<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) on Rule 14a-12
</TABLE>
Netzee, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box:)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: N/A
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): N/A
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: N/A
------------------------------------------------------------------------
(5) Total fee paid: N/A
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
----------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
NETZEE, INC.
6190 POWERS FERRY ROAD, SUITE 400
ATLANTA, GEORGIA 30339
May 12, 2000
Dear Netzee, Inc. Shareholder:
On behalf of your Board of Directors, you are cordially invited to attend
the Netzee, Inc. 2000 annual meeting of shareholders to be held at The Crowne
Plaza Hotel, 6345 Powers Ferry Road, Atlanta, Georgia, on Thursday, June 15,
2000, at 9:00 a.m.
It is important that your shares are represented at the annual meeting.
Whether or not you plan to attend the annual meeting, please complete and return
the enclosed proxy card in the accompanying envelope. Please note that
completing the proxy card will not prevent you from attending the annual meeting
and voting in person.
You will find information regarding the matter to be voted on at the annual
meeting in the following pages. Our 1999 Annual Report to Shareholders is also
enclosed with these materials. Your interest in Netzee is appreciated, and we
look forward to seeing you on June 15th.
Sincerely,
/s/ GLENN W. STURM
Glenn W. Sturm
Chief Executive Officer and Director
<PAGE> 3
NETZEE, INC.
6190 POWERS FERRY ROAD, SUITE 400
ATLANTA, GEORGIA 30339
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 15, 2000
---------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
Netzee, Inc., a Georgia corporation (the "Company"), will be held at The Crowne
Plaza Hotel, 6345 Powers Ferry Road, Atlanta, Georgia 30339, on Thursday, June
15, 2000, at 9:00 a.m., local time, for the following purposes:
1. To elect four Class I Directors, each to hold office for a
three-year term and until their successors have been elected and qualified,
and to elect one Class II director to hold office for a one-year term and
until his successor has been elected and qualified; and
2. To act upon such other matters as may properly come before the
meeting or any postponements or adjournments thereof.
ONLY HOLDERS OF RECORD OF THE COMPANY'S COMMON STOCK, NO PAR VALUE, AT THE
CLOSE OF BUSINESS ON MAY 8, 2000 SHALL BE ENTITLED TO NOTICE OF, AND TO VOTE AT,
THE MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
You are cordially invited to attend the meeting in person. IF YOU ARE
UNABLE TO ATTEND THE MEETING, PLEASE VOTE BY SIGNING, DATING AND RETURNING THE
ACCOMPANYING PROXY AS SOON AS POSSIBLE.
By Order of the Board of Directors
/s/ RICHARD S. EISWIRTH
Richard S. Eiswirth
Secretary
Atlanta, Georgia
May 12, 2000
<PAGE> 4
NETZEE, INC.
6190 POWERS FERRY ROAD, SUITE 400
ATLANTA, GEORGIA 30339
---------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 15, 2000
---------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors and management of Netzee, Inc., a Georgia corporation
(the "Company"), of proxies for use at the Company's 2000 Annual Meeting of
Shareholders (the "Annual Meeting") to be held at The Crowne Plaza Hotel, 6345
Powers Ferry Road, Atlanta, Georgia, on Thursday, June 15, 2000, at 9:00 a.m.,
local time, and at any and all postponements or adjournments thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting.
This Proxy Statement, Notice of Annual Meeting and accompanying proxy card
and the Company's 1999 Annual Report to Shareholders were first sent or given to
shareholders on or about May 12, 2000.
Only holders of record of the Company's common stock, no par value (the
"Common Stock"), at the close of business on May 8, 2000 (the "Record Date")
will be entitled to notice of the Annual Meeting and to vote the shares of
Common Stock held by them on such date at the Annual Meeting or any and all
postponements or adjournments thereof. As of the Record Date, 21,075,083 shares
of Common Stock were outstanding and entitled to vote at the Annual Meeting. In
addition, 500,000 shares of 8% Series A Convertible Preferred Stock, no par
value (the "Preferred Stock") were issued and outstanding as of the Record Date.
Holders of shares of Preferred Stock are not entitled to notice of or vote at
the Annual Meeting.
Each share of Common Stock entitles the holder thereof to cast one vote on
each matter to be voted upon at the Annual Meeting. The presence at the Annual
Meeting, in person or by proxy, of a majority of the outstanding shares of
Common Stock entitled to vote as of May 8, 2000, will constitute a quorum. The
presence of a quorum at the Annual Meeting, either in person or by proxy, and a
favorable vote of a plurality of the shares represented and voted at the Annual
Meeting shall be required for the election of directors. Abstentions and broker
non-votes are counted only for purposes of determining the presence or absence
of a quorum for the transaction of business and are not counted for purposes of
electing directors. None of the actions to be voted upon at the Annual Meeting
shall create dissenters' rights under the Georgia Business Corporation Code.
Shareholders of the Company do not have any right to cumulate their votes for
the election of directors.
If the accompanying proxy card is properly signed and returned to the
Company and not revoked, it will be voted in accordance with the instructions
contained therein. Unless contrary instructions are given, the persons
designated as proxy holders in the accompanying proxy card will vote FOR the
Board of Directors' nominees as directors and as recommended by the Board of
Directors with regard to all other matters as may properly come before the
Annual Meeting or, if no such recommendation is given, in their own discretion.
Each such proxy granted may be revoked by the shareholder giving such proxy at
any time before it is exercised by filing with the Secretary of the Company a
revoking instrument or a duly executed proxy bearing a later date. The powers of
the proxy holders will be suspended if the person executing the proxy attends
the Annual Meeting in person and so requests. Attendance at the Annual Meeting
will not, in itself, constitute revocation of the proxy.
