financing on terms acceptable to us, we may be forced
to curtail some planned business expansion and may be unable to fund our ongoing
operations.
YEAR 2000 ISSUE
The year 2000 issue refers to the problems that may have arisen from the
improper processing of dates and date-sensitive calculations by computers and
embedded microprocessors as the year 2000 was reached. These problems generally
arose 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 would recognize a code of "00" as the year
1900 rather than the year 2000.
Effect of Year 2000 on Operations
As of March 20, 2000, we had not encountered any significant year 2000
business interruptions or losses, either from our own systems or from those of
our suppliers or customers.
Costs
As of December 31, 1999, we had incurred approximately $110,000 in costs
associated with the year 2000 issue and the implementation of our year 2000
plan. All costs associated with our year 2000 plan were expensed, except those
which were capital in nature.
FACTORS THAT MAY AFFECT OUR FUTURE RESULTS OF OPERATIONS OR FINANCIAL CONDITION
Because we have a limited operating history in a rapidly evolving industry, it
is difficult to evaluate our business and prospects
We were incorporated in August 1999 as the successor to a company which had
operated only since October 1996. We have completed seven acquisitions since
August 1999. See "Business -- Formation of Netzee." Because key members of our
management team came from different entities, the members of our senior
management team have only worked together for a short time. Therefore, it is
difficult to evaluate us and our prospects. The risks we will face as an early
stage company with a new management team in the new and rapidly evolving
Internet banking and commerce markets. These risks include our inability to:
- integrate successfully the Acquired Entities and the senior management
personnel that joined us from each Acquired Entity;
- develop, test, market and sell our products and services;
- expand successfully our sales and marketing efforts;
- maintain our current, and develop new, strategic marketing alliances;
- promote acceptance of our products and services by our community
financial institution customers and their customers;
- respond effectively to competitive pressures; and
- continue to develop and upgrade our technology.
We may not succeed in achieving any or all of these goals, and current
evaluations of us and our prospects may prove to be inaccurate. We may never
achieve or sustain profitability.
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We have a history of losses and anticipate losses in the future, and we may
never become profitable
We incurred net losses of approximately $27 million for the year ended
December 31, 1999. We expect to incur significant operating losses in the
foreseeable future.
We will need to generate significant revenues to achieve and maintain
profitability, and we cannot give assurances that we will be able to do so. Our
revenues for the year ended December 31, 1999 were approximately $2.3 million,
and our operating expenses for the year were approximately $24.1 million. We
plan to increase significantly our sales and marketing, research and development
and general and administrative expenses throughout the remainder of 2000 and for
the foreseeable future. Our expenses are partially based on our expectations
regarding future revenues and are largely fixed in nature, particularly in the
short term. If our revenues grow more slowly than we anticipate or if we cannot
control our operating expenses, our financial performance will be adversely
affected.
We are currently experiencing a period of significant growth that may place a
strain on our resources
We have experienced significant growth in our operations through recent
acquisitions, and we expect to continue to grow rapidly. Expansion of our
business will place additional demands on our management, operational capacity
and financial resources. Our current management, sales, technical, operational
and accounting resources may not be adequate to support our recent expansion and
anticipated future growth. To manage our expected growth, we will be required to
devote significant resources to improving or replacing existing operational,
accounting and information systems, procedures and controls. Our future
operating results will substantially depend on the ability of our management to
handle changing business conditions and to implement and improve our systems. To
manage our growth effectively, we must:
- predict accurately the growth in the demand for our products and services
and our capacity to address that demand;
- attract, train, motivate, manage and retain key employees;
- continue to expand and improve our operating and financial systems,
procedures and controls;
- acquire and install new equipment and facilities;
- continue to integrate our management team with individuals who have
recently joined our management team as a result of our acquisitions;
- integrate the operations and personnel of any other businesses we
acquire; and
- respond effectively to changes in the industry.
Our relationship with InterCept may present potential conflicts of interest,
which may result in decisions that favor InterCept over our other shareholders
Because we and InterCept are both engaged in the sale of electronic
commerce products and services to community financial institutions, numerous
potential conflicts of interest exist between our companies or their affiliates.
We will compete with each other when offering some products and services to
potential customers. Our bylaws contain provisions addressing potential
conflicts of interest between us and InterCept and the allocation of
transactions that, absent such allocation, could constitute corporate
opportunities of both companies. Under these provisions, InterCept may take
advantage of a corporate opportunity rather than presenting that opportunity to
us, absent a clear indication that the opportunity was directed to us rather
than to InterCept. In addition, we plan to use and market InterCept's electronic
commerce technologies, products and services as part of our Internet banking
solution, and any failure or refusal by InterCept to provide these products and
services could negatively impact our business.
Our existing and future agreements and relationships with InterCept have
not resulted and will not necessarily result from arms-length negotiations.
InterCept currently owns approximately 35% of our common stock. Our Chairman and
three of our other directors are directors and significant shareholders of
InterCept. In addition, John W. Collins, one of those directors, serves as Chief
Executive Officer of InterCept. When the
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interests of InterCept diverge from our interests, InterCept's officers and
directors may exercise their influence in InterCept's best interests. Therefore,
our agreements and relationships with InterCept may be less favorable to us than
those that we could obtain from unaffiliated third parties. Moreover, many of
the transactions between us and InterCept do not lend themselves to precise
allocations of costs and benefits. Thus, the value of these transactions will be
left to the discretion of the parties, who are subject to potentially
conflicting interests.
Other than the provisions of our bylaws relating to corporate
opportunities, there is no mechanism in place to resolve these conflicts of
interest, except that it is our policy that transactions with affiliated parties
be approved by a majority of our disinterested directors. Nevertheless, due to
the extensive relationships between InterCept and us, we may take decisions that
potentially favor InterCept or its affiliates at the expense of our
shareholders. Furthermore, Georgia law may prohibit our shareholders from
successfully challenging these decisions, if the decision received the
affirmative vote of a majority, but not less than two, of our disinterested
directors who received full disclosure of the existence and nature of the
conflict.
Our business and prospects will suffer if end users do not accept and use our
products and services
We derive substantially all of our revenues from products and services
provided to community financial institutions, their customers and other
participants in the financial services industry. Substantially all of our
revenues have historically been derived from our Internet and telephone banking
products and services. Our future success depends significantly upon the
willingness of community financial institutions to offer technological
innovations such as Internet and telephone banking and upon their customers'
demand for and acceptance of these technological innovations and the willingness
of these financial institutions to use our regulatory reporting and support
applications. To the extent that we are unable to provide quality customer
service to community financial institutions and their customers, we may
experience reduced growth or a decline in our sales. If community financial
institutions and their customers do not readily accept these technological
innovations as reflected in our products and services, we will experience
reduced demand for our products and services.
We may not be able to be successful in marketing these products and
services or other integrated products and services. In addition, changes in
economic conditions and unforeseen events, including recession, inflation or
other adverse occurrences, may result in a significant decline in the
utilization of community financial institution services or demand for our
products and services. Any event that results in decreased consumer or corporate
use of community financial institution services, or increased pressures on
community financial institutions toward the in-house development of Internet
based systems, could have a material adverse effect on our business, financial
condition and results of operations.
Because we offer Internet-based products and services, our business would
be adversely affected if Internet use does not continue to grow or grows more
slowly than expected. Internet usage may be inhibited for a number of reasons,
including inadequate network infrastructure, security concerns, inconsistent
quality of service, and unavailability of cost effective, high-speed access to
the Internet. If the market for Internet-based financial services fails to grow,
grows more slowly than anticipated, or becomes saturated with competitors, our
business, financial condition and results of operations likely would be
materially adversely affected.
We may experience delays in product development, and these delays may
adversely affect us
The electronic banking and financial services industry is characterized by
rapidly changing technology, evolving industry standards, emerging competition
and frequent new product and service introductions. Our future success will
depend on our ability to develop, test, sell and support new and integrated
products and services that will keep pace with technological advances and
industry standards and satisfy the evolving needs of both financial institutions
and their customers. Our inability to develop and introduce new and integrated
products and services in a timely manner could limit the marketability of our
products and services and could render them obsolete, which would adversely
affect us. Further, we cannot predict the time required and costs involved in
developing new and integrated products and services. Actual development costs
could substantially
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exceed budgeted amounts, and estimated product development schedules could
require extensions. In these cases, our business, financial condition and
results of operations may be materially adversely affected.
If our acquisition strategy is not successful, we may lose our competitive
position, and our business and financial results may suffer
We intend to continue to evaluate potential acquisition candidates within
our industry, and we may acquire complementary technologies or businesses in the
future. Due to consolidation trends within the on-line services industry,
failure to adopt and to implement successfully a long-term acquisition strategy
could damage our competitive position. Future acquisitions may involve large,
one-time write-offs and amortization expenses related to goodwill and other
intangible assets. Any of these factors could adversely affect our business,
financial condition or results of operations. An acquisition involves numerous
risks, including:
- assimilating effectively the operations, products and services,
technology, information systems and personnel of the acquired company
into our operations;
- diverting our management's attention from other business concerns;
- impairing relationships with our employees, affiliates, strategic
marketing alliances and content providers;
- failing to maintain uniform standards, controls, procedures and policies;
- entering markets in which we have no direct prior experience; and
- losing key employees of the acquired company.
Some or all of these risks could result in a material adverse effect on our
business, financial condition and results of operations. In addition, we may not
be able to identify suitable acquisition candidates that are available for sale
at reasonable prices. We may also elect to finance future acquisitions with debt
financing, which would increase our debt service requirements, or through the
issuance of additional common or preferred stock, which could result in dilution
to our shareholders. There can be no assurance that we will be able to arrange
adequate financing for any acquisitions on acceptable terms.
The unpredictability of our future financial results and events beyond our
control may adversely affect the trading price of our common stock
Our financial results and the price of our common stock may fluctuate
substantially in the future. These fluctuations may be caused by several
factors, including pricing competition for our products and services and our
ability to make sales. Other factors which may cause our common stock to be
adversely affected and which may cause significant fluctuations in our stock
price include:
- our actual or anticipated operating results;
- our actual or anticipated growth rates, as they may change from time to
time;
- changes in analysts' estimates;
- competitors' announcements;
- regulatory actions;
- industry conditions;
- general economic conditions; and
- a variety of other factors that we have discussed elsewhere in "Factors
That May Affect Our Future Results of Operations or Financial Condition."
Further, the market for Internet and technology companies has experienced
extreme price and volume volatility that have often been unrelated or
disproportionate to the operating performance of those companies. These broad
market and industry factors may materially and adversely affect our stock price,
regardless of our
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operating performance. The trading prices of the stock of many Internet and
technology companies are at or near historical highs and reflect relative
valuation levels substantially above historical levels. These trading prices and
relative valuation levels may not be sustained and may not be applicable to our
common stock.
Our sales efforts may be delayed because community financial institutions are
generally slow to adopt new technology
Due in part to the nature of our applications and the associated hardware,
software and consulting expenditures, community financial institutions tend to
be cautious in making purchase decisions regarding new technologies. This
requires us to provide a significant level of education to prospective customers
regarding the use and benefits of our products and services prior to the
purchase of our products and services. Further, community financial institutions
are frequently slow to approve capital expenditures and to review new
technologies that affect key operations. All of this could have the affect of
significantly lengthening our sales cycle thereby delaying revenue growth and
adversely affecting our business, operating results and financial condition.
Our operating results may adversely be affected because implementation of our
Internet banking products and services by our community financial institution
customers may take longer than we anticipate
During the course of an initial implementation of our Internet banking
products and services, we must integrate our Internet banking software with a
community financial institution's core processing systems. This involves the
installation of an interface to permit communication between our Internet
banking products and services and the community financial institution's core
processing systems. We may, from time to time, experience some delays in the
integration process, particularly if we do not already have an established
interface for a particular core processing software. It takes us an average of
60 days to implement our Internet banking services. A longer integration period
will increase our costs associated with the implementation and delay the
recognition of revenues. Changes to existing core software systems by existing
customers and custom implementations for future client financial institutions
may also cause integration delays in future implementations that could have a
material adverse effect on our business, operating results and financial
condition for subsequent periods.
We rely on our strategic marketing alliances to generate customers and
revenue, and the loss of a significant strategic marketing partner would
adversely affect our revenue
We expect that revenues generated from the sale of our products and
services based on leads generated through our strategic marketing alliances will
account for a significant portion of our revenues for the foreseeable future. In
particular, we expect that, over time, a limited number of our strategic
marketing relationships will account for a substantial portion of our community
financial institution leads and, therefore, revenues. Our arrangements with
these strategic partners are relatively new and have not yet generated material
revenues. Further, if we lose one or more of our major strategic marketing
alliances, we may be unable to replace them with other alliances that have
comparable customer bases and user demographics. The loss of some or all of our
strategic marketing alliances would adversely affect our business, financial
condition and results of operations.
Damage to our data centers would result in failures or interruptions in
providing our products and services to our customers, which could jeopardize
our business and customer relationships
Although we have a contingency plan to provide Internet services if one or
more of our data centers fail to function, a natural disaster, such as a fire,
tornado or flood, or other unanticipated problem at one or more of our data
centers, including an extended power loss, telecommunications failure, break-in,
computer virus, hacker attack or other events beyond our control, could
nevertheless result in failures or interruptions in providing our products and
services to our customers. The occurrence of any of these events could have a
material adverse effect on our business, financial condition and results of
operations.
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Our business could suffer if our community financial institution customers
terminate their contracts with us
Significant consolidation is occurring in the financial services industry,
and our community financial institution customers that are involved in mergers
and acquisitions may terminate their agreements with us or fail to renew them
when they expire. An existing community financial institution customer may be
acquired by or merged with another financial institution that utilizes a
different Internet banking system or does not desire to continue the
relationship with us for some other reason. This could result in the new entity
terminating the relationship with us. This risk is particularly relevant to us
because we target small to mid-sized community financial institutions as
customers, which are more likely to be potential acquisition candidates. Our
business, financial condition and results of operations would suffer if
community financial institution customers terminate their relationships with us.
If we cannot hire and retain qualified personnel, we will not be able to
conduct our operations successfully or at all
There is significant competition for qualified employees, and high employee
turnover exists among Internet and other technology companies today. As a
result, we may experience difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. Our operating results may be
adversely affected if we cannot hire or retain employees or if we experience
increased expenses related to attracting, training and retaining qualified
employees. Our failure to succeed in attracting new personnel or retaining and
motivating our current personnel could adversely affect our business, financial
condition and results of operations.
Network security problems could hinder the growth of the Internet and cause us
to lose customers
To the extent that our activities involve the storage and transmission of
proprietary information, security breaches could expose us to possible liability
and damage our reputation. Any compromise of our security or the security of the
Internet in general could harm our business and could deter people from using
the Internet to conduct transactions that involve transmitting confidential
information. We rely on standard Internet security systems, all of which are
licensed from third parties, to provide the security and authentication
necessary to effect secure transmission of data. Nevertheless, compromises or
breaches of our security measures may occur.
Our networks may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Someone who is able to circumvent our security
measures could misappropriate our proprietary information or cause interruptions
in our Internet operations. Internet and on-line service providers have in the
past experienced, and we may in the future experience, interruptions in service
as a result of the accidental or intentional actions of Internet users,
including current and former employees or others. Concerns regarding security
risks may deter community financial institutions from purchasing our products
and services and deter their customers from using our products and services. We
may need to expend significant capital or other resources to protect against the
threat of security breaches or to alleviate problems caused by breaches. These
breaches may also require us to pay money damages to others who were harmed by
them. Eliminating computer viruses and alleviating other security problems may
result in interruptions, delays or termination of service to users accessing web
sites that deliver our services, any of which could harm our business, financial
condition and results of operations.
Defects in software products that we use in our products and our inability to
sustain a high volume of traffic may materially and adversely affect our
business
The software used by our systems and products and services may contain
errors, defects or bugs. Although we have not suffered significant harm from any
errors or defects to date, we may discover significant errors or defects in the
future that we may or may not be able to correct. We have recently introduced
and will be continually introducing new products in the market and have not
experienced any product liability claims to date, but the sale and support of
our products and services may entail the risk of these claims. A product
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liability claim brought against us could have a material adverse effect on our
business, financial condition and results of operations.
Furthermore, if the volume of traffic and transactions on our system
increases substantially, we could experience periodic temporary capacity
constraints, which may cause unanticipated system disruptions, slower response
times and lower levels of customer service. We may be unable to project
accurately the rate or timing of increases, if any, in the use of our services
or expand and upgrade our systems and infrastructure in a timely manner to
accommodate these increases. Any inability to do so could harm our business.
Increased competition may increase pricing pressures, reduce margins and
create a loss of market share
The market for our products and services is highly competitive. We compete
with a variety of third parties, including other providers of retail and
wholesale products and services, as well as systems developed internally by
financial institutions. We also expect competition in our markets to increase
significantly as new companies enter our market and current competitors expand
their product lines and services. These new competitors may include non-bank
financial institutions, such as brokerage firms, on-line service providers and
data processing vendors, among others. In many instances, these entities are
dominant competitors and may enjoy substantial competitive advantages,
including:
- greater name recognition;
- greater financial, technical and marketing resources to devote to the
development, promotion and sale of their services;
- longer operating histories; and
- a larger base of client financial institutions.
Any pricing pressures, reduced margins or loss of market share resulting from
our failure to compete effectively would materially and adversely affect our
business, financial condition and operating results.
Infringement by others upon our proprietary technology could harm our ability
to establish and protect our proprietary rights, which could adversely affect
our business
Our inability to protect our proprietary rights adequately could have a
material adverse effect on the acceptance of our brand names and on our
business, financial condition and operating results. We rely on a combination of
copyright, trademark and trade secret laws and contractual provisions to
establish and protect our proprietary rights. Further, we have pending patent
applications in the United States and Canada with respect to our PALMS(TM)
asset/liability management software.
There can be no assurance that the steps we have taken, and will take in
the future, to protect our proprietary rights will be adequate or that third
parties will not infringe upon or misappropriate our copyrights, trademarks,
patents (if and when issued), service marks, domain names and similar
proprietary rights. In addition, effective patent, copyright and trademark
protections may be unenforceable or limited in foreign countries, and the global
nature of the Internet makes it impossible to control the ultimate destination
of our services. Our competitors or others may adopt product or service names
similar to ours, thereby impeding our ability to build brand identity and
possibly leading to customer confusion. Moreover, because Internet domain names
derive value from the individual's ability to remember these names, we cannot
guarantee that our Internet domain names will maintain their value if, for
example, users begin to rely on mechanisms other than Internet domain names to
access on-line resources.
Furthermore, we may become involved in litigation or other proceedings
regarding our patents (if and when issued) trade secrets, copyrights and other
intellectual property rights. An adverse determination in intellectual property
litigation could result in the loss of proprietary rights, subject us to
significant liabilities, require us to seek licenses from third parties or
prevent us from selling our products and services. We may not be able to obtain
licenses, if necessary, on commercially reasonable terms, if at all. In
addition, litigation would divert management resources and be expensive. Any of
these results could have a material adverse effect on the acceptance of our
brand names and on our business, financial condition and operating results.
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Changes in financial institution regulatory reporting requirements may hinder
our ability to market and sell our wholesale reporting software to financial
institutions
If state and federal banking authorities change their financial institution
reporting requirements or the means by which financial institutions must
complete or submit these reports, our financial institution customers may be
unable to utilize some of our wholesale reporting products. We may not be able
to adapt our software in a timely manner or at all to reflect changes in these
regulatory reporting requirements. In this event, financial institution
customers purchasing these products and services would be required either to
replace our products and services with those of our competitors or to develop
their own reporting software, which would cause us to lose the recurring revenue
from such customers. Further, we would be unable to sell these products and
services to new customers until our software became compliant with the changed
reporting requirements. Thus, these changes may have a material adverse effect
on our business, financial condition and operating results.
Our growth may be adversely affected by government regulation and legal
uncertainties that could add additional costs to doing business on the
Internet
Other than the Act, there are currently few laws or regulations that
specifically regulate communications or commerce on the Internet. However, laws
and regulations may be adopted in the future that address issues, including user
privacy, pricing, and the characteristics and quality of products and services.
For example, the Telecommunications Act sought to prohibit transmitting various
types of information and content over the Internet. Several telecommunications
companies have petitioned the Federal Communications Commission to regulate
Internet service providers and on-line service providers in a manner similar to
long distance telephone carriers and to impose access fees on those companies.
