<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION MAY 4, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
ZENGINE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 31-1638932
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------
6100 STEWART AVENUE
FREMONT, CALIFORNIA 94538
(510) 651-6400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
JOSEPH M. SAVARINO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ZENGINE, INC.
6100 STEWART AVENUE
FREMONT, CALIFORNIA 94538
(510) 651-6400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
JEFFREY A. KOEPPEL LARRY A. BARDEN
KENNETH B. TABACH JON A. BALLIS
ELIAS, MATZ, TIERNAN & HERRICK L.L.P. SIDLEY & AUSTIN
734 15TH STREET, N.W. BANK ONE PLAZA
WASHINGTON, D.C. 20005 CHICAGO, ILLINOIS 60603
(202) 347-0300 (312) 853-7000
(202) 347-2172 (FAX) (312) 853-7036 (FAX)
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF SECURITIES MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, no par value.................................. $60,000,000 $15,840
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 4, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
SHARES
[ZENGINE "GEAR" LOGO]
ZENGINE, INC.
COMMON STOCK
Zengine, Inc. is offering shares of its common stock. As part of
this offering, we are offering shares of our common stock at the
initial public offering price to stockholders of Miami Computer Supply
Corporation, or MCSi, that owned at least 100 shares of common stock of MCSi as
of , 2000. MCSi is our parent company and principal stockholder. MCSi or
its designees will purchase any shares of common stock that are not purchased by
MCSi stockholders under the MCSi Subscription Program. See the section entitled
"Plan of Distribution--MCSi Subscription Program."
This is our initial public offering and no public market currently exists
for our shares. We anticipate that the initial public offering price of our
shares will be between $ and $ per share. We have applied to list our
common stock on the Nasdaq National Market under the symbol "ZNGN."
MCSi is an underwriter with respect to the shares offered to the
stockholders of MCSi. MCSi is not an underwriter with respect to any other
shares offered and is not included in the term underwriter as used elsewhere in
this prospectus.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. FOR MORE INFORMATION, SEE
"RISK FACTORS" COMMENCING ON PAGE 8.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
<TABLE>
<CAPTION>
UNDERWRITTEN PUBLIC OFFERING PER SHARE TOTAL
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to Zengine......................................... $ $
</TABLE>
<TABLE>
<CAPTION>
MCSI SUBSCRIPTION PROGRAM PER SHARE TOTAL
<S> <C> <C>
Public Offering Price....................................... $ $
Proceeds to Zengine......................................... $ $
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE OFFERING PROCEEDS TOTAL
<S> <C> <C>
Proceeds to Zengine from Underwritten Public Offering and
MCSi Subscription Program................................. $
</TABLE>
The underwriters may also purchase up to an additional shares at
the public offering price, less the underwriting discount, from us within
30 days from the date of this prospectus to cover over-allotments.
--------------------------
WILLIAM BLAIR & COMPANY
FRIEDMAN BILLINGS RAMSEY
E*OFFERING
MORGAN KEEGAN & COMPANY, INC.
The date of this prospectus is , 2000
<PAGE>
[Graphic--Inside Cover #1 - In the upper right hand corner is the Zengine logo
and tag line "Fueling Your Brand's Commerce Engine". In the lower left hand
corner is a montage of Zengine-produced Web pages surrounding a man and a woman
looking at a computer terminal.
Inside Cover #2 - On the top half of the page is a large box containing a middle
column which states, from top to bottom, "Personalization Data" and in
descending boxes below "User Preferences," "Purchase History," " Behaviorial
Data," "Demographic & Psychographic Data" and "Historical Data." Below the
column are the words "The KORE Engine."
In the right side of the large box are two boxes, one on top of the other,
one box labeled "Site and Product Content," the other labeled "Merchandising."
In the left side of the large box are two boxes, one on top of the other,
one box labeled "Order Management," the other labeled "Fulfillment & Customer
Service."
On the left side of the large box with arrows pointing to the box labeled
"Order Management" is a rectangular box labeled "Open Adaptor (API)."
To the left of the API box are two square boxes, with arrows pointing toward
them from the API box, one on top of the other, with the top one labeled "Fraud
Screens" and the bottom one labeled "Payment Processors."
Below the API box is another identical API box, with arrows pointing to the
box labeled "Fulfillment & Customer Service." To the left of that API box are
two square boxes, one on top of the other, with the top one labeled "Third Party
Fulfillment" and the bottom one labeled "MCSi Distribution Centers."
On the right side of the large box are three smaller square boxes, with
arrows pointing from each box to the box above and below it as well as toward
the large center box, labeled, from top to bottom: "Design Services," "Content
Management" and "Engineering & Development."
Below the large box are two short cylinders with arrows pointing to the
large box and to the small boxes on the left and right of the large box, which
are labeled "Data Center".
Under the graphic is the following text:
THE KORE ENGINE
Zengine's proprietary technology and infrastructure, the KORE Engine,
enables us to build, deliver and manage e-commerce solutions in less time and
more cost effectively than existing alternatives. The functional components of
KORE are stored on a centralized server array which services all Zengine
clients. This architecture minimizes development costs and reduces
time-to-market because we are able to leverage existing functionality previously
developed within KORE rather than re-engineering the functionality for each
application. Upon completion, the component or feature can be made available to
other Zengine clients without added development time or cost. Development under
the KORE framework contrasts other e-commerce solutions that provide maintenance
and upgrades to custom features on an individual and possibly labor intensive
basis.
KORE PERSONALIZATION
KORE Personalization is the foundation for our real-time,
dynamically-generated personalized marketing and customer relationship
management capabilities. To increase conversion rates of browsers to buyers, to
extend relationship connections between our clients and their customers, and to
build long-term brand loyalty, we enable client Web sites to adapt product
presentation and merchandising features in real-time based on implicit and
explicit visitor information. KORE Personalization applies predictive algorithms
to infer a customer's interests and adapts content presentation, such as product
features, advertisements and pricing, accordingly. As a customer's experience
and interaction with a client's site develops, personalized content becomes more
relevant, ultimately bridging a more personal relationship between our client
and its customer.
<PAGE>
Inside Cover #3
Four concentric circles which are labeled, starting from the inside to the
outside. Circle 1: "Client;" Circle 2: "KORE Personalization;" Circle 3: "User
Interface Design," "Platform Hosting," "Integration with Existing Business
Systems," "Product Content," "Merchandising," "Advertising and Sponsorship
Management," "Order Management," "Inventory Management and Order Fulfillment,"
"End-user Customer Service," and "Reporting and Analysis," and Circle 4:
"Customer Relationships Drive All Initiatives."
Under the graphic is the following text:
ZENGINE PROVIDES A COMPLETE SOLUTION
Zengine's comprehensive suite of technology-based solutions enable
businesses to quickly and cost-effectively create, maintain and enhance large
scale business-to-business (B2B) and business-to-consumer (B2C) e-commerce
platforms on an outsourced and private-label basis. Our full range of integrated
and comprehensive e-commerce services, available on a turnkey basis,
distinguishes us in today's marketplace.
Strategic Partner Logos: MCSi; United Stationers and Excite@Home.
Sponsorship Partner Logos: Epson, Hewlett Packard, Hitachi, Imation,
Lexmark, Maxell, NEC, Proxima and Sharp.
Client Logos: Work.com/Excite@Home, Talk City, MCSi; rexstores.com, KaBloom,
Everdream, Amateur SN and HearMe.
Inside Back Cover
Selected Screen Shots from a Zengine client, labeled as: "Product
Comparisons," "Personalization," "Reporting and Analysis Tools," "Customer
Comments," "Advertising and Sponsorship Reports" and "Reporting and Analysis
Tools." The Zengine logo is in the lower right hand corner of the page.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 9
Use of Proceeds............................................. 26
Dividend Policy............................................. 26
Capitalization.............................................. 27
Dilution.................................................... 28
Selected Historical and Pro Forma Financial Data............ 29
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 31
Business.................................................... 37
Management.................................................. 54
Certain Transactions........................................ 61
Principal Stockholders...................................... 64
Description of Capital Stock................................ 65
Shares Eligible for Future Sale............................. 69
Plan of Distribution........................................ 70
Legal Matters............................................... 73
Experts..................................................... 73
Additional Information...................................... 73
Index to Financial Statements............................... F-1
Appendix: "Meet the Management" Presentation................ A-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
IT IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE INFORMATION UNDER "RISK FACTORS" BEGINNING
ON PAGE 8, AND THE FINANCIAL STATEMENTS BEGINNING ON PAGE F-1, BEFORE MAKING AN
INVESTMENT DECISION.
ZENGINE, INC.
Zengine provides a comprehensive suite of technology-based solutions that
enable businesses to conduct electronic commerce. Our solutions, delivered on an
outsourced and private label basis, allow our clients to quickly and
cost-effectively create, maintain and enhance enterprise wide e-commerce
platforms. We offer a full range of integrated services for both
business-to-business, or B2B, and business-to-consumer, or B2C, e-commerce
including Web site user interface design, product content and merchandising,
personalization and customer relationship management, advertising and
sponsorship management, order management, inventory management and order
fulfillment, end-user customer service and reporting and analysis. We provide
our solutions on a turn-key basis or as component features. We believe our
solution allows our clients to achieve rapid deployment of e-commerce platforms,
results in greater economies of scale and provides cost-effective, ongoing
access to leading edge e-commerce technology. We market our services to
businesses seeking to initiate, expand or enhance their ability to conduct
e-commerce. Our solutions allow Zengine clients to build, manage and understand
online customer relationships and to market, sell and support products and
services more effectively. We provide our services on an outsourced basis that
is brand transparent to the end-user, allowing clients to leverage our
technology and infrastructure for their own branded e-commerce platform.
Our proprietary technology and infrastructure, the KORE Engine, is centered
around personalization and is an open and highly-scalable architecture designed
to enable rapid deployment of high-speed, dynamic e-commerce platforms. The
real-time personalization technology proprietary to KORE allows businesses to
manage online customer relationships and personalize communication with their
customers and trading partners.
Widespread acceptance of the Internet has opened tremendous opportunities
for companies seeking growth and increased efficiencies through B2B and B2C
e-commerce. Although companies are eager to take advantage of these
opportunities, many may lack the internal resources that the analysis, design
and implementation of an effective Internet solution requires. It is often very
inefficient, expensive and time-consuming for companies to develop and staff
their own e-commerce solutions or to purchase currently available application
software packages that require sophisticated integration and maintenance. As a
result, companies increasingly seek to outsource these services. We believe our
ability to offer a full range of integrated e-commerce services demanded by
clients on a turn-key and outsourced basis distinguishes us in today's
marketplace.
We actively market our services through a direct sales force to businesses
seeking to initiate, expand or enhance their ability to conduct e-commerce,
including:
- original equipment manufacturers;
- wholesalers, distributors and other businesses that create customized
vendor and supply chain relationships over the Internet or a secure
extranet;
- bricks and mortar retailers;
- online-only retailers; and
- Web sites that have a large and loyal user base (including portals, pure
content sites, communities, directories and service providers).
4
<PAGE>
We plan to continue to pursue these target clients and to penetrate other
markets through indirect distribution channels such as consulting firms, systems
integrators, advertising firms, and other professional services firms.
After the commercial introduction of the Zengine service, we have
successfully launched our client's e-commerce platforms within an average of
35 days after engagement compared to industry ranges of several months to over
one year. Our current clients include Amateur S.N., Everdream, HearMe, KaBloom,
MCSi, rexstores.com, Talk City and Work.com, a joint venture between Excite@Home
and Dow Jones & Co. We also sell advertising and sponsorship packages on our
clients' Web sites primarily to original equipment manufacturers whose products
are featured in our client's online stores.
Our revenue is generated through a combination of one or more of the
following: initial set-up and integration fees, monthly subscription fees,
transaction fees, and advertising and sponsorship on our clients' Web sites.
We intend to grow our business by pursuing five key strategies:
- target companies seeking to initiate, expand or enhance their ability to
conduct e-commerce;
- extend the capabilities of our KORE Engine;
- leverage our client base;
- expand our strategic alliances; and
- assist our clients in increasing their revenues using our state-of-the-art
e-commerce solutions.
OUR RELATIONSHIP WITH MCSI
We are a subsidiary of Miami Computer Supply Corporation, or MCSi, a
solutions-focused reseller of computer technology products, supplies and
technical support services, audio-visual presentation products and an advanced
systems integrator of visual communication products, technologies and services
throughout the United States, Canada and certain foreign countries. MCSi
distributes over 1,800 core products to approximately 50,000 companies and
governmental, educational and institutional customers, including federal, state
and local governmental agencies, universities and hospitals and computer supply
dealers, primarily through its professional sales representatives. For the year
ended December 31, 1999, MCSi had net sales of $686.7 million, and net earnings
of $0.93 per share on a fully diluted basis. MCSi's common stock is traded on
the Nasdaq National Market under the symbol "MCSI." After the completion of this
offering, MCSi will own approximately % of the outstanding shares of our
common stock, or approximately % if the underwriters exercise their
over-allotment option in full.
In addition to the MCSi Subscription Program, MCSi has advised us that it
intends to evaluate, from time to time, alternatives to maximize, for the
benefit of MCSi's stockholders, the value of its Zengine ownership. These
alternatives could include retention of all or a portion of MCSi's
shareholdings, the sale in one or more transactions of all or a portion of
MCSi's shareholdings, the distribution of MCSi's shareholdings to MCSi
shareholders (which might be achieved through a tax free spin-off under
Section 355 of the Internal Revenue Code), the issuance of debt or equity
securities that enable MCSi to monetize all or a portion of its investment in
Zengine or other transactions. We cannot assure you as to which alternative MCSi
may choose, or which may be achievable, or whether or when any such transaction
will occur.
We have entered into a number of agreements with MCSi relating to our
business. Under these agreements, MCSi will continue to provide us with certain
administrative, product fulfillment and customer support services and
facilities, and we will provide MCSi with extranet e-commerce services
5
<PAGE>
for its computer products and accessories and audio-visual products business.
For more information, please see "Risk Factors--Risks Related to Our
Relationship With MCSi" and "Certain Transactions."
------------------------
We were incorporated in Delaware in March 1999. Our principal executive
offices are located at 6100 Stewart Avenue, Fremont, California 94538, and our
telephone number is (510) 651-6400.