The cost of soliciting proxies in the form enclosed herewith will be borne
by the Company. In addition to the solicitation of proxies by mail, the Company,
through its directors, officers, employees and agents, may also solicit proxies
personally or by telephone, but such persons will not be specifically
compensated for such services. The Company will also request persons, firms and
corporations holding shares in their names or in the
<PAGE> 5
names of their nominees, which are beneficially owned by others, to send proxy
materials to and obtain proxies from such beneficial owners, and the Company
will reimburse such holders for their reasonable expenses in doing so.
PRINCIPAL SHAREHOLDERS AND BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares and percentage of the
Company's Common Stock beneficially owned as of May 5, 2000 by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director and director nominee,
individually, (iii) the executive officer of the Company named in the Summary
Compensation Table in this Proxy Statement and (iv) all executive officers and
directors of the Company as a group.
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 is also deemed to have beneficial ownership of any
shares that the person or group has the right to acquire within 60 days after
May 5, 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>
PERCENTAGE
NAME OF BENEFICIAL OWNER NUMBER OF SHARES BENEFICIALLY 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........................... 1,361,000 6.3%
2410 Paces Ferry Road
600 Paces Summit
Atlanta, GA 30339-4098
Glenn W. Sturm(2)(3)........................................ 931,556 4.3%
John W. Collins(2)(4)(5).................................... 757,594 3.5%
Jon R. Burke(2)(5).......................................... 10,000 *
Gayle M. Earls(5)(6)........................................ 10,000 *
Joel A. Katz(5)............................................. 10,000 *
Stiles A. Kellett, Jr.(5)(7)................................ 511,000 2.4%
Jefferson B. A. Knox, Sr.(5)................................ 10,000 *
Bruce P. Leonard(5)(8)...................................... 10,000 *
Joseph F. Quinlan, Jr.(5)(9)................................ 10,000 *
A. Jay Waite(5)(10)......................................... 52,500 *
All directors and executive officers as a group
(14 persons)(11).......................................... 2,924,604 13.1%
</TABLE>
- ---------------
* Less than 1% of the outstanding Common Stock.
(1) Includes 767 shares of Common Stock held by First Union National Bank
("First Union"), as escrow agent. Substantially all the assets of The
InterCept Group, Inc., ("InterCept"), including the 7,557,673 shares of
Common Stock beneficially owned by InterCept, serve as collateral to secure
debt for money borrowed.
(2) 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.
(3) 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 after May 5, 2000.
2
<PAGE> 6
(4) 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.
(5) Includes 10,000 shares of Common Stock underlying options that are
immediately exercisable.
(6) Excludes 969,792 shares of Common Stock held by Independent Bankers
Financial Corporation ("IBFC"), as to which Mr. Earls, as President and
Chief Executive Officer of IBFC, disclaims beneficial ownership.
(7) 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. Mr. Kellett
disclaims beneficial ownership of all shares held by his wife.
(8) Excludes 1,361,000 shares of Common Stock held by Community Financial
Services, Inc. ("CFSI"), as to which Mr. Leonard, as President and Chief
Executive Officer of CFSI, disclaims beneficial ownership.
(9) Excludes 2,000 shares of Common Stock held by First National Banker's Bank
("FNBB"), as to which Mr. Quinlan, as Chairman, President and Chief
Executive Officer of FNBB, disclaims beneficial ownership.
(10) Includes 10,000 shares of Common Stock held by Waite Family Fund Ltd.
("WFF"), a limited partnership in which Mr. Waite is the sole general
partner.
(11) Includes a total of 657,550 shares of Common Stock underlying options that
are exercisable within 60 days after May 5, 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 the Company. Glenn W. Sturm is a director and shareholder
of InterCept, as well as the Chief Executive Officer and a director of the
Company. Bruce P. Leonard is the President and Chief Executive Officer of CFSI
and a director of the Company. Jon R. Burke is a director of both the Company
and InterCept.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
any person who beneficially owns more than 10% of the Company's Common Stock, to
file with the Securities and Exchange Commission (the "Commission") initial
reports of beneficial ownership and reports of changes in beneficial ownership
of Common Stock. Such persons are required by regulations of the Commission to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely upon on a review of copies of Section 16(a) filings received
by the Company during or with respect to fiscal 1999 and certain written
representations of its officers and directors with respect to the filing of
annual reports of changes in beneficial ownership on Form 5, the Company
believes that each filing required to be made pursuant to Section 16(a) of the
Exchange Act during fiscal 1999 has been filed in a timely manner with the
exception of the following:
- Each of Richard S. Eiswirth, the Company's Senior Executive Vice
President, Chief Financial Officer and Secretary, and C. Michael Bowers,
the Company's Chief Operating Officer, did not file a Form 4 during
fiscal 1999 to report a grant of options on November 9, 1999 pursuant to
the Netzee, Inc. 1999 Stock Option and Incentive Plan (the "Plan"). Each
of Messrs. Eiswirth and Bowers filed a Form 4 with the Commission on
April 27, 2000 to report such transactions.
- 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
filed on Form 4.
- A. Jay Waite, a director of the Company, did not file a Form 4 in fiscal
1999 with respect to the acquisition of 10,000 shares of Common Stock by
WFF on November 9, 1999. This transaction was reported on Mr. Waite's
Form 5 for the 1999 fiscal year.
3
<PAGE> 7
- Bruce P. Leonard, a director of the Company, 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.