This could increase the cost of transmitting data over the Internet. Moreover,
it may take years to determine the extent to which existing laws relating to
issues such as property ownership, libel and personal privacy issues apply to
the Internet. Any new laws or regulations relating to the Internet or the manner
in which existing laws are applied to the Internet could adversely affect our
business.
Our primary customers are community financial institutions, which are
heavily regulated. In addition, financial institution regulators can effectively
control and mandate the standards for the required security systems,
communication technologies and other features of our products and services.
Federal, state or foreign governmental authorities may adopt new regulations
addressing electronic financial institution operations that could require us to
modify our current or future products and services.
Once effective, the Act will restrict or prohibit our ability to offer
third parties access to non-public personal information generated by our
products and services. Further, with respect to the information of each
particular individual that does business with a community financial institution,
we will be required to comply with the privacy policies that are adopted by each
financial institution. This law also requires the federal banking authorities,
the Securities and Exchange Commission and the Federal Trade Commission to adopt
rules and regulations implementing this law, which may impose more stringent
restrictions or prohibitions on our products, services and operations. Finally,
this law specifically permits states to adopt financial privacy laws that are
more restrictive than federal law. This law or the adoption of other laws or
regulations affecting our business or our community financial institution
customers' businesses could reduce our growth rate or could otherwise have a
material adverse effect on our business, financial condition and operating
results. See "Business -- Government Regulation."
Taxation of our Internet products and services could affect our pricing
policies and reduce demand for our products and services
Any legislation that substantially impairs the growth of e-commerce could
have a material adverse effect on our business, financial condition and
operating results. The tax treatment of the Internet and e-commerce is currently
unsettled. A number of proposals at the federal, state and local levels in the
United States and before foreign governments would, if enacted, impose taxes on
the sale of goods and services provided over the Internet. A recently enacted
law places a temporary moratorium on some forms of taxation on Internet
commerce. We cannot predict the effect of current attempts to tax or regulate
commerce over the Internet.
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To execute our strategy, we may require additional funding that may not be
available on favorable terms or at all, and a lack of funds could
substantially impair our ability to operate, grow and be profitable
We do not have sustained earnings or positive cash flow, and our business
strategy currently requires us to incur significant expenses to operate
competitively and to grow our business. We do not currently, and will not for
the foreseeable future, have adequate cash flow from operations to fund these
expenses. Consequently, we will likely require additional funds to operate our
business and to execute our strategy successfully. Additional financing may not
be available on favorable terms or at all. If we cannot raise adequate funds to
satisfy our operating and capital requirements, we may have to limit our
operations significantly. Our future operating and capital requirements depend
upon many factors, including:
- the rate at which we expand our sales and marketing operations;
- the response of competitors to our product and service offerings;
- the extent to which we expand our products and services;
- the extent to which we develop and upgrade our technology and data
network infrastructure; and
- the occurrence, timing, size and successful integration of acquisitions.
Disruptions or reductions in Internet capacity could jeopardize our ability to
offer Internet access service, which could adversely affect our financial
results
Our ability to offer Internet access service depends upon the size, ease of
expansion, reliability and security of our network infrastructure, including the
transmission capabilities we lease from the Internet service providers that
connect us and our customers to the Internet. A disruption or reduction in
Internet capacity by these suppliers could prevent us from maintaining our
service and cause us to lose customers. In addition, we may experience
disruptions or capacity constraints in the local telecommunications lines and
leased long-distance lines that connect us to our customers. Finally, the growth
of the market for our products and services depends on improvements being made
to the entire Internet infrastructure to alleviate congestion and to maintain
reliability.
Our stock value may be adversely affected because our management and
affiliates beneficially own approximately 54% of our common stock, and thus no
corporate actions requiring shareholder approval can be taken without their
approval
Our officers, directors and affiliated persons beneficially own
approximately 54% of our common stock. As a result, our officers, directors and
affiliated persons effectively are able to:
- elect, or defeat the election of, our directors;
- amend or prevent amendment of our articles of incorporation or bylaws;
- effect or prevent a merger, sale of assets or other corporate
transaction; and
- control the outcome of any other matter submitted to the shareholders for
vote.
Our public shareholders, for so long as they hold less than a majority of
the outstanding shares of our common stock, will be unable to control the
outcome of any shareholder vote. Management's stock ownership may discourage a
potential acquiror from offering to purchase or otherwise attempting to obtain
control of Netzee, which in turn could reduce our stock price or prevent our
shareholders from realizing a premium over our stock price.
Future sales of our common stock will dilute current shareholder ownership and
may depress our stock price
To carry out our growth strategies, we plan to acquire other businesses and
products using a combination of our stock and cash, and we may also sell
additional shares of our stock to raise money for expanding our operations. We
may issue more shares of stock, both common and preferred, in future
acquisitions or in sales of our stock, which would dilute current shareholder
ownership interest in Netzee.
If our shareholders sell substantial amounts of our common stock, including
shares issuable upon the conversion of shares of preferred stock and the
exercise of outstanding options, the market price of our
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<PAGE> 41
common stock could fall. These sales also might make it more difficult for us to
sell equity securities in the future at a time and price that we deem
appropriate. As of March 20, 2000, we had 21,705,083 shares of common stock
outstanding and 411,067 shares of common stock reserved for issuance upon the
conversion of preferred stock we issued. In connection with our acquisition of
DVI, we also agreed to issue to DVI up to 628,272 shares of our common stock
upon the attainment by DVI's operations of revenue goals in fiscal years 2000
and 2001. In addition, we have also agreed to register up to 6,430,043 shares of
common stock that we issued in connection with some of our acquisitions, subject
to the terms and conditions of applicable registration rights agreements.
Further, we have reserved a total of 4,816,768 shares of our common stock
for issuance under our stock option plan. The plan provides that this amount
will be automatically increased on January 1 of each year to an amount equal to
20% of the fully diluted shares of our common stock on the preceding December
31, provided, however, that the number of shares available for issuance shall
not be less than 3,500,000. As of March 20, 2000, we have outstanding options to
purchase a total of 3,039,919 shares of common stock under this plan. We have
registered all of the shares presently issuable under this plan for sale in the
public market.
Our future earnings will be reduced because we have a significant amount of
intangible assets
As of December 31, 1999, approximately $120.6 million, or 84%, of our total
assets were intangible assets. These intangible assets primarily represent
amounts attributable to the issuance of stock in acquisitions accounted for as
purchases. We will likely record additional intangible assets in the future if
we acquire complementary businesses. Additionally, we currently amortize
intangible assets over a useful life that management believes is reasonable and
is allowable under generally accepted accounting principles, or GAAP. GAAP can
change in the future and affect the amortization period and therefore our future
results. Additionally, any impairment in the value of these intangible assets
could have a material adverse effect on our business, financial condition and
operating results.
Our articles of incorporation and bylaws, as well as Georgia corporate law,
may prevent or delay third parties from acquiring us and result in a decrease
in our stock price
Our articles of incorporation, bylaws and Georgia law could make it more
difficult for a third party to acquire us, even if a change in control would be
beneficial to our shareholders. For example, our articles of incorporation and
bylaws provide, among other things, that:
- the board of directors, without shareholder approval, has the authority
to issue preferred stock with rights superior to the rights of the
holders of common stock, and we have already issued a series of preferred
stock in connection with one of our acquisitions;
- our directors may only be removed for cause, and only upon the vote of
the holders of at least 66 2/3% of our voting stock;
- the board of directors is divided into three classes and directors have
staggered terms; and
- the shareholders may call a special meeting only upon request of 75% of
votes entitled to be cast on an issue.
Georgia law also contains "business combination" and "fair price"
provisions. Our board of directors may adopt these provisions and other
"anti-takeover" measures without shareholder approval, the effect of which may
be to delay, deter or prevent a change in control of Netzee.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities." This Statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial
39
<PAGE> 42
position and measure those instruments at fair value. The Statement is effective
for all fiscal quarters of all fiscal years beginning after June 15, 2000. As we
currently do not engage in the use of derivative instruments or hedging
activities, we do not expect this Statement will have a significant impact on
our financial statements.
During December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin 101, "Revenue Recognition" ("SAB 101"), to establish
guidelines for revenue recognition and enhance revenue recognition disclosure
requirements. The Bulletin clarifies basic criteria for when revenues are taken
into account for purposes of a company's financial statements. SAB 101 is
effective for the quarter ended June 30, 2000. We are currently assessing the
implications of adopting SAB 101, as revenue for non-refundable, up-front fees
associated with product implementation will be recognized over the term of the
underlying contract, rather than upon the completion of product implementation.
In the period of adoption, the cumulative impact will be reported as a change in
accounting principles as dictated by SAB 101.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES REGARDING MARKET RISK
We do not use derivative financial instruments in our operations or
investments and do not have significant operations subject to fluctuations in
foreign currency exchange rates. We have issued a promissory note to InterCept
that has an interest rate that fluctuates based upon the prime rate.
Any increases in the prime rate or in other interest rates upon which the
prime rate is calculated or based may dramatically increase the interest rate
under our borrowings and would make it more costly for us to borrow funds
thereunder. Such increased costs may impede our acquisition and growth
strategies if management determines that the costs associated with borrowing
funds are too high to implement these strategies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements, including our Consolidated Balance
Sheets as of December 31, 1998 and 1999 and Consolidated Statements of
Operations, Consolidated Statements of Cash Flows and Consolidated Statements of
Changes in Shareholders' (Deficit) Equity for the years ended December 31, 1997
and 1998, for the period from January 1, 1999 to February 28, 1999, and for the
period from March 1, 1999 to December 31, 1999, together with the report thereto
of Arthur Andersen LLP, are attached hereto as pages F-1 through F-19.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Since January 1, 1998, we have not had any disagreements on accounting or
financial disclosures with our accountants, and we have not changed such
accountants.
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<PAGE> 43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information about our directors and
executive officers, including their ages, as of April 17, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ---- --------
<S> <C> <C>
Glenn W. Sturm............................ 46 Chief Executive Officer and Director
Catherine G. Silver....................... 43 President and General Manager
C. Michael Bowers......................... 52 Chief Operating Officer
Richard S. Eiswirth....................... 31 Senior Executive Vice President, Chief
Financial Officer and Secretary
Michael E. Murphy......................... 51 Vice President and Chief Technology
Officer
John W. Collins........................... 52 Chairman of the Board of Directors
Jon R. Burke.............................. 52 Director
Gayle M. Earls............................ 63 Director
Joel A. Katz.............................. 55 Director
Stiles A. Kellett, Jr. ................... 56 Director
Jefferson B. A. Knox, Sr.................. 37 Director
Bruce P. Leonard.......................... 46 Director
Joseph F. Quinlan, Jr..................... 52 Director
A. Jay Waite.............................. 51 Director
</TABLE>
GLENN W. STURM has served as our Chief Executive Officer and a director
since our inception in 1999. Since 1997, Mr. Sturm has served as a director of
InterCept, which beneficially owns approximately 35% of our common stock. Since
1992, Mr. Sturm has been a partner in the law firm of Nelson Mullins Riley &
Scarborough, L.L.P., where he served as Corporate Chairman until 1999 and serves
as a member of the Executive Committee. From 1997 until 1999, Mr. Sturm also
served as a director of WebMD, Inc. Mr. Sturm serves on the board of directors
of two other public companies: Towne Services, Inc., a provider of sales and
financing transactions products and services, and comstar.net, an Internet
service provider.
CATHERINE G. SILVER has served as our President and General Manager since
April 2000 and as our Senior Executive Vice President and General
Manager -- Marketing and Client Services from January to April 2000. From
January 1999 until November 1999, Ms. Silver was President of the Professional
Division of Healtheon/WebMD Corporation. From November 1997 until December 1998,
Ms. Silver was a principal at Synectics, Inc., a management consulting company.
From November 1996 until November 1997, Ms. Silver was Vice President of New
Business Development at Reed Elsevier, a publisher and information services
company. From October 1995 to November 1996, Ms. Silver was Vice President of
Sales and Marketing for Herring Communications, publisher of the technology and
business magazine "The Red Herring."
C. MICHAEL BOWERS has served as our Chief Operating Officer since August
1999 and our President from August 1999 until April 2000. Mr. Bowers served as
the President and Chief Executive Officer of Dyad from its inception in 1996
until we acquired it in 1999. From March 1991 to April 1996, Mr. Bowers was the
manager of management consulting for Porter Keadle Moore, LLP (formerly Evans,
Porter, Bryan & Co.), a financial institution accounting and consulting firm
located in Atlanta, Georgia. Prior to joining Porter Keadle Moore, Mr. Bowers
served in various capacities with seven community financial institutions. Mr.
Bowers has over 25 years of experience with community financial institutions.
RICHARD S. EISWIRTH has served as our Senior Executive Vice President,
Chief Financial Officer and Secretary since August 1999. Prior to joining
Netzee, Mr. Eiswirth was a certified public accountant with Arthur Andersen LLP
from 1991 until 1999.
MICHAEL E. MURPHY has served as our Vice President since March 2000 and as
our Chief Technology Officer since April 2000. From May 1995 until March 2000,
he served as Chief Executive Officer of Digital Visions.
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<PAGE> 44
Mr. Murphy has over 31 years of experience in investment operations and
automation, with significant experience in the direction of software and product
development projects.
JOHN W. COLLINS has served as our Chairman of the Board of Directors since
inception. Mr. Collins was the co-founder of InterCept and has served as its
Chairman of the Board and Chief Executive Officer since 1996. Prior to
co-founding InterCept, Mr. Collins served as a director and executive officer of
several of its predecessor companies and affiliates since 1986. Mr. Collins has
over 26 years of experience in various aspects of electronic commerce for
community financial institutions. Mr. Collins is also a director of Towne
Services, Inc. and several privately held companies.
JON R. BURKE has served as a director of Netzee since October 1999. Since
1995, Mr. Burke has served as a principal with Brown, Burke Capital Partners,
Inc., a financial consulting firm for companies involved in mergers and
acquisitions. Mr. Burke also serves as the general managing member of Capital
Appreciation Management Company, L.L.C., the managing general partner of an
Atlanta-based merchant-banking fund. From 1973 to 1995, he was employed by The
Robinson-Humphrey Company, Inc., most recently serving as a Senior Vice
President in the Research Department. Mr. Burke currently serves on the Board of
Directors of InterCept, HealthTronics, Inc., a provider of medical treatment
solutions, and United Companies Financial Corporation, a financial services
holding company engaged in commercial lending.
GAYLE M. EARLS has served as a director of Netzee since September 1999.
Since 1986, Mr. Earls has served as the President, Chief Executive Officer and a
director of TIB The Independent BankersBank. Mr. Earls served for the past six
years as a director of the Federal Reserve Bank of Dallas.
JOEL A. KATZ has served as a director of Netzee since September 1999. Since
1998, Mr. Katz has been a shareholder in the law firm of Greenberg Traurig, P.A.
in Atlanta, Georgia, where he specializes in the practice of entertainment and
sports law. From 1971 to 1998, Mr. Katz practiced law in Atlanta with Katz,
Smith & Cohen.
STILES A. KELLETT, JR. has been a director of Netzee since October 1999.
Since March 1996, Mr. Kellett has been the owner and Chairman of the Board of
Directors of Kellett Investment Corp., a privately-held investment firm. From
1976 to 1995, Mr. Kellett was co-owner and served as Chairman of the Board of
Directors of Convalescent Services, Inc., a long-term health care company
located in Atlanta, Georgia. Mr. Kellett also serves as a director of MCI
WORLDCOM, Inc. and as a director of 1st Virtual, Inc., an Internet bank based in
Palm Beach Gardens, Florida.
JEFFERSON B. A. KNOX, SR. has served as a director of Netzee since April
2000. Since April 1998, Mr. Knox has been the Executive Director of The Knox
Foundation, a private charitable foundation. From 1992 to 1998, Mr. Knox was the
President of the Columbia County, Georgia division of Allied Bank of Georgia,
which was acquired by Regions Bank of Georgia in 1997. From 1987 to 1992, Mr.
Knox served as the President of The Bank of Columbia County, which at that time
was a wholly-owned subsidiary of Allied Bankshares, Inc. Mr. Knox is currently a
member of the Board of Directors of Regions Bank of Central Georgia in Thomson,
Georgia. Mr. Knox is the son of Boone A. Knox, a director of InterCept.
BRUCE P. LEONARD has served as a director of Netzee since September 1999.
Since 1990, Mr. Leonard has served as the President, Chief Executive Officer and
a director of The Bankers Bank and its affiliate, Community Financial Services,
Inc. Prior to that, he was Senior Vice President-Marketing of The Bankers Bank.
He has served as past Chairman of the U.S. Bankers' Banks CEO Council and as a
board member of the Independent Bankers Association of America. He is currently
a board member of the Georgia Bankers Association, Community Bankers Association
of Georgia and Southeastern Bankcard Association.
JOSEPH F. QUINLAN, JR. has served as a director of Netzee since April 2000.
Since 1984, Mr. Quinlan has been the President and Chief Executive Officer of
First National Banker's Bank, a bankers' bank located in Baton Rouge, Louisiana.
Mr. Quinlan also has served as the Chairman of First National Banker's Bank
since 1995. He also served from 1977 to 1984 as the President of Citizens Bank
and Trust in Thibodeaux, Louisiana. Mr. Quinlan is also the past President of
the Community Bankers of Louisiana and the past Chairman of the Bankers' Bank
Council.
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A. JAY WAITE has served as a director of Netzee since September 1999. Mr.
Waite is currently a private investor. From 1989 to 1998, Mr. Waite served as
the Chairman of the Board of Reily Electrical Supply, Inc., an electrical
equipment distributor.
TERMS OF DIRECTORS AND EXECUTIVE OFFICERS
Pursuant to our articles of incorporation, the board of directors is
divided into three classes, as nearly equal in number as possible, designated
class I, class II and class III. Messrs. Katz, Kellett, Quinlan and Sturm
currently serve as class I directors, Messrs. Burke, Knox and Waite currently
serve as class II directors, and Messrs. Collins, Leonard and Earls currently
serve as class III directors. At each annual meeting of shareholders, a class of
directors will be elected for a three-year term to succeed the directors of the
same class whose terms are then expiring. The term of the initial class I
directors terminates on the date of the 2000 annual meeting of shareholders, the
term of the class II directors terminates on the date of the 2001 annual meeting
of shareholders, and the term of the class III directors terminates on the date
of the 2002 annual meeting of shareholders, and in each case upon the election
and qualification of their successors. However, because Mr. Burke was elected by
the board of directors to fill a newly created directorship, his term will, in
addition to the terms of the class I directors, expire on the date of the 2000
annual meeting of shareholders.
Under agreements with each of The Bankers Bank and TIB, we agreed to cause
Bruce P. Leonard, President and Chief Executive Officer of The Bankers Bank, and
Gayle M. Earls, President and Chief Executive Officer of TIB, to be elected as
class III directors, whose terms will expire on the date of the 2002 annual
meeting.
Under the terms of the Line of Credit Agreement by and between Netzee and
Kellett Partners, L.P., we agreed to cause a representative of Kellett Partners
to be elected to the board of directors. Stiles A. Kellett, Jr. has been
designated by Kellett Partners as its representative to serve on our board of
directors and was elected to the board of directors on October 19, 1999.
Although this agreement was terminated on December 15, 1999, Mr. Kellett remains
as a member of our board of directors.
We have entered into two-year employment agreements with each of Messrs.
Sturm, Bowers, Eiswirth and Murphy.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has established an audit committee and a
compensation committee. The audit committee consists of Messrs. Leonard and
Waite, and the compensation committee consists of Messrs. Katz and Waite.
The audit committee reviews the scope and timing of our audit services and
any other services our independent auditors are asked to perform, the auditor's
report on our financial statements following completion of their audit and their
policies and procedures with respect to internal accounting and financial
control. In addition, the audit committee will make annual recommendations to
the board of directors of the appointment of independent auditors for the
following year.
In connection with recent amendments to the rules of the Nasdaq National
Market, we are now required to establish an audit committee that is generally
comprised of at least three independent directors, one of whom must be
sophisticated in finance or accounting. We intend to cause our audit committee
to comply with these rule changes as soon as practicable.
The compensation committee reviews and evaluates the compensation and
benefits of all our officers, reviews general policy matters relating to
compensation and benefits of our employees and makes recommendations concerning
these matters to the board of directors. The compensation committee also
administers our 1999 Stock Option and Incentive Plan.