We maintain a Web site at www.zengine.com, and MCSi maintains a Web site at
www.mcsinet.com. Information contained on these as well as other Web sites
referred to herein do not constitute part of this prospectus and are not
incorporated by reference in this prospectus.
------------------------
Unless otherwise indicated, all references to "Zengine," "we," "us" and
"our" refer to Zengine, Inc., a Delaware corporation.
THE OFFERING
<TABLE>
<S> <C>
Shares offered by Zengine............
Shares outstanding after the
offering...........................
Shares reserved for issuance with
respect to outstanding options and
a warrant..........................
Use of proceeds...................... For general corporate purposes, including working capital,
sales and marketing activities, development of our service
offerings, capital expenditures and potential investments or
acquisitions in order to execute our key strategies. Please
see "Use of Proceeds."
Nasdaq National Market symbol........ "ZNGN"
</TABLE>
Unless otherwise noted, the information in this prospectus assumes the
underwriters do not exercise their option to purchase an additional shares
of common stock from us to cover over-allotments. The number of outstanding
shares used in this prospectus is and excludes:
- 193,250 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $3.17;
- 6,750 shares of common stock available for the future grant of stock
options under our stock option plans (and subsequent to February 29, 2000,
the Board reserved an additional 300,000 shares under our stock option
plans); and
- shares of common stock issuable upon the exercise of a warrant
to be issued on the date of the initial public offering at an exercise
price per share equal to the initial public offering price.
MCSi SUBSCRIPTION PROGRAM
As part of this offering, we are offering shares of our common stock at the
initial public offering price to stockholders of Miami Computer Supply
Corporation, or MCSi, that owned at least 100 shares of MCSi common stock on
, 2000 in the MCSi Subscription Program. The program is described in
greater detail in the section of this prospectus entitled "Plan of
Distribution--MCSi Subscription Program."
------------------------
All information in this prospectus relating to the number of shares of our
common stock, options or warrants, unless otherwise noted, is based upon
information as of February 29, 2000, assuming a to stock split
before the offering.
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
The historical summary financial information set forth below for the period
from inception (January 1, 1999) to September 30, 1999 and the five months ended
February 29, 2000, has been derived from our financial statements which have
been audited by PricewaterhouseCoopers LLP, independent accountants, whose
report is included elsewhere in this prospectus. The summary financial
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
our Financial Statements and the accompanying notes thereto included elsewhere
in this prospectus.
The pro forma summary financial information set forth below for the nine
months ended September 30, 1999 have been derived from unaudited pro forma
financial information which reflect the impact of our e-commerce agreement with
MCSi, which became effective on October 1, 1999, as if it were in place on
January 1, 1999, under which we design, improve and maintain the dedicated Web
site operations of MCSi. The pro forma data also reflect the impact of the
distribution services, administrative services and facility and equipment lease
agreements that we entered into with MCSi effective October 1, 1999, as if these
agreements had also been entered into on January 1, 1999. Pro forma adjustments
are described in the notes to the summary financial information.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
FOR THE PERIOD FROM FOR THE PERIOD FROM HISTORICAL
INCEPTION INCEPTION FOR THE PERIOD FROM
(JANUARY 1, 1999) TO (JANUARY 1, 1999) TO OCTOBER 1, 1999 TO
SEPTEMBER 30, 1999(1) SEPTEMBER 30, 1999(2) FEBRUARY 29, 2000(1)
---------------------- ---------------------- --------------------
<S> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Revenue.............................. $ 4,089 $ 858,977 $1,812,954
Cost of revenue...................... 23,511 125,511 224,891
---------- ---------- ----------
Gross profit (loss).................. (19,422) 733,466 1,588,063
Selling, general and administrative
expenses(3)........................ 914,201 981,581 2,010,584
---------- ---------- ----------
Loss from operations................. (933,623) (248,115) (422,521)
Interest income...................... -- -- 68,060
---------- ---------- ----------
Loss before income taxes............. (933,623) (248,115) (354,461)
Provision for income taxes........... -- -- --
---------- ---------- ----------
Net loss............................. $ (933,623) $ (248,115) $ (354,461)
========== ========== ==========
Loss per share of common stock--basic
and diluted........................ $ (0.59) $ (0.16) $ (0.22)
========== ========== ==========
Weighted average number of common
shares outstanding--basic and
diluted............................ 1,580,877 1,580,877 1,636,944
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL AT
SEPTEMBER 30, HISTORICAL AT
1999(1) FEBRUARY 29, 2000(1)
-------------- --------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................... $(92,167) $3,473,209
Total assets................................................ $355,320 $4,552,730
Long-term debt.............................................. $ -- $ --
Total debt.................................................. $ -- $ --
Stockholders' equity........................................ $262,747 $4,084,406
</TABLE>
7
<PAGE>
- ------------------------
Notes:
(1) The historical data reflects selected results of operations and balance
sheet data from the period from our inception (January 1, 1999) through
September 30, 1999 and for the five month period ended February 29, 2000.
Because our inception was on January 1, 1999, comparable data for the five
month period ended February 28, 1999 is not available. For all historical
periods presented, cost of revenue and selling, general and administrative
expenses include costs incurred directly by us and certain costs allocated
to us by MCSi. See Note 4 to our financial statements included elsewhere in
this prospectus.
(2) Pro forma statement of operations data reflects the impact of the e-commerce
services agreement and the related distribution, administrative and facility
and equipment lease agreements as if they had been entered into on
January 1, 1999. During the nine months ended September 30, 1999, MCSi had
gross sales to customers with dedicated Web sites of $8,548,879. Pursuant to
the e-commerce services agreement we receive a fee of 10 percent of the
retail value of transactions processed for MCSi. The pro forma statement of
operations data also includes the effects of the administrative services
agreement which requires us to pay MCSi $720,000 per year for these
administrative services and the facility and equipment lease agreement which
requires us to pay $150,000 per year to MCSi for office space and office
equipment.
Pro forma balance sheet data at February 29, 2000 and pro forma statement of
operations data for the five months ended February 29, 2000 are not
presented because the e-commerce, distribution services, administrative
services and leasing agreements were entered into effective October 1, 1999
and are reflected in the historical results of operations and financial
position. The following table provides a summary of the pro forma
adjustments to the results of operations data for the nine month period
ended September 30, 1999 that are described above:
<TABLE>
<CAPTION>
SELLING,
GENERAL AND INCOME (LOSS)
COST OF ADMINISTRATIVE BEFORE
REVENUES REVENUE EXPENSES INCOME TAXES
-------- -------- -------------- -------------
<S> <C> <C> <C> <C>
Historical amounts.......................... $ 4,089 $ 23,511 $ 914,201 $(933,623)
Fees from MCSi (gross revenues of $8,548,879
at 10 percent)............................ 854,888 -- -- 854,888
Additional costs to service the MCSi Web
sites..................................... -- 30,000 -- (30,000)
Administrative services and lease fees to
MCSi...................................... -- 72,000 580,500 (652,500)
Less amounts historically charged by MCSi... -- -- (513,120) 513,120
-------- -------- --------- ---------
Pro forma amounts........................... $858,977 $125,511 $ 981,581 $(248,115)
======== ======== ========= =========
</TABLE>
(3) Selling general and administrative expenses for the five month period ended
February 29, 2000 include $289,375 of accretion expense associated with a
put agreement written by MCSi, which will terminate upon consummation of
this offering. See Note 3 to our financial statements included elsewhere in
this prospectus.
8
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE YOU DECIDE TO
BUY OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES THAT WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES THAT WE DO NOT
PRESENTLY KNOW ABOUT, OR THAT WE CURRENTLY BELIEVE ARE IMMATERIAL MAY ALSO
IMPACT OUR BUSINESS OPERATIONS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IN THIS CASE, THE
TRADING PRICE OF OUR COMMON STOCK COULD FALL, AND YOU MAY LOSE ALL OR PART OF
THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
THIS PROSPECTUS ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
SUBSTANTIAL RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS COULD DIFFER SUBSTANTIALLY FROM THOSE EXPRESSED IN OR IMPLIED BY
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF SEVERAL FACTORS, INCLUDING THE
RISKS WE FACE, AS MORE FULLY DESCRIBED BELOW IN THIS SECTION AND ELSEWHERE IN
THIS PROSPECTUS.
RISKS RELATED TO OUR BUSINESS
<TABLE>
<S> <C>
WE HAVE A LIMITED OPERATING HISTORY. We commenced operations in January 1999 as a division of
MCSi and since our incorporation in March 1999, we have
operated as a subsidiary of MCSi. Our business and the
services we offer are in the early stages of development. To
date, eight companies have purchased our services.
Accordingly, we have a very limited operating history, and
our business and prospects must be considered in light of
the risks and uncertainties facing early-stage companies in
rapidly evolving markets such as e-commerce. These risks
include:
- Our inability to sell our services in accordance with our
current business strategy;
- Our inability to expand our systems to handle increased
traffic, resulting in slower response times and other
difficulties in providing services to our clients;
- Risks that the intense competition and rapid technological
change in our industry could adversely affect market
acceptance of all of our services; and
- Risks that any fluctuations in our quarterly operating
results will be significant.
These risks are discussed in more detail below. We cannot
assure you that our business strategy will be successful or
that we will successfully address these risks and the risks
detailed below.
WE HAVE A HISTORY OF LOSSES, EXPECT We are not profitable and cannot be certain that we will
FUTURE LOSSES AND CANNOT ASSURE YOU generate sufficient revenue to ever become profitable. We
THAT WE WILL ACHIEVE PROFITABILITY. have incurred significant net losses since our inception. To
the extent such losses continue, our accumulated deficit
will increase and our stockholders' equity will decrease. We
incurred net losses of $934,000 for the period from
inception (January 1, 1999) to September 30, 1999, and net
losses of $354,000 for the five months ended February 29,
2000. We anticipate that we will substantially increase our
marketing, technology and infrastructure, software
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
development and general and administrative expenses in
fiscal 2000 and, as a result, we expect to incur additional
losses for the foreseeable future. In addition, our limited
operating history makes prediction of future results
difficult and, accordingly, there can be no assurance that
we will achieve or sustain profitability.
THE EXPECTED FLUCTUATIONS OF OUR As a result of our limited operating history, we do not have
QUARTERLY RESULTS COULD CAUSE OUR meaningful historical financial data for quarterly periods
STOCK PRICE TO FLUCTUATE OR DECLINE. on which to base planned operations. Our expense levels are
based in part on our personnel and software development
requirements as well as our expectations as to future
revenues. We anticipate that our operating expenses will
increase substantially for the foreseeable future as we
continue to extend the capabilities of our KORE Engine,
increase our sales and marketing activities and broaden our
customer support capabilities.
We expect to experience significant fluctuations in future
quarterly operating results. These fluctuations may be
caused by many factors including, among others:
- The length of our sales cycle;
- Budgeting cycles of our clients;
- Cancellation of orders prior to full deployment;
- Nonrenewal of service agreements;
- Software defects and other service quality problems;
- Changes in our business strategy;
- Changes in key personnel;
- The extent of our international expansion; and
- General economic conditions.
We anticipate that, for the foreseeable future, a
significant portion of our revenues will be derived from a
limited number of clients (including MCSi), and the timing
of receipt and fulfillment of any such orders is expected to
cause material fluctuations in our operating results,
particularly on a quarterly basis. In addition, in the near
term, we intend to increase significantly our personnel,
including our software engineers, direct sales and marketing
personnel. The timing of such expansion and the rate at
which new engineers and sales people become productive could
also cause material fluctuations in our quarterly operating
results.
Due to the foregoing factors, quarterly revenues and
operating results are difficult to forecast, and we believe
that period-to-period comparisons of our operating results
will not necessarily be meaningful and should not be relied
upon as any indication of future performance. It is likely
that our future quarterly operating results from time to
time will not meet the expectations of market analysts or
investors, which may have an adverse effect on the price of
our common stock.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
OUR LENGTHY SALES CYCLE MAY CAUSE The sales cycle for our services is long, typically ranging
OPERATING RESULTS TO VARY two months or more. Our agreements with our clients
SIGNIFICANTLY FROM PERIOD TO PERIOD. generally require a substantial set up fee, and often are
part of an important strategic decision by our clients
regarding their information systems infrastructure.
Accordingly, the decision to purchase our services typically
requires significant pre-purchase evaluation. We spend
substantial time educating and providing information to
prospective clients regarding the use and benefits of our
services. During this evaluation period, we may expend
substantial funds in sales, marketing and management
efforts. This lengthy sales cycle may cause operating
results to vary significantly from period to period.
IF WE EXPERIENCE DELAYS IN THE LAUNCH It often takes time and resources to implement and to
OF A WEB SITE OR IN THE SATISFACTION integrate our solution with our clients' existing computer
OF CONTRACT TERMS, WE MAY HAVE TO systems. We will not recognize any revenue until we have
DEFER REVENUE UNTIL LATER QUARTERS, launched our client's e-commerce Web site. If we experience
CAUSING OUR QUARTERLY RESULTS TO delays in the progress on a previously announced project or
FLUCTUATE. in the satisfaction of contract terms required for revenue
recognition in a particular quarter, we may not be able to
recognize revenue until a later period, causing our
quarterly results to fluctuate. This could cause our stock
price to decline.
BECAUSE A SMALL NUMBER OF CLIENTS We currently have eight clients. We expect that a limited
WILL ACCOUNT FOR A SUBSTANTIAL number of clients will continue to account for a substantial
PORTION OF OUR REVENUE, OUR REVENUE portion of our revenue for the foreseeable future. As a
COULD DECLINE SIGNIFICANTLY IF WE result, if we lose a major client or if a contract is
LOSE A MAJOR CLIENT. delayed, canceled or deferred, our revenue and operating
results would be adversely affected.
OUR REVENUE IS DEPENDENT UPON OUR Our revenue is based, in part, on transaction fees and will
CLIENTS' BUSINESS AND PRODUCT SALES. fluctuate with the volume of product sales by our clients.
Although we can provide our clients the tools and certain
other resources to assist them in their e-commerce efforts,
we do not have direct control over the success of their
e-commerce sites. If we dedicate significant resources to a
client whose business does not generate substantial
transactions or whose products do not generate substantial
customer sales, our business may suffer.