PROPOSAL ONE
ELECTION OF DIRECTORS
The following table sets forth information with respect to the continuing
directors, director nominees and executive officers of the Company as of May 8,
2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Glenn W. Sturm.................................. 46 Chief Executive Officer and Class I 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 (Class III
Director)
Jon R. Burke.................................... 52 Class II Director
Gayle M. Earls.................................. 63 Class III Director
Joel A. Katz.................................... 55 Class I Director
Stiles A. Kellett, Jr........................... 56 Class I Director
Jefferson B. A. Knox, Sr........................ 37 Class II Director
Bruce P. Leonard................................ 46 Class III Director
Joseph F. Quinlan, Jr........................... 52 Class I Director
A. Jay Waite.................................... 51 Class II Director
</TABLE>
In accordance with Article IX of the Company's Amended and Restated
Articles of Incorporation (the "Articles of Incorporation"), the Board of
Directors of the Company is divided into three classes, designated Class I,
Class II and Class III. The maximum number of members of the Board of Directors
is currently set at ten. Messrs. Katz, Kellett, Quinlan and Sturm currently
serve as Class I directors and have been nominated for election at the Annual
Meeting. If elected, Messrs. Katz, Kellett, Quinlan and Sturm will serve as
Class I directors until the 2003 annual meeting. Messrs. Knox and Waite
currently serve as Class II directors until the 2001 annual meeting. However,
because Mr. Burke was elected by the Board of Directors as a Class II director
to fill a newly created directorship, his term will expire on the date of the
Annual Meeting. Mr. Burke has been nominated for election at the Annual Meeting.
If he is so elected, he will serve as a Class II director until the 2001 annual
meeting. Messrs. Collins, Earls and Leonard currently serve as Class III
directors until the 2002 annual meeting.
Messrs. Burke, Katz, Kellett, Quinlan and Sturm have consented to serve on
the Board and the Board has no reason to believe that they will not serve if
elected, but if any of them should become unavailable to serve as a director,
and if the Board shall have designated a substitute nominee or nominees, the
persons named as proxies will vote for the substitute nominee or nominees
designated by the Board. Messrs. Burke, Katz, Kellett, Quinlan and Sturm must be
elected by a plurality of the votes cast at the Annual Meeting.
NOMINEES AS CLASS I DIRECTORS
The biographies set forth below are submitted for consideration regarding
the nomination of each of Messrs. Katz, Kellett, Quinlan and Sturm for election
as Class I directors.
JOEL A. KATZ has served as a Class I director of the Company 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.
4
<PAGE> 8
STILES A. KELLETT, JR. has served a Class I director of the Company 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.
JOSEPH F. QUINLAN, JR. has served as a Class I director of the Company
since April 2000. Since 1984, Mr. Quinlan has been the President and Chief
Executive Officer of FNBB, a bankers' bank located in Baton Rouge, Louisiana.
Mr. Quinlan has also served as the Chairman of FNBB 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.
GLENN W. STURM has served as the Company's Chief Executive Officer and a
Class I director since the Company's inception in August 1999. Since 1997, Mr.
Sturm has served as a director of InterCept, which beneficially owns
approximately 35% of the Common Stock. Since 1992, Mr. Sturm has been a partner
in the law firm of Nelson Mullins Riley & Scarborough, L.L.P. ("Nelson
Mullins"), 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, inc., an Internet service
provider.
NOMINEE AS CLASS II DIRECTOR
The biography set forth below is submitted for consideration regarding the
nomination of Mr. Burke for election as a Class II Director.
JON R. BURKE has served as a Class II director of the Company 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.
CONTINUING CLASS II DIRECTORS
JEFFERSON B. A. KNOX, SR. has served as a Class II director of the Company
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.
A. JAY WAITE has served as a Class II director of the Company 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.
CONTINUING CLASS III DIRECTORS
JOHN W. COLLINS has served as the Company's Chairman of the Board of
Directors since its 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
5
<PAGE> 9
several of its predecessor companies and affiliates since 1986. Mr. Collins is
also a director of Towne Services, Inc. and several privately held companies.
GAYLE M. EARLS has served as a Class III director of the Company since
September 1999. Since 1986, Mr. Earls has served as the President, Chief
Executive Officer and a director of TIB The Independent Bankers Bank ("TIB"), a
bankers' bank located in Dallas, Texas, and its parent company, IBFC. Mr. Earls
served for the past six years as a director of the Federal Reserve Bank of
Dallas.
BRUCE P. LEONARD has served as a Class III director of the Company since
September 1999. Since 1990, Mr. Leonard has served as the President, Chief
Executive Officer and a director of The Bankers Bank, a bankers' bank located in
Atlanta, Georgia, and its parent company, CFSI. 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.
Pursuant to the terms of certain of the Company's strategic marketing
agreements, the Company agreed to cause Messrs. Earls and Leonard to be elected
as the Company's Class III directors. Mr. Earls is the President and Chief
Executive Officer of TIB, one of the Company's strategic marketing partners. Mr.
Leonard is the President and Chief Executive Officer of The Bankers Bank,
another strategic marketing partner.
Under the terms of a Line of Credit Agreement between the Company and
Kellett Partners, L.P. ("Kellett Partners"), the Company 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 the Board of Directors and was elected to the Board
of Directors on October 19, 1999. Although the Line of Credit Agreement was
terminated on December 15, 1999, Mr. Kellett remains as a member of the Board of
Directors.
EXECUTIVE OFFICERS
Certain information relating to each executive officer of the Company
(other than those set forth above) is set forth below.