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<PAGE> 46
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers, and any person who beneficially owns more than 10% of
our common stock, to file with the SEC initial reports of beneficial ownership
and reports of changes in beneficial ownership of our common stock. These
persons are required by the SEC's regulations to furnish us with copies of all
section 16(a) forms they file.
Based solely upon on a review of copies of section 16(a) filings we
received during or with respect to fiscal 1999 and certain written
representations of our officers and directors with respect to the filing of
annual reports of changes in beneficial ownership on Form 5, we believe that
each filing required to be made pursuant to section 16(a) of the Exchange Act
during fiscal 1999 and for prior fiscal years has been filed in a timely manner
with the exception of the following:
- Richard S. Eiswirth, our Senior Executive Vice President, Chief Financial
Officer and Secretary, did not file a Form 4 during fiscal 1999 to report
a grant of options to him on November 9, 1999 pursuant to the Netzee,
Inc. 1999 Stock Option and Incentive Plan. Mr. Eiswirth filed this Form 4
with the SEC on April 27, 2000.
- C. Michael Bowers, our Chief Operating Officer, did not file a Form 4
during fiscal 1999 to report a grant of options to him on November 9,
1999 under the plan. Mr. Bowers filed this Form 4 with the SEC on April
27, 2000.
- Each of Messrs. Eiswirth and Bowers did not file a Form 5 for the 1999
fiscal year with respect to each of the transactions above that were not
timely filed on Form 4.
- A. Jay Waite, one of our directors, did not file a Form 4 in fiscal 1999
with respect to the acquisition of 10,000 shares of common stock by Waite
Family Fund Ltd. on November 9, 1999. This transaction was reported on
Mr. Waite's Form 5 for the 1999 fiscal year.
- Bruce P. Leonard, one of our directors, did not file a Form 4 with
respect to the acquisition of 875 shares of common stock on November 16,
1999. This transaction was reported on Mr. Leonard's Form 5 for the 1999
fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth as of December 31, 1999, all compensation
paid during our last fiscal year to our Chief Executive Officer. No other
executive officer earned more than $100,000 in total salary and bonus during the
last fiscal year. Because none of our executive officers were employed by Netzee
or any of its predecessors prior to July 1999, we have omitted information in
this table for fiscal years 1997 and 1998. Pursuant to the rules of the SEC, the
compensation described in this table does not include the value of medical
insurance, group life insurance or other benefits received by the named
executive officer that are available generally to all salaried employees.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------
AWARDS
-------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
------------------------------ STOCK UNDERLYING
FISCAL OTHER ANNUAL AWARDS OPTIONS/SARS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION ($) (#) COMPENSATION
- --------------------------- ------ ------ ----- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Glenn W. Sturm
Chief Executive Officer............ 1999 $1(1) $-0-(1) $-0- -0- 310,000 $-0-
</TABLE>
- ---------------
(1) In 1999, Mr. Sturm waived the receipt of all salary and bonus owed to him by
Netzee, except for $1.
All of our executive officers joined us in 1999, except for Ms. Silver, who
joined us in January 2000 and Mr. Murphy, who joined us in March 2000. We
entered into employment agreements with Messrs. Sturm, Bowers and Eiswirth on
September 1, 1999, except that we amended our employment agreement with Mr.
Eiswirth on March 1, 2000. The employment agreements with these executive
officers provide for
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<PAGE> 47
minimum annual salaries as follows: Mr. Sturm, $250,000; Mr. Bowers, $200,000;
and Mr. Eiswirth, $140,000. However, Mr. Sturm has elected to waive all of his
salary and bonus for fiscal year 1999 and for the first quarter of fiscal year
2000. In addition, each of these employment agreements provide, among other
things:
- for a term of two years, subject to extension by us for an additional two
years;
- for incentive compensation based upon achievement of targeted levels of
performance and other criteria that may be established by the board of
directors from time to time;
- that the executive is eligible to participate in all of our management
incentive programs, and in our stock, retirement and similar plans, that
we will pay for the executive's club dues and that we will provide him
with an automobile allowance, permit him to use our assets free of charge
and provide him with other benefits;
- for termination upon death or disability or for cause;
- that the executive may terminate the agreement following a change in
control of Netzee;
- that, if the agreement is terminated by us without cause or by the
executive after our breach or after a change in control:
- the executive will receive as a lump sum accrued compensation and
bonus, and his annual base salary, bonus and certain benefits for the
remainder of the term of the agreement (or if the remainder of the
term is less than one year, his salary for one year), and, with
respect to Mr. Sturm only, we must continue his insurance benefits
until he reaches age 65 unless he obtains these benefits from a
subsequent employer or Medicare; and
- options and other stock awards held by the executive vest and become
immediately exercisable;
- the executive shall have piggyback registration rights to have his shares
included in any registered offering we complete, subject to various
limitations and conditions;
- the executive shall be permitted to participate in venture capital and
other investments whether or not we participate in the particular
investment; and
- if the executive is required to pay Federal excise taxes by reason of a
golden parachute payment, we will reimburse him for those excise taxes.
Mr. Sturm's employment agreement permits him to remain a partner at Nelson
Mullins Riley & Scarborough, L.L.P., provided that his work for that firm and
any other organization of which he is an officer or director does not materially
interfere with his duties as our Chief Executive Officer and is not materially
adverse to our interests. He is entitled to keep all compensation paid to him by
that firm. In the event that in any instance his work for Nelson Mullins or any
other organization shall be adverse to our interests, Mr. Sturm will immediately
withdraw from any involvement or participation in that work. Further, under Mr.
Sturm's arrangement with Nelson Mullins, Mr. Sturm is prohibited from receiving
any benefit, financial or otherwise, from any work that Nelson Mullins may do
for us. Additionally, Mr. Sturm's employment agreement gives him demand
registration rights if he is terminated for any reason other than for cause and
if, at the time of termination, he owns options that have not been subject to
registration on a Form S-8 or otherwise.
On February 28, 2000, we entered into a two-year employment agreement with
Mr. Murphy that provides him with a base salary of $185,000 per year. We also
granted Mr. Murphy an incentive stock option under our 1999 Stock Option and
Incentive Plan to purchase up to 100,000 shares of our common stock. This option
has an exercise price of $22.125 per share. One-half of the option will vest
after 12 months of employment and the remaining one-half of the option will vest
after 24 months of employment, except that the option shall vest immediately
upon a transfer of control of Netzee. If the employment agreement is terminated
by us without cause, Mr. Murphy will receive payment of his base salary for the
greater of 12 months or the remainder of the term. The agreement also prohibits
Mr. Murphy from competing with us or soliciting our customers, employees or
consultants, during the term of the agreement and for a period up to 18 months
after it expires, as we may in our discretion determine. However, if we extend
the period of time during which Mr. Murphy
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<PAGE> 48
must refrain from soliciting our customers or competing with us, we must pay him
the amount of his last monthly salary during each month that these restrictions
are extended.
We have also entered into agreements with other employees who are not
executive officers.
COMPENSATION OF DIRECTORS
Neither employee nor non-employee directors receive cash compensation for
services performed in their capacity as directors. We reimburse each director
for reasonable out-of-pocket expenses incurred in attending meetings of the
board of directors and any of its committees. In addition, directors are
eligible to receive grants of awards under our 1999 Stock Option and Incentive
Plan. We have granted to each of our directors a one-time option to purchase
40,000 shares of common stock, 10,000 of which vest immediately and the
remainder of which vest in equal portions over three years.
STOCK OPTIONS
The following table sets forth information regarding grants of stock
options in fiscal 1999 to our chief executive officer, the only executive
officer named in the summary compensation table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL FAIR MARKET
UNDERLYING OPTIONS/SARS PER SHARE VALUE
OPTIONS/SARS GRANTED EXERCISE OR OF STOCK ON
GRANTED TO EMPLOYEES BASE PRICE DATE OF GRANT EXPIRATION
NAME (#) IN FISCAL YEAR ($/SH) ($/SH) DATE
- ---- ------------ ---------------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Glenn W. Sturm............ 170,000(2) 6.0% $ 2.00 $ 2.00 July 1, 2009
40,000(3) 1.4% $ 5.00 $11.50(1) September 7, 2009
100,000(4) 3.5% $14.00 $14.00 October 19, 2009
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
TERM
------------------------------
NAME 0%(1) 5% 10%
- ---- -------- -------- --------
<S> <C> <C> <C>
Glenn W. Sturm............ $ -- $ 26,373 $ 80,170
$260,000 $295,681 $368,466
$ -- $108,593 $330,113
</TABLE>
- ---------------
(1) For accounting purposes only, the fair market value of our common stock as
of September 7, 1999, as derived from our consolidated financial statements,
was assumed to be $11.50 per share.
(2) The shares subject to this option vest as follows: 85,000 shares were vested
as of November 15, 1999, the date we completed our initial public offering,
and the remaining 85,000 shares will vest in three equal installments over
three years.
(3) The shares subject to this option vest as follows: 10,000 shares were vested
as of September 7, 1999, the date of grant, and the remaining 30,000 shares
will vest in three equal installments over three years.
(4) The shares subject to this option vested in full on November 15, 1999, the
date we completed our initial public offering.
46
<PAGE> 49
EXERCISE OF OPTIONS AND YEAR-END VALUES
No options were exercised in fiscal 1999 by the named executive officer.
The following table sets forth information concerning the value at December 31,
1999 of unexercised options owned by the executive officer named in the summary
compensation table.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS AT
FISCAL YEAR-END (#) FISCAL YEAR-END ($)(1)
------------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Glenn W. Sturm......................... 195,000 115,000 $1,621,875 $1,591,875
</TABLE>
- ---------------
(1) Based upon a per share price of $16.625, the closing price of a share of our
common stock on December 31, 1999, as reported by the Nasdaq National
Market.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee is currently comprised of Messrs. Katz and
Waite. Until our compensation committee was established on September 10, 1999,
our board of directors, acting as a whole, determined executive compensation.
Glenn W. Sturm, our Chief Executive Officer, is a member of our board of
directors and, as such, participated in board deliberations concerning executive
officer compensation.
Mr. Sturm is a partner of Nelson Mullins Riley & Scarborough, L.L.P. This
firm provided legal services to Netzee and its predecessor, Direct Access
Interactive, in 1999, in the aggregate amount of $98,000.
NETZEE, INC. 1999 STOCK OPTION AND INCENTIVE PLAN
Effective August 5, 1999, our board of directors and shareholders approved
the Netzee, Inc. 1999 Stock Option and Incentive Plan. Under this plan, we may
grant to eligible persons, including our employees, directors, consultants and
advisors, incentive stock options, non-qualified stock options, restricted stock
awards and stock appreciation rights. We believe that this plan is an important
part of our overall compensation program. The plan supports our ongoing efforts
to attract and retain talented employees and directors and gives us the ability
to provide employees with incentives that are directly linked to our financial
results and increases in shareholder value. In addition, we may grant options
outside of the plan.
Eligibility. The compensation committee of the board of directors shall
determine the persons eligible to receive awards under the plan. These persons
may include, without limitation, our employees, directors, key consultants or
advisors.
Administration. The compensation committee administers the plan, except
that with respect to options or awards granted to our officers, directors or
more than 10% shareholders, the full board of directors or a committee comprised
solely of two or more non-employee directors (if the compensation committee is
not so comprised) is responsible for granting awards. The compensation committee
will determine the terms of any awards granted under the plan, within
limitations specified in the plan.
Shares Reserved. The maximum number of shares of common stock that
currently may be subject to outstanding awards, determined immediately after the
grant of any award, is 4,816,768 shares, subject to adjustments for stock
splits, dividends and other dilution events. The plan provides that the number
of shares of common stock available for issuance under the plan shall be
increased on the first day of each calendar year so that the maximum number of
shares available for the issuance of awards is equal to 20% of the number of
shares of common stock outstanding on the preceding trading day, as determined
on a fully-diluted basis, but in no case will the number of shares be less than
3,500,000.
The shares of common stock subject to any award that terminates, expires or
is cashed out without payment being made in the form of common stock will again
be available for distribution under the plan.
47
<PAGE> 50
We have granted options to purchase an aggregate of 2,102,549 shares of
common stock to our executive officers and directors, at per share exercise
prices ranging from $2.00 to $22.125. As of April 17, 2000, the following
executive officers and directors have received grants of options to purchase the
specified amount of shares of common stock:
<TABLE>
<CAPTION>
AMOUNT OF SHARES
UNDERLYING
EXECUTIVE OFFICER OR DIRECTOR OPTIONS GRANTED
- ----------------------------- ----------------
<S> <C>
Glenn W. Sturm.............................................. 410,000
Richard S. Eiswirth......................................... 350,000
C. Michael Bowers........................................... 300,000
John W. Collins............................................. 215,000
Michael E. Murphy........................................... 202,549
Catherine G. Silver......................................... 175,000
Bruce P. Leonard............................................ 85,000
Jon R. Burke................................................ 80,000
Gayle M. Earls.............................................. 45,000
Donny R. Jackson(1)......................................... 40,000
Joel A. Katz................................................ 40,000
Stiles A. Kellett, Jr....................................... 40,000
Jefferson B. A. Knox, Sr.................................... 40,000
Joseph F. Quinlan, Jr....................................... 40,000
A. Jay Waite................................................ 40,000
</TABLE>
- ---------------
(1) Mr. Jackson resigned as a member of the board of directors on April 17,
2000.
All options that we have granted to our executive officers and directors
vest in equal installments over a three-year period from the date of grant
except:
- 50,000 shares subject to Mr. Eiswirth's options were immediately
exercisable when granted, of which options to purchase 30,000 shares were
exercised by Mr. Eiswirth;
- 2,549 shares subject to Mr. Murphy's options were immediately exercisable
on March 7, 2000, and 50,000 shares subject to Mr. Murphy's options will
become exercisable on each of February 28, 2001, April 17, 2001, February
28, 2002 and April 17, 2002;
- 100,000 shares subject to an option held by Mr. Sturm will become
exercisable in 12 equal monthly installments beginning on May 17, 2000;
- 100,000 shares subject to an option held by Ms. Silver and 50,000 shares
subject to an option held by Mr. Eiswirth will each become exercisable in
36 equal monthly installments beginning on May 17, 2000;
- 10,000 shares subject to an option held by each of Messrs. Burke,
Collins, Earls, Jackson, Katz, Kellett, Knox, Leonard, Quinlan, Sturm and
Waite are currently vested; and
- 185,000 shares subject to Mr. Sturm's options, 175,000 shares subject to
Mr. Bowers' option and 150,000 of the remaining 250,000 shares subject to
Mr. Eiswirth's options, vested on November 15, 1999, the date we
completed our initial public offering.
In addition, options to purchase 1,603,570 shares of common stock have been
granted to other employees and consultants of Netzee as of April 17, 2000, of
which options to purchase 500 shares have been exercised and options to purchase
7,500 shares have been cancelled.
The board of directors has approved a one-time grant of options to purchase
40,000 shares to each director as of the date the director is first elected to
the board of directors, one-fourth of which vests immediately and the remainder
of which vests in equal portions over the three anniversaries of the date of
grant.
48
<PAGE> 51
Stock-Based Awards. The plan permits us to grant incentive stock options,
which qualify for special tax treatment, and non-qualified stock options, as
well as restricted stock awards and stock appreciation rights. The exercise
price for incentive stock options cannot be less than the fair market value of
common stock on the date of grant, as determined under the plan, or, with
respect to a shareholder owning more than 10% of the total combined voting power
of all classes of our stock, not less than 110% of the fair market value of the
common stock on the date of grant. The term of an incentive stock option may not
exceed 10 years, or five years if granted to a shareholder owning more than 10%
of the total combined voting power of all classes of stock. The number of shares
subject to options granted to a person in a year may not exceed 1,000,000. The
plan permits the compensation committee to cancel an option upon exercise by the
holder and pay the holder, in cash or common stock, the difference between the
fair market value of the shares covered by the option and the exercise price.
Under the plan, we may also award shares of restricted common stock. Each
award agreement will set forth conditions that must be satisfied before the
restricted stock vests and becomes transferable. Restricted stock awards may be
forfeited if, for example, the recipient's employment terminates before the
award vests. Except as specified at the time of grant, holders of restricted
stock will have voting rights and the right to receive dividends on their
restricted stock. On November 15, 1999, an award of 75,000 shares of restricted
stock was granted to Ms. Silver. This award will vest in three equal
installments on November 15, 2000, 2001 and 2002, if Ms. Silver continues to be
employed by us on each vesting date. As of April 17, 2000, this award was the
only award of restricted stock that we have granted.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of our common stock as of April 17, 2000 by:
- each of our directors;
- each shareholder known by us to be the beneficial owner of more than 5%
of our common stock; and
- all of our executive officers and directors as a group.
As of April 17, 2000, we had 21,705,083 shares of common stock issued and
outstanding.
A person is deemed to be a beneficial owner of a security if that person
has or shares "voting power," which includes the power to vote or to direct the
voting of a security, or "investment power," which includes the power to dispose
of or to direct the disposition of a security. For purposes of this table, a
person or group of persons also is deemed to have beneficial ownership of any
shares that the person or group has the right to acquire within 60 days after
April 17, 2000. Except as otherwise indicated, and subject to applicable
community property laws, the persons named below have sole voting and investment
power with respect to all shares of common stock beneficially owned by them.
Unless otherwise indicated, the address of each beneficial owner below is 6190
Powers Ferry Road, Suite 400, Atlanta, Georgia 30339.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE BENEFICIALLY
NAME OF BENEFICIAL OWNER SHARES OWNED
- ------------------------ --------- -----------------------
<S> <C> <C>
The InterCept Group, Inc.(1)................................ 7,557,673 34.8%
3150 Holcomb Bridge Road, Suite 200
Norcross GA 30071
Community Financial Services, Inc.(2)....................... 1,361,000 6.3%
2410 Paces Ferry Road
600 Paces Summit
Atlanta, GA 30339-4098
Glenn W. Sturm(3)(4)........................................ 931,556 4.3%
John W. Collins(3)(5)(6).................................... 757,594 3.5%
Jon R. Burke(3)(6).......................................... 10,000 *
</TABLE>
49
<PAGE> 52
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE BENEFICIALLY
NAME OF BENEFICIAL OWNER SHARES OWNED
- ------------------------ --------- -----------------------
<S> <C> <C>
Gayle M. Earls(6)(7)........................................ 10,000 *
Joel A. Katz(6)............................................. 10,000 *
Stiles A. Kellett, Jr.(6)(8)................................ 511,000 2.4%
Jefferson B. A. Knox, Sr.(6)................................ 10,000 *
Bruce P. Leonard(6)(9)...................................... 10,000 *
Joseph F. Quinlan, Jr.(6)(10)............................... 10,000 *
A. Jay Waite(6)(11)......................................... 20,000 *
All directors and executive officers as a group
(14 persons)(12).......................................... 2,892,104 12.9%
</TABLE>
- ---------------
* Less than 1% of our outstanding common stock.
(1) Includes 767 shares of common stock held by First Union National Bank, as
escrow agent. All 7,557,673 shares of common stock beneficially owned by
InterCept have been pledged by InterCept as collateral to a lender to
secure debt for money borrowed.
(2) Community Financial Services, Inc. is the ultimate parent of The Bankers
Bank.
(3) Excludes 7,557,673 shares of common stock held by InterCept as to which Mr.
Burke, Mr. Sturm and Mr. Collins, directors of InterCept, each disclaim
beneficial ownership.
(4) Includes 8,989 shares of common stock held by First Union, as escrow agent,
and 211,667 shares of common stock underlying options that are exercisable
within 60 days of April 17, 2000.
(5) Includes 10,366 shares of common stock held by First Union, as escrow
agent, and 118,932 shares of common stock held indirectly through FDS, LLC,
in which Mr. Collins owns a 60% membership interest.
(6) Includes 10,000 shares of common stock underlying options that are
immediately exercisable.
(7) Excludes 969,792 shares of common stock held by Independent Bankers
Financial Corporation, the ultimate parent of TIB, as to which Mr. Earls,
as President and Chief Executive Officer of Independent Bankers Financial
Corporation, disclaims beneficial ownership.
(8) Includes 493,000 shares of common stock held by Kellett Partners, L.P. and
1,000 shares of common stock held by Mr. Kellett's wife, as to which Mr.
Kellett disclaims beneficial ownership.
(9) Excludes 1,361,000 shares of common stock held by Community Financial
Services, as to which Mr. Leonard, as President and Chief Executive Officer
of Community Financial Services, disclaims beneficial ownership.