WE EXPECT THAT A SUBSTANTIAL PORTION We currently expect that advertising and sponsorship fees
OF OUR REVENUE FOR THE CURRENT FISCAL will account for a substantial portion of our total revenue
YEAR WILL BE DERIVED FROM SHORT-TERM in the current fiscal year. The agreements under which we
ADVERTISING AND SPONSORSHIP receive these fees typically are of a limited duration.
AGREEMENTS. Accordingly, we cannot assure you that our revenue from
advertising and sponsorship fees will be sustained over the
longer term.
PERSONALIZATION MAY NOT BE SUCCESSFUL The centerpiece of our service offering to our clients is
IN GENERATING ADDITIONAL REVENUE FOR the high degree of advanced personalization generated by the
OUR CLIENTS. KORE Engine. Our sales proposition to our clients is that
the personalization of the shopping experience results in a
higher user conversion ratio (i.e., the number of Web site
visitors who actually purchase), increased purchases per
visit, increased purchase size and greater customer loyalty.
If our sales proposition turns out to be ineffective for one
or more of our clients, we could lose that
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
business, and possibly future business, which would result
in a material adverse effect on our results of operations.
IF WE LOSE KEY PERSONNEL OR ARE We believe our future success will depend upon our ability
UNABLE TO ATTRACT AND RETAIN to retain our key management personnel, including Joseph
ADDITIONAL QUALIFIED PERSONNEL WE MAY Savarino, our President and Chief Executive Officer, Lalit
NOT BE ABLE TO SUCCESSFULLY MANAGE Dhadphale, our Vice President of Product Development and
OUR BUSINESS AND ACHIEVE OUR Chief Operating Officer, and Christopher Feaver, our Vice
OBJECTIVES. President and Chief Technology Officer, because of their
experience and knowledge regarding the development,
opportunities and challenges of our business. Each of these
executives is subject to a three year employment agreement
which is terminable at will by them. We may not be
successful in attracting and retaining other key employees
in the future.
We expect to add additional key personnel in the near
future, including software engineers and direct sales and
marketing personnel. Our future success and our ability to
expand our operations will also depend in large part on our
ability to attract and retain additional qualified technical
personnel, as well as marketing and sales personnel.
Competition for these types of employees is intense due to
the limited number of qualified professionals, particularly
in the San Francisco Bay area of California.
DIFFICULTIES WE MAY ENCOUNTER We have rapidly expanded our operations and anticipate that
MANAGING OUR GROWTH COULD ADVERSELY further significant expansion will be required to address
AFFECT OUR RESULTS OF OPERATIONS. potential growth in our client base and market
opportunities. Our expansion is placing a significant strain
on our managerial and operational resources. Due to our
limited operating history, our staff has not worked together
for a significant period of time. A number of key
managerial, technical and operations personnel are
relatively new to our company. In addition, none of our
executive officers have ever managed a public corporation.
IF WE ARE UNABLE TO ESTABLISH AND Our business strategy is dependent upon increasing the sales
MAINTAIN RELATIONSHIPS WITH COMPANIES of our services to companies that desire to establish or
WHO ARE ENGAGING IN, OR INTEND TO enhance their e-commerce efforts. We have entered into
ENGAGE IN, E-COMMERCE, OUR BUSINESS service agreements with companies that have embraced the
WILL NOT GROW. Internet as a significant distribution channel. We do not
know if we will be successful in establishing or maintaining
relationships with companies in our target market. If we are
unable to do so, we will likely be unable to continue to
grow our business or establish a meaningful market share.
OUR SYSTEMS MAY NOT ACCOMMODATE Our success depends on our ability to handle a large number
SIGNIFICANT GROWTH IN THE NUMBER OF of transactions for many different clients in various
OUR CLIENTS. product categories. We expect that the volume of
transactions we process will increase significantly as we
expand our operations. If this occurs, additional stress
will be placed upon the network hardware and software that
manages our operations. We cannot assure you of our ability
to efficiently manage a large number of transactions. If we
are not able to maintain an appropriate level of operating
performance, our reputation and business would be harmed.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
SOFTWARE DEFECTS AND SYSTEM ERRORS Our services are based on complex proprietary software which
COULD DIMINISH DEMAND FOR OUR could contain undetected errors or defects. We may, in the
SERVICES AND RESULT IN LOSS OF future, discover software errors and as a result experience
REVENUE, DELAY IN MARKET ACCEPTANCE delays in providing the services we agreed to provide during
AND INJURY TO OUR REPUTATION. the period required to correct these errors. Errors may be
found from time to time in our new or enhanced service
offerings after launch of our client's e-commerce store,
resulting in:
- loss of revenue;
- delay in market acceptance and sales;
- diversion of development resources;
- injury to our reputation; or
- increased remediation costs.
In addition, our service is generally used in systems with
the client's or other vendors' software, and as a result,
our software must integrate successfully with these existing
systems. System errors, whether caused by our software, the
client's or those of another vendor, could adversely affect
the market acceptance of our services and any necessary
revisions could cause us to incur significant expenses.
Further, if our software and systems and the systems of our
clients are not year 2000 compliant, we could incur
increased costs, delay or loss of revenue, diversion of
development resources or damage to our reputation.
IF WE BECOME SUBJECT TO PRODUCT Since our services typically operate our client's only
LIABILITY LITIGATION, IT COULD BE e-commerce Web site, any performance problems with our
COSTLY AND TIME CONSUMING TO DEFEND. services, whether as a result of internal or vendor errors,
defects or otherwise, could severely impact our clients'
product sales. This could result in financial or other
damages to our clients. Although our services agreements
generally contain provisions designed to limit our exposure
to product liability claims, existing or future laws or
unfavorable judicial decisions could negate such limitation
of liability provisions. Product liability litigation, even
if it were unsuccessful, would be time consuming and costly
to defend.
WE MAY ENGAGE IN FUTURE STRATEGIC We may engage in strategic alliance or acquisition
ALLIANCES OR ACQUISITIONS THAT COULD opportunities that would complement our current business or
DILUTE OUR EXISTING STOCKHOLDERS, enhance our technological capabilities. Integrating any
CAUSE US TO INCUR SIGNIFICANT newly acquired businesses, technologies or services, may be
EXPENSES OR ADVERSELY AFFECT OUR expensive and time-consuming. To finance any acquisitions,
BUSINESS. it may be necessary for us to raise additional funds through
public or private financings. Additional funds may not be
available on terms that are favorable to us and, in the case
of equity financings, may result in dilution to our
stockholders. We may not be able to operate any acquired
businesses profitably or otherwise implement our growth
strategy successfully. If we are unable to integrate any
newly acquired entities or technologies effectively, our
operating results could suffer. Future acquisitions by us
could also result in large and immediate write-offs,
incurrence of debt and contingent liabilities,
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
or amortization of expenses related to goodwill and other
intangible assets, any of which could adversely affect our
operating results.
IF WE ARE UNABLE TO SECURE ADDITIONAL Because we anticipate net losses for the foreseeable future,
FINANCING, WE MAY BE UNABLE TO it is possible that we will require additional funds to grow
CONTINUE TO GROW OUR BUSINESS. our business. If we are not able to secure additional funds
when needed, we may not be able to cover our operating
expenses or pursue our other business strategies. In such an
event, our business could be significantly harmed.
IF WE ARE UNABLE TO ADEQUATELY We have applied for trademarks on our marks, such as the
PROTECT OUR TRADEMARKS OR BRAND Zengine name, the Zengine "gear" logo, "KORE," "KOG" and our
IDENTITY, OUR SALES GROWTH COULD tag line "Fueling Your Brand's Commerce Engine." There can
DECREASE. be no assurance that effective trademark protection will be
available for our marks. We have identified another company
that is utilizing the KORE name. We have demanded that this
company stop using our proprietary name and intend to
vigorously enforce our intellectual property rights against
this infringement. It is possible that others will adopt
product names or logos similar to KORE or the Zengine gear
logo. This would impede our ability to build our brand
identity, lead to customer confusion, increase our legal
expenses and distract management from the operation of our
business. Such events could result in a loss of significant
rights, increased expenses and lower sales of our services.
RISKS RELATED TO THE INTERNET AND E-COMMERCE INDUSTRY
THE MARKET FOR OUR SERVICES IS IN THE Our services facilitate e-commerce over public and private
EARLY STAGE OF DEVELOPMENT. data networks. The market for our services is at an early
stage of development and is rapidly evolving. As is typical
for new and rapidly evolving industries, demand and market
acceptance for recently introduced products and services are
subject to a high level of uncertainty.
PRIVACY CONCERNS MAY LIMIT INTERNET One of the principal features of our proprietary technology
USE AND USE OF OUR SERVICES. is the ability to develop and maintain highly personalized
profiles of users to assist our clients in determining the
nature of the content and the product offerings to be
provided to that customer. Typically, these profiles are
captured when customers visit a site on the Web and
volunteer information in response to survey questions
concerning their backgrounds, interests, and preferences.
Profiles are augmented over time through the collection of
usage data. Privacy concerns may nevertheless cause users to
resist providing the personal data necessary to support this
profiling capability. The perception by our clients'
customers or potential customers of substantial security and
privacy concerns, whether or not valid, may inhibit market
acceptance of our technology. Such concerns also may be
heightened by legislative or regulatory requirements that
require notification to Web site users that the data
captured as a result of visitation of certain Web sites may
be used by marketing entities to unilaterally address
product promotion and advertising to
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
that user. While we are not aware of any such legislation or
regulatory requirements currently in effect in the United
States, certain other countries and political entities, such
as the European Community, have adopted such legislation or
regulatory requirements. We cannot assure that similar
legislation or regulatory requirements will not be adopted
in the United States.
Certain consumer activist groups have recently sought to
have the Federal Trade Commission determine whether
profiling should be considered "subliminal" marketing which
they believe should be prohibited. While we are not aware of
any law or regulation which prohibits subliminal marketing,
the FTC has, in the past, considered such acts to be
deceptive trade practices and has issued administrative
cease and desist orders against companies using those
techniques. The FTC has recently begun an informal inquiry
into the business practices of an Internet marketing and
advertising company that uses personalization techniques to
target advertisements to people who browse certain Web
sites. That company is also currently defending itself
against seven private lawsuits alleging, among other things,
the improper collection and use of personal information in
violation of federal and state statutes and the right of
privacy. In addition, the Attorney General's Office of the
States of New York and Michigan have requested that this
company provide certain information concerning its business
practices. Zengine is not involved in any similar
investigation or litigation. However, if the privacy
concerns of consumers are not adequately addressed, our
business could be harmed. For more information regarding the
personalization features of our technology, please see
"Business--Technology."
A BREACH OF OUR E-COMMERCE SECURITY A requirement of the continued growth of e-commerce is the
MEASURES COULD REDUCE DEMAND FOR OUR secure transmission of confidential information over public
SERVICES. networks. We utilize a third party payment processor for a
portion of the transactions we handle. Both the third party
processor and we rely on public key cryptography. This is an
encryption method that utilizes two keys, a public and a
private key, for encoding and decoding data, and digital
certificate technology, or identity verification, to provide
the security and authentication necessary for secure
transmission of confidential information. Regulatory and
export restrictions may prohibit us from using the strongest
and most secure cryptographic protection available and
thereby expose us to a risk of data interception. A party
who is able to circumvent our security measures could
misappropriate proprietary information or interrupt our
operations. Any compromise or elimination of our security
could harm our reputation and reduce demand for our
services.
We may be required to expend significant capital and other
resources to protect against security breaches or to address
any problems that may cause. Concerns over the security of
the Internet and other online transactions and the privacy
of users may also inhibit the growth of the Internet and
other online services
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
generally, and the Web in particular, especially as a means
of conducting commercial transactions. Because our
activities involve the storage and transmission of
proprietary information, such as credit card numbers,
security breaches could damage our reputation and expose us
to a risk of loss or litigation and possible liability. Our
security measures may not prevent security breaches, and
failure to prevent security breaches may disrupt our
operations. We currently carry no insurance to specifically
protect us against this risk.
THE INTENSE COMPETITION IN OUR The market for our services is intensely competitive and
INDUSTRY COULD REDUCE OR ELIMINATE subject to rapid technological change. We expect competition
THE DEMAND FOR OUR SERVICES. to intensify in the future. Our primary source of
competition comes from e- commerce retailers who develop
their own custom systems or engage consultants who install
packaged software systems. Online retailers who have made
large investments to develop custom systems may be less
likely to adopt an outsourced transaction processing
strategy. We also face competition from companies such as
Art Technology Group, Breakaway Solutions, Broadvision,
E.piphany, Net Perceptions and USinternetworking. In
addition, other companies may enter the market for our
services. In the future, we may also compete with large
companies that derive a significant portion of their
revenues from e-commerce and may offer, or provide a means
for others to offer, e-commerce transaction services.
We believe that the principal competitive factors in our
market include:
- core technology;
- time-to-market;
- speed, accessibility and ease of use;
- breadth of service features and functionalities;
- price;
- ease of implementation;
- system reliability and capacity;
- marketing resources;
- brand recognition; and
- customer support.
Many of our competitors have longer operating histories,
substantially greater financial, technical, marketing or
other resources, or greater name recognition than we do. Our
competitors may be able to respond more quickly than we can
to new or emerging technologies and changes in customer
requirements. Competition could impede our ability to sell
additional services on terms favorable to us. Our current
and potential competitors may develop and market new
technologies that render our existing or
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
future services obsolete, unmarketable or less competitive.
Our current and potential competitors may make strategic
acquisitions or establish cooperative relationships among
themselves or with other solution providers, thereby
increasing the ability of their services or products to
address the needs of our prospective clients. Our current
and potential competitors may establish or strengthen
cooperative relationships with our current or future channel
partners, thereby limiting our ability to sell services
through these channels.
THE RISK OF LACK OF CAPACITY, SYSTEM We provide a comprehensive, highly personalized e-commerce
FAILURE AND SYSTEM DEVELOPMENT RISKS service to companies seeking to capitalize on the ability to
COULD RESULT IN DOWNTIME WITH A sell directly to their customers using our proprietary
SIGNIFICANT LOSS OF REVENUE. technology. The satisfactory performance, reliability and
availability of our proprietary technology and its
underlying software and network infrastructure are critical
to our operations, level of customer service, and reputation
and ability to attract and retain clients. Our systems and
operations are vulnerable to damage or interruption from:
- earthquake, fire, flood and other natural disasters; and
- power loss, telecommunications or data network failure,
operator negligence, improper operation by employees, and
similar events.