CATHERINE G. SILVER has served as the Company's President and General
Manager since April 2000 and as the Company's Senior Executive Vice President
and General Manager -- Marketing and Client Services from December 1999 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 the Company's Chief Operating Officer since
August 1999 and as the Company's President from August 1999 until April 2000.
Mr. Bowers served as the President and Chief Executive Officer of Dyad
Corporation, a company that designed and developed loan application and
fulfillment software, from its inception in 1996 until the Company 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.
RICHARD S. EISWIRTH has served as the Company's Senior Executive Vice
President, Chief Financial Officer and Secretary since August 1999. Prior to
joining the Company, Mr. Eiswirth was a certified public accountant with Arthur
Andersen LLP from 1991 until 1999.
6
<PAGE> 10
MICHAEL E. MURPHY has served as the Company's Vice President since March
2000 and as the Company's Chief Technology Officer since April 2000. Mr. Murphy
served as Chief Executive Officer of Digital Visions, Inc., a provider of
financial information software, from May 1995 until the Company acquired it in
March 2000.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Board of Directors also intends to form a Nominating
Committee.
Audit Committee
The Audit Committee consists of Messrs. Leonard and Waite. The Audit
Committee reviews the scope and timing of audit services provided to the Company
and any other services the Company's independent auditors are asked to perform,
the auditors' report on the Company's financial statements following completion
of such audit and the auditors' policies and procedures with respect to internal
accounting and financial control. In addition, the Audit Committee will make
annual recommendations to the Board of Directors of the appointment of
independent auditors for the following year. The Audit Committee held one
meeting in fiscal 1999.
In connection with recent amendments to the rules of the Nasdaq National
Market, the Company is now required to establish an Audit Committee that is
comprised of at least three independent directors, one of whom must be
experienced in finance or accounting, and to establish a charter for the Audit
Committee. The Company intends to cause the Audit Committee to comply with these
rule changes as soon as practicable.
Compensation Committee
The Compensation Committee consists of Messrs. Katz and Waite. The
Compensation Committee reviews and evaluates the compensation and benefits of
all of the Company's officers, reviews general policy matters relating to
compensation and benefits of the Company's employees and makes recommendations
concerning these matters to the Board of Directors. The Compensation Committee
also administers the Plan. The Compensation Committee held two meetings in
fiscal 1999.
Nominating Committee
When formed, it is anticipated that the Nominating Committee will consist
of at least two members of the Board of Directors. The Nominating Committee will
interview, evaluate, nominate and recommend individuals for membership on the
Company's Board of Directors and committees thereof. The Company's Bylaws
provide for procedures for consideration of nominees recommended by
shareholders.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company held one meeting during fiscal 1999.
During fiscal 1999, each incumbent director attended at least 75% of the total
number of meetings of the Board of Directors and of its committees that they
were eligible to attend.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is currently comprised of Messrs. Katz and
Waite. Until the Compensation Committee was established on September 10, 1999,
the Board of the Directors, acting as a whole, determined executive
compensation. Glenn W. Sturm, the Company's Chief Executive Officer, is a member
of the Board of Directors and, as such, participated in board deliberations
concerning executive officer compensation.
7
<PAGE> 11
Mr. Sturm is a partner of Nelson Mullins. This firm provided legal services
to the Company and Direct Access Interactive, Inc. ("Direct Access"), the
predecessor to the Company, in fiscal 1999 in the aggregate amount of $98,000.
For a description of certain transactions with members of the Board of
Directors or their affiliates, see "Certain Relationships and Related
Transactions."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE
DIRECTOR NOMINEES SET FORTH IN PROPOSAL ONE.
8
<PAGE> 12
EXECUTIVE COMPENSATION
The following table sets forth as of December 31, 1999 all compensation
paid by the Company during fiscal year 1999 to the Company's Chief Executive
Officer. No other executive officer earned more than $100,000 in total salary
and bonus during fiscal year 1999. Because none of the Company's executive
officers were employed by the Company or any of its predecessors prior to July
1999, the Company has omitted information in this table for fiscal years 1997
and 1998. Pursuant to the rules of the Commission, the compensation described in
this table does not include the value of medical insurance, group life insurance
or other benefits received by the named executive officer that are available
generally to all salaried employees of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION AWARDS
--------------------------------- -------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)
- --------------------------- ------ ------ --------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Glenn W. Sturm................ 1999 $1(1) $-0-(1) $-0- $-0- 310,000 $-0-
Chief Executive Officer
</TABLE>
- ---------------
(1) In 1999, Mr. Sturm waived the receipt of all salary and bonus owed to him by
the Company, except for $1.
All of the Company's executive officers were hired in 1999, except for Ms.
Silver, who was hired as an employee in January 2000, and Mr. Murphy, who was
hired in March 2000. The Company entered into Employment Agreements with each of
Messrs. Sturm, Bowers and Eiswirth on September 1, 1999, and the Company amended
the Employment Agreement with Mr. Eiswirth on March 1, 2000. The Employment
Agreements with these executive officers provide for 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 the Company 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 the Company's
management incentive programs, and in the Company's stock, retirement and
similar plans, that the Company will pay for the executive's club dues
and that the Company will provide him with an automobile allowance,
permit him to use the Company's 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 Employment Agreement following a
change in control of the Company;
- that, if the Employment Agreement is terminated by the Company without
cause or by the executive after the Company's 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 Employment 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, the Company must continue his insurance benefits until
he reaches age 65 unless he obtains these benefits from a subsequent
employer or Medicare;
- options and other stock awards held by the executive vest and become
immediately exercisable;
9
<PAGE> 13
- the executive shall have piggyback registration rights to have his shares
included in any registered offering the Company completes, subject to
various limitations and conditions;
- the executive shall be permitted to participate in venture capital and
other investments whether or not the Company participates in the
particular investment; and
- if the executive is required to pay federal excise taxes by reason of a
"golden parachute payment," the Company will reimburse him for those
excise taxes.