(10) Excludes 2,000 shares of common stock held by First National Banker's Bank,
as to which Mr. Quinlan, as Chairman, President and Chief Executive Officer
of First National Banker's Bank, disclaims beneficial ownership.
(11) Includes 10,000 shares of common stock held by Waite Family Fund Ltd., a
limited partnership in which Mr. Waite is the sole general partner. Mr.
Waite disclaims beneficial ownership of all shares of common stock held by
Waite Family Fund.
(12) Includes a total of 657,550 shares of common stock underlying options that
are exercisable within 60 days of April 17, 2000.
John W. Collins is the Chief Executive Officer, the Chairman of the Board
of Directors and a shareholder of InterCept, as well as the Chairman of the
Board of Directors of Netzee. Glenn W. Sturm is a director and shareholder of
InterCept, as well as the Chief Executive Officer and a director of Netzee.
Bruce P. Leonard is the President and Chief Executive Officer of The Bankers
Bank and a director of Netzee. Jon R. Burke is one of our directors and also a
director of InterCept.
50
<PAGE> 53
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We believe that all of the following transactions were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties on an arm's length basis. All transactions with our shareholders,
officers and directors or their affiliates, if any, are subject to the approval
of a majority of the independent and disinterested outside directors and are
conducted on terms no less favorable to us than could be obtained from
unaffiliated third parties on an arm's length basis.
ACQUISITIONS
Between August 1999 and March 2000, we acquired in separate transactions
Dyad, Digital Visions, the remote banking operations of SBS and the Internet
banking divisions of TIB and The Bankers Bank. See "Item
1. Business -- Formation of Netzee." In these transactions, some of the persons
who were previously officers, directors or shareholders of the acquired
companies became executive officers or directors of Netzee or beneficial owners
of more than 5% of our common stock. The following table summarizes the total
number of shares of common stock that we issued to these interested persons in
those acquisitions. All of these shares were issued at a price of $10.50 per
share, except for the shares issued to Digital Visions, which were issued at a
price of $22.125 per share. Of the shares shown for each person below with
respect to the Dyad, SBS and Digital Visions acquisitions, 10% were placed in
escrow for one year from the date of acquisition for indemnification purposes.
<TABLE>
<CAPTION>
ACQUISITION NAME OF RELATED PARTY NUMBER OF SHARES ISSUED
- ----------- --------------------- -----------------------
<S> <C> <C>
Dyad Glenn W. Sturm.................................... 89,889
C. Michael Bowers................................. 69,057
John W. Collins(1)................................ 103,662
Donny R. Jackson(1)(2)............................ 23,019
FDS, LLC(1)....................................... 118,932
Remote banking
operations of SBS David W. Brasfield(2)(3).......................... 866,666
Michael Vaughn(3)................................. 866,666
Robert D. Kirk(3)................................. 866,666
Internet banking
division of TIB TIB(3)............................................ 1,361,000
Internet banking
division of The
Bankers Bank The Bankers Bank.................................. 1,361,000
Digital Visions Michael E. Murphy................................. 82,014(4)
</TABLE>
- ---------------
(1) Mr. Collins beneficially owns 60% of the membership interests in FDS and
Mr. Jackson beneficially owns 20% of the membership interests in FDS.
(2) This person is no longer an executive officer or director of Netzee.
(3) This person or entity no longer beneficially owns more than 5% of our
common stock.
(4) Does not include (a) any shares that may be issued to Digital Visions
pursuant to the attainment of revenue targets in fiscal years 2000 and 2001
or (b) options to purchase 102,549 shares of common stock that we granted
to Mr. Murphy in connection with our acquisition of Digital Visions.
RELATIONSHIP WITH INTERCEPT
InterCept currently owns approximately 35% of our common stock. Our
Chairman of the Board of Directors, John W. Collins, is the Chairman and Chief
Executive Officer of InterCept, and Donny R. Jackson, who, until April 2000, was
one of our directors, is the President, Chief Operating Officer and a director
of InterCept. In addition, our Chief Executive Officer, Glenn W. Sturm, is also
a director of InterCept and Jon R. Burke is one of our directors and also a
director of InterCept. Boone A. Knox, the father of Jefferson B. A. Knox, Sr.,
one of our directors, is a director of InterCept.
51
<PAGE> 54
Marketing Agreement
We have entered into a marketing arrangement with InterCept under which our
salespersons will sell InterCept's products and services and InterCept
salespersons will sell our products and services. Under this arrangement, we pay
a commission to InterCept for each sale of our products and services made by
InterCept salespersons and for each referral to our sales force that results in
a sale. InterCept correspondingly pays us for sales and referrals by our
salespersons.
Sale of SBS Non-Remote Banking Operations
In August 1999, Direct Access Interactive, our predecessor, purchased SBS
for 2.6 million shares of its common stock and $16.6 million in cash.
Additionally, Direct Access Interactive repaid approximately $4.9 million of SBS
debt. In August 1999, while Direct Access Interactive was a majority-owned
subsidiary of InterCept, Direct Access Interactive sold all of the assets it
acquired from SBS, other than SBS's Internet and telephone banking assets, to
InterCept for 450,000 shares of Direct Access Interactive's common stock, which
InterCept previously had owned.
Leases
We lease our sales, marketing and administrative offices in Birmingham,
Alabama from DMB, LLC, which is principally owned by David W. Brasfield, who
until March 2000 was our Senior Executive Vice President -- Sales and Marketing.
During fiscal 1999, we paid DMB a monthly rent of $20,000. We currently sublease
a portion of this property to InterCept. We received $65,000 in rent from
InterCept in fiscal 1999 under this sublease.
InterCept currently leases the property that includes our data center in
Birmingham, Alabama from DMB, LLC at a monthly rent of $8,500. We currently
sublease a portion of this facility from InterCept. We paid $14,875 in rent to
InterCept in fiscal 1999 under this sublease.
Promissory Notes
In August and September 1999, we and our predecessor, Direct Access
Interactive, issued promissory notes payable to InterCept in the aggregate
amount of $28.9 million. These notes matured on November 15, 1999, the closing
date of our initial public offering, and were repaid in full with the proceeds
of that offering. These notes had been secured by all of our assets.
In conjunction with the acquisition of DPSC, we received a commitment for a
$15 million line of credit from InterCept. Borrowings on the line of credit will
bear interest at prime plus 2%. As of December 31, 1999, we have borrowed
approximately $11.0 million from InterCept on terms consistent with this
commitment. After December 31, 1999, we repaid a portion of these borrowings
with cash on hand. On March 24, 2000, pending the finalization of the line of
credit, we issued a promissory note to InterCept in the principal amount of
approximately $7.8 million, which reflects the amount borrowed under terms
consistent with the commitment as of that date. This note bears interest at a
rate of prime plus 2% and is secured by substantially all of our assets. Accrued
interest under this note is payable monthly. The borrowings under the note are
being used to fund working capital requirements.
During 1999, we incurred approximately $677,000 of interest expense
associated with our borrowings from InterCept.
RELATIONSHIP WITH TIB, THE BANKERS BANK AND FIRST NATIONAL BANKER'S BANK
In March 2000, we entered into a master agreement with each of TIB and The
Bankers Bank to allow these bankers' banks to utilize our Internet-based,
bank-to-bank cash management system with their financial
52
<PAGE> 55
institution customers. This system allows customers of the bankers' banks to
communicate electronically with the bankers' banks and to perform a given set of
electronic banking and cash management transactions.
In connection with the master agreements, each bankers' bank will pay us
for the implementation, training, maintenance and support of the system for its
financial institution customers during an initial one-year term. In connection
with the master agreements, each of the bankers' banks has also signed a
one-year agreement that takes effect in March 2001 for the continued maintenance
and support of the system. The maintenance and support agreement may be renewed
by each bankers' bank, in its sole discretion, for additional one-year terms.
In connection with our purchase of the Internet banking division of each of
TIB and The Bankers Bank in September 1999, we agreed to cause Bruce P. Leonard,
President and Chief Executive Officer of The Bankers Bank, and Gayle M. Earls,
President and Chief Executive Officer of TIB, to be elected as class III
directors, with terms expiring in 2002. In addition, we also entered into
strategic marketing agreements with each of these bankers' banks. See "Item
1. Business -- Sales and Marketing -- Strategic Marketing Alliances."
In 1999, we leased our former headquarters in Atlanta, Georgia from The
Bankers Bank, which at the time beneficially owned more then 5% of our common
stock. We terminated this lease on February 15, 2000. We paid a total of $32,400
to The Bankers Bank in 1999 under this lease.
In January 2000, we entered into a strategic marketing agreement with First
National Banker's Bank. See "Item 1. Business -- Sales and
Marketing -- Strategic Marketing Alliances." Joseph F. Quinlan, Jr., the
Chairman, President and Chief Executive Officer of First National Banker's Bank,
was appointed as a director of Netzee in April 2000.
DIRECTOR AND OFFICER LOANS
On July 1, 1999, Messrs. Collins, Sturm and Jackson entered into
substantially similar full-recourse promissory notes with Direct Access
Interactive as lender. These notes were given as consideration for the issuance
of shares of common stock to these individuals. Mr. Collins borrowed $1.1
million, Mr. Sturm borrowed $1.3 million and Mr. Jackson borrowed $400,000. Each
of these notes bears interest at 7% per year, and interest must be paid on each
June 30 and December 31 until the note is paid in full. These notes mature on
June 30, 2002. Mr. Jackson resigned as a director of Netzee in April 2000.
On August 5, 1999, Mr. Eiswirth borrowed $93,300 from Direct Access
Interactive and signed a full-recourse promissory note evidencing this loan. He
borrowed this money to exercise an option to purchase 30,000 shares of Direct
Access Interactive common stock. This loan bears interest at a rate of 7% per
year. Interest is payable on each June 30 and December 31 until the note is paid
in full. This note matures on August 4, 2002.
LINE OF CREDIT AGREEMENT AND WARRANT
On October 18, 1999, we entered into a Line of Credit Agreement with
Kellett Partners, L.P. Stiles A. Kellett, Jr., who became a director of Netzee
as a result of this transaction, is an affiliate of Kellett Partners. Pursuant
to this agreement, Kellett Partners agreed to loan up to $3.0 million to Netzee
on a revolving basis at an interest rate equal to the prime rate. We terminated
this line of credit on December 15, 1999.
In connection with the line of credit, we issued to Kellett Partners a
warrant to purchase up to 461,876 shares of our common stock at an exercise
price of $3.25 per share. On March 2, 2000, the holders of these warrants
exercised the warrants in full.
53
<PAGE> 56
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits and Financial Statements.
(1) Financial Statements
The following consolidated financial statements of Netzee, Inc. and
Subsidiaries are filed as part of this Report and are attached hereto as pages
F-1 through F-19:
(i) Report of Independent Public Accountants
(ii) Consolidated Balance Sheets of December 31, 1998 and 1999
(iii) Consolidated Statements of Operations for the years ended December
31, 1997 and 1998, for the period from January 1, 1999 to February
28, 1999, and for the period from March 1, 1999 to December 31,
1999
(iv) Consolidated Statements of Cash Flows for the years ended December
31, 1997 and 1998, for the period from January 1, 1999 to February
28, 1999, and for the period from March 1, 1999 to December 31,
1999
(v) Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997 and 1998, for the period from January 1, 1999 to
February 28, 1999, and for the period from March 1, 1999 to
December 31, 1999
(vi) Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts, is incorporated by
reference herein from Exhibit 99.1 filed herewith. The Report of Independent
Public Accountants on Financial Statement Schedule with respect thereto is
incorporated by reference herein from Exhibit 99.2 filed herewith.
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
- --------- -----------------------
<C> <S>
2.1* Agreement and Plan of Merger, dated August 6, 1999, by and
among Direct Access Interactive, Inc., SBS Corporation and
the shareholders of SBS Corporation.
2.2* Agreement and Plan of Merger, dated September 3, 1999, by
and among Netzee, Inc., Dyad Corporation and certain of the
shareholders of Dyad Corporation.
2.3* Asset Contribution Agreement, dated September 3, 1999, by
and among The InterCept Group, Inc., Netzee, Inc. and The
Bankers Bank.
2.4* Asset Contribution Agreement, dated September 3, 1999, by
and among The InterCept Group, Inc., Netzee, Inc. and TIB
The Independent BankersBank.
2.5* Acquisition Agreement, dated September 3, 1999, by and among
Netzee, Inc., Call Me Bill, LLC and each of the members of
Call Me Bill, LLC.
2.6* Asset Transfer Agreement, dated August 6, 1999, by and
between The InterCept Group, Inc. and Direct Access
Interactive, Inc.
2.7* Agreement and Plan of Merger, dated September 3, 1999, by
and between Netzee, Inc. and Direct Access Interactive, Inc.
2.8** Asset Purchase Agreement, dated December 15, 1999, by and
among Netzee, Inc., Netcal, Inc. and DPSC Software, Inc.
</TABLE>
54
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
- --------- -----------------------
<C> <S>
2.9*** Asset Purchase Agreement, dated February 28, 2000, by and
among Netzee, Inc., Digital Visions, Inc. and certain
shareholders of Digital Visions, Inc.
3.1** Amended Articles of Incorporation of Netzee, Inc., as
amended to date.
3.2 Amended and Restated Bylaws of Netzee, Inc., as amended.
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.
4.10*** Registration Rights Agreement, dated March 7, 2000, by and
between Netzee, Inc. and Digital Visions, 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 August 5, 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 March 1, 2000, by and between
Netzee, Inc. and Richard S. Eiswirth.
10.8* Form of Indemnification Agreement to be entered into between
Netzee, Inc. and each of its executive officers and
directors.
10.9* 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.
10.10* 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.
10.11* 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.
</TABLE>
55
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
- --------- -----------------------
<C> <S>
10.12* Promissory Note, dated September 1, 1999, from John W.
Collins as maker, to Netzee, Inc. (as successor to Direct
Access Interactive, Inc.).
10.13* Promissory Note, dated September 1, 1999, from Glenn W.
Sturm as maker, to Netzee, Inc. (as successor to Direct
Access Interactive, Inc.).
10.14* Promissory Note, dated September 1, 1999, from Donny R.
Jackson as maker, to Netzee, Inc. (as successor to Direct
Access Interactive, Inc.).
10.15* Promissory Note, dated September 1, 1999, from Richard S.
Eiswirth as maker, to Netzee, Inc. (as successor to Direct
Access Interactive, Inc.).
10.16* Line of Credit Agreement, dated October 18, 1999, by and
between Netzee, Inc. and Kellett Partners, L.P.
10.17*+ General Marketing Agent Agreement, dated September 3, 1999,
as amended, by and between Netzee, Inc. and TIB The
Independent BankersBank.
10.18*+ General Marketing Agent Agreement, dated September 3, 1999,
as amended, by and between Netzee, Inc. and The Bankers
Bank.
10.19* Sublease, dated September 1, 1999, by and between The
Bankers Bank and Netzee, Inc.
10.20* 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)).
10.21**** Employment Agreement, dated February 28, 2000, by and
between Netzee, Inc. and Michael E. Murphy.
10.22**** Promissory Note, dated March 24, 2000, from Netzee, Inc. as
maker, to The InterCept Group, Inc., as payee, in the
principal amount of $7,800,000.
10.23++ Master Agreement, dated March 1, 2000, by and between
Netzee, Inc. and The Bankers Bank.
10.24++ Maintenance Agreement, dated March 1, 2001, by and between
Netzee, Inc. and The Bankers Bank.
23.1 Consent of Arthur Andersen LLP.
27.1**** Financial Data Schedule (for SEC use only).
99.1**** Schedule II to Consolidated Financial Statements.
99.2**** Report of Independent Public Accountants on Financial
Statement Schedule.
</TABLE>
- ---------------
* Previously filed as an exhibit to Netzee, Inc.'s Registration Statement on
Form S-1 (File No. 333-87089), and hereby incorporated by reference herein.
** Previously filed as an exhibit to Netzee, Inc.'s Form 10-Q for the quarter
ended September 30, 1999, as filed with the Securities and Exchange
Commission on December 22, 1999, and hereby incorporated by reference
herein.
*** Previously filed as an exhibit to Netzee, Inc.'s Form 8-K dated March 7,
2000, as filed with the Securities and Exchange Commission on March 22,
2000, and hereby incorporated by reference herein.
**** Previously filed as an exhibit to Netzee, Inc.'s Form 10-K for the year
ended December 31, 1999, as filed with the Securities and Exchange
Commission on March 29, 2000, and hereby incorporated by reference herein.
+ Portions of this exhibit were previously omitted pursuant to a confidential
treatment request granted by the Securities and Exchange Commission on
November 8, 1999.
++ Portions of this exhibit have been omitted pursuant to a confidential
treatment request that Netzee, Inc. has filed with the Securities and
Exchange Commission simultaneously herewith.
56
<PAGE> 59
(b) Reports on Form 8-K.
During the last quarter of the Company's 1999 fiscal year, the Company
filed the following report on Form 8-K:
Form 8-K, dated December 15, 1999, as filed with the Securities and
Exchange Commission on December 30, 1999, reporting the acquisition of DPSC
Software, Inc. No financial statements were filed with this report.
57
<PAGE> 60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ GLENN W. STURM
------------------------------------
Glenn W. Sturm
Chief Executive Officer
Date: April 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GLENN W. STURM Chief Executive Officer and April 28, 2000
- ----------------------------------------------------- Director (Principal Executive
Glenn W. Sturm Officer)
/s/ RICHARD S. EISWIRTH Senior Executive Vice April 28, 2000
- ----------------------------------------------------- President,
Richard S. Eiswirth Chief Financial Officer and
Secretary
(Principal Financial and
Accounting Officer
/s/ JOHN W. COLLINS Chairman of the Board of April 28, 2000
- ----------------------------------------------------- Directors
John W. Collins
/s/ BRUCE P. LEONARD Director April 28, 2000
- -----------------------------------------------------
Bruce P. Leonard
/s/ GAYLE M. EARLS Director April 28, 2000
- -----------------------------------------------------
Gayle M. Earls
/s/ STILES A. KELLETT, JR. Director April 28, 2000
- -----------------------------------------------------
Stiles A. Kellett, Jr.
/s/ A. JAY WAITE Director April 28, 2000
- -----------------------------------------------------
A. Jay Waite
</TABLE>
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS OF
NETZEE, INC.
(a Georgia corporation)
AS AMENDED BY THE BOARD OF DIRECTORS ON APRIL 17, 2000
References in these Bylaws to "Articles of Incorporation" are to the
Articles of Incorporation of NETZEE, INC., a Georgia corporation (the
"Corporation"), as amended and restated from time to time.
All of these Bylaws are subject to contrary provisions, if any, of the
Articles (including provisions designating the preferences, limitations, and
relative rights of any class or series of shares), the Georgia Business
Corporation Code (the "Code"), and other applicable law, as in effect on and
after the effective date of these Bylaws. References in these Bylaws to
"Sections" shall refer to sections of the Bylaws, unless otherwise indicated.
ARTICLE I
Section 1. Registered Office and Agent. The Corporation shall maintain a
registered office and shall have a registered agent whose business office is
the same as the registered office.
Section 2. Principal Office. The principal office of the Corporation shall
be at the place designated in the Corporation's annual registration with the
Georgia Secretary of State.
Section 3. Other Offices. In addition to its registered office and
principal office, the Corporation may have offices at other locations either in
or outside the State of Georgia.
ARTICLE II
Shareholders
Section 1. Annual Meeting. The annual meeting of the shareholders shall be
held on such date, at such time and at such place as shall be set by the Board
of Directors of the Corporation (the "Board of Directors") for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting.
Section 2. Special Meetings. Special meetings of the shareholders, for any
purpose, unless otherwise prescribed by statute, may be called by the Chairman
of the Board and Chief Executive Officer, the President, the Board of Directors
or by holders of outstanding stock having not less than seventy-five percent
(75%) of the votes entitled to be cast by all of the outstanding shares of the
Corporation.
<PAGE> 2
Section 3. Place of Meeting. The Board of Directors may designate any
place as the place for an annual meeting or special meeting of shareholders. If
no designation is made, the place of the meeting shall be the principal office
of the Corporation.