We presently do not carry sufficient business interruption
insurance to fully compensate us for losses that may occur.
Despite the use of network security devices, our servers are
vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions, which could lead to
interruptions, delays, loss of data or the inability to
accept and fulfill end-user orders. Any systems interruption
that impairs our ability to serve our client's Web pages,
accept and fill customer orders or to provide customer
service reduces the attractiveness of our offerings, which
could materially adversely affect our business, financial
condition and results of operations.
RAPID TECHNOLOGICAL CHANGE COULD To remain competitive, we must continue to enhance and
RENDER OUR TECHNOLOGY OBSOLETE. improve the responsiveness, functionality and features of
our KORE Engine and the underlying network infrastructure.
The Internet and the e-commerce industry are characterized
by rapid technological change, changes in user requirements
and preferences, frequent new product and service
introductions embodying new technologies and the emergence
of new industry standards and practices that could render
our technology and systems obsolete. Our success will
depend, in part, on our ability to internally develop and
license leading technologies to enhance our existing
services, develop new services and technology that address
the increasingly sophisticated and varied needs of our
clients, and respond to technological advances and emerging
industry standards and practices on a cost-effective and
timely basis. The development of our KORE Engine and other
proprietary technology involves significant technical and
business risks. We may fail to use new technologies
effectively or
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
adapt our proprietary technology and systems to customer
requirements or emerging industry standards. If we are
unable to adapt to changing market conditions, client
requirements or emerging industry standards, our business
could be adversely affected.
WE MAY NOT BE ABLE TO ADEQUATELY Our success and ability to compete depends to a large degree
PROTECT OUR PROPRIETARY TECHNOLOGY upon our proprietary technology. We rely on a combination of
AND MAY BE INFRINGING UPON trademark and trade secret rights, confidentiality
THIRD-PARTY INTELLECTUAL PROPERTY procedures and licensing arrangements to establish and
RIGHTS. protect our proprietary rights. Our source code for our
proprietary software is protected as a trade secret. We have
not applied for a patent for our KORE Engine (but may do so
in the future).
As part of our confidentiality procedures, we enter into
non-disclosure agreements with our employees. Despite these
precautions, third parties could copy or otherwise obtain
and use our technology without authorization, or develop
similar technology independently. Effective protection of
intellectual property rights may be unavailable or limited
in foreign countries. We cannot assure you that the
protection of our proprietary rights will be adequate or
that our competitors will not independently develop similar
technology, duplicate our services or design around any
patents or other intellectual property rights we hold.
We also cannot assure you that third parties will not claim
our current or future services infringe upon their rights.
Because the e-commerce industry is relatively new, patents
relating to the industry are only now starting to be issued
by the U.S. Patent and Trademark Office. These patents are
protecting certain business processes which many in the
industry currently believe are not proprietary.
As the number of patents issued and e-commerce service
offerings in our market increase and functionalities
overlap, companies such as ours may become increasingly
subject to infringement claims. In addition, these claims
also might require us to enter into royalty or license
agreements. Any infringement claims, with or without merit,
could cause costly litigation that could also absorb
significant management time. If required to do so, we may
not be able to obtain royalty or license agreements, or
obtain them on terms acceptable to us. See
"Business--Intellectual Property" for more information
relating to protecting our intellectual property rights and
risks relating to claims of infringement upon the
intellectual property rights of others.
INCREASING GOVERNMENT REGULATION OF As e-commerce and the Internet continue to evolve, federal,
THE INTERNET COULD LIMIT THE MARKET state and foreign governments may adopt laws and regulations
FOR OUR SERVICES, OR IMPOSE ON US covering issues such as user privacy, taxation of goods and
GREATER TAX BURDENS OR LIABILITY FOR services provided over the Internet, pricing, content and
TRANSMISSION OF PROTECTED DATA. quality of products and services. If enacted, these laws and
regulations could limit the market for e-commerce, and
therefore the market for our services. Although many of
these regulations may not apply directly to our
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
business, we expect that laws regulating the solicitation,
collection or processing of personal or consumer information
could indirectly affect our business.
The Telecommunications Act of 1996 prohibits certain types
of information and content from being transmitted over the
Internet. The prohibition's scope and the liability
associated with a Telecommunications Act violation are
currently unsettled. The imposition upon us and other
service providers of potential liability for information
carried on or disseminated through our applications could
require us to implement measures to reduce our exposure to
this liability. These measures could require us to expend
substantial resources or discontinue certain services. In
addition, although substantial portions of the
Communications Decency Act (the Act through which the
Telecommunications Act of 1996 imposes criminal penalties)
were held to be unconstitutional, similar legislation may be
enacted and upheld in the future. It is possible that this
legislation could expose companies involved in e-commerce to
liability, which could limit the growth of e-commerce
generally. Legislation like the Telecommunications Act and
the Communications Decency Act could dampen the growth of
Internet usage and decrease its acceptance as a
communications and commercial medium.
Our applications utilize encryption technology, the export
of which is regulated by the United States government. We
currently do not provide our services to clients located
outside the United States, but intend to begin marketing to
foreign companies (or companies who reach foreign markets)
in calendar year 2000. There can be no assurance that export
regulations, either in their current form or as may be
subsequently enacted, will not limit our ability to provide
our services outside the United States. Moreover, federal or
state legislation or regulation may further limit levels of
encryption or authentication technology that we are able to
utilize. While we will take precautions against unlawful
exportation of our software, the global nature of the
Internet makes it difficult to effectively control the
distribution of software. Any unlawful exportation of our
software, or adoption of new legislation or regulation
relating to exportation of software and encryption
technology could have a material adverse effect on our
business, financial condition, and operating results.
The Internet Tax Freedom Act bars state and local
governments from imposing taxes on Internet access or that
would subject buyers and sellers of e-commerce to taxation
in multiple states. This act is in effect through October
2000. When the act expires or if the act is repealed,
Internet access and sales across the Internet may be subject
to additional taxation by state and local governments,
thereby discouraging purchases over the Internet and
adversely affecting the market for our services.
</TABLE>
19
<PAGE>
RISKS RELATED TO OUR RELATIONSHIP WITH MCSi
<TABLE>
<S> <C>
OUR BUSINESS MAY BE MATERIALLY At the present time, MCSi has not decided whether it will
ADVERSELY AFFECTED DEPENDING UPON retain or dispose of our common stock that it currently
WHAT MCSi DECIDES TO DO WITH ITS owns. Until, and depending upon what decision is made, we
OWNERSHIP OF OUR COMMON STOCK. will or may continue to be controlled by MCSi. As long as we
are controlled by MCSi, the price of our shares in the
public market could be adversely affected because of the
reduced liquidity and the uncertainty as to if, when and how
the shares held by MCSi would be sold or distributed to the
public. Until a decision is made by MCSi, we cannot predict
what will occur, what effects will result from such
decision, or whether or when we or our shareholders will
obtain the expected benefits, if any.
WE DEPEND ON MCSi FOR VARIOUS We have historically been dependent on MCSi for various
SERVICES AND FOR A SIGNIFICANT services, including product fulfillment and distribution,
PORTION OF OUR REVENUE. customer service, facilities, human resources, management
information systems, as well as for working capital. We have
entered into a distribution services agreement, sublease
agreement and an administrative services agreement with MCSi
under which MCSi will continue to provide these services to
us until October 2001 and lease property and equipment to us
through May 2001. When the term of these agreements expire,
we will need either to extend the term, engage other
entities to perform these services or perform these services
ourselves. We cannot assure you that MCSi will continue to
provide these services after the initial term of these
agreements, or that the cost of these services will not be
significantly higher if we purchase services from other
parties or devote resources to handle these functions
internally.
In addition, we provide e-commerce services for MCSi's
computer supply and audio-visual products business under a
two-year agreement. As a result, MCSi is one of our largest
clients, and we currently expect that MCSi will remain a
significant client for the foreseeable future. Consequently,
a substantial portion of our business will be dependent upon
the success of MCSi's sales and marketing of its products.
Any decline in sales experienced by MCSi will have a
negative effect on the revenues we would obtain from this
agreement.
All of our agreements with MCSi were made in the context of
a parent-subsidiary relationship. We cannot assure you that
the prices charged to us, or by us, or the overall terms and
conditions under these agreements are not higher or lower
than the prices that may be charged by, or to, unaffiliated
third parties for similar services.
THROUGH ITS OWNERSHIP OF OUR STOCK, After the completion of this offering, MCSi will own
MCSiWILL BE ABLE TO EXERT SUBSTANTIAL approximately % of our outstanding shares of common
INFLUENCE OVER OUR MANAGEMENT AND stock, or approximately % if the underwriters exercise
CORPORATE AFFAIRS. their over-allotment option in full. As long as MCSi owns a
significant portion of our outstanding common stock, MCSi
will continue to be able to elect our entire board of
directors and to remove any director, with cause, and
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
generally to determine the outcome of all corporate actions
requiring stockholder approval. As a result, MCSi will be in
a position to continue to control all matters affecting our
company, including:
- the composition of our board of directors and, through it,
any decisions with respect to the direction and policies of
our company, including the appointment and removal of
officers;
- any decisions with respect to mergers or other business
combinations involving our company;
- the acquisition or disposition of assets by our company;
- future issuances of common stock or other securities of
our company;
- the incurrence of debt by our company;
- amendments, waivers and modifications to our distribution
services agreement, administrative services agreement,
sublease agreement and our e-commerce services agreement
with MCSi; and
- the payment of dividends on our common stock.
WE MAY HAVE POTENTIAL BUSINESS MCSi will continue to be one of our largest customers for a
CONFLICTS OF INTEREST WITH MCSi. significant period of time and will continue to be our
controlling stockholder for the foreseeable future. As a
result, conflicts of interest may arise between us and MCSi
in a number of areas, including:
- the nature, quality and pricing of distribution or
administrative services MCSi has agreed to provide to us;
- the nature, quality and pricing of e-commerce services we
provide to MCSi;
- the incurrence of debt, the payment of dividends, the
issuance of capital stock and business combinations by our
company;
- sales or distributions by MCSi of all or any portion of
its ownership interest in our company; and
- MCSi's ability to control the management and affairs of
our company.
We cannot assure you that we will be able to resolve any
potential conflicts or that, if resolved, we would not be
able to receive more favorable resolution if we were dealing
with an unaffiliated party. Conflicts could be resolved in a
manner adverse to us and our stockholders, which could
materially affect our business, results of operations and
financial condition. The distribution services agreement,
administrative services agreement, e-commerce services
agreement and the sublease agreement we have entered into
with MCSi may be amended from time to time upon agreement
between the parties. As long as we are controlled by MCSi,
we cannot assure you that MCSi would not require us to agree
to an amendment to
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
the distribution services agreement, administrative services
agreement, sublease agreement or any other agreement that
may be more or less favorable to us than the current terms
of those agreements.
SOME OF OUR DIRECTORS MAY HAVE After this offering, one of the five members of our board of
CONFLICTS OF INTEREST BECAUSE THEY directors will also be a director of MCSi. Our chairman is
ARE ALSO DIRECTORS AND STOCKHOLDERS the chairman of the board and chief executive officer of
OF MCSi. MCSi. In addition, two of our directors, our president and
our chief financial officer and eight of our employees hold
shares of MCSi common stock and/or options to acquire shares
of MCSi common stock. These individuals may have conflicts
of interest with respect to certain decisions involving
business opportunities and similar matters that may arise in
the ordinary course of our business or the business of MCSi.
Conflicts, if any, could be resolved in a manner adverse to
us and our stockholders, which could materially adversely
affect our business, results of operations and financial
condition.
WE HAVE POTENTIAL LIABILITY FOR For all periods in which MCSi owned 80% or more of our
MCSi'S TAX OBLIGATIONS. capital stock, we were included in MCSi's consolidated group
for federal income tax purposes. If MCSi or other members of
the consolidated group fail to make any federal income tax
payments, we would be liable for the shortfall since each
member of a consolidated group is liable for the group's
entire tax obligation.
RISKS RELATED TO THIS OFFERING
WE ARE UNCERTAIN ABOUT OUR NEED FOR, Our future capital needs are difficult to predict. We may
AND THE AVAILABILITY OF, ADDITIONAL require additional capital in order to respond to changing
FUNDS BEYOND THE FUNDS RAISED IN THIS business conditions and unanticipated competitive pressures
OFFERING. or to take advantage of unanticipated opportunities,
including strategic alliances and acquisitions.
Additionally, funds from operations may be non-existant or
less than anticipated. Should these circumstances arise, we
may need to raise additional funds either by borrowing money
or issuing additional equity. We cannot assure you that we
will be able to raise such funds on favorable terms or at
all. In addition, although historically we have relied upon
MCSi as our source of funds, upon completion of this
offering, MCSi will be prohibited under the terms of its
line of credit from providing us with funding. If we are
unable to obtain additional funds, we may be unable to take
advantage of new opportunities or take other actions that
otherwise might be important to our business.
THE SALE OF A SUBSTANTIAL NUMBER OF The market price of our common stock could drop as a result
SHARES OF OUR COMMON STOCK AFTER THIS of sales of substantial amounts of common stock in the
OFFERING MAY AFFECT OUR STOCK PRICE. public market after the closing of this offering or the
perception that substantial sales could occur. In addition,
the sale of these shares could impair our ability to raise
capital through the sale of additional equity securities.
After this offering, MCSi will own shares of our
common stock, two other investors will own shares,
three of our executive officers will own shares, our
chairman has an
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
option to acquire shares and a client will have a
warrant to purchase up to 1.7% of the number of shares
issued and outstanding immediately after this offering (not
including the underwriters' overallotment option). We have
agreed to register all of the shares of our common stock to
be held by MCSi and these investors and executive officers
upon demand after this offering. If MCSi distributes these
shares to its stockholders or MCSi, the other investors, our
executive officers or director sell registered shares in the
public market, those shares will be eligible for immediate
resale in the public market, other than any shares held by
our affiliates. We cannot predict whether substantial
amounts of our common stock will be sold in the open market
in anticipation of, or following, any distribution of our
shares by MCSi, the investors, the director or executive
officers. Except as described below, MCSi, the investors,
our director and executive officers have the sole discretion
to determine the timing, structure and all terms of any
distribution or sale of our common stock they hold, all of
which may also affect the level of market transactions in,
and the price of, our common stock.