Mr. Sturm's Employment Agreement permits him to continue to provide legal
and other consulting services and to serve a director or advisor to other
organizations, provided that such activities do not materially interfere with
his duties as the Company's Chief Executive Officer and are not materially
adverse to the Company's interests. He is entitled to keep all compensation paid
to him for rendering legal or consulting services or serving as a director or
advisor. In the event that in any instance his work for Nelson Mullins or any
other organization shall be adverse to the Company's 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 the Company. 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, the Company entered into a two-year Employment
Agreement with Mr. Murphy that provides him with a base salary of $185,000 per
year. The Company also granted Mr. Murphy a non-qualified stock option under the
Plan to purchase up to 100,000 shares of Common Stock. This option has an
exercise price of $22.125 per share. One-half of the option will vest on March
7, 2001 and the remaining one-half of the option will vest on March 7, 2002,
except that the option shall vest immediately upon a transfer of control of the
Company. If the Employment Agreement is terminated by the Company 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 the Company or soliciting its customers, employees or consultants
during the term of the Employment Agreement. Thereafter, the Company may extend
these prohibitions for up to 18 months after the Employment Agreement expires.
However, if the Company extends these prohibitions, the Company must pay Mr.
Murphy the amount of his last monthly salary during each month that such
prohibitions are extended.
The Company has 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. The Company reimburses 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 the Plan. The Company has granted to
each director a one-time option to purchase 40,000 shares of Common Stock. One
fourth of this option vests immediately on the date of election and the
remainder of the option vests in equal portions over the next three
anniversaries of the grant date. See "-- Netzee, Inc. 1999 Stock Option and
Incentive Plan."
10
<PAGE> 14
STOCK OPTIONS
The following table sets forth information regarding the grant of stock
options in fiscal year 1999 to the Company's Chief Executive Officer, the only
executive officer named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL FAIR MARKET
SECURITIES OPTIONS/SARS PER SHARE VALUE OF
UNDERLYING GRANTED TO EXERCISE OR STOCK ON DATE
OPTIONS/SARS EMPLOYEES IN BASE OF GRANT
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) ($/SH) EXPIRATION 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 the Common Stock as
of September 7, 1999, as derived from the Company's consolidated financial
statements, was assumed to be $11.50 per share.
(2) The shares of Common Stock subject to this option vest as follows: 85,000
shares were vested as of November 15, 1999 and the remaining 85,000 shares
will vest in three equal installments over three years.
(3) The shares of Common Stock subject to this option vest as follows: 10,000
shares were vested as of September 7, 1999, the date of grant, and the
remaining 30,000 shares will vest in three equal installments over three
years.
(4) The shares of Common Stock subject to this option vested in full on November
15, 1999.
No options were exercised in fiscal 1999 by the named executive officer.
The following table sets forth information concerning the value at December 31,
1999 of unexercised options held by the named executive officer.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS/SARS
OPTIONS/SARS AT FISCAL AT FISCAL
YEAR-END YEAR-END
(#) ($)(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
Common Stock on December 31, 1999, as reported by the Nasdaq National
Market.
NETZEE, INC. 1999 STOCK OPTION AND INCENTIVE PLAN
Effective August 5, 1999, the Board of Directors and shareholders of the
Company approved the Netzee, Inc. 1999 Stock Option and Incentive Plan. Under
the Plan, the Company may grant to eligible persons, including employees,
directors, consultants and advisors of the Company, incentive stock options,
non-qualified stock options, restricted stock awards and stock appreciation
rights. The Compensation Committee believes that the Plan is an important part
of the Company's overall compensation program. The Plan supports the Company's
ongoing efforts to attract and retain talented employees and directors and gives
the Company the ability to provide employees with incentives that are directly
linked to the Company's financial results and increases in shareholder value. In
addition, the Company may grant options outside of the Plan.
Eligibility. The Compensation Committee determines the persons eligible to
receive awards under the plan. These persons may include, without limitation,
employees, directors, key consultants or advisors of the Company.
11
<PAGE> 15
Administration. The Compensation Committee administers the Plan, except
that with respect to options or awards granted to the Company's 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 options is equal to 20% of the number of
shares of Common Stock outstanding on the preceding trading day, as determined
on a fully-diluted basis, 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.
As of May 5, 2000, the Company has granted options to purchase an aggregate
of 2,102,549 shares of Common Stock to executive officers and directors of the
Company, at per share exercise prices ranging from $2.00 to $22.125. The
following executive officers and directors have received grants of options to
purchase the specified amount of shares of Common Stock as of such date:
<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 granted to the Company's 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, 30,000 shares of which 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 March 7, 2001, April 17, 2001, March 7,
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;
12
<PAGE> 16
- 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 options 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' options and 150,000 of the remaining 250,000 shares subject
to Mr. Eiswirth's options, vested on November 15, 1999, the date the
Company completed its initial public offering.
In addition, options to purchase 1,603,570 shares of Common Stock have been
granted to other employees and consultants of the Company as of May 5, 2000. Of
these, 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.