Section 4. Notice of Meeting. Written or printed notice stating the place,
day and hour of the meeting, and, in case of a special meeting, the purpose for
which the meeting is called, shall be delivered no fewer than ten (10) nor more
than sixty (60) days before the date of the meeting, either personally or by
mail, by or at the direction of the Chairman of the Board and Chief Executive
Officer, the President, or the Secretary, to each shareholder of record
entitled to vote at such meeting. If mailed, the notice shall be deemed to be
delivered when deposited in the United States mail addressed to the shareholder
at his address as it appears on the stock transfer books of the Corporation,
with postage thereon prepaid. A shareholder may waive any notice required by
the Code, the Corporation's Articles of Incorporation (the "Articles of
Incorporation"), or these Bylaws, before or after the date and time of the
matter to which the notice relates, by delivering to the Corporation a written
waiver of notice signed by the shareholder entitled to the notice. In addition,
a shareholder's attendance at a meeting shall be (a) a waiver of objection to
lack of notice or defective notice of the meeting unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting, and (b) a waiver of objection to consideration of a particular
matter at the meeting that is not within the purpose stated in the meeting
notice, unless the shareholder objects to considering the matter when it is
presented. Except as otherwise required by the Code, neither the purpose of,
nor the business transacted at, the meeting must be specified in any waiver.
Section 5. Nominations of Directors. Subject to the rights of holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, nominations of persons for election to the Board
of Directors may only be made (a) by the Board of Directors or a committee
appointed by the Board of Directors; (b) by any shareholder entitled to vote in
the election of directors generally and who complies with the procedures set
forth in this section 5; or (c)(i) the person is nominated to replace a person
previously identified as a proposed nominee (in accordance with the provisions
of this section 5) who has since become unable or unwilling to be nominated or
to serve if elected, (ii) the shareholder who furnished such previous
identification makes the replacement nomination and delivers to the Secretary
of the Corporation (at the time of or prior to making the replacement
nomination) an affidavit or other sworn statement affirming that the
shareholder had no reason to believe the original nominee would be so unable or
unwilling, and (iii) such shareholder also furnishes in writing to the
Secretary of the Corporation (at the time of or prior to making the replacement
nomination) the same type of information about the replacement nominee as
required by this section 5 to have been furnished about the original nominee.
No person shall be eligible for election as a director unless nominated in
accordance with this section 5; however, the chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by these Bylaws, and if
he should so determine, he shall so declare to the meeting that the defective
nomination shall be disregarded.
2
<PAGE> 3
Nominations by shareholders shall be made pursuant to timely written
notice by registered or certified mail to the Secretary of the Corporation
delivered to or mailed and received at the principal executive offices of the
Corporation (a) in the case of an annual meeting, not less than ninety (90)
days nor more than one hundred twenty (120) days prior to the first anniversary
of the date of the preceding year's annual meeting; provided, however, that in
the event that the date of the current year's annual meeting is changed by more
than 30 days from such anniversary date, notice by the shareholder to be timely
must be received by the Corporation no later than the close of business on the
tenth (10th) day following the earlier of (i) the day on which notice of the
date of the meeting was mailed or (ii) the day on which public disclosure of
the date of the meeting was made; and (b) in the case of a special meeting at
which directors are to be elected, not later than the close of business on the
tenth (10th) day following the earlier of the day on which notice of the date
of the meeting was mailed or public disclosure of the special meeting was made.
Each such shareholder's notice shall set forth (a) any understandings between
the shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder; (b) as to each person whom the shareholder proposes to
nominate for election or reelection as a director: (i) the name, business
address, residence address and age of the proposed nominee, (ii) the principal
occupation and employment of the proposed nominee, (iii) the class and number
of shares of capital stock of the Corporation which are beneficially owned by
the nominee, and (iv) any other information relating to the nominee that is
required to be disclosed in solicitations for proxies for election of directors
pursuant to section 14(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations promulgated thereunder, (c)
as to the shareholder giving the notice and the beneficial owners, if any, on
whose behalf the nomination is made: (i) the name and address, as they appear
on the Corporation's books, of such shareholder and of such beneficial owners,
(ii) the class and number of shares of the Corporation which are beneficially
owned and are owned of record by such shareholder and such beneficial owners,
and (iii) a representation that the shareholder is entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice. Any person nominated by the
shareholders for election as a director also shall furnish to the Secretary of
the Corporation all biographical, financial and other information and shall
complete all certifications, reports and submissions that are required by the
Corporation to determine the eligibility of the nominee to serve as director.
No person shall be eligible to serve as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Bylaw.
Section 6. New Business. No matter of business may be brought before any
annual meeting except (a) pursuant to the Corporation's notice of meeting, (b)
by or at the direction of the Board of Directors, or (c) by any shareholder of
the Corporation who is a shareholder of record at the time of giving of the
notice provided for in this Bylaw, who shall be entitled to vote at such
meeting and who complies with the notice procedures set forth in this section
6.
3
<PAGE> 4
For business to be properly brought before an Annual Meeting by a
shareholder pursuant to this section 6, the shareholder must have given timely
written notice to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than one hundred twenty
(120) days nor more than one hundred fifty (150) days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the meeting is changed by more than thirty (30) days
from such anniversary date, notice by the shareholder to be timely must be
received no later than the close of business on the tenth (10th) day following
the earlier of the day on which notice of the date of the meeting was mailed or
public disclosure was made. A shareholder's notice to the Secretary shall set
forth as to each matter the shareholder proposes to bring before the meeting:
(a) a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting, (b) the
name and address, as they appear on the Corporation's books, of the shareholder
proposing such business, and the name and address of the beneficial owner, if
any, on whose behalf the proposal is made, (c) the class and number of shares
of the Corporation which are owned beneficially and of record by such
shareholder of record and by the beneficial owner, if any, one whose behalf the
proposal is made as such terms are defined in Rule 13d-3 of the Exchange Act
and (d) any material interest of such shareholder of record and the beneficial
owner, if any, on whose behalf the proposal is made in such business. For
purposes of clause (d) above, a "material interest of such shareholder" shall
be deemed to occur if such interest were reportable (assuming that the
shareholder's business was in fact brought before the annual meeting) pursuant
to Item 5 of Schedule 14A (Rule 14a-101) promulgated under the Exchange Act.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at an Annual Meeting except in accordance with the
procedures set forth in this section 6. The Chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the procedures
prescribed by these Bylaws, and if he should so determine, he shall so declare
to the meeting and any such business not properly brought before the meeting
shall not be transacted.
Section 7. Quorum. Except as otherwise provided by the Articles of
Incorporation or the Code, a majority of the votes entitled to be cast on a
matter by the shareholders, represented in person or by proxy, shall constitute
a quorum at a meeting of shareholders. If less than a quorum is represented at
a meeting, the meeting may be adjourned without further notice if the time and
place thereof are announced at the meeting at which the adjournment is taken,
provided, however, that the period shall not exceed thirty days (30) for any
one adjournment. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted that might have been transacted
at the meeting as originally called. If a quorum is present, action on a matter
(other than the election of directors) by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the Articles of Incorporation, a bylaw adopted by
the shareholders under Section 14-2-1021 of the Code, or the Code requires a
greater number of affirmative votes. Unless otherwise provided in the Articles
of Incorporation, directors of the Corporation shall be elected
4
<PAGE> 5
by a plurality of the votes cast by the shares entitled to vote in the election
at a meeting at which a quorum is present.
Section 8. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy authorized by the shareholder or his duly authorized attorney in
fact in the manner authorized by the Code. Such proxy shall be filed with the
Secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after eleven (11) months from the date of its execution, unless
otherwise provided in the proxy.
Section 9. Voting of Shares. Each outstanding share shall be entitled to
one vote on each matter submitted to a vote at a meeting of the shareholders
except as otherwise provided in the Articles of Incorporation or the Code. In
the election of directors, each record holder of stock entitled to vote at such
election shall have the right to vote the number of shares owned by him for as
many persons as there are directors to be elected, and for whose election he
has the right to vote. Cumulative voting shall not be allowed.
Section 10. Presiding Officer. Except as otherwise provided herein, the
Chairman of the Board of Directors, and in his absence or disability the Chief
Executive Officer of the Corporation, shall preside at every shareholders'
meeting (and any adjournment thereof) as its chairman, if either of them is
present and willing to serve. If neither the Chairman of the Board of Directors
nor the Chief Executive Officer of the Corporation is present and willing to
serve as chairman of the meeting, then the President of the Corporation shall
preside. If neither of the Chairman of the Board, the Chief Executive Officer
or the President of the Corporation is present and is willing to serve as the
chairman of the meeting, and in the event that the duty has not been otherwise
properly delegated, a majority of the Corporation's directors present at the
meeting shall be entitled to designate a person to serve as chairman. If no
director of the Corporation is present at the meeting or if a majority of the
directors who are present cannot be established, then a chairman of the meeting
shall be selected by a majority vote of the shares present at the meeting that
would be entitled to vote in an election of directors. The chairman of the
meeting may designate other persons to assist with the meeting.
Section 11. Action Without a Meeting. Unless otherwise provided in the
Articles of Incorporation, any action required to be taken or that may be taken
at a meeting of shareholders may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by all of the shareholders of the
Corporation. Where required by Section 14-2-704 or other applicable provision
of the Code, the Corporation shall provide shareholders with written notice of
actions taken without a meeting.
5
<PAGE> 6
ARTICLE III
Board of Directors
Section 1. General Powers. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall
be managed by, the Board of Directors, subject to any limitation set forth in
the Articles, in bylaws approved by the shareholders, or in agreements among
all the shareholders that are otherwise lawful.
Section 2. Number and Election of Board. The Board of Directors shall
consist of such number of directors as fixed or changed from time to time by
the Board of Directors and shall be divided into three classes: Class I, Class
II and Class III, which shall be as nearly equal in number as possible. Each
director shall serve for a term ending on the date of the third annual meeting
of shareholders following the annual meeting at which such director was
elected; provided, however, that each initial director in Class I shall hold
office until the first annual meeting of shareholders after his election; each
initial director in Class II shall hold office until the second annual meeting
of shareholders after his election; and each initial director in Class III
shall hold office until the third annual meeting of shareholders after his
election. Despite the expiration of a director's term, each director shall
serve until his successor is elected and qualified or until his earlier death,
resignation or removal. The number of directors may be increased or decreased
from time to time by resolution of the Board of Directors; provided, however,
that the total number of directors at any time shall not be less than three
unless these Bylaws are amended to delete the classification of the Board of
Directors. Any vacancies on the Board of Directors for any reason, and any
directorships resulting from any increase in the authorized number of
directors, may be filled by the Board of Directors, acting by a majority of the
directors then in office, although less than a quorum. Any directors chosen to
fill a vacancy shall hold office until the next election of the class for which
such directors shall have been chosen and until their successors shall be
elected and qualified, and any directors chosen by reason of an increase in the
number of directors shall hold office until the next election of directors by
the shareholders and until their successors shall be elected and qualified.
Subject to the foregoing and the Code, at each annual meeting of shareholders
the successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting.
Section 3. Chairman of the Board. Subject to the provisions of Article II,
section 10 of these Bylaws, the Chairman of the Board shall preside at all
meetings of the Board of Directors and of the Shareholders, and may delegate
such authority to any other director or officer of the Corporation. The
Chairman of the Board shall not be deemed to be an officer of the Corporation,
but shall have all such other duties and powers as are incident to his position
or properly prescribed from time to time by the Board of Directors.
Section 4. Resignation and Removal.
6
<PAGE> 7
(a) Resignation. Any director may resign at any time by giving
written notice to the Board of Directors, the Chairman of the Board, or to the
Secretary of the Corporation. Such resignation shall take effect at the time
delivered unless a later date is specified therein and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
(b) Removal. Any director or the entire Board of Directors may
be removed by the shareholders at any time, with cause; provided that directors
elected by a particular voting group may be removed only by the shareholders in
that voting group. Removal action may be taken only at a shareholders' meeting
for which notice of the removal action has been given, and a director may be
removed only by the holders of two-thirds of the votes entitled to be cast. A
removed director's successor, if any, may be elected at the same meeting to
serve the unexpired them. Directors may not be removed without cause.
Section 5. Compensation. Directors may receive such compensation for their
services as directors as may be fixed by the Board of Directors from time to
time. A director may also serve the Corporation in one or more capacities other
than that of director and receive compensation for services rendered in those
other capacities.
Section 6. Qualification of Directors. No person elected to serve as a
director of the Corporation shall assume office and begin serving unless and
until duly qualified to serve, as determined by reference to the Code, the
Articles of Incorporation and any further eligibility requirements established
in these Bylaws.
Section 7. Regular Meetings. A regular meeting of the Board of Directors
shall be held without notice immediately after and at the same place as the
annual meeting of shareholders. The Board of Directors may adopt a resolution
as to the time and place for the holding of additional regular meetings without
notice other than such resolution. The failure to hold the annual meeting does
not affect the validity of any corporate action.
Section 8. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board and Chief
Executive Officer, the President or any director. The person or persons
authorized to call special meetings of the Board of Directors may fix any place
as the place for holding any special meeting of the Board of Directors called
by him or them.
Section 9. Notice. Notice of any special meeting shall be given at least
twenty-four (24) hours prior thereto by written notice delivered personally or
mailed (first class mail) to each director at his business address or by notice
given by telecopy to such address. If mailed, such notice shall be deemed to be
delivered three days following the deposit of such notice in the United States
mail so addressed, with postage thereon prepaid. If notice is given by
telecopy, such notice shall be deemed to be delivered upon printed confirmation
of receipt by the transmitting telecopier. Any director may waive notice of any
meeting. The attendance of a
7
<PAGE> 8
director at a meeting shall constitute a waiver of notice of such meeting
unless the director at the beginning of the meeting (or promptly upon his
arrival) objects to holding the meeting or transacting business at the meeting
and does not thereafter vote for or assent to action taken at the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
Section 10. Quorum. A majority of the total number of directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, but if less than a majority is present at a meeting, a majority
of the directors present may adjourn the meeting from time to time without
further notice.
Section 11. Manner of Action. Except as otherwise provided in the Articles
of Incorporation, the vote of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of
Directors.
Section 12. Expenses. The Corporation shall pay the actual out-of-pocket
expenses incurred by each director in connection with attending the meetings of
the Board of Directors and any committee thereof; provided, that the
Corporation shall not be obligated to pay for any of such expenses that are
significantly in excess of the customary out-of-pocket expenses that would have
been incurred for travel to such meetings from such director's home or office.
Section 13. Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent or abstention shall be entered in the minutes of the meeting or
unless he files his written notice of dissent or abstention to such action with
the presiding officer of the meeting before the adjournment thereof or shall
forward such dissent to the Corporation immediately after the adjournment of
the meeting. Such right to dissent shall not apply to a director who voted in
favor of such action.
Section 14. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment by which all persons participating in a
meeting can hear each other during the meeting. Such participation shall
constitute presence in person at the meeting.
Section 15. Action Without a Meeting. Any action required or permitted to
be taken at a meeting of the Board of Directors may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors entitled to vote with respect to the subject matter
thereof and filed with the minutes of the proceedings of the Board of
Directors. Such consent shall have the same force and effect as a unanimous
vote of the directors.
8
<PAGE> 9
Section 16. Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board of Directors, appoint an executive committee
and any other committee of the Board of Directors, the composition of each of
which shall consist of one or more directors of the Corporation, and may
delegate to any such committee any of the authority of the Board of Directors,
however conferred, other than the power or authority to (i) approve or propose
to shareholders action that the Code requires be approved by shareholders; (ii)
fill vacancies on the Board of Directors or any of its committees; (iii) amend
the Articles of Incorporation pursuant to Section 14-2-1002 of the Code; (iv)
adopt, amend or repeal the Bylaws of the Corporation; or (v) approve a plan of
merger not requiring shareholder approval. Each such committee shall serve at
the pleasure of the Board of Directors. Any such committee shall keep written
minutes of its meetings and report the same to the Board of Directors at the
next regular meeting of the Board of Directors.
ARTICLE IV
Officers and Agents
Section 1. General. The officers of the Corporation shall be a Chief
Executive Officer, a President, a Secretary, a Chief Financial Officer and a
Chief Operating Officer. The Board of Directors may appoint such other
officers, assistant officers and agents, including Vice Presidents, assistant
secretaries and assistant treasurers, as it may consider necessary, who shall
be chosen in such a manner, hold their offices for such terms and have such
authority and duties as from time to time may be determined by the Board of
Directors. The compensation for all the officers of the Corporation shall be
fixed by the Board of Directors. Any number of offices may be held by the same
person. In all cases in which duties of any officer, agent or employee are not
prescribed by the Bylaws or by the Board of Directors, such officer, agent or
employee shall follow the orders and instructions of the Chief Executive
Officer.
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected by the Board of Directors annually at the first meeting of the
Board held after each annual meeting of the shareholders. Each officer shall
hold office until his successor is elected and qualified or until his earlier
death, resignation or removal.
Section 3. Removal. All officers (regardless of how elected or appointed)
may be removed, with or without cause, by the Board of Directors, and any
officer appointed by another officer may also be removed, with or without
cause, by any senior officer authorized to have appointed the officer to be
removed. Removal will be without prejudice to the contract rights, if any, of
the person removed but shall be effective notwithstanding any damage claim that
may result from infringement of such contract rights.
Section 4. Vacancies. A vacancy in any office, however occurring, may be
filled by the Board of Directors.
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Section 5. Chief Executive Officer. The Chief Executive Officer of the
Corporation shall be responsible for the administration of the Corporation
(including the general supervision of the policies of the Corporation, the
general and active management of the business and financial affairs of the
Corporation and the supervision and direction of the actions of the other
officers of the Corporation), shall have the authority to sign and deliver
agreements, certificates and other instruments on behalf of the Corporation and
shall have all such other duties and powers that are incident to his office or
that are from time to time assigned to him by the Board of Directors. In the
absence of the Chairman of the Board and if the Chairman of the Board has not
delegated his authority to preside, the Chief Executive Officer shall preside
at meetings of the Shareholders and, if he is a director, at meetings of the
Board. He may exercise any powers, authorities or functions, granted or
designated, to be performed by the President under the Bylaws, by law or by a
resolution adopted by the Board of Directors.
Section 6. President. The President, subject to the direction of the Board
of Directors and the Chief Executive Officer, shall have general supervision of
the day-to-day operational affairs of the Corporation, shall, subject to the
Chief Executive Officer, supervise and direct the day-to-day actions of the
other officers of the Corporation, shall have the power to sign and deliver
agreements, certificates and other instruments on behalf of the Corporation and
shall have all such other duties and powers that are incident to his office or
that are from time to time assigned by the Board of Directors or the Chief
Executive Officer. In the absence of the Chairman of the Board and the Chief
Executive Officer, and if their authority to preside is not otherwise
delegated, (a) the President shall preside at meetings of the shareholders,
and, (b) if he is a director, at meetings of the Board of Directors.
Section 7. Secretary. The Secretary shall keep and prepare minutes of all
meetings of the shareholders of the Corporation and the Board of Directors,
shall have charge of the minute books, stock records and seal of the
Corporation, shall authenticate records of the Corporation and shall perform
such other duties and have such other powers as are from time to time assigned
by the Chief Executive Officer, the President or the Board of Directors.
Section 8. Chief Financial Officer. The Chief Financial Officer shall be
charged with the management of the financial affairs of the Corporation. The
Chief Financial Officer shall perform all of the duties incident to the office
of a treasurer and financial officer and such other duties as are from time to
time assigned by the Chief Executive Officer, the President or the Board of
Directors.
Section 9. Chief Operating Officer. The Chief Operating Officer shall be
charged with overseeing the development of the Corporation's products and
services and shall perform any and all other duties as are assigned by the
Chief Executive Officer, the President or the Board of Directors.
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ARTICLE V
Distributions and Dividends
Section 1. Dividends. Unless the Articles of Incorporation provide
otherwise, the Board of Directors may, from time to time in its discretion,
authorize or declare distributions or share dividends in accordance with the
Code.
ARTICLE VI
Stock
Section 1. Stock Certificates. The interest of each shareholder of the
Corporation shall be evidenced by a certificate or certificates representing
shares of the Corporation. Stock certificates shall be issued in consecutive
order and shall be in a form or forms prescribed by the Board of Directors and
shall be numbered in the order in which they are issued. They shall be signed
by (1) the Chief Executive Officer, the President or any Vice President and (2)
the Secretary or an Assistant Secretary. If there is a seal of the Corporation,
such seal (or a facsimile of it) shall be affixed to such certificates.
Signatures on a share certificate may be facsimiles but in such case the
certificate must be countersigned by a transfer agent or registered by a
registrar other than the Corporation or an employee of the Corporation.