Upon completion of this offering, we will have outstanding
an aggregate of shares our common stock, based upon
the number of shares outstanding as of , 2000. Of
these shares, all of the shares sold in this offering will
be freely tradable without restriction or further
registration under the Securities Act of 1933, unless such
shares are purchased by our "affiliates," as that term is
defined in Rule 144 under the Securities Act. The
shares of common stock held by existing stockholders
are "restricted securities" as that term is defined in Rule
144. Restricted shares may be sold in the public market only
if registered or if they qualify for an exemption from
registration, such as those provided by Rule 144 or Rule 701
under the Securities Act. As a result of contractual
restrictions in our agreement with William Blair & Co.
prohibiting MCSi, our officers and directors and our
investors from selling their shares of common stock prior to
180 days after this offering, and the provisions of Rule 144
and Rule 701, additional shares will be available for sale
in the public market as follows:
- no restricted shares will be eligible for immediate sale
on the date of this prospectus;
- restricted shares will be eligible for sale upon
expiration of the lock-up agreements 180 days after the date
of this prospectus; and
- the remainder of the restricted shares will be eligible
for sale from time to time thereafter upon expiration of
their respective one-year or two-year holding periods
depending on whether or not they are held by affiliates.
THERE IS CURRENTLY NO PUBLIC MARKET Prior to this offering, there has been no public market for
FOR OUR COMMON STOCK. our common stock, and there can be no assurance that an
active public market for the common stock will develop or be
sustained after the
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
offering. The initial offering price has been determined by
negotiation between us and the underwriters based upon
several factors. For a discussion of the factors taken into
account in determining the initial public offering price,
see "Underwriting."
PURCHASERS OF OUR COMMON STOCK IN The initial public offering price is substantially higher
THIS OFFERING WILL EXPERIENCE than the net tangible book value per share of our
IMMEDIATE AND SUBSTANTIAL DILUTION. outstanding common stock immediately after this offering.
The net tangible book value per share represents the amount
of our total tangible assets less our total liabilities
divided by the total number of shares of common stock
outstanding prior to this offering. Accordingly, purchasers
of common stock will experience immediate and substantial
net tangible book value dilution of approximately $
per share, or approximately % of the offering price of
$ per share. See "Dilution."
OUR STOCK PRICE MAY BE VOLATILE, The trading price of our common stock may be highly volatile
WHICH MAY LEAD TO LOSSES BY and could be subject to wide fluctuations in response to
INVESTORS. factors such as:
- actual or anticipated variations in quarterly operating
results;
- announcements of technological innovations;
- new services offered by us or our competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet and e-commerce
industries;
- changes in the economic performance and/or market
valuations of other Internet or e-commerce service
companies;
- announcements by us or our competitors of significant
contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;
- additions or departures of key personnel;
- sales of our common stock;
- general economic conditions, including the levels of
general market rates of interest; and
- other events or factors, many of which are beyond our
control.
In addition, the stock market in general, and the Nasdaq
National Market and the market for Internet-related and
technology companies in particular, has experienced extreme
price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of such
companies. The trading prices of many technology companies'
stocks are at or near historical highs and these trading
prices and multiples may not be sustained. These broad
market and industry factors may materially, adversely affect
the market price of the common stock, regardless of our
actual operating performance. In the past, following periods
of volatility in the market price of a company's securities,
securities class-action litigation has often been instituted
against such companies. This
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
litigation, if instituted, could result in substantial costs
and a diversion of management's attention and resources,
which would harm our business.
MANAGEMENT COULD SPEND OR INVEST THE We have no current specific allocations for the net proceeds
PROCEEDS OF THIS OFFERING IN WAYS from this offering. Consequently, our board of directors and
WITH WHICH STOCKHOLDERS MAY NOT management will have substantial flexibility and broad
AGREE. discretion in applying the net proceeds of this offering,
and investors will be relying on the judgment of our
management regarding the application of these proceeds. The
failure of management to apply these funds effectively could
have a material adverse effect on our business and financial
condition. We generally intend to use the net proceeds of
this offering for:
- working capital;
- expansion of our sales and marketing activities;
- development of our service offerings; and
- capital expenditures.
In addition, we may use a portion of the net proceeds for
general corporate purposes, which could include strategic
alliances or opportunistic acquisitions. Pending such uses,
we intend to invest the net proceeds of this offering in
short-term, investment-grade instruments, certificates of
deposit or direct or guaranteed obligations of the United
States. For more information, please see "Use of Proceeds."
OUR AMENDED AND RESTATED CERTIFICATE Certain provisions of our amended and restated certificate
OF INCORPORATION, OUR AMENDED AND of incorporation and amended and restated bylaws may
RESTATED BYLAWS AND DELAWARE LAW MAKE discourage, delay or prevent a merger or acquisition that a
IT DIFFICULT FOR A THIRD PARTY TO stockholder may consider favorable. Such provisions include:
ACQUIRE US, DESPITE THE POSSIBLE - Authorizing the issuance of "blank check" preferred stock;
BENEFIT TO OUR STOCKHOLDERS. - Providing for a classified board of directors with
staggered, three-year terms;
- Prohibiting cumulative voting in the election of
directors;
- Limiting the persons who may call special meetings of
stockholders;
- Limiting the liability of our directors, and providing
them with full rights of indemnity; and
- Establishing advance notice requirements for nominations
for election to the board of directors or for proposing
matters that can be acted on by stockholders at
stockholder meetings.
Certain provisions of Delaware law and our stock option
plans may also discourage, delay or prevent someone from
acquiring or merging with us. For more information, please
see "Management--1999 Stock Option Plan" and "Description of
Capital Stock."
</TABLE>
25
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of $ million from the
sale of the shares of common stock in this offering, at the assumed
initial public offering price of $ per share and after deducting estimated
underwriting discount and the estimated offering expenses of $ million. If
the underwriters' over-allotment option is exercised in full, we estimate that
our net proceeds will be $ million.
The principal purposes of this offering are to obtain additional working
capital, create a public market for our common stock and to facilitate future
access by Zengine to public equity markets. We generally intend to use the net
proceeds of this offering for:
- working capital;
- hiring of additional technical, direct sales and marketing personnel;
- expansion of our market activities;
- expansion of our service development activities; and
- capital expenditures.
In addition, we may, if appropriate opportunities arise, use an undetermined
portion of the net proceeds to engage in strategic alliances or to acquire or
invest in complementary companies, product or service lines, or technologies.
While we engage in discussions relating to strategic alliances or potential
investments on an on-going basis, we do not have any agreements or commitments
with respect to any alliance, acquisition or investment except as otherwise
discussed in this prospectus. Pending such uses, we will invest the net proceeds
in investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future.
26
<PAGE>
CAPITALIZATION
The following table sets forth our cash and capitalization as of
February 29, 2000 on an actual basis, and an as adjusted basis after giving
effect to the issuance of shares of common stock in this offering,
assuming an initial public offering price of $ per common share.
<TABLE>
<CAPTION>
AS OF FEBRUARY 29, 2000
-------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Cash........................................................ $ 86,122 $
=========== =======
Stockholders' Equity:
Preferred stock, no par value; no shares authorized,
issued or outstanding, actual; 20,000,000 shares
authorized, none issued and outstanding, as adjusted.... $ -- $
Common stock, no par value; 5,000,000 shares authorized,
1,800,000 shares issued and outstanding, actual;
100,000,000 shares authorized, shares issued and
outstanding, as adjusted................................ --
Additional paid-in capital................................ 5,462,319
Unearned compensation..................................... (89,829)
Accumulated deficit....................................... (1,288,084)
----------- -------
Total stockholders' equity............................ $ 4,084,406 $
=========== =======
</TABLE>
The table above excludes:
- 193,250 shares of common stock subject to outstanding options at a
weighted average exercise price of approximately $3.17 per share;
- 6,750 shares of common stock reserved for future stock option grants and
purchases under our equity compensation plans (and subsequent to
February 29, 2000, the Board reserved an additional 300,000 shares under
our stock option plans); and
- shares of common stock issuable upon exercise of the outstanding
warrant at an exercise price per share equal to the per share initial
public offering price.
27
<PAGE>
DILUTION
The net tangible book value of our common stock as of February 29, 2000 was
$4.1 million, or $2.27 per share of common stock. Net tangible book value per
share represents the amount of our total tangible assets less our total
liabilities, divided by the total number of shares of common stock outstanding
prior to this offering.
After giving effect to this offering and the receipt of $ million of
net proceeds from this offering (based on an assumed initial public offering
price of $ per share), the pro forma net tangible book value of the common
stock as of February 29, 2000 would have been approximately $ million, or
$ per share. This amount represents an immediate increase in net tangible
book value of $ per share to MCSi and our other existing stockholders, and
an immediate dilution in net tangible book value of $ per share to
purchasers of common stock in this offering. Dilution is determined by
subtracting pro forma net tangible book value per share after this offering from
the amount of cash paid by a new investor for a share of common stock. The
following table illustrates such dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $
-------
Net tangible book value per share at February 29, 2000.... $
-------
Increase in pro forma net tangible book value per share
attributable to new investors...........................
-------
Pro forma net tangible book value per share after this
offering................................................
-------
Dilution per share to new investors....................... $
=======
</TABLE>
The following table sets forth, as of February 29, 2000, on the pro forma
basis described above, the number of shares of common stock purchased from us,
the total consideration paid to us and the average price per share paid by the
existing stockholders and by new investors who purchase shares of common stock
in this offering, before deducting the estimated underwriting discounts and
offering expenses.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............................. % $ % $
New investors......................................
--- --- ---- ---
Total.............................................. 100% $ 100%
=== === ==== === ----
</TABLE>
If the underwriters' over-allotment option is exercised in full, sales in
this offering will reduce the number of shares of common stock held by the
existing stockholders to approximately % of the total shares of common
stock outstanding after the offering and will increase the number of shares held
by new investors to or approximately % of the total shares of common
stock outstanding after the offering.
The foregoing table excludes outstanding stock options to purchase an
aggregate of 193,250 shares of common stock at a weighted average exercise price
of $3.17 per share and an outstanding warrant to purchase up to 1.7% of the
shares of common stock outstanding immediately after this offering (not
including the underwriters' overallotment option) at the initial public offering
price per share. We may also issue additional shares of common stock upon
exercise of future stock option grants, which could also result in additional
dilution to then-existing stockholders.
28
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected historical financial data set forth below for the period from
inception (January 1, 1999) to September 30, 1999 and the five months ended
February 29, 2000, has been derived from our financial statements which have
been audited by PricewaterhouseCoopers LLP, independent accountants, whose
report is included elsewhere in this prospectus. The selected financial data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and our Financial
Statements and the accompanying notes thereto included elsewhere in this
prospectus.
The pro forma selected financial data set forth below for the nine months
ended September 30, 1999 have been derived from unaudited pro forma financial
information which reflect the impact of our e-commerce agreement with MCSi,
which became effective on October 1, 1999, as if it were in place on January 1,
1999, under which we design, improve and maintain the dedicated Web site
operations of MCSi. The pro forma data also reflect the impact of the
distribution services, administrative services and facility and equipment lease
agreements that we entered into with MCSi effective October 1, 1999, as if these
agreements had also been entered into on January 1, 1999. Pro forma adjustments
are described in the notes to the selected financial data.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
FOR THE PERIOD FROM FOR THE PERIOD FROM HISTORICAL
INCEPTION INCEPTION FOR THE PERIOD FROM
(JANUARY 1, 1999) TO (JANUARY 1, 1999) TO OCTOBER 1, 1999 TO
SEPTEMBER 30, 1999(1) SEPTEMBER 30, 1999(2) FEBRUARY 29, 2000(1)
--------------------- --------------------- --------------------
<S> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Revenue............................... $ 4,089 $ 858,977 $1,812,954
Cost of revenue....................... 23,511 125,511 224,891
---------- ---------- ----------
Gross profit (loss)................... (19,422) 733,466 1,588,063
Selling, general and administrative
expenses(3)......................... 914,201 981,581 2,010,584
---------- ---------- ----------
Loss from operations.................. (933,623) (248,115) (422,521)
Interest income....................... -- -- 68,060
---------- ---------- ----------
Loss before income taxes.............. (933,623) (248,115) (354,461)
Provision for income taxes............ -- -- --
---------- ---------- ----------
Net loss.............................. $ (933,623) $ (248,115) $ (354,461)
========== ========== ==========
Loss per share of common stock--basic
and diluted......................... $ (0.59) $ (0.16) $ (0.22)
========== ========== ==========
Weighted average number of common
shares outstanding--basic and
diluted............................. 1,580,877 1,580,877 1,636,944
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL AT
SEPTEMBER 30, HISTORICAL AT
1999(1) FEBRUARY 29, 2000(1)
-------------- --------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................... $(92,167) $3,473,209
Total assets................................................ $355,320 $4,552,730
Long-term debt.............................................. -- $ --
Total debt.................................................. -- $ --
Stockholders' equity........................................ $262,747 $4,084,406
</TABLE>
29
<PAGE>
- ------------------------
Notes:
(1) The historical data reflects selected results of operations balance sheet
data from the period from our inception (January 1, 1999) through
September 30, 1999 and for the five month period ended February 29, 2000.
Because our inception was on January 1, 1999, comparable data for the five
month period ended February 28, 1999 is not available. For all historical
periods presented, cost of revenue and selling, general and administrative
expenses include costs incurred directly by us and certain costs allocated
to us by MCSi. See Note 4 to our financial statements included elsewhere in
this prospectus.