Stock-Based Awards. The Plan permits the Company 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 the Company's 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, the Company 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
such 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 the
Company on each vesting date. As of May 5, 2000, this award was the only award
of restricted stock that the Company has granted.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report will not be deemed to be incorporated into any filing
by the Company under the Securities Act of 1933, as amended, or the Exchange
Act, except to the extent that the Company specifically incorporates the same
therein by reference.
Prior to September 10, 1999, the Board of Directors, acting as a whole,
addressed matters involving compensation of the Company's executive officers,
including the grant of awards under the Plan. After such date, compensation and
benefit practices of the Company were addressed by the Compensation Committee,
which is presently comprised of two non-employee directors. The Compensation
Committee establishes the general compensation policy of the Company,
establishes the compensation of the Chief Executive Officer of the Company,
approves the compensation of other executive officers of the Company and
administers the Plan.
Compensation Philosophy. The Compensation Committee has determined that
the Company's compensation program should be directed to rewarding performance
that creates value for shareholders. The
13
<PAGE> 17
Compensation Committee's policies focus on attracting, motivating and assisting
in the retention of key employees who demonstrate high levels of ability and
talent. The compensation program looks both to the short and long term,
balancing compensation to reward executive officers for past performance of the
Company with incentives for contributions to a superior future performance of
the Company over the long term. The Compensation Committee utilizes base salary,
cash bonuses and grants of stock options and other incentive awards as part of
its compensation program.
Base Salary Program. Base salaries were initially determined primarily by
evaluating the responsibilities of the position held by, and the experience of,
each executive officer in addition to competitive comparisons with like
industries and companies in the geographic area. Annual salary adjustments are
determined by evaluating the competitive marketplace, the performance of the
Company, the performance of the executive and any increased responsibilities
assumed by the executive.
Bonus Compensation Program. Executive officers are eligible to receive
annual cash bonuses based upon criteria established by the Compensation
Committee based upon the operating performance of the Company. Because the
Company operated for only four months in fiscal 1999, no executive officer of
the Company received a bonus.
Equity-Based Incentive Awards. Awards of equity-based compensation,
including stock options, restricted stock and stock appreciation rights under
the Plan are intended to reward contributions by executive officers and
employees to the Company's performance and to align the long-term interests of
such persons with those of the shareholders. The Compensation Committee also
considers equity-based compensation to be an important method of providing an
incentive for executive officers to remain with, and to continue to make
significant contributions to, the Company. In awarding equity-based
compensation, the Compensation Committee considers the number of shares
underlying the award and the value of the award held by each executive officer
that will vest in future periods and seeks to maintain equitable relationships
among executive officers who have similar levels of responsibility.
Compensation of Chief Executive Officer. Mr. Sturm, the Company's Chief
Executive Officer, was eligible to earn an annual base salary of $250,000 in
fiscal 1999 pursuant to the terms of an Employment Agreement, dated September 1,
1999. However, Mr. Sturm waived the receipt of all salary and bonus owed to him
by the Company in fiscal 1999, except for $1. Mr. Sturm also received options
under the Plan to purchase 310,000 shares of Common Stock, of which 195,000
shares are currently vested. The Board of Directors concluded that Mr. Sturm's
1999 annual base salary as stated in his Employment Agreement and the grants of
options to Mr. Sturm under the Plan were reasonable in amount and consistent
with industry practices. In April 2000, Mr. Sturm received an option under the
Plan to purchase 100,000 shares of Common Stock, which option shall vest in 12
equal monthly installments beginning on May 17, 2000. The Compensation Committee
will consider additional long-term incentive compensation awards to Mr. Sturm
based upon his achievement of the Company's operational and financial
objectives.
Compliance with Section 162(m) of the Internal Revenue Code. Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), generally
disallows a tax deduction to public companies for compensation over $1 million
that is paid to the public company's chief executive officer and its four other
most highly compensated executive officers. Qualified performance-based
compensation under Section 162(m) of the Code and the applicable regulations is
not subject to the deduction limit if certain requirements are met. The
Compensation Committee believes that incentive awards granted under the Plan
have been exempt from the limitations as performance-based compensation as a
result of certain transition rules adopted under Section 162(m) and because the
Plan was effective prior to the Company's initial public offering. The Company
intends to take all actions necessary so that these awards continue to qualify
for treatment under the transitional rules or as performance-based compensation
and would therefore continue to be exempt from the Section 162(m) limit in
accordance with the regulations adopted under Section 162(m). The Company
believes that compensation expected to be paid in 2000 to its executive officers
will not exceed the Section 162(m) limitations.
Joel A. Katz
A. Jay Waite
14
<PAGE> 18
PERFORMANCE OF THE COMPANY'S COMMON STOCK
The following performance graph compares the cumulative shareholder return
on the Common Stock to the cumulative total return of the Nasdaq Stock Market
(U.S.) Index and the Nasdaq Computer Index over the period from November 8,
1999, the date the Common Stock was registered under the Exchange Act, to
December 31, 1999. The graph assumes that the value of the investment in the
Common Stock and each index was $100 at November 8, 1999 and that all dividends
paid through such period were reinvested. The comparisons in the graph below are
based upon historical data and are not indicative of, nor intended to forecast,
future performance of the Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN
NOVEMBER 8, 1999 TO DECEMBER 31, 1999
AMONG NETZEE, INC., THE NASDAQ STOCK
MARKET (U.S.) INDEX AND THE NASDAQ COMPUTER INDEX
<TABLE>
<CAPTION>
NASDAQ STOCK MARKET
NETZEE, INC. (U.S.) INDEX NASDAQ COMPUTER INDEX
------------ ------------------- ---------------------
<S> <C> <C> <C>
11/8/1999 100.00 100.00 100.00
12/31/1999 118.75 129.44 136.45
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company believes that all of the following transactions were made on
terms no less favorable to the Company than would have been obtained from
unaffiliated third parties on an arm's length basis. All transactions with the
Company's shareholders, officers and directors or their affiliates, if any, are
subject to the approval of a majority of the Company's independent and
disinterested outside directors and are to be conducted on terms no less
favorable to the Company than could be obtained from unaffiliated third parties
on an arm's length basis.