Section 2. Rights of Corporation with Respect to Registered Owners. Prior
to presentation for transfer of shares, the Corporation may treat the
registered owner of the shares (or the beneficial owner of the shares to the
extent of any rights granted by a nominee certificate on file with the
Corporation pursuant to any procedure that may be established by the
Corporation in accordance with the Code) as the person exclusively entitled to
vote the shares, to receive any dividend or other distribution with respect to
the shares, and for all other purposes; the Corporation shall not be bound to
recognize any equitable or other claim to or interest in the shares on the part
of any other person, whether or not it has express or other notice of such a
claim or interest, except as otherwise provided by law.
Section 3. Transfers of Shares. Transfers of shares shall be made upon the
books of the Corporation only upon direction of the person named in the
certificate or by an attorney lawfully constituted in writing. Before a new
certificate is issued, the old certificate shall be surrendered for
cancellation or, in the case of a certificate alleged to have been lost,
stolen, or destroyed, the provisions of these Bylaws shall have been complied
with.
Section 4. Duty of Corporation to Register Transfer. Notwithstanding any
of the provisions of Section 3 above, the Corporation is under a duty to
register the transfer of its shares only if: (a) the share certificate is
endorsed by the appropriate person or persons; (b) reasonable assurance is
given that each required endorsement is genuine and effective; (c) the
Corporation has no duty to inquire into adverse claims or has discharged any
such duty; (d) any applicable law
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relating to the collection of taxes has been complied with; and (e) the
transfer is in compliance with applicable provisions of any transfer
restrictions of which the Corporation shall have notice.
Section 5. Lost, Stolen, or Destroyed Certificates. Any person claiming a
share certificate to be lost, stolen, or destroyed shall make an affidavit or
affirmation of this claim in such a manner as the Corporation may require and
shall, if the Corporation requires, give the Corporation a bond of indemnity in
form and amount, and with one or more sureties satisfactory to the Corporation,
as the Corporation may require, whereupon an appropriate new certificate may be
issued in lieu of the one alleged to have been lost, stolen or destroyed.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders (a) entitled to notice of or to vote at any meeting of
shareholders or, if necessary, any adjournment thereof, (b) entitled to receive
payment of any distribution or dividend, or (c) for any other proper purpose,
the Board of Directors may fix in advance a date as the record date. The record
date may not be more than seventy (70) days (and, in the case of a notice to
shareholders of a shareholders' meeting, not less than ten (10) days) prior to
the date on which the particular action requiring the determination of
shareholders is to be taken. A separate record date may be established for each
voting group entitled to vote separately on a matter at a meeting. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting, unless
the Board of Directors shall fix a new record date for the reconvened meeting,
which it must do if the meeting is adjourned to a date more than 120 days after
the date fixed for the original meeting. If no record date is fixed as provided
in this Section, then the record date for any determination of shareholders
that may be proper or required by law shall be, as appropriate, the date on
which notice of a shareholders' meeting is mailed, the date on which the Board
of Directors adopts a resolution declaring a dividend or authorizing a
distribution, or the date on which any other action is taken that requires a
determination of shareholders.
Section 7. Regulations, Transfer Agents and Registrars. The Board of
Directors may make all such rules and regulations as it may deem expedient
concerning the issuance, transfer, conversion, registration and cancellation of
share certificates not inconsistent with applicable law, the Articles of
Incorporation or the Bylaws of the Corporation. The Board of Directors may
appoint one or more transfer agents or registrars, or both, and may require all
share certificates to bear the signature of a transfer agent or registrar or
both.
ARTICLE VII
Indemnification of Officers and Directors
Section 1. Indemnification of Directors. The Corporation shall indemnify
and hold harmless, and shall advance funds to pay for or reimburse expenses to,
any person (an "Indemnified Person") who was or is a party, or is threatened to
be made a party, to any threatened, pending or completed action, suit, or
proceeding, whether civil, criminal,
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administrative, arbitrative or investigative, whether formal or informal,
including any action or suit by or in the right of the Corporation (for
purposes of this Article Seven, collectively, a "Proceeding") because he is or
was a director of the Corporation, against any obligation to pay a judgment,
settlement, penalty, fine, or reasonable expenses (including, but not limited
to, attorneys' fees and disbursements, court costs and expert witness fees)
incurred with respect to the Proceeding (for purposes of this Article Seven, a
"Liability"), if he conducted himself in good faith and he reasonably believed
that, in the case of conduct in his official capacity, his conduct was in the
best interests of the Corporation, in all other cases, his conduct was at least
not opposed to the best interests of the Corporation, and, in the case of any
criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful; provided, however, that no indemnification shall be made for any
Liability for which, under the Code, indemnification may not be authorized by
action of the Board of Directors, the shareholders, or otherwise, including,
but not limited to, any Liability of a director to the Corporation for: (a) any
appropriation by a director, in violation of the director's duties, of any
business opportunity of the Corporation; (b) any acts or omissions of a
director that involve intentional misconduct or a knowing violation of law; (c)
the types of liability set forth in Code Section 14-2-832; or (d) any
transaction from which the director received an improper personal benefit.
Indemnification in connection with a Proceeding brought by or in the right of
the Corporation is limited to reasonable expenses incurred in connection with
the Proceeding.
Section 2. Indemnification of Others. The Board of Directors shall have
the power to cause the Corporation to provide to officers, employee and agents
of the Corporation all or any part of the right to indemnification and other
rights of the type provided under Sections 1, 5 and 6 of this Article Seven
(subject to the conditions, limitations, and obligations specified in those
sections) upon a resolution to that effect identifying the officers, employees,
or agents (by position or name) to be indemnified and specifying the particular
rights provided, which may be different for each of the persons identified.
Each officer, employee or agent of the Corporation so identified shall be an
"Indemnified Person" for purposes of the provisions of this Article Seven.
Section 3. Other Organizations. The Board of Directors shall have the
power to cause the Corporation to provide to any director, officer, employee or
agent of the Corporation who is or was serving at the Corporation's request as
a director, officer, partner, trustee, employee, or agent of another
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise, all or any part of the right to indemnification and other rights of
the type provided under Sections 1, 5 and 6 of this Article Seven (subject to
the conditions, limitations, and obligations specified in those sections) upon
a resolution to that effect identifying the persons to be indemnified and
specifying the particular rights provided, which may be different for each of
the persons identified. Each person so identified shall be an "Indemnified
Person" for purposes of the provisions of this Article Seven.
Section 4. Determination. Notwithstanding any judgment, order, settlement,
conviction, or plea in any Proceeding, an Indemnified Person shall be entitled
to indemnification as provided in Section 1 if a determination that such
Indemnified Person is entitled to such
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indemnification shall be made (a) if there are two or more directors who are
not at the time parties to the Proceeding, by the Board of Directors by a
majority vote of a quorum consisting of directors who are not at the time
parties to the Proceeding; (b) if a quorum cannot be obtained under (a) above,
by majority vote of a committee duly designated by the Board of Directors (in
which designated directors who are parties may participate), consisting solely
of two or more directors who are not at the time parties to the Proceeding; (c)
in a written opinion by special legal counsel selected as required by the Code;
or (d) by the shareholders; provided, however, that shares owned by or voted
under the control of directors who are at the time parties to the Proceeding
may not be voted on the determination.
Section 5. Advances. To the extent the Corporation has funds reasonably
available to be used for this purpose, expenses (including, but not limited to,
attorneys' fees and disbursements, court costs and expert witness fees)
incurred by an Indemnified Person in defending any Proceeding of the kind
described in Section 1 (or in Sections 2 or 3, if the Board of Directors has
specified that advancement of expenses be made available to such Indemnified
Person) shall be paid by the Corporation in advance of the final disposition of
such Proceeding as set forth herein. The Corporation shall promptly pay the
amount of such expenses to the Indemnified Person, but in no event later than
10 days following the Indemnified Person's delivery to the Corporation of a
written request for an advance pursuant to this Section 5, together with a
reasonable accounting of such expenses; provided, however, that the Indemnified
Person shall furnish the Corporation a written affirmation of his good faith
belief that he has met the standard of conduct set forth in the Code and a
written undertaking and agreement to repay to the Corporation any advances made
pursuant to this Section 5 if it shall be determined that the Indemnified
Person is not entitled to be indemnified by the Corporation for such amounts.
The Corporation may make the advances contemplated by this Section 5 regardless
of the Indemnified Person's financial ability to make repayment. Any advances
and undertakings to repay pursuant to this Section 5 may be unsecured and
interest-free.
Section 6. Non-Exclusivity. Subject to any applicable limitation imposed
by the Code or the Articles of Incorporation, the indemnification and
advancement of expenses provided by or granted pursuant to this Article Seven
shall not be deemed exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any provision
of the Articles of Incorporation, or any Bylaw, resolution, or agreement
specifically or in general terms approved or ratified by the affirmative vote
of holders of a majority of the shares entitled to be voted thereon. Nothing
contained in this Article Seven shall be deemed to prohibit, and the
Corporation is specifically authorized to enter into, agreements which provide
indemnification rights and procedures permitted by the Code.
Section 7. Insurance. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or who, while serving in such a capacity,
is or was also serving at the request of the Corporation as a director,
officer, trustee, partner, employee or agent of any corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against any
Liability
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that may be asserted against him or incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of this
Article Seven.
Section 8. Notice. If the Corporation indemnifies or advances expenses to
a director under any of Sections 14-2-851 through 14-2-854 of the Code (or any
equivalent provision of these Bylaws) in connection with a Proceeding by or in
the right of the Corporation, the Corporation shall, to the extent required by
Section 14-2-1621 or any other applicable provision of the Code, report the
indemnification or advance in writing to the shareholders with or before the
notice of the next shareholders' meeting.
Section 9. Security. The Corporation may designate certain of its assets
as collateral, provide self-insurance, establish one or more indemnification
trusts or otherwise secure or facilitate its ability to meet its obligations
under this Article Seven, or under any indemnification agreement or plan of
indemnification adopted and entered into in accordance with the provisions of
this Article Seven, as the Board of Directors deems appropriate.
Section 10. Amendment. Any amendment to this Article Seven that limits or
otherwise adversely affects the right of indemnification, advancement of
expenses, or other rights of any Indemnified Person hereunder shall, as to such
Indemnified Person, apply only to Proceedings based on actions, events, or
omissions occurring after such amendment and after delivery of notice of such
amendment to the Indemnified Person so affected (collectively, "Post Amendment
Events"). Any Indemnified Person shall, as to any Proceeding based on actions,
events, or omissions occurring prior to the date of receipt of such notice, be
entitled to the right of indemnification, advancement of expenses, and other
rights under this Article Seven to the same extent as if such provisions had
continued as part of the Bylaws of the Corporation without such amendment. This
Section 10 cannot be altered, amended, or repealed in a manner effective as to
any Indemnified Person (except as to Post Amendment Events) without the prior
written consent of such Indemnified Person.
Section 11. Continuing Benefits. The rights of indemnification and
advancement of expenses permitted or authorized by this Article Seven shall,
unless otherwise provided when such rights are granted or conferred, continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
Section 12. Successors. For purposes of this Article Seven, the term
"Corporation" shall include any corporation, joint venture, trust, partnership
or unincorporated business association that is the successor to all or
substantially all of the business or assets of this Corporation, as a result of
merger, consolidation, sale, liquidation, or otherwise, and any such successor
shall be liable to the persons indemnified under this Article Seven on the same
terms and conditions and to the same extent as this Corporation.
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Section 13. Severability. Each of the Sections of this Article Seven, and
each of the clauses set forth herein, shall be deemed separate and independent,
and should any part of any such Section or clause be declared invalid or
unenforceable by any court of competent jurisdiction, such invalidity or
unenforceability shall in no way render invalid or unenforceable any other part
thereof or any separate Section or clause of this Article Seven that is not
declared invalid or unenforceable.
ARTICLE VIII
Transactions Involving The InterCept Group, Inc.
Section 1. Relationship with The InterCept Group, Inc. In anticipation
that in the foreseeable future The InterCept Group, Inc. ("InterCept") will
remain a substantial shareholder of the Corporation, and in anticipation that
the Corporation and InterCept may engage in the same or similar activities or
lines of business and have an interest in the same areas of corporate
opportunities, and in recognition of the benefits to be derived by the
Corporation through its continued contractual, corporate and business relations
with InterCept (including service of officers and directors of InterCept as
officers and directors of the Corporation), the provisions of this Article
Eight are set forth to regulate and define the conduct of certain affairs of
the Corporation as they may involve InterCept and its officers and directors,
and the powers, rights, duties and liabilities of the Corporation and its
officers, directors and shareholders in connection therewith.
Section 2. Similar Business Activities. No officer or director of
InterCept or the Corporation shall be liable to the Corporation or its
shareholders (except as provided in section 3 below) for breach of any
fiduciary duty by reason of InterCept engaging in the same or similar
activities or lines of business as the Corporation, or by reason of such
person's participation therein.
Section 3. Corporate Opportunities.
(a) In the event that a director or officer of the Corporation who is
also a director or officer of InterCept acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for both the
Corporation and InterCept (whether such potential transaction or matter is
proposed by a third party or is conceived of by such director or officer of
Corporation), such director or officer of the Corporation shall act in a manner
consistent with the following policy:
(i) a corporate opportunity offered to any person who is an
officer of the Corporation and is also a director but not
an officer of InterCept, shall be presented to and belong
to the Corporation, unless such opportunity is expressly
offered to such person primarily in his or her capacity as
a
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director of InterCept, in which case such opportunity
shall be presented to and belong to InterCept;
(ii) a corporate opportunity offered to any person who is a
director but not an officer of the Corporation, and who is
also a director or officer of InterCept, shall be presented
to and belong to the Corporation if such opportunity is
expressly offered to such person solely in his or her
capacity as a director of the Corporation; otherwise, such
opportunity shall be presented to and belong to InterCept;
and
(iii) a corporate opportunity offered to any person who is an
officer of both InterCept and the Corporation shall belong
to the Corporation, unless such opportunity is expressly
offered to such person primarily in his or her capacity as
an officer or director of InterCept, in which case such
opportunity shall be presented to and belong to InterCept.
(b) A corporate opportunity offered to an officer or director under
circumstances that make it unclear whether such opportunity was presented to
such person primarily in their capacity as an officer or director of either the
Corporation or InterCept shall be presented as such director or officer deems
appropriate under the circumstances in his or her sole discretion exercised in
good faith.
(c) Each director and officer acting in accordance with the above policy:
(i) shall be deemed to have fully satisfied and fulfilled his or her fiduciary
duty to the Corporation and its shareholders with respect to such corporate
opportunity; (ii) shall be deemed to have acted in good faith and in a manner
such person reasonably believes to be in and not opposed to the best interests
of the Corporation; (iii) shall be deemed not to have breached any duty of
loyalty or other duty such person may have to the Corporation or its
shareholders; and (iv) shall be deemed not to have derived an improper benefit
from a transaction or opportunity which is handled in accordance with the above
policy, unless he or she fails to disclose to the Corporation his or her
personal interest(s) in such transaction, if any.
Section 4. Limitation of Liability. No director or officer of the
Corporation acting in accordance with the above policy shall be liable to the
Corporation or its shareholders for breach of any fiduciary duty or duty of
loyalty or failure to act in (or not opposed to) the best interests of the
Corporation or the derivation of any improper personal benefit by reason of the
fact that (a) such director or officer offered such corporate opportunity to
InterCept rather than the Corporation or did not communicate information
regarding such corporate opportunity to the Corporation or (b) InterCept
pursues or acquires such corporate opportunity for itself or does not
communicate information regarding such corporate opportunity to the
Corporation.
Section 5. Definitions. For purposes of this Article Eight, a director of
the Corporation who is Chairman of the Board of Directors of the Corporation or
a committee
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thereof shall not be deemed to be an officer of the Corporation by reason of
holding such position (without regard to whether such position is deemed an
office of the Corporation generally under these bylaws), unless such person is
a full-time employee of the Corporation; and the Corporation shall include all
subsidiary corporations and other entities in which the Corporation owns
(directly or indirectly) more than 50 percent of the outstanding voting capital
stock or voting power.
Section 6. Severability. Any conduct by the Corporation or InterCept, or
any of their respective officers or directors, in connection with the affairs
of the Corporation that does not follow the guidelines set forth in this
Article Eight shall not by reason thereof void the transaction or make it
voidable or be deemed a breach of any fiduciary or other duty to the
Corporation, but shall be governed by the other provisions of these bylaws, the
Corporation's articles of incorporation, the Georgia Business Corporation Code
and other applicable law. The provisions of this Article Eight shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
Section 7. Deemed Consent of Shareholders. Any person or entity purchasing
or otherwise acquiring any interest in any shares of capital stock of the
Corporation shall be deemed to have notice of and to have consented to the
provisions of this Article Eight.
Section 8. Termination of Bylaw. Notwithstanding anything in these bylaws
to the contrary, the foregoing provisions of this Article Eight shall expire on
the first day on which (a) InterCept does not own beneficially common stock
representing at least ten percent (10%) of the combined voting power of
outstanding shares of common stock of the Corporation and (b) no person who is
a director or officer of the Corporation is also a director or officer of
InterCept. Neither the alteration, amendment or repeal of this Article Eight
nor the adoption of any provision inconsistent with this Article Eight shall
eliminate or reduce the effect of this Article Eight in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article
Eight, would accrue or arise, prior to such alteration, amendment, repeal or
adoption.
ARTICLE IX
Miscellaneous
Section 1. Inspection of Books and Records. The Board of Directors shall
have the power to determine which accounts, books, and records of the
Corporation shall be available for shareholders to inspect or copy, except for
those books and records required by the Code to be made available upon
compliance by a shareholder with applicable requirements, and shall have the
power to fix reasonable rules and regulations (including confidentiality
restrictions and procedures) not in conflict with applicable law for the
inspection and copying of such accounts, books, and records that by law or by
determination of the Board of Directors are made available. Unless required by
the Code or otherwise provided by the Board of Directors, a shareholder of the
Corporation holding less than two percent (2%) of the total shares of the
Corporation then outstanding shall have no right to inspect the books and
records of the Corporation.
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Section 2. Fiscal Year. The Board of Directors is authorized to fix the
fiscal year of the Corporation and to change the fiscal year from time to time
as it deems appropriate.
Section 3. Corporate Seal. The corporate seal will be in such form as the
Board of Directors may from time to time determine. The Board of Directors may
authorize the use of one or more facsimile forms of the corporate seal. The
corporate seal need not be used unless its use is required by law, by these
Bylaws, or by the Articles of Incorporation.
ARTICLE X
Amendments
Subject to the Articles of Incorporation, these Bylaws and the Code, these
Bylaws may be amended (or repealed and new bylaws adopted) by the Board of
Directors. Any Bylaws adopted by the Board of Directors may be altered, amended
or repealed, and new Bylaws adopted, by the shareholders. The shareholders of
the Corporation may provide expressly that any bylaws adopted, amended or
repealed by them shall not be amended or repealed by the Board of Directors.
* * * * *
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EXHIBIT 10.23
MASTER AGREEMENT - TERMS AND CONDITIONS
This Master Agreement (this "Agreement") is made between Netzee, Inc.
("Netzee") and the single business entity or organization identified as
"Bankers Bank" in Addendum I -- License/Services Schedule (the
"License/Services Schedule") and Addendum II - Maintenance Agreement (the
"Maintenance Agreement").
On or before sixty (60) days prior to the expiration of the initial one (1)
year term specified for the initial License/Services Schedule, and on or before
sixty (60) days prior to the expiration of the initial and any renewal terms
specified for any Maintenance Agreement, Bankers Bank may elect to enter into a
Maintenance Agreement on the terms specified in the attached form of
Maintenance Agreement and this Agreement. In the event that Bankers Bank does
not deliver written notice to Netzee on or before sixty (60) days prior to such
expiration, then Bankers Bank shall be deemed to have elected to enter into a
Maintenance Agreement for an additional one (1) year term, with rights to renew
as specified in this paragraph.
Bankers Bank may elect in its sole option to add additional Participating Banks
to this Agreement by notifying Netzee of such addition pursuant to the
License/Services Schedule. In addition, if the parties agree upon other
Services or Software that Netzee may provide Banker's Bank, they shall document
their agreement through additional Addenda as applicable.