(2) Pro forma statement of operations data reflects the impact of the e-commerce
services agreement and the related distribution, administrative and facility
and equipment lease agreements as if they had been entered into on
January 1, 1999. During the nine months ended September 30, 1999, MCSi had
gross sales to customers with dedicated Web sites of $8,548,879. Pursuant to
the e-commerce services agreement we receive a fee of 10 percent of the
retail value of transactions processed for MCSi. The pro forma statement of
operations data also includes the effects of the administrative services
agreement which requires us to pay MCSi $720,000 per year for these
administrative services and the facility and equipment lease agreement which
requires us to pay $150,000 per year to MCSi for office space and office
equipment.
Pro forma balance sheet data at February 29, 2000 and pro forma statement of
operations data for the five months ended February 29, 2000 are not
presented because the e-commerce, distribution services, administrative
services and leasing agreements were entered into effective October 1, 1999
and are reflected in the historical results of operations and financial
position. The following table provides a summary of the pro forma
adjustments to the results of operations data for the nine month period
ended September 30, 1999 that are described above:
<TABLE>
<CAPTION>
INCOME (LOSS)
SELLING, GENERAL BEFORE
COST OF AND ADMINISTRATIVE INCOME
REVENUES REVENUE EXPENSES TAXES
-------- -------- ------------------ -------------
<S> <C> <C> <C> <C>
Historical amounts...................... $ 4,089 $ 23,511 $ 914,201 $(933,623)
Fees from MCSi (gross revenues of
$8,548,879 at 10 percent)............. 854,888 -- -- 854,888
Additional costs to service the MCSi Web
sites................................. -- 30,000 -- (30,000)
Administrative services and lease fees
to MCSi............................... -- 72,000 580,500 (652,500)
Less amounts historically charged by
MCSi.................................. -- -- (513,120) 513,120
-------- -------- --------- ---------
Pro forma amounts....................... $858,977 $125,511 $ 981,581 $(248,115)
======== ======== ========= =========
</TABLE>
(3) Selling general and administrative expenses for the five month period ended
February 29, 2000 include $289,375 of accretion expense associated with a
put agreement written by MCSi, which will terminate upon consummation of
this offering. See Note 3 to our financial statements included elsewhere in
this prospectus.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH "SELECTED
HISTORICAL AND PRO FORMA FINANCIAL DATA" AND THE FINANCIAL STATEMENTS AND THE
ACCOMPANYING NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING
INFORMATION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE CERTAIN RISKS AND
UNCERTAINTIES. ACTUAL RESULTS AND EVENTS MAY DIFFER SIGNIFICANTLY FROM THOSE
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
OVERVIEW
We were formed as a division of MCSi in January 1999 to sell computer and
audio-visual products, primarily to the small office/home office, or SOHO,
market. We were subsequently incorporated as a wholly owned subsidiary of MCSi
in March 1999. Also in March 1999, we hired three key executives, Mr. Joseph
Savarino, Mr. Lalit Dhadphale and Mr. Christopher Feaver, to revise our business
concept beyond the sale of computer and audio-visual products to the Zengine
business model of providing a full range of e-commerce services to the B2B and
B2C markets. We entered into our first client contract using the Zengine
business model in September 1999, and we legally changed our corporate name to
Zengine, Inc. in the Fall of 1999, after doing business as Zengine since
March 1999.
ZENGINE SERVICES
We provide a comprehensive suite of technology-based solutions that enable
businesses to conduct electronic commerce. Our solutions, delivered on an
outsourced and private label basis, allow our clients to quickly and
cost-effectively create, maintain and enhance enterprise wide e-commerce
platforms. We offer a full range of integrated services for both B2B and B2C
e-commerce platforms, including Web site user interface design, product content
and merchandising, personalization and customer relationship management,
advertising and sponsorship management, order management, inventory management
and order fulfillment, end-user customer service and reporting and analysis. Our
proprietary technology and infrastructure, The KORE Engine, enables these
services; KORE is a highly scalable and reliable platform that uses
personalization as the centerpiece for managing on-line customer relationships.
In performing our services under the Zengine business model, we enter into
contractual arrangements with our clients that describe the services we will
perform. We generate revenues through service fees, which include integration
and set-up, monthly subscription and transaction fees and from advertising and
sponsorships on our client's Web sites.
REVENUE
SERVICE FEES
INTEGRATION AND SET-UP FEES
We provide integration and set-up services to our clients. Under these
arrangements, our services may include the development or design of a client's
Web site, migration of the client's current Web site content to our technology,
integration of the client's Web site to the client's current computer systems or
other similar activities. To the extent that these fees are associated with a
contract to provide subsequent outsourced transaction-based services to a
client, these fees are recognized ratably over the term of the transaction
services agreement. Otherwise, revenue is recognized when the service is
completed, the client has accepted the service and we have no future obligation
to provide any additional services.
31
<PAGE>
MONTHLY SUBSCRIPTION FEES
To date we have not generated any revenues from subscription fees. However,
certain of our clients, whose Web sites have not yet been launched as of
February 29, 2000, have entered into arrangements which provide for monthly
subscription fees, and we anticipate that future customers will enter into
similar arrangements. Our subscription arrangements provide for maintenance and
related services for a fee. Revenue from subscription fees will be recognized
ratably over the term of the subscription.
TRANSACTION FEES
We provide outsourced transaction-based services to customers, such as
providing product content and merchandising, transaction processing, order
management, custom fulfillment and end-user customer service. Revenues from
transaction fees are generally in the form of a commission. Under our first two
arrangements with third party clients, our revenue is determined as a percentage
of the gross margin on revenues. Under all other arrangements entered into
between our clients and us, our revenue is based on a percentage of net
revenues. Revenue from transaction fees is recognized when the service is
completed.
ADVERTISING AND SPONSORSHIP FEES
Revenues from advertising take the form of fees when we sell banner
advertising, product placement or other forms of advertising on clients' Web
sites. These arrangements call for continuous advertising or product placement
over a certain time period and are not contingent upon events such as obtaining
certain levels of sales, Web site visits or other factors. Revenue is recognized
ratably over the period of the advertising/product placement services based on
the fulfillment of obligations under the advertising/product placement
arrangements.
EXPENSES
Our expenses consist of costs associated with our revenues and selling,
general and administrative expenses. Cost of revenues consists of the salaries,
employee benefits and related expenses of our people who work on preparation of
our client's sites. It also includes the depreciation of the computer hardware
and software utilized in providing these services. Furthermore, we have entered
into a distribution services agreement with MCSi where we pay MCSi three percent
of the total revenues we receive from our third party clients on the
transactions in which MCSi performs the inventory management and/or order
fulfillment functions. Our selling, general and administrative expenses includes
the salaries, employee benefits, travel and related expenses of our sales
personnel, advertising expenses and marketing and sales support functions.
We anticipate that our expenses will increase substantially in the future as
we expand our services to new clients.
PRO FORMA RESULTS OF OPERATIONS
Our pro forma results of operations reflect the agreements discussed below
as if we had entered into them on January 1, 1999.
At the time that MCSi began our operations, MCSi had been providing
dedicated Web site order fulfillment services to a variety of its business
customers (the "dedicated Web site operations"). Over the course of the Spring
and Fall of 1999, MCSi began to transfer its dedicated Web site customers to
Zengine for designing, enhancing and providing certain support services to these
sites. Effective October 1, 1999, we entered into an e-commerce services
agreement with MCSi whereby we provide
32
<PAGE>
design, enhancement and certain support services to the dedicated Web site
operations of MCSi and receive a fee of ten percent on the retail value of goods
sold to these dedicated Web site customers.
Also effective October 1, 1999, we entered into a distribution services
agreement with MCSi, under which we will pay MCSi three percent of the retail
value of goods sold to third party clients who utilize the inventory management
and order fulfillment services which MCSi provides to us. Finally, effective
October 1, 1999, we entered into an administrative services agreement, under
which MCSi provides us with accounting, treasury, tax, insurance and other
services for an annual fee of $720,000 per year, and a sublease and equipment
lease agreement under which MCSi leases to us real and personal property used in
our business for an annual fee of $150,000 per year.
RESULTS OF OPERATIONS
During September 1999, we signed our first client contract under the Zengine
business model, and we began earning revenue from this contract in
October 1999. Accordingly, our historic financial results prior to October 1,
1999 are not representative of our current business model. We have not presented
amounts for the five month period ended February 28, 1999 as we were not in
existence for that period and were not operating under our current business
model. Accordingly, prior period amounts from our inception (January 1, 1999) to
February 28, 1999 are not meaningful or comparable.
REVENUE
FIVE MONTHS ENDED FEBRUARY 29, 2000--HISTORICAL
Our revenue for the five months ended February 29, 2000 totaled $1,812,954.
During the five months ended February 29, 2000, we initiated our Zengine service
offerings and began servicing e-commerce clients.
Service fee revenue from the MCSi dedicated Web sites was $978,365 for the
five months ended February 29, 2000. In addition, we had advertising revenue of
$798,737 which was primarily derived from OEM product advertisers with whom MCSi
has supply agreements under arrangements facilitated by MCSi and negotiated by
us.
NINE MONTHS ENDED SEPTEMBER 30, 1999--HISTORICAL
From the date of our inception to September 30, 1999, our revenues totaled
$4,089. These revenues arose from the sale of computer supply and audio-visual
products to consumers under our previous business model.
NINE MONTHS ENDED SEPTEMBER 30, 1999--PRO FORMA
On a pro forma basis, our revenues for the nine months ended September 30,
1999 were $858,977. This represents the revenues recorded on an historical basis
described above of $4,089 and $854,888 of revenues from serving MCSi under the
aforementioned e-commerce services agreement. The retail value of the goods sold
to MCSi's customers totaled $8,548,879 for the nine months ended September 30,
1999.
COST OF REVENUE
FIVE MONTHS ENDED FEBRUARY 29, 2000--HISTORICAL
Our cost of revenue includes the amortization of capitalized computer
software costs, the costs of our employees to perform integration and other
services and the three percent fee we pay to MCSi under the distribution
services agreement. During the five months ended February 29, 2000, our cost of
revenue was $224,891.
33
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1999--HISTORICAL
Our costs of revenues were $23,511 for the period ended September 30, 1999
and reflects costs we incurred for the products we sold arising from the
activities of our previous business model and the amortization of capitalized
computer software costs.
NINE MONTHS ENDED SEPTEMBER 30, 1999--PRO FORMA
On a pro forma basis, our cost of revenue for the nine months ended
September 30, 1999 was $125,511. This reflects our historic cost of revenue of
$23,511 and $102,000 of costs relating to the estimated salaries of Zengine
employees who administer the MCSi dedicated Web sites, as well as the costs
incurred pursuant to the MCSi administrative services agreement assuming it had
been in effect on January 1, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
FIVE MONTHS ENDED FEBRUARY 29, 2000--HISTORICAL
Selling, general and administrative expenses for the five months ended
February 29, 2000 were $2,010,584 and increased substantially over the $914,201
we incurred during the nine months ended September 30, 1999. These expenses
relate to increased payroll costs as we hired additional personnel, amounts
incurred under the administrative services and leasing agreements with MCSi and
to advertising costs incurred under a contractual agreement with one of our
clients. Selling, general and administrative expenses also include $289,375 of
accretion expense associated with a put agreement written by MCSi, which will
terminate upon consummation of this initial public offering.
NINE MONTHS ENDED SEPTEMBER 30, 1999--HISTORICAL
Our selling, general and administrative expenses for the nine months ended
September 30, 1999 were $914,201 and relate primarily to costs incurred to
develop the Zengine business model. The more significant selling, general and
administrative expenses relate to payroll and accounting processing costs,
salaries and rent.
NINE MONTHS ENDED SEPTEMBER 30, 1999--PRO FORMA
On a pro forma basis, selling, general and administrative expenses were
$981,581 for the nine months ended September 30, 1999. On a pro forma basis, our
historical selling, general and administrative expenses of $914,201 have been
adjusted to reflect the impact of entering into the aforementioned
administrative services and lease agreements with MCSi, reduced by the impact of
amounts allocated to us by MCSi in the historical financial statements.
INCOME TAXES
We did not provide for any income taxes because we have prepared our
provision for income taxes as if we were a separate entity. We do not owe any
income taxes because we have incurred operating losses since our inception, and
we did not record any deferred tax benefits relating to these operating losses
or any other deferred tax benefits because we presently believe it is more
likely than not that they will not be realized.
LIQUIDITY AND CAPITAL RESOURCES
FIVE MONTHS ENDED FEBRUARY 29, 2000
During the five months ended February 29, 2000, we used $908,379 in cash
flow from operations, primarily as a result of our losses from operations,
increased receivables and prepayments to a
34
<PAGE>
customer for sole provider status. We used $2,876,954 of cash for investing
activities to fund a demand note to MCSi and to fund expenditures for software
development costs and capital expenditures. Cash provided by financing
activities of $3,871,049 is the net cash we received from the sale of our common
stock during the period.
NINE MONTHS ENDED SEPTEMBER 30, 1999
Primarily by virtue of our losses from operations, we used $730,076 in cash
for operations for the period from inception to September 30, 1999.
Additionally, we used cash of $376,405 for investing purposes, primarily
reflecting software development costs incurred to develop our technology, once
we had established its technological feasibility. We were provided cash flow
from financing activities of $1,106,887 for the period from inception to
September 30, 1999 because MCSi paid for and contributed to our capital the cash
we required to fund our operating and investing activities.
GENERAL
Since our inception, we have looked to MCSi to provide the financial and
capital resources we have required to carry on our business activities. Should
the offering of the common stock to which this prospectus relates not occur, we
would continue to look to MCSi for the financial resources we need to carry on
our operations, and we believe those resources will be adequate to fund our
operations for the next twelve months.
If this offering of common stock occurs, we do not anticipate relying upon
MCSi to provide funding for our operations, and if the proceeds from the
offering are not sufficient to fund our future operating and investing needs, we
may have to look to other sources of financing such as bank loans or the
issuance of debt or equity securities. In any event, we believe that the capital
resources provided by this initial public offering will be sufficient to enable
us to continue our operations in their present form for at least the next twelve
months.
On October 1, 1999, we completed a transaction services agreement with one
of our clients, Excite@Home. In addition to our providing transaction services,
this agreement called for Excite@Home and an unrelated financial investor,
Wilblairco Associates (an affiliate of our managing underwriter, William
Blair & Company) to purchase an aggregate of 266,666 shares of our common stock
for $15.00 per share, or $4,000,000. After deducting expenses related to the
sale of common stock, we realized net proceeds of $3,871,049. The agreement also
commits us to pay $600,000 to be the sole audio-visual provider of Excite@Home
and Dow Jones & Co.'s Work.com Web site and to purchase $3,400,000 of
advertising from Excite@Home through October 2001, which we will expense as the
related advertising services are provided. See "Certain Transactions."