ACQUISITIONS
Between August 1999 and March 2000, the Company acquired in separate
transactions Dyad Corporation ("Dyad"), Digital Visions, Inc. ("Digital
Visions"), the remote banking operations of SBS Corporation ("SBS") and the
Internet banking divisions of TIB and The Bankers Bank. In these transactions,
some of the persons who were previously officers, directors or shareholders of
the acquired companies became executive
15
<PAGE> 19
officers or directors of the Company or beneficial owners of more than 5% of the
Common Stock. The following table summarizes the total number of shares of
Common Stock that the Company 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 had a per share market
price of $22.125 on the date of issuance. 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 The Bankers Bank................. 1,361,000
Bankers Bank
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 the Company.
(3) This person or entity no longer beneficially owns more than 5% of the 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 were granted
to Mr. Murphy in connection with the acquisition of Digital Visions.
RELATIONSHIP WITH INTERCEPT
InterCept currently owns approximately 35% of the Common Stock. The
Company's 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 a director of the Company, is the President, Chief Operating Officer
and a director of InterCept. In addition, the Company's Chief Executive Officer,
Glenn W. Sturm, is a director of both the Company and InterCept, and Jon R.
Burke is a director of both the Company and InterCept. Boone A. Knox, the father
of Jefferson B.A. Knox, Sr., a director of the Company, is a director of
InterCept.
Marketing Arrangement
The Company has entered into a marketing arrangement with InterCept under
which the Company's salespersons will sell InterCept's products and services and
InterCept salespersons will sell the Company's products and services. Under this
arrangement, the Company pays a commission to InterCept for each sale of the
Company's products and services made by InterCept salespersons and for each
referral to the Company's sales force that results in a sale. InterCept
correspondingly pays the Company for sales and referrals by the Company's
salespersons.
Sales of SBS Non-Remote Banking Operations
In August 1999, Direct Access, the Company's predecessor, purchased SBS for
2.6 million shares of its common stock and $16.6 million in cash. Additionally,
Direct Access repaid approximately $4.9 million of SBS debt. In August 1999,
while Direct Access was a majority-owned subsidiary of InterCept, Direct Access
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'
common stock, which InterCept previously had owned.
16
<PAGE> 20
Leases
The Company leases an administrative office in Birmingham, Alabama from
DMB, LLC, which is principally owned by David W. Brasfield, who until March 2000
was the Company's Senior Executive Vice President -- Sales and Marketing. During
fiscal 1999, the Company paid DMB a monthly rent of $20,000. The Company
currently subleases a portion of this property to InterCept. The Company
received $65,000 in rent from InterCept in fiscal 1999 under this sublease.
InterCept currently leases the property that includes the Company's data
center in Birmingham, Alabama from DMB, LLC at a monthly rent of $8,500. The
Company currently subleases a portion of this facility from InterCept. The
Company paid $14,875 in rent to InterCept in fiscal 1999 under this sublease.
Promissory Notes
In August and September 1999, the Company and its predecessor, Direct
Access, 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 the
Company's initial public offering, and were repaid in full with the proceeds of
that offering. These notes had been secured by all of the Company's assets.
In conjunction with the Company's acquisition of DPSC Software, Inc., the
Company 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, the Company had borrowed approximately $11.0 million from
InterCept on terms consistent with this commitment. After December 31, 1999, the
Company repaid a portion of these borrowings with cash on hand. On March 24,
2000, pending the finalization of the line of credit, the Company 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 the Company's assets. Accrued interest
under this note is payable monthly. The borrowings under the note are being used
to fund working capital requirements.
During 1999, the Company incurred approximately $677,000 of interest
expense associated with its borrowings from InterCept.
RELATIONSHIP WITH TIB, THE BANKERS BANK AND FIRST NATIONAL BANKER'S BANK
In March 2000, the Company entered into a Master Agreement with each of TIB
and The Bankers Bank to allow these bankers' banks to utilize the Company's
Internet-based, bank-to-bank cash management system with their financial
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 the
Company for the implementation, training, maintenance and support of the system
during an initial one-year term. In connection with the Master Agreements, each
of the bankers' banks has also signed a one-year Maintenance Agreement that
takes effect in March 2001 for continued maintenance and support of the system.
The Maintenance Agreement may be renewed by each bankers' bank, in its sole
discretion, for additional one-year terms.
In September 1999, the Company entered into a General Marketing Agent
Agreement with each of TIB and The Bankers Bank. In connection with the
Company's purchase of the Internet banking division of each of TIB and The
Bankers Bank in September 1999, the Company 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 at the 2002 annual meeting.
Pursuant to these General Marketing Agent Agreements, each bankers' bank
agrees to use its best efforts to promote and market the Company's Internet
banking products and services to community banks on an exclusive basis. In
return, the Company pays commissions to each of these bankers' banks for all
contracts
17
<PAGE> 21
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 the Company's goodwill and reputation.
In January 2000, the Company entered into a General Marketing Agent
Agreement with FNBB similar to the agreements that it entered into with TIB and
The Bankers Bank. Joseph F. Quinlan, Jr., the Chairman, President and Chief
Executive Officer of FNBB, was appointed as a director of the Company in April
2000.