Each Maintenance Addendum (initial and subsequent) will be effective when
signed by Bankers Bank. All terms and conditions set forth in this Agreement
are automatically incorporated in, and deemed part of, each Addendum. Unless
otherwise stated in an Addendum, each Addendum is intended to be a separate
contract providing for separate Software and Services as identified therein.
1. DEFINITIONS. In addition to other terms defined in this Agreement, the
following definitions shall apply as applicable: (a) "Bankers Bank
Content" means any information or data, including without limitation
account or personal data of Participating Banks or its customers, that is
provided by Bankers Bank or Participating Banks and posted on or accessed
through Bankers Bank Website or otherwise processed by the Software. (b)
"Internet" means a worldwide series of interconnected computer networks,
which communicate by a shared network communication protocol known as
Transmission Control Protocol/Internet Protocol or any successor or
alternative protocol. (c) "Intranet" means a computer network (whether
local area network or wide area network) that uses, in whole or in part,
World Wide Web browser software and Internet protocols, or any successors
or alternatives thereto, as the platform for an entity's internal
applications and/or as a gateway to the Internet. (d) "Services" are as
defined in each Addendum and in this Agreement. (e) "World Wide Web" or
"Web" means the Internet-based distributed information service that uses
the hypertext transfer protocol or any successors or alternatives thereto.
(g) "Affiliates" means an entity and all persons and/or entities directly
or indirectly controlling or controlled by or under direct or indirect
common control with such entity. (h) The "Link," "Link Product" or
"System" is an Internet/Intranet-based system that enables
[MATERIAL HAS BEEN DELETED FROM THIS EXHIBIT PURSUANT TO A
CONFIDENTIAL TREATMENT REQUEST]
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Bankers Bank to provide to "Participating Banks" means to communicate
electronically with Bankers Bank and perform Services. Comprising the Link
is a host system operated by Netzee (the "Host"), Services provided to
Bankers Bank, Participating Banks and, as applicable, their customers
using the Host, and a limited amount of software provided to the Bankers
Bank and/or Participating Banks to receive the Services and communicate
with the Host (the "Client Software"). Except for the Client Software, the
Bankers Bank and Participating Banks are responsible for their own
equipment, software and communications. (i) "Escrowed Software" is the
Client Software and host software proprietary to Netzee operated to
provide the Link (exclusive of third-party equipment, software and
communications and to the extent segregated therefrom).
2. SERVICES. (a) Netzee agrees to provide to Bankers Bank the Services
identified in each Addendum and in this Agreement. (b) Netzee warrants
that it will use its commercially reasonable efforts, skill, and knowledge
and sound and professional principles and practices in accordance with
normally accepted industry standards in the performance of Services. (c)
Other Services may be added as shown in additional future Addenda. (d)
Netzee may add or change Services in normal course of its business,
provided material changes will be documented in a revised Addendum.
Notwithstanding the foregoing, Netzee shall make no change in Services
that will result in loss of features or functions regularly utilized by
Bankers Bank or Participating Banks.
3. SOFTWARE. (a) Netzee grants Bankers Bank, and Bankers Bank accepts, a
non-exclusive, non-transferable (except as authorized herein), license to
install, store, operate and use, and, as necessary to use the System,
provide to Participating Banks, the object code or interpreted code
versions of the Client Software. For this purpose, the Client Software
will automatically be deemed to include any maintenance modifications or
upgrades provided to Bankers Bank in the future. (c) Client Software may
not be removed from Bankers Bank's or, as applicable, Participating Banks'
designated site(s), subject to necessary back-up or recovery, and provided
the Client Software will be removed and returned to Netzee upon
termination of Bankers Bank's license. (d) Bankers Bank and, as
applicable, Participating Banks may create a sufficient number of copies
of the Client Software and related user documentation for non-productive
backup and archival purposes only, including, without limitation, one or
more hot sites. All copies of the Client Software and such documentation
shall be accounted for (by number, location and use) upon Netzee's
request. (e) The Client Software is for the use and benefit of the Bankers
Bank and Participating Banks only in connection with the Services and use
of the System. (f) If the Bankers Bank or Participating Users decide to
engage the services of independent service providers (ISPs), including
facilities managers, "outsourcing" vendors, or (for purposes of use of
such term) service corporations wholly owned by the Bankers Bank,
Participating Banks or their Affiliates, those ISPs may access or operate
the Client Software, or manage or coordinate Services, provided they do so
for the sole benefit of the Bankers Bank or Participating Banks. As a
condition of each ISP's access to the Software or Services, Bankers Bank
shall arrange for such ISP to execute a confidentiality agreement
reasonably acceptable to Netzee in which the ISP agrees to access and use
the Client Software, manage or coordinate the Services, and otherwise
receive and use Confidential Information of Netzee only for purposes of
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assisting the Bankers Bank and/or Participating Banks to receive the
Services. (g) The Bankers Bank and/or Participating Banks may also
authorize suppliers and/or customers to use the Client Software for
purposes of facilitating contractual relationships involving complementary
goods and services.
4. PARTICIPATING BANKS. (a) Bankers Bank may resell the Services and/or
transact business using the Services with Participating Banks, with right
of resale includes the right to sublicense to Participating Banks any
Software necessary to utilize the Services. (b) Netzee's relationship
under this Agreement is solely with Bankers Bank and not with
Participating Banks. Bankers Bank is responsible for all support (except
as provided in the Services), billing and collection of or from
Participating Banks. (c) Bankers Bank shall require Participating Banks to
comply with and acknowledge terms and conditions for use of the Services
consistent with this Agreement. Bankers Bank will defend, indemnify and
hold Netzee harmless from and against any claims resulting from Bankers
Bank's and/or any Participating Bank's use of the Services, except for
claims arising out of Netzee's breach of the terms of this Agreement or
any Addendum, any infringement of intellectual property rights for which
Netzee is responsible, or any negligence or intentional misconduct of
Netzee. (d) Bankers Bank will cooperate to identify and resolve any
security infringements that involve Participating Banks and use of the
System.
5. WEB LINK AND ADVERTISING. (a) As necessary or appropriate for each party
to design, establish and maintain the link and host Bankers Bank's Website
as part of the Services, operate and conduct the Services, describe,
promote or link the parties' respective Websites, and promote the Service
through mutually agreed other advertising, each party grants the other
party a worldwide, non-exclusive right to use and display its Brand Marks,
subject in each instance to such party's prior approval. Presentation of
the Brand Marks shall also be in accordance with conventions specified by
the party owning such Brand Marks. Use of the Brand Marks shall be
confined to the purposes of this Agreement. For purposes of this
Agreement, "Brand Marks" mean trademarks, service marks, trade names,
logos, slogans and advertising (including text, graphic or audiovisual
features of icons, banners, frames, etc. to the extent distinctive to
either party) and, if provided by either party, depiction of characters or
celebrities. (b) Netzee reserves the right to suspend or deactivate
Services as necessary to terminate or investigate illegal or improper
activities, provided Bankers Bank will be notified of such action and the
Services will be suspended or deactivated only to the degree necessary for
such purpose.
6. GENERAL LIMITATIONS. (a) The Software and Services may be used by Bankers
Bank only for Bankers Bank's and, as applicable, Participating Banks'
internal business requirements, as further described in this Agreement.
(b) Bankers Bank and each applicable Participating Bank will be
responsible for the conduct of its business, including use of the Services
in accordance with applicable laws and regulations. Netzee in the normal
course of its business may provide assistance to Bankers Bank and
Participating Banks, but Bankers Bank and each Participating Bank retains
final responsibility for such compliance.
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7. SOURCE CODE ESCROW. Netzee agrees to deposit in escrow, within 15 days
after the commencement date of this Agreement with an escrow agent
approved by Bankers Bank (which approval shall not be unreasonably
withheld), pursuant to an escrow agreement reasonably acceptable to
Bankers Bank, the source code of the Escrowed Software (which will be
updated as provided in the escrow agreement). The escrow agreement will
list third-party software that is integrated or combined with the Escrowed
Software in such a manner that such third-party software is necessary for
the operation or use of the Escrowed Software. Release of the Escrowed
Software shall be permitted only upon the occurrence of one of the
following events:
(a) In the event Netzee files for relief under the federal
Bankruptcy Code, or any action is filed against Netzee under
such Code and such action is not cured within 30 days;
(b) In the event Netzee enters into a general assignment for the
benefit of creditors;
(c) In the event Netzee otherwise substantially ceases doing
business, and its business is not continued by virtue of a
merger or consolidation with, or a sale of all or substantially
all of its assets to, or otherwise by, another corporation or
entity;
(d) In the event (1) Netzee fail to provide support, maintenance,
updates or other Services as required under this Agreement or
any other agreement between Netzee and Bankers Bank (receipt of
such Escrowed Software not to constitute waiver of any other
remedies by Bankers Bank for Netzee's breach pursuant to any
such agreements) or is unwilling or unable to provide on
reasonable terms development or customization needed by the
Bankers Bank, as determined by the Bankers Bank, and (2) Bankers
Bank notifies Netzee of such matter and Netzee does not provide
Bankers Bank a solution within thirty (30) days or a plan for
correction within (15) days which the Bankers Bank, in its sole
discretion, determines to be acceptable; or
(e) In the event there occurs a substantial change of ownership of
Netzee as referenced in Section 9(d) hereof and Bankers Bank
requests but does not receive assurances in a manner reasonably
acceptable to Bankers Bank that Netzee or its successor(s) is
willing and able to continue to meet its obligations under this
Agreement and any Addendum.
Should the Bankers Bank obtain the Escrowed Software pursuant to this
section, the Bankers Bank shall thereafter have the right (in the form of
a nonexclusive, royalty free license) to use and modify it (in object code
and source code form, as applicable) to maintain or restore the Services
and otherwise independently use the Escrowed Software for the benefit of
the Bankers Bank and Participating Users, with full rights to alter,
revise, modify and update the Escrowed Software for such purpose (which
such alterations, revisions, modifications and updates by the Bankers Bank
being owned exclusively by the Bankers Bank), provided it otherwise
adheres to its obligations under this Agreement. At the time the Escrowed
Software is obtained, Bankers Bank may demand, and shall be entitled to
receive, to the extent not included with the Escrowed Software and not
otherwise in Bankers Bank's possession, copies of any existing technical
manuals associated with such Escrowed
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Software; existing maintenance tools (such as, test programs and program
specifications); existing menu and support programs and subroutine
libraries in source and object code form; existing compilation procedures
in human and machine readable form; existing execution procedures in human
and machine readable form; existing end user documentation; and existing
system flow charts, programmers' notes, program flow charts, file layouts,
report layouts, and screen layouts. This Section supersedes the license
made available to Bankers Bank pursuant to Section 1 of the Agreement
between Netzee and the Bankers Bank dated September 3, 1999.
8. DATA. Bankers Bank or, as applicable, Participating Banks shall be
responsible for entering all information and data required for the
Services. Bankers Bank retains all intellectual property and other rights
in and to all Bankers Bank Content. Netzee shall be allowed to use the
Bankers Bank Content for the sole purpose of providing Services under this
Agreement and any Addendum, provided that Netzee and its service partners
may use information as necessary for delivering or customizing the
Services, Netzee may collect and share aggregate data (provided that
personally identifying information is not shared without the user's
permission), and, when users request goods or services provided by
Netzee's retail partners or pursuant to third-party promoters, such retail
partners or promoters are governed by their own procedures with regard to
any information associated with such request.
9. RESTRICTIONS. (a) Except as expressly permitted above, Bankers Bank agrees
not to sublicense, license, rent, sell, loan, give or otherwise distribute
all or any part of the Software or subcontract or resell the Services to
any third party, without Netzee's consent. (b) Bankers Bank agrees not to
reverse engineer, disassemble, decompile, modify, or alter the Software or
any copy thereof, in whole or in part. (c) If either party is merged,
consolidated or sold, or if either party sells or transfers all or
substantially all of its assets relating to the use of the Software, such
party shall have the right to transfer or assign its rights and
obligations under this Agreement to the surviving or buying entity,
provided that (i) the successor in any asset purchase which includes a
transfer of this Agreement shall assume the terms and conditions of this
Agreement in a manner reasonably acceptable to the other party; (ii) if
the transferor is Bankers Bank, the overall scope of this Agreement may
not be substantially altered without Netzee's prior approval; and (iii) if
the transferor is Netzee, and if the transfer is, directly or indirectly,
to a purchaser or affiliated group under circumstances that can reasonably
be expected to significantly alter Netzee's management and direction,
Bankers Bank shall be entitled to request and receive reasonable
assurances in a manner reasonably acceptable to Bankers Bank that Netzee
or its successor(s) is willing and able to continue to meet its
obligations under this Agreement and any Addendum, and Section 7(e) shall
apply if Bankers Bank does not receive such assurance.
10. TERM. (a) The Term of this Agreement and the initial Addendum shall last
for one (1) year from the date of execution of the initial Addendum and
continuing thereafter for so long as Bankers Bank elects to receive
services under the Maintenance Agreement; provided, however, that Bankers
Bank may terminate this Agreement by giving at least
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thirty (30) days' advance notice of termination in the event it is
determined that Netzee cannot meet Bankers Bank's requirements as
identified in this Agreement. (b) Bankers Bank shall receive help desk,
error correction and updates to the Software and Services, as described in
the Maintenance Agreement and this Agreement, during the initial term and
has the option to receive such services pursuant to the Maintenance
Agreement upon expiration of the initial one (1) year term of the
License/Services Schedule. If Bankers Bank declines to receive or renew
maintenance at the end of such initial term or any subsequent maintenance
term, the Agreement will terminate.
11. FEES. (a) Bankers Bank shall pay the fees indicated on each Addendum for
the corresponding Software or Services. Fees for each identified item of
Software will be fully earned and non-refundable when and as that Software
is delivered or put in use. Fees for Services will be fully earned and
non-refundable when and as the Services are performed. Services required
but not described in this Agreement or an Addendum will be charged to
Bankers Bank at Netzee's standard rates. (b) Unless otherwise stated in
the applicable Addendum, all amounts due shall be paid in U.S. Dollars
promptly on receipt of invoice. (c) An Addendum may, as applicable,
require payment of reasonable out-of-pocket expenses incurred by Netzee,
subject to Bankers Bank's prior written approval of same. Communications,
equipment usage, and similar expenses set forth in such Addendum, if
applicable, will be based on standard rates provided generally by Netzee.
(d) Any payment not received within thirty (30) days of the date due shall
bear interest from the date due at the rate of one (1%) per month
(prorated for partial periods) or the maximum rate permitted by applicable
law, whichever is less. (e) Bankers Bank shall be responsible for sales or
use taxes or similar obligations imposed by any government authority with
respect to the Software or Services (except Netzee retains responsibility
for franchise taxes and federal and state taxes on its net income or net
worth).
12. WARRANTY AND INDEMNIFICATION. (a) All Software will recognize dates with a
four-digit field and in a manner that calculates the year 2000 as a leap
year. (b) Support may provide response measures that are in addition to
warranties. Warranties on third-party software, services, equipment, etc.
are limited to third-party obligations. (c) Netzee does not warrant that
the Software or Services shall be uninterrupted or error free or that it
shall meet Bankers Bank's needs. (d) Netzee will provide reasonable
security in accordance with banking industry standards. Bankers Bank or
Participating Banks, as applicable, are otherwise solely responsible for
the accuracy and integrity of its own data, reports, documentation and
security. Netzee will provide upon request a description of security
methods and procedures employed by Netzee. Bankers Bank or Participating
Banks, as applicable, will employ additional procedures as appropriate to
secure the integrity of its data. Bankers Bank understands that certain
risks are inherent in the transmission of information over the Internet.
(e) The exclusive remedy of Bankers Bank, and Netzee's sole obligation, in
the event of any warranty claim or any other contract deficiency shall be
for Netzee to repair or replace the defect or, if such repair or
replacement is not provided or does not correct the defective item, to
refund an equitable part of Bankers Bank's payments for the defective
item. (f) Netzee will indemnify, defend and hold the Bankers Bank Entities
harmless from any damages or liabilities resulting from third-party claims
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that the Software or Services or their use (exclusive of the Bankers Bank
Content, which is Bankers Bank's responsibility) infringe U.S. patents,
copyrights or similar intangible rights or misappropriate the trade
secrets or confidential information of third parties, provided that
Bankers Bank will promptly notify Netzee of the matter, cooperate with
Netzee as requested, and permit Netzee to control the investigation,
defense and disposition of the same. (g) EXCEPT AS EXPRESSLY PROVIDED IN
THIS SECTION, NO WARRANTY OR ASSURANCE, EXPRESS, IMPLIED, OR STATUTORY, IS
GIVEN BY NETZEE WITH RESPECT TO SOFTWARE, SERVICES OR ANY OTHER MATTER,
INCLUDING, WITHOUT LIMITATION (AND NETZEE SPECIFICALLY DISCLAIMS) ALL
WARRANTIES OF TITLE, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(h) Bankers Bank is responsible for entering into agreements with
Participating Banks appropriate to give effect to the restrictions and
limitations set forth in this Agreement as contemplated to apply to such
Participating Banks.
13. LIMITATION OF LIABILITY. (a) EXCEPT FOR ANY OBLIGATIONS OF INDEMNITY UNDER
THIS AGREEMENT OR ANY ADDENDUM, IN NO EVENT SHALL NETZEE BE LIABLE TO
BANKERS BANK, WHETHER IN CONTRACT OR IN TORT OR UNDER ANY OTHER LEGAL
THEORY (INCLUDING, WITHOUT LIMITATION, STRICT LIABILITY AND NEGLIGENCE)
FOR LOST PROFITS OR REVENUES, LOSS OR INTERRUPTION OF USE, LOST OR DAMAGED
DATA, REPORTS, DOCUMENTATION OR SECURITY, OR SIMILAR ECONOMIC LOSS, OR FOR
ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR SIMILAR DAMAGES,
ARISING OUT OF OR IN CONNECTION WITH THE PERFORMANCE OR NON-PERFORMANCE OF
THIS AGREEMENT, OR FOR ANY CLAIM MADE AGAINST BANKERS BANK BY ANY OTHER
PARTY, EVEN IF NETZEE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH CLAIM.
(b) EXCEPT FOR ANY OBLIGATIONS OF INDEMNITY UNDER THIS AGREEMENT OR ANY
ADDENDUM, IN NO EVENT SHALL NETZEE'S LIABILITY UNDER ANY CLAIM MADE BY
BANKERS BANK EXCEED THE TOTAL AMOUNT OF FEES PAID BY BANKERS BANK TO
NETZEE WITHIN ONE (1) YEAR PRIOR TO THE DATE THE CLAIM AROSE (OR, IF LESS
THAN ONE (1) YEAR HAS TRANSPIRED SINCE THE DATE OF COMMENCEMENT OF THE
SERVICES, THE ANNUALIZED AMOUNT OF BASE MONTHLY FEES PAID THROUGH SUCH
DATE) RELATING TO THE AFFECTED SOFTWARE OR SERVICES. (c) NO ACTION,
REGARDLESS OF FORM, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT
MAY BE BROUGHT BY BANKERS BANK MORE THAN ONE (1) YEAR AFTER THE EVENT
GIVING RISE TO SUCH CAUSE OF ACTION.
14. CONFIDENTIALITY; OWNERSHIP OF WORK PRODUCT. (a) Each of the parties hereto
agrees to protect and maintain as secret all information designated as
confidential by the other party ("Confidential Information") by (i)
treating the Confidential Information of the other party with at least the
same care and protection accorded its own Confidential Information; (ii)
using great care in the assignment of personnel who receive Confidential
Information of the
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other party, and instructing such personnel to take all reasonable
precautions to prevent unauthorized use or disclosure thereof; and (iii)
not using or disclosing such Confidential Information except as necessary
to fulfill the terms of this Agreement or as otherwise authorized by the
disclosing party. However, neither party shall have an obligation of
confidentiality with regard to any information that: (A) is known to such
party prior to disclosure; (B) is or becomes publicly available other than
as a result of a breach of this Agreement; or (C) is disclosed to such
party by a third party not subject to an obligation of confidentiality.