In March 2000, Zengine and PNC Bank agreed to enter into a secured
expandable revolving line of credit to provide Zengine up to $5,000,000 for
working capital and general corporate purposes. The line of credit has a term of
one year and is subject to the successful completion of an initial public
offering with proceeds of at least $35 million.
RECENT ACCOUNTING PRONOUNCEMENTS
We are not aware of any pending accounting pronouncements that we believe
will have a material impact on our financial position or results of operations.
MARKET RELATED RISKS
Currently, all of our operations are domestic, we have no debt and we do not
hold or issue derivative financial instruments. Accordingly, our risk relating
to foreign exchange and changes in interest rates has not been an issue. In the
future, we intend to pursue international clients and will
35
<PAGE>
enter into a revolving line of credit that has a variable rate of interest.
Accordingly, we will need to develop means to monitor and control these market
related risks in the future.
SEASONALITY
We anticipate that we will experience some seasonality based on the year end
holiday selling season.
YEAR 2000 ISSUES
We developed our KORE Engine and our related service offerings with Year
2000 issues in mind and worked to assure that Year 2000 problems would be
avoided by us and our clients. The amounts we have spent to develop KORE since
our inception included costs to ensure Year 2000 compliance. To date, we have
not encountered any Year 2000 issues internally or with our clients' systems.
Additionally, the services we receive through the distribution and
administrative services agreements with MCSi have been free of significant Year
2000 issues.
We continue to monitor our systems for Year 2000 issues and will do so
throughout the year. We do not expect costs to monitor Year 2000 issues to be
significant.
36
<PAGE>
BUSINESS
OVERVIEW
Zengine provides a comprehensive suite of technology-based solutions that
enable businesses to conduct electronic commerce. Our solutions, delivered on an
outsourced and private label basis, allow our clients to quickly and
cost-effectively create, maintain and enhance enterprise wide e-commerce
platforms. We offer a full range of integrated services for both
business-to-business, or B2B, and business-to-consumer, or B2C, e-commerce
including Web site user interface design, product content and merchandising,
personalization and customer relationship management, advertising and
sponsorship management, order management, inventory management and order
fulfillment, end-user customer service and reporting and analysis. We believe
our ability to offer a comprehensive set of services and our focus on
personalizing customer relationships distinguishes us in the marketplace. We
provide our solutions on a turn-key basis or as component features and are able
to significantly reduce our clients' time-to-market and the infrastructure,
human resource, development and maintenance costs typically required for
enterprise wide e-commerce initiatives. We market our services to businesses
seeking to initiate, expand or enhance their ability to conduct e-commerce. Our
solutions allow Zengine clients to build, manage and understand online customer
relationships and to market, sell and support products and services more
effectively. We provide our services on an outsourced basis that is brand
transparent to the end-user, allowing clients to leverage our technology and
infrastructure for their own branded e-commerce platform.
Our proprietary technology and infrastructure, the KORE Engine, is centered
around personalization and is an open and highly-scalable architecture designed
to enable rapid deployment of high-speed, dynamic e-commerce platforms. The real
time personalization technology proprietary to KORE allows businesses to manage
online customer relationships and personalize communication with their customers
and trading partners. The KORE Engine gives us the ability to offer both
front-end Web site content and design along with back-end transaction processing
and order management functionality. We believe that this allows our clients to
achieve rapid deployment of e-commerce platforms, results in greater economies
of scale and provides cost-effective, ongoing access to leading edge e-commerce
technology. The KORE Engine enables the creation of an e-commerce platform that
creates or replicates the look, feel and functionality of the client's Web site.
Using our technology and services, our client's customers experience all
services under our client's brand, including browsing, ordering, paying,
receiving ordered products and obtaining customer support by e-mail or
telephone. When visitors click on to the store function within a client's Web
site or upon entering a client's homepage or secure extranet, they are
seamlessly and transparently transferred to our network where they enter a
personalized shopping environment. By soliciting and tracking user information
and behavior, we use our KORE Engine to anticipate user preferences and
interests and assist visitors in obtaining desired products. Our B2B services
focus on building secure corporate extranets for clients who sell products
directly to their corporate customers and channel partners as well as clients
who are purchasing operating resources from their vendors. To date, we have
provided our clients a fully operational Web site to transact personalized
e-commerce business within an average of 35 days from the commencement of our
services compared to industry ranges of several months to over one year.
We actively market our services through a direct sales force to businesses
seeking to initiate, expand or enhance their ability to conduct e-commerce,
including:
- original equipment manufacturers;
- wholesalers, distributors and other businesses that create customized
vendor and supply chain relationships over the Internet or a secure
extranet;
- bricks and mortar, or BAM, retailers;
- online-only retailers; and
37
<PAGE>
- Web sites that have a large and loyal user base (including portals, pure
content sites, communities, directories and service providers).
Our plan is to continue to pursue these target clients and to penetrate
other markets through indirect distribution channels such as consulting firms,
systems integrators, advertising firms, and other professional services firms.
Our revenue is generated through a combination of one or more of the
following: initial set-up and integration fees, monthly subscription fees,
transaction fees, and advertising and sponsorship on our clients' Web site user
interface designs.
INDUSTRY BACKGROUND
THE INTERNET
Widespread acceptance of the Internet has opened numerous opportunities for
companies seeking growth and increased efficiencies through B2B and B2C
e-commerce. The GartnerGroup estimates that B2B e-commerce will grow from $145
billion in 1999 to $3.9 trillion in 2003, and B2C e-commerce will increase from
$31 billion in 1999 to $381 billion in 2003, representing five-year compound
annual growth rates of 128% and 87%, respectively. In addition, International
Data Corporation, or IDC, estimates the number of Internet purchasers will
increase from approximately 17 million in 1999 to over 80 million in 2003, a
compound annual growth rate of 47%.
An increasing number of businesses engage e-commerce service providers to
design and implement e-commerce solutions. Although no figures are yet available
on the size of the full-service e-commerce outsourcing market, traditional
e-commerce outsourcing, usually defined as Web site design, strategy consulting,
and software creation and hosting, was a $4.6 billion industry in 1998 and is
expected to grow to $39 billion by 2002 according to IDC representing a compound
annual growth rate of 53%. Furthermore, IDC projects that the world wide market
for Internet professional services will grow from $12.9 billion in 1999 to
$78.6 billion in 2003, representing a compound annual growth rate of
approximately 57%.
E-COMMERCE AND CUSTOMER RELATIONSHIP MANAGEMENT
Most companies today recognize that the Internet enables powerful
functionality ranging from display and order processing to complete
supplier-vendor-customer integration and relationship management. As customer
and supplier expectations increase as a result of industry advancement,
companies are forced to take advantage of and develop more sophisticated
Internet applications. With competition only a mouse-click away, organizations
seek to differentiate themselves by providing superior informational and
transactional experiences for their customers through personalized Web sites
that are easy to use and better manage the unique online relationship possible
between the business and its customer.
Personalized e-commerce enables companies to maintain a unique one-to-one
relationship with customers and suppliers while capturing the efficiency,
affordability and speed of an automated system. Businesses need to track,
collect and store Web site visitor information and transfer that information
across the enterprise to effectively manage the customer relationship in
real-time. We believe that the unique one-to-one relationship established
through personalization enhances the experience of a user and likely will result
in increased traffic and online commerce. Companies that quickly establish
quality one-to-one relationships with online visitors through personalization
differentiate their services and potentially gain a competitive advantage.
38
<PAGE>
CHALLENGES PRESENTED BY E-COMMERCE
PROVIDING A COMPREHENSIVE SOLUTION. Creating a comprehensive solution
requires integration among many intricate components. In order to deliver a
dynamic, personalized e-commerce experience, companies must integrate Internet
applications with existing content management, customer database, transaction
fulfillment and customer support systems. Visitor experience depends directly on
a company's ability to execute and support the following difficult and complex
activities:
- attracting, retaining and servicing a broad demographic range of visitors
by providing dynamic content, interactive dialogues and communities of
interest in a friendly, easy-to-use format;
- developing and maintaining visitor information for tracking and recalling
specific interactions in a secure and private environment;
- merchandising services dynamically through personalized content, products
and incentives to drive increased user visits and transactions;
- delivering personalized e-commerce platforms in real time while producing
product recommendations transparent to the visitor;
- integrating back office systems with front-end services to fully utilize
existing business systems, customer data and information resources;
- fulfilling transactions with secure e-commerce processes;
- managing product and service distribution, including inventory management,
product warehousing, order picking and packing, transportation management
and product returns; and
- offering a readily accessible and consistent end-user experience across
multiple customer touch points, such as call and e-mail centers.
TIME-TO-MARKET. In the emerging digital economy, where the first-to-market
often claims significant competitive advantage, speed is essential. Even if
companies have the skilled personnel to implement end-to-end Internet solutions,
the actual development and integration of these solutions with existing
information systems is a very complex and time-consuming process. Solution
design, development and implementation projects frequently range in time from
several months to over a year. Such long implementation lead-time can allow
competitors the opportunity to claim first mover advantage, become the industry
standard and achieve market leadership.
ADVANCED TECHNOLOGICAL SKILL. Providing advanced solutions requires the
development, employment and maintenance of leading edge technology and service.
Commitment to being a technological leader requires significant investment of
resources, both initially and over time, in support functions outside a
company's core competence. The diversion of resources from core competencies can
be distracting to an organization and may hamper core business execution.
TRAINING AND RETAINING HIGH-COST, HIGHLY-SKILLED PERSONNEL. The
availability of high quality professionals experienced in creating, implementing
and integrating advanced Internet solutions is limited, making the market
extremely competitive for these professionals. As a result, recruiting, training
and retaining experienced professionals are increasingly costly. It is often
inefficient and difficult for companies seeking to implement their own advanced
solutions to hire, train and retain in-house personnel.
HIGH COST TO DEPLOY AND UPGRADE. Building, maintaining and upgrading an
Internet commerce platform requires significant initial and ongoing investment.
GartnerGroup reports that the average cost to develop and deploy an Internet
commerce site was $1.0 million in 1999. Often the total costs of ownership
increase significantly due to new technology developments, upgrades and time
involved to
39
<PAGE>
develop upgrades and modifications. In order to justify the investment,
companies need a significant return on investment from B2B and B2C platforms.
Currently, few companies offer the full range of integrated, comprehensive
e-commerce services necessary for clients to fully capitalize on their
e-commerce potential. Most companies offering outsourced solutions focus on one
or just a few specific services, requiring companies to piece together, or find
a third party to integrate, these disparate solutions. We believe that few, if
any, existing solutions providers offer a comprehensive turn-key and outsourced
approach to critical B2B and B2C e-commerce services. Further, speed, accuracy
and customer experience are essential in the emerging digital economy. Long
implementation lead times in the development and integration of e-commerce
solutions offer faster and more efficient competitors market advantages. Most
businesses cannot afford to divert internal personnel from their core
competencies, while it becomes increasingly difficult to obtain and retain
highly skilled in-house personnel to implement these advanced solutions.
THE ZENGINE SOLUTION
Zengine addresses the challenges presented by e-commerce by providing a
comprehensive suite of technology-based solutions that enable our clients to
quickly and cost-effectively create, maintain and enhance enterprise wide
e-commerce platforms on an outsourced and private label basis. Our services for
both B2B and B2C e-commerce include Web site user interface design, product
content and merchandising, personalization and customer relationship management,
advertising and sponsorship management, order management, inventory management
and order fulfillment, end-user customer service and reporting and analysis.
Our solution enables our clients to:
- ACHIEVE RAPID DEPLOYMENT OF E-COMMERCE PLATFORMS. Our services enable our
clients to quickly establish a fully functional e-commerce environment.
Our KORE Engine eliminates the need for months of custom programming and
reduces the time needed to integrate the e-commerce application with the
client's existing computer systems. As a result, our clients are able to
drastically reduce their time-to-market. To date, we have enabled our
clients to conduct e-commerce within an average of 35 days after the
commencement of our services compared to industry ranges of several months
to over one year.
- OPERATE A USER-FRIENDLY E-COMMERCE WEB SITE. Our technology and
infrastructure provide us with the ability to design and operate a
client's e-commerce Web site that is:
- consistent with the look, feel and functionality of our client's
existing Web site and brand strategy;
- engaging, intuitive, attractive and easy to use by the Web site
visitor;
- fast and reliable, to minimize visitor wait time and to maximize
interactivity;
- highly personalized, to improve our client's customer relationships by
dynamically identifying, differentiating and interacting with customers
on a more personal level;
- able to modify and define the client's personalization strategy,
content and services in real time;
- secured by state-of-the-art procedures that enable execution of
transactions involving confidential personal and financial data; and
- completely integrated with business systems and customer service,
including inventory management, technical support, customer interaction
by voice or e-mail and product return processing.
40
<PAGE>
- SAVE ON CAPITAL EXPENDITURES AND FOCUS ON CORE COMPETENCIES. Our clients
are able to obtain the benefits of e-commerce without making significant
time and financial investments in hardware, software and technical and
customer service personnel. We generally provide our solutions from our
own premises without interfering with our client's daily operations. This
permits our clients to focus on their core competencies and to leverage
our knowledge, technology and infrastructure.
- INCREASE E-COMMERCE REVENUES THROUGH PERSONALIZED CUSTOMER RELATIONSHIP
MANAGEMENT. We work to optimize each customer visit to our clients' Web
sites through the use of real time interactive marketing. This consists of
capturing permission based marketing information from implicit and
explicit customer behaviors. Examples of visitor information include
volunteered data, including purchase history, stated preferences,
demographic information and psychographic information and inferred
information, including click-stream behavior for predictive modeling. By
gathering real time information, we are able to provide product
suggestions, advertisements, incentives and promotions that are likely to
be of interest to the visitor. We believe that the personalization of the
shopping experience results in a higher user conversion ratio (i.e., the
number of visitors who purchase), increased purchases per visit, increased
purchase size and greater customer loyalty.