In 1999, the Company leased its former headquarters in Atlanta, Georgia
from The Bankers Bank, which at the time beneficially owned more than 5% of the
Common Stock. The Company terminated this lease on February 15, 2000. The
Company paid a total of $32,400 to The Bankers Bank in 1999 under this lease.
DIRECTOR AND OFFICER LOANS
On July 1, 1999, Messrs. Collins, Sturm and Jackson entered into
substantially similar full-recourse promissory notes with Direct Access 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 the Company in April 2000.
On August 5, 1999, Mr. Eiswirth borrowed $93,300 from Direct Access 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 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, the Company entered into a Line of Credit Agreement
with Kellett Partners, L.P. Stiles A. Kellett, Jr., who became a director of the
Company 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 the Company on a revolving basis at an interest rate equal to the prime rate.
The Company terminated this line of credit on December 15, 1999.
In connection with the line of credit, the Company issued to Kellett
Partners a warrant to purchase up to 461,876 shares of 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.
SHAREHOLDER PROPOSALS
Shareholders who intend to submit proposals to the Company's shareholders
for inclusion in the Company's proxy statement for the 2001 Annual Meeting of
Shareholders must submit such proposals so that they are received by the Company
no later than March 17, 2001. Such proposals must comply with Rule 14a-8
promulgated under the Exchange Act and all other applicable proxy rules relating
to shareholder proposals in order to be included in the Company's proxy
materials.
Shareholders who wish to submit a proposal for consideration at the
Company's 2001 Annual Meeting of Shareholders, but who do not wish to submit the
proposal for inclusion in the Company's Proxy Statement pursuant to Rule 14a-8,
must submit their proposal to the Company in accordance with the procedures set
forth in the Bylaws of the Company no later than February 15, 2001. Shareholders
who intend to nominate persons for election to the Board of Directors at the
2001 Annual Meeting of Shareholders must submit such nominations to the Company,
in accordance with the procedures set forth in the Bylaws of the Company, no
later than March 17, 2001.
Shareholder nominations for election of directors and all other shareholder
proposals should be submitted to Richard S. Eiswirth, Senior Executive Vice
President, Chief Financial Officer and Secretary, Netzee, Inc., 6190 Powers
Ferry Road, Suite 400, Atlanta, Georgia 30339.
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<PAGE> 22
OTHER MATTERS
The Board of Directors has selected Arthur Andersen LLP, the Company's
independent accountants for fiscal 1999, to serve as the Company's independent
accountants for fiscal 2000. Representatives of Arthur Andersen LLP may be
present at the Annual Meeting to respond to appropriate questions and to make
such statements as they may desire.
The Board has no knowledge of any other matters which may come before the
meeting and does not intend to present any other matters. However, if any other
matters shall properly come before the meeting or any adjournment thereof, the
persons soliciting the proxies will have the discretion to vote on such matters
as they see fit.
If you do not plan to attend the meeting, in order that your shares may be
represented and in order to assure the required quorum, please sign, date and
return your proxy promptly. In the event you are able to attend the meeting, at
your request, the Company will cancel any proxy executed by you.
FINANCIAL INFORMATION
Detailed financial information of the Company and its subsidiaries for
fiscal 1999 is included in the Company's 1999 Annual Report to Shareholders, a
copy of which is enclosed herewith.
By Order of the Board of Directors
/s/ RICHARD S. EISWIRTH
Richard S. Eiswirth
Secretary
May 12, 2000
Atlanta, Georgia
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<PAGE> 23
NETZEE, INC.
The undersigned hereby appoints Catherine G. Silver and Richard S. Eiswirth,
and each of them, to act, with or without the other and with full power of
substitution and revocation, as proxies to appear and vote on behalf of the
undersigned at the Annual Meeting of Shareholders of Netzee, Inc. to be held on
June 15, 2000 at 9:00 a.m. local time, and at any adjournments or postponements
thereof, for the following purposes:
1. Election of Directors
<TABLE>
<C> <S> <C> <C>
[ ] FOR ALL NOMINEES LISTED BELOW (except as [ ] WITHHOLD AUTHORITY to vote for all
marked to the contrary below). nominees listed below.
</TABLE>
JON R. BURKE, JOEL A. KATZ, STILES A. KELLETT, JR.,
JOSEPH F. QUINLAN, JR. AND GLENN W. STURM
(INSTRUCTION: To withhold authority to vote for any individual nominee(s), write
the name(s) of such nominee(s) immediately below.)
- --------------------------------------------------------------------------------
2. In their discretion, upon such other matters in connection with the
foregoing or otherwise as may properly come before the meeting and any
adjournments or postponements thereof, all as set forth in the Notice of Annual
Meeting of Shareholders and the Proxy Statement, receipt of which is hereby
acknowledged.
(continued on reverse -- please complete other side)
(continued from other side)
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO DIRECTION IS INDICATED,
WILL BE VOTED "FOR" THE ABOVE MATTERS.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Dated: , 2000
-------------------
------------------------------
Signature
------------------------------
Signature if held jointly
IMPORTANT: Please date
this proxy and sign exactly as
your name or names appear
above. If stock is held
jointly, signature should
include both names. Executors,
administrators, trustees,
guardians and others signing
in a representative capacity,
please give your full
title(s).
Do you plan to attend the Annual Meeting of Shareholders? [ ] Yes [ ] No
IMPORTANT: PLEASE SIGN THIS PROXY EXACTLY AS YOUR NAME OR NAMES APPEAR ABOVE.