(b) For purposes of this Agreement, the parties acknowledge that
information collected from Bankers Bank, Participating Banks and their
accounts is (as between the parties hereto), and is hereby designated as,
Confidential Information of Bankers Bank. Netzee and third-party service
providers may collect and use such information only if Bankers Bank agrees
in writing and identifying information is first screened or filtered, or
as otherwise required to perform the Services. (c) If advertising or
content supplied by either party pertaining to its products, services or
business embodies any work of authorship protected under U.S. or foreign
copyright laws or database interest protected under international laws or
conventions, the party supplying such material shall be responsible for
securing rights and licenses necessary for the use and exercise of such
interests incident to the Services. (d) All systems, programs, operating
instructions and other documentation, including all rights in patentable
inventions, trade secrets and know how, database interests and copyrights
associated therewith, which are conceived, prepared, developed or
delivered by Netzee (whether alone or with others, and whether independent
of or in connection with the conduct of its performance hereunder), shall
be and remain the sole property of Netzee. (e) All Confidential
Information that are trade secrets under law shall be protected in
accordance with this Section 14 for as long as such Confidential
Information remains a trade secret. All Confidential Information that is
not a trade secret shall be protected under this Agreement for the term of
this Agreement and three (3) years thereafter.
15. TERMINATION. (a) Either party, at its option, may terminate this Agreement
(and thereupon terminate Bankers Bank's license to the Client Software and
Bankers Bank's right to receive any remaining Services) if the other party
commits a substantial breach of this Agreement and fails to cure the
breach within thirty (30) days (or ten business (10) days if for
non-payment) after notice of such breach is given, provided that, so long
as Bankers Bank is current in all payment obligations within and after the
cure period, the Services may be continued for an additional period of up
to ninety (90) days as necessary for Bankers Bank to effect a transition
in such Services. For this purpose, the Bankers Bank will not be deemed in
substantial breach of this Agreement (and therefore Netzee will not be
entitled to terminate this Agreement for reason of such a breach, but
without prejudice to any other rights Netzee may have at law or equity) if
base monthly maintenance fees, as well as any other undisputed
obligations, are paid in full to Netzee, and obligations (other than
monthly maintenance fees) to the extent disputed are escrowed on terms
reasonably acceptable to Netzee. Termination of this Agreement shall
simultaneously result in termination of Addenda then in effect. (b) Upon
termination of this Agreement, subject to the foregoing possible
extension, regardless of the reason, Bankers Bank shall immediately cease
use of the Client Software, remove the Client Software from Bankers Bank's
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computers, and follow Netzee's instructions for the return or destruction
of all remaining copies of the Software and related documentation. Bankers
Bank agrees to certify its compliance with the foregoing requirement upon
Netzee's request.
16. FORCE MAJEURE. Neither party shall be responsible for failures or
interruptions of communications facilities or equipment of third parties,
labor strikes or slowdowns, shortages of resources or materials, natural
disasters, world events, delay or disruption of shipment or delivery,
trespass or interference of third parties, or similar events or
circumstances outside its reasonable control, whether or not otherwise
enumerated.
17. ARBITRATION. (a) In the event any claim, controversy or dispute of any
kind whatsoever (a "Dispute") shall arise between the parties (including
their subsidiaries and affiliates) in connection with, relating to or
arising out of this Agreement (including any Addenda) or any other
agreement or transaction between the parties, including (without
limitation) the interpretation, performance, non-performance or
termination hereof or thereof, the parties, at either party's request,
shall attempt to settle such Dispute in the first instance through mutual
discussion. Such request shall be made by written notice referencing this
provision. If such Dispute has not been resolved through mutual discussion
within thirty (30) days following such notice, the parties shall endeavor
to settle the Dispute by non-binding mediation under the Mediation Rules
of the American Arbitration Association prior to any recourse to
arbitration pursuant to this Section 17. (b) If such Dispute has not been
resolved within thirty (30) days after submission to mediation pursuant to
Section 15(a) above (the "Mediation Period"), such Dispute shall be
settled by an arbitral tribunal (the "Tribunal") under the Commercial
Arbitration Rules of the American Arbitration Association (the
"Arbitration Rules"). Each party shall appoint an arbitrator within thirty
(30) days after the expiration of the Mediation Period, which arbitrators
shall then jointly appoint a third arbitrator within thirty (30) days
after the appointment of the first two (2) arbitrators, to act as
president of the Tribunal. Arbitrators not so appointed shall be appointed
pursuant to the Arbitration Rules. The costs of the arbitration shall be
borne by the parties as determined by the Tribunal. The award rendered in
any arbitration commenced hereunder shall be final and binding and
judgment thereon may be entered in any court having jurisdiction for its
enforcement. Neither party shall appeal to any court from the decision of
the Tribunal, or have any right to commence or maintain any suit or legal
proceeding concerning a Dispute until such Dispute has been determined in
accordance with the arbitration procedure provided for herein, and then
only for enforcement of the award rendered in the arbitration. (c)
Notwithstanding the foregoing, nothing in this Section 17 shall be deemed
as preventing either party from seeking injunctive relief from the courts
pursuant to Section 17(d) below. All mediation and arbitration proceedings
pursuant to this Agreement shall take place in Atlanta, Georgia. The
assertion, prosecution and settlement of Disputes shall be maintained in
confidence by the parties, except as required for either party to comply
with applicable laws and regulations. (d) Each party acknowledges that
violation of Sections 3, 5, 8 or 13 will cause irreparable harm to the
other not adequately compensable by monetary damages. In addition to other
relief, each party agrees that injunctive relief shall be available to the
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other in the event of such violations without the necessity of posting
bond to prevent any actual or threatened violation of such provisions.
18. MISCELLANEOUS. (a) Netzee may refer to Bankers Bank in advertising or
publicity, provided that, except as necessary to meet legal obligations or
provide the Services, it shall first consult Bankers Bank and obtain
Bankers Bank's prior written approval. (b) Except as expressly stated
herein, the terms and conditions of this Agreement and any Addendum may
not be amended, waived or modified, except in a writing signed by the
party to be charged therewith. (c) No failure or delay of either party to
exercise any rights or remedies under this Agreement or any Addendum shall
operate as a waiver thereof, nor shall any single or partial exercise of
any rights or remedies preclude any further or other exercise of the same
or any other rights or remedies, nor shall any waiver of any rights or
remedies with respect to any circumstances be construed as a waiver
thereof with respect to any other circumstances. (d) If any provisions of
this Agreement or any Addendum is held invalid or unenforceable in any
circumstances by a court of competent jurisdiction, the remainder of this
Agreement and such Addendum, and the application of such provisions in any
other circumstances, and in any other jurisdiction, shall not be affected
thereby. (e) The terms and conditions of this Agreement, as applied to and
incorporated in each separate Addendum, shall be construed to be a
separate contract for each separate Addendum. (f) Invoices, purchase
orders, acknowledgments, confirmations and other communications submitted
by Bankers Bank shall not be considered part of any Addendum or this
Agreement unless signed and approved by an authorized representative of
Netzee clearly indicating Addendum in which it is incorporated. In the
event of any conflict between this Agreement and an Addendum, the terms of
this Agreement shall control unless the conflict is expressly noted in the
applicable Addendum and Addendum provides to the contrary. (g) All notices
and other communications under this Agreement or Addendum shall be in
writing and shall be deemed to have been given upon actual delivery by
reputable overnight courier to the address from which it sends or receives
invoices or at such other address as such party may indicate in writing,
except that invoices shall be sent to Bankers Bank in accordance with
standard procedures. (h) This Agreement and each Addendum shall be
governed by and construed and enforced in accordance with the laws of the
State of Georgia, excluding its principles of conflicts of law. (i) This
Agreement and each Addendum may be executed in one or more counterparts.
(j) Netzee shall perform this Agreement solely as an independent
contractor, and not as any Bankers Bank Entity's partner, agent, or
employee. Netzee has no authority to make any statement, representation or
commitment of any kind or to take any action binding upon any Bankers Bank
Entity, without Bankers Bank's prior written authorization. (k) Subject to
the other provisions of this Agreement, each party during the term of this
Agreement shall fully comply, and cause its subcontractors, employees,
agents, and representatives fully to comply, with all applicable laws,
governmental regulations, rules, requirements, ordinances and other
requirements of local and state authorities and the Federal government,
including, without limitation, all applicable laws and regulations
regulating financial institutions.
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IN WITNESS WHEREOF, the undersigned duly authorized representatives of the
parties hereto have made and entered in this Agreement as of the date first
above written.
NETZEE, INC. THE BANKERS BANK, a Georgia
banking corporation
By: /s/ Richard S. Eiswirth By: /s/ Kevin Tweddle
------------------------ --------------------------
Name: Richard S. Eiswirth Name: Kevin Tweddle
------------------------ --------------------------
Title: SEVP & CFO Title: SVP & CFO
------------------------ --------------------------
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NETZEE, INC.
LICENSE/SERVICES SCHEDULE TO MASTER AGREEMENT
Netzee has developed an Internet/Intranet based banking product (collectively
the "Link," "Link Product" or "System") that enables THE BANKERS BANK ("Bankers
Bank"), a Georgia banking corporation, to provide to Correspondent Banking
Institutions which are Bankers Bank's customers - sometimes referred to as
"Participating Banks" - with means to communicate electronically with Bankers
Bank and perform certain electronic banking transactions. Comprising the Link
is a host system operated by Netzee (the "Host"), Services provided to Bankers
Bank, Participating Banks and, as applicable, their customers using the Host,
and a limited amount of software provided to the Bankers Bank and/or
Participating Banks to receive the Services and communicate with the Host (the
"Client Software"). Except for the Client Software, the Bankers Bank and
Participating Banks are responsible for their own equipment, software and
communications.
The Services to be provided by Netzee to Bankers Bank comprising the Link shall
apply to the __ Participating Banks identified at execution of this Agreement.
Such Participating Banks may change or increase to include other members of
Bankers Bank at Bankers Bank's election, provided Netzee will be so notified of
the change.
The Services are described in EXHIBIT A.
Bankers Bank will provide the information and perform the activities described
in EXHIBIT B.
Bankers Bank agrees to pay fees as provided in EXHIBIT C.
THIS LICENSE/SERVICES SCHEDULE IS GOVERNED BY, AND SHALL BE SUBJECT TO, THE
TERMS AND CONDITIONS OF THE MASTER AGREEMENT BETWEEN NETZEE AND BANKERS BANK,
INCLUDING THE LIMITED WARRANTY AND DISCLAIMER AND LIMITATIONS OF LIABILITY
PROVIDED THEREIN. SUCH TERMS AND CONDITIONS ARE HEREBY AFFIRMED BY BOTH PARTIES
AND INCORPORATED BY REFERENCE IN THIS LICENSE/SERVICES SCHEDULE.
EFFECTIVE DATE OF THIS ADDENDUM: MARCH 1, 2000
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<PAGE> 13
IN WITNESS WHEREOF, the undersigned duly authorized representatives of the
parties hereto have made and entered in this Agreement as of the date above
written.
NETZEE, INC. THE BANKERS BANK, a Georgia
banking corporation
By: /s/ Richard S. Eiswirth By: /s/ Kevin Tweddle
------------------------ --------------------------
Name: Richard S. Eiswirth Name: Kevin Tweddle
------------------------ --------------------------
Title: SEVP & CFO Title: SVP & CFO
------------------------ --------------------------
2
<PAGE> 14
EXHIBIT A TO LICENSE/SERVICES SCHEDULE
Services
As the Services to be delivered upon execution of this Agreement and for a Term
of one (1) year, Netzee shall, as applicable, develop, implement, test, operate
and maintain, and support computer systems, software and interfaces included in
the System, and Netzee will provide the Services, as well as provide assistance
in training Bankers Bank personnel in the use of the Services.
Maintenance and support provided by Netzee during the initial Term of this
Agreement shall include (1) standard maintenance upgrades and modifications
offered by Netzee to its customers generally, and for such purpose Netzee will
use commercially reasonable efforts to make and include (without limitation) as
such modifications changes and upgrades necessary to comply with generally
applicable industry and regulatory requirements of which it is notified, (2)
5x12 call-in support between hours of 6:30 a.m. and 6:30 p.m. Eastern Time
Monday through Friday, (3) in the event of material discrepancies between the
Services as provided and the specifications for such Services (which shall be
furnished in reasonably acceptable form), reasonable effort (in relation to
importance, impact, and scheduled development plans) to correct those
discrepancies, and (4) availability of basic Services with at least 99% uptime
between 4:00 a.m Monday and 7:00 p.m. Friday and between 8:00 a.m. Saturday and
2:00 p.m. Saturday Eastern Time, exclusive of outages caused by off-peak
prescheduled maintenance or causes beyond Netzee's reasonable control
(including third-party equipment or communications).
The Link Product allows Bankers Bank to use the following applications to
receive and deliver specific information to Participating Banks and their
accounts. Bankers Bank has the right to delete an application that does not
apply to its institution. The applications consist of the following:
ACCOUNT DELIVERY
FUNDS TRANSFER
Bank to Bank Transfer
Internal Transfer
Local Clearing
Recurring Wire Table
OFAC
Travelers
INTERNATIONAL WIRE
Exchange Rates
Foreign Drafts
Recurring Table
ACH
ACH Received
ACH Origination
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<PAGE> 15
ACH Return/Notice of Change
Recurring Table
EFTPS
ENR
INVESTMENTS
Increase/Decrease Fed Funds
Investments Research Requests
Corporate Sweep Messages
Securities Purchased and Sold
Stock Order or Sale
Pledge & Repo/Resell Maintenance
Treasury Fund Factor
Messages
Fed Fund Rates
T-Bill Rates
Wallstreet Report
Investment Broadcast Reports
Bond Portfolio Reports
Transaction Advices
Safekeeping Income Report
FILE DELIVERY
MICR Delivery
Open Case
Case Inquiry
Cash Letter Worksheet
Reports
Check Adjustment Advice
Cash Letter Availability
Over Night Fed Fund Report
FRB SERVICES
Coin/Currency Order & Shipment
Coin/Currency Order & Shipment Notification
Large Dollar Return Item
Recurring Savings Bond Table
Series EE and I
T T & L Report
FR2900 Import
NOTIFICATIONS
FR2900 Confirmation
FED ACH Advice
Fed Funds Sold & Purchased
Weekly Fed Fund Re-Cap
4
<PAGE> 16
Incoming & Outgoing Wire Advices
Internal Transfer Advice
Miscellaneous Entry Advice
Savings Bond Order Advice
T T & L Advice
STATEMENT DELIVERY
Account Analysis
FRB Statement
Daily and Weekly Account Statements
FRB Charges
EVENT NOTIFICATION
DETAILED ADMINISTRATION CONTROLS
ONLINE HELP
5
<PAGE> 17
EXHIBIT B
Bankers Bank Responsibilities
In addition to the requirements of Bankers Bank set forth in the Agreement,
Bankers Bank shall provide the following:
Bankers Bank shall be responsible for providing to Netzee certain Bankers Bank
Content mutually agreed between Bankers Bank and Netzee within 60 days of the
Effective Date.
Without assuming responsibility for the creation, testing, implementation, and
support of the System, Bankers Bank shall provide such cooperation and
approvals as may be reasonably requested and shall make its technical
personnel, facilities and computer and software systems reasonably available
during normal business hours in a timely manner for such purposes.
Bankers Bank shall obtain and maintain at its expense a communications link
conforming to the specifications provided in writing by Netzee from time to
time to connect Bankers Bank's systems with the System.
Bankers Bank shall enter a binding agreement with each Participating Bank
electing to utilize any of the Services and shall provide Netzee upon request,
copies of such agreements. In no event shall Bankers Bank make representations
and warranties concerning the Services exceeding the scope of this Agreement or
otherwise not authorized in writing by Netzee.
Bankers Bank shall develop and provide adequate written disclosure material to
the Participating Banks regarding its policies and all laws and regulations
which may apply to the use of the Services. Upon request of Netzee, Bankers
Bank shall provide Netzee with a copy of all such disclosure material.
In addition, Bankers Bank will:
- - Provide a dedicated Bankers Bank project leader
- - Provide equipment and telecommunications requirements to meet the
specifications set forth by Netzee
- - Schedule initial meeting with Netzee and Bankers Bank staff to gather
required product information
- - Provide required and mutually agreed Bankers Bank information including
camera ready art, URL destinations, product name product and color scheme
within 10 days of initial one day meeting
- - Provide Netzee with required sample files for delivery and interface
- - Schedule employees for user testing for 2 weeks and actively test product
functionality for a 2 week testing period
Bankers Bank's responsibilities as provided in this Exhibit will also apply,
following expiration of this License/Services Schedule, in relation to any
maintenance that Netzee continues to supply.
6
<PAGE> 18
EXHIBIT C
Fees and Expenses
For the Services, as outlined on Exhibit A, during the initial one-year term of
the Agreement, Bankers Bank will pay Netzee the one-time sum of $[XXX]
multiplied by [XXX], which is the total initial authorized number of
Participating Banks shown on the first page of the License/Services Schedule.
Such fees shall not be applicable to additional Participating Banks that are
subsequently added. Such fees shall be fully earned and non-refundable for such
work and services provided in the initial one-year term of the Agreement.
Out-of-pocket expenses incurred by Netzee in the course of providing Services
to Bankers Bank and Participating Banks are not reimbursable unless separately
agreed.
***MATERIAL DENOTED BY [XXX] HAS BEEN OMITTED
PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.***
7
<PAGE> 1
EXHIBIT 10.24
NETZEE, INC.
MAINTENANCE AGREEMENT
This Agreement provides for Continued Service and for Netzee to provide basic
maintenance in support following expiration of the initial one (1) year term of
the License/Services Schedule.
The Continued Service provided by Netzee will be the operation, maintenance,
and support of the computer systems, software and interfaces included in the
System.
Bankers Bank agrees to pay fees equal to $[XXX] per month for all Participating
Banks (original or added) for which maintenance is provided.
The maintenance is for a period of one (1) year commencing upon expiration of
the initial one (1) year term of the License/Services Schedule. Following the
completion of such maintenance term, Bankers Bank may, at its option, renew
maintenance for subsequent periods of one (1) year each, subject to adjustments
proposed by Netzee not to exceed [XXX] at least sixty (60) days in advance of
the applicable renewal date.
Maintenance provided by Netzee during the term of this Agreement shall include
(1) standard maintenance upgrades and modifications offered by Netzee to its
customers generally, standard maintenance upgrades and modifications offered by
Netzee to its customers generally, and for such purpose Netzee will use
commercially reasonable efforts to make and include (without limitation) as
such modifications changes and upgrades necessary to comply with generally
applicable industry and regulatory requirements of which it is notified (2)
5x12 call-in support between hours of 6:30 a.m. and 6:30 p.m. Eastern Time
Monday through Friday, (3) in the event of material discrepancies between the
Services as provided and the specifications for such Services (which shall be
furnished in reasonably acceptable form), reasonable effort (in relation to
importance, impact, and scheduled development plans) to correct those
discrepancies, and (4) availability of basic Services with at least 99% uptime
between 4:00 a.m Monday and 7:00 p.m. Friday and between 8:00 a.m. Saturday and
2:00 p.m. Saturday Eastern Time, exclusive of outages caused by off-peak
prescheduled maintenance or causes beyond Netzee's reasonable control
(including third-party equipment or communications).
THIS MAINTENANCE AGREEMENT IS GOVERNED BY, AND SHALL BE SUBJECT TO, THE TERMS
AND CONDITIONS OF THE MASTER AGREEMENT BETWEEN NETZEE AND BANKERS BANK,
INCLUDING THE LIMITED WARRANTY AND DISCLAIMER AND LIMITATIONS OF LIABILITY
PROVIDED THEREIN. SUCH TERMS AND CONDITIONS ARE HEREBY AFFIRMED BY BOTH PARTIES
AND INCORPORATED BY REFERENCE IN THIS MAINTENANCE AGREEMENT, INCLUDING, WITHOUT
LIMITATION, ALL LICENSES GRANTED OR EXERCISABLE THEREUNDER.
COMMENCEMENT DATE FOR MAINTENANCE UNDER THIS ADDENDUM: MARCH 1, 2001
***MATERIAL DENOTED BY [XXX] HAS BEEN OMITTED
PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.***
8
<PAGE> 2
IN WITNESS WHEREOF, the undersigned duly authorized representatives of the
parties hereto have made and entered in this Agreement.
NETZEE, INC. THE BANKERS BANK, a Georgia
banking corporation
By: /s/ Richard S. Eiswirth By: /s/ Kevin Tweddle
------------------------ --------------------------
Name: Richard S. Eiswirth Name: Kevin Tweddle
------------------------ --------------------------
Title: SEVP & CFO Title: SVP & CFO
------------------------ --------------------------
9
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K/A into Netzee, Inc.'s previously filed
Registration Statement File No. 333-30252.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 28, 2000