- BENEFIT FROM OUR INTEGRATED, CONTINUAL IMPROVEMENTS. We are engaged in a
constant process of technological enhancement of our services. These
improvements include the upgrade of our KORE Engine, new merchandising
features and advanced browser-based tools. The architecture of KORE is
designed to automatically and without interruption distribute our service
improvements to our clients without the need to hire consultants, bring
the system offline, or install any client-side software. Upon completion,
the feature or tool can be made available to other Zengine clients without
added development time or costs. Development under the KORE framework
contrasts with other e-commerce solutions that provide maintenance and
upgrades to custom features on an individual and typically labor intensive
basis.
Our solutions incorporate the following distinguishing characteristics:
- COMPREHENSIVE--We combine Web site user interface design, product content
and merchandising, personalization and customer relationship management,
advertising and sponsorship management, order management, inventory
management and order fulfillment, end-user customer service and reporting
and analysis in one comprehensive suite of services to better ensure
accuracy and integration of the entire customer experience.
- HIGH SPEED--All Web site pages served by Zengine are fastloading,
regardless of the speed of the user's Internet connection.
- RELIABLE--Our technology is highly reliable, and is designed to provide
Web site availability 24 hours a day, 7 days a week and is designed to
support online database backups and, if necessary, rapid database
restoration.
- SCALABLE--Our services allow our clients to deliver consistent quality of
service as transaction volumes grow and to handle daily and seasonal peak
periods.
- FLEXIBLE--Our KORE Engine employs highly flexible modeling and tools to
facilitate connections between computer applications, including enterprise
resource planning, inventory management, supply chain management and their
underlying databases.
- REAL TIME--Our solutions process visitor interactions in real time,
reducing support costs, bad debt risk and abandoned transactions.
- SECURE--We use state-of-the-art encryption to provide the security and
authentication necessary for secure transmission of confidential personal
and financial information.
41
<PAGE>
- TRANSPARENT--All visitor interaction occurs on our servers, but appears to
the customer to be within our client's Web site. This transparency permits
our clients to operate large-scale B2B and B2C e-commerce platforms,
without the cost of obtaining hardware, software, bandwidth and the
associated personnel costs of maintaining the system.
STRATEGY
Our objective is to capitalize on our proprietary technology and
infrastructure, the KORE Engine, to become the leading provider of comprehensive
personalized e-commerce enabling services. To accomplish this goal, we are
pursuing a strategy built on the following initiatives:
- TARGET COMPANIES SEEKING TO INITIATE, EXPAND OR ENHANCE THEIR ABILITY TO
CONDUCT E-COMMERCE. We target our sales and marketing efforts on companies
that are focused on establishing or improving their ability to conduct
e-commerce yet lack the technical expertise necessary to build and
implement desired Internet functionality. These may include original
equipment manufacturers, wholesalers, distributors and other businesses
that create customized vendor and supply chain relationships, bricks and
mortar retailers, pure online retailers and Web sites with a large and
loyal user base (including portals, pure content sites, communities,
directories and service providers). In order to reach our target
customers, we intend to substantially increase our sales and marketing
efforts. We believe that penetration into our target market along with
increased marketing and trade promotion will establish our brand as the
industry standard for outsourced e-commerce solutions.
- EXTEND THE CAPABILITIES OF OUR KORE ENGINE. We intend to extend the
capabilities of our KORE Engine through continued investment in its
development to provide for additional functionality, extending our use of
artificial intelligence, and for vertical applications complementary to
our current offerings. We believe that our e-commerce services are the
most comprehensive, efficient and personalized real time solutions on the
market today. We maintain an open architecture to allow KORE to integrate
with major operating systems and technologies as they evolve. We intend to
develop additional capabilities through continued internal development
and, potentially, through the licensing or acquisition of complementary
technologies.
- LEVERAGE CLIENT BASE. One of the distinguishing characteristics of the
Zengine business model is the constant level of interaction that Zengine
maintains with its clients. This is in sharp contrast to a software
solution where the vendor has limited, if any, contact with the client
after the installation has been completed. The result is that Zengine has,
and will continue to build, a network of clients that it can leverage. As
an example, Zengine is currently selling advertising and sponsorship
packages on client Web sites, to advertisers seeking to efficiently
deliver targeted advertising across our network of e-commerce Web sites.
Zengine will continue to leverage its network of clients through providing
additional services or providing access to its client network. These
opportunities may include additional products or services for Zengine to
deliver to its network of clients such as product reviews or other
content, or may include other opportunities to generate revenue through
selling access to its network of clients to outside sponsors or providers.
- EXPAND OUR STRATEGIC ALLIANCES. We currently have strategic business
alliances with Excite@Home, United Stationers Supply Co. and MCSi. We plan
to continue to develop technology and marketing relationships through
strategic alliances with software and systems integrators, consulting
firms, advertising firms and other professional services firms. These
alliances are intended to complement our direct sales force by providing
business leads, increasing our geographic coverage and addressing new
industry segments. We also intend to leverage these relationships to
commence international sales in countries with high Internet penetration
and growth rates.
42
<PAGE>
- ASSIST OUR CLIENTS IN INCREASING THEIR REVENUES USING OUR STATE-OF-THE-ART
E-COMMERCE SOLUTIONS. Since our revenues are enhanced by increasing the
sales of our client's products through the e-commerce platforms we
provide, we intend to enhance the tools our clients use to increase their
user to buyer conversion rates, increase the number of products per
purchase and the average value of each purchase. Our primary tool in
achieving this goal is increasing the efficiency of our personalization
technology, such as the development of a more robust, real time predictive
model. We anticipate that this model will produce an even higher level of
personalized content as well as customizable personal shopping pages. In
addition, we plan to consult with our clients to permeate their Web sites
with merchandising features (such as top selling items, user ratings and
user preferences) and to make shopping and purchasing accessible
throughout all points within the Web site.
ZENGINE SERVICES AND TOOLS
ZENGINE SERVICES
We provide our e-commerce services to clients operating in both B2B and B2C
environments. Our consumer service enables original equipment manufacturers,
bricks and mortar retailers, online-only retailers and Web sites with a large
and loyal user base, to extend their current business over the Internet. Our
business service enables original equipment manufacturers, wholesalers and
distributors to conduct personalized supply-chain management and customer
transactions over the Internet or secure extranets enabled by Zengine.
Our personalized services focus on customer relationship management and can
be generally separated into six categories.
- WEB SITE USER INTERFACE DESIGN AND PRODUCT CONTENT. We provide complete
Web site and product content creation in conjunction with our clients'
brand strategy. We focus our efforts on designing simple and intuitive
user-interfaces that leverage rich product content generated by Zengine's
content group and by our clients. Examples of content features enabled by
KORE include product comparisons, product compatibility, related products
and accessories and end-user and third party reviews. Comprehensive
content and enabling features encourage visitors to make and increase
their online purchases.
- MERCHANDISING. We provide comprehensive merchandising features designed to
increase the conversion from browser to buyer, retain loyal customers and
personalize experiences for one-to-one communication between our clients
and their customers. Examples of merchandising features enabled by KORE
include personalization, targeting and profiling, top-seller and user
rating systems, gift certificates and coupons, outbound communication and
reporting and analysis.
Whether within or outside of our client Web sites, we extend our clients'
brands to outbound e-mail newsletters and advertising (including banners,
buttons, rich media and affiliate marketing). Scheduled for launch this
year, we are designing new functionality into KORE that automates our
targeted e-mail capabilities. Currently, our marketing personnel
personalize and send targeted e-mails based on customer characteristics
and preferences.
- ADVERTISING AND SPONSORSHIP MANAGEMENT. As an outsourced solution, part of
our service entails the serving of client Web sites. These Web sites may
include advertisements and sponsorships which drive the visitor deeper
into the client's Web sites. As a result, we sell advertising and
sponsorship packages for individual client sites, or across the Zengine
network of client e-commerce Web sites as a package. Advertising and
sponsorship packages are sold to brand and direct-marketing advertisers
seeking to influence targeted visitors within our client e-commerce Web
sites.
43
<PAGE>
- ORDER MANAGEMENT. We provide complete order management capabilities for
clients in a secure environment. Examples of our order management services
enabled by KORE include universal shopping carts and digital wallets,
e-mail notifications for account activation, credit card authorizations
and settlements, order tracking with major carriers, tax compliance, and
fraud protection. We have entered into agreements with VeriSign, Inc. and
CyberSource Corporation for credit card processing and advanced fraud
screening and protection.
Our order management services include handling all logistics after credit
cards have been processed. All orders are processed by secure transactions
via the Internet, by phone, by fax, by mail and/or purchase order (where
terms are extended to business customers with proper credit history). Our
systems provide the ability for both clients and their customers to track
the status of orders at any time in real time. This service is transparent
to our clients' customers and is seamlessly integrated with our clients'
internal and legacy computer systems.
For clients that wish to leverage existing enterprise resource planning
(ERP) systems in their e-commerce platform, Zengine provides an open
adapter (application programming interface) to KORE that enable seamless
connections between a client's legacy computer systems and KORE. This
direct connection eliminates redundant or unnecessary human intervention
for order management and supports a scalable operation designed for
long-term growth.
- INVENTORY MANAGEMENT AND ORDER FULFILLMENT. On behalf of our clients, we
have MCSi pick, pack and ship the client's customer orders and provide
customized private label packaging, inserts and promotional literature for
distribution with customer orders. Based upon client needs, we are able to
take advantage of a variety of shipping and delivery options, including
next day service. These services are delivered through our distribution
services agreement with MCSi. MCSi, as our agent, receives third party or
client inventory at its distribution centers, verifies shipment accuracy,
unpacks, inspects for damage and generally stocks for sale the same day.
We also utilize the fulfillment services of certain third party
wholesalers such as Baker & Taylor, Ingram Micro, Ingram Entertainment,
United Stationers and Valley Media. For clients that wish to leverage
their existing distribution capabilities, we provide fulfillment messaging
directly to the client's back office systems for delivery to their
customers. An integral part of our transaction management services also
includes the warehousing and distribution of inventory owned by third
party vendors or our clients.
- END-USER CUSTOMER SERVICE. We provide complete call and e-mail center
services to our clients internally and under our distribution services
agreement with MCSi. We believe that an important feature of e-commerce is
the ability for the end-user to talk with a live customer service
representative. Our customer support services utilize features that
integrate voice, e-mail, data and Internet chat communications to respond
to and handle customer inquiries. Our customer service representatives
answer questions in our client's name regarding orders, shipping, billing,
returns and product information as well as a variety of other questions.
Our customer support center automatically identifies each customer request
and routes it to the available customer support representative. Our
customer support centers are designed so that our customer service
representatives can handle various clients and products, thereby creating
economies of scale benefits for our clients.
ZENGINE TOOLS
Our e-commerce services are customized and maintained using Internet-based
tools accessible by our personnel and by our clients. These tools, which are
accessible through standard Web browser interfaces, provide a set of building
blocks comprised of customizable components, application
44
<PAGE>
templates and rule sets. Our software tools are instrumental in building,
rapidly accessing and easily maintaining the Zengine turn-key e-commerce
services. A description of our tools follows:
- ZENGINE REPORTING AND ANALYSIS. Our reporting and analysis tools allow
both Zengine and our clients to easily analyze customer and operational
data. To support this capability, we have designed our reporting and
analysis tools to extract and manage data from individual client
e-commerce sites. Once our tools have analyzed the data, they present the
resulting information in easy-to-use formats, such as graphs and tables.
Examples of real time reports include end-user behavior, sales trends
analysis, per page statistics, references from prior pages, search results
analysis, advertising and sponsorship reporting, click trail analysis, and
repeat user behavior analysis.
- ZENGINE CONTENT MANAGEMENT. This tool allows a distributed and remote team
of non-technical content editors and merchandising experts to
collaboratively manage most aspects of site content, including creating,
editing, staging, production and archiving. This tool provides personal
and shared in-boxes that enable teams of content creators to collaborate
in developing content and provides for content previews prior to
publishing, to control access to publishing and to capture content
classification information. It supports flat content insertion and adds a
user-friendly presentation layer to the content by automatically
generating HTML within the publisher.
- ZENGINE DESIGN CENTER. We shorten the development cycle by creating
simple, intuitive user interfaces for client e-commerce Web sites in
conjunction with their overall brand strategies. By outsourcing the task
of user interface design to us, our clients are able to focus on other
strategic issues involved in launching or retro-fitting their e-commerce
operations. We can provide these services either on a full outsourced
basis or in collaboration with in-house personnel or other external
service providers, such as graphic designers or advertising firms. Our
clients have ultimate authority for user interface and look and feel
decisions.
- ZENGINE UTILITY CENTER. This tool allows non-technical business managers
and Zengine professionals to make rapid changes to the Web site without
engineering intervention. With this tool, we can define rules
incorporating "if-then" relationships to match content to visitors based
on profile information, transaction history, session behavior and other
data. We can also develop business rules that evaluate user information
gathered during previous interactions and use it to target products and
services during subsequent interactions. We can also make real time
changes to content and generate management reports that monitor the
activity on their Web site, enabling the evaluation and optimization of
content and services being offered.
CLIENTS
At March 31, 2000, we had eight e-commerce clients. Our current e-commerce
clients include equipment manufacturers, wholesalers, distributors and other
businesses that create customized vendor and supply chain relationships, bricks
and mortar retailers, pure online retailers and Web sites that have a large and
loyal user base (including portals, pure content sites, communities, directories
and service providers). In addition, we have placed advertisements for 11
companies including Epson, Hewlett-Packard, Hitachi, Lexmark, Sharp and Sony.
MCSi and Sharp accounted for more than 10% of our total revenue for the five
month period ended February 29, 2000.
45
<PAGE>
CASE STUDIES
The following case studies are representative of the services we provide our
clients.
EXCITE@HOME, INC.
CLIENT: Excite@Home is a global media company offering media services
through the Excite Web site and narrow and broadband subscription services
through @Home for consumers and Work.com, a joint venture between Excite@Home
and Dow Jones & Co., a business services and information portal focused on the
business professional.
STRATEGIC IMPERATIVE: Excite@Home was preparing to launch the Work.com Web
site and recognized the opportunity to leverage the capabilities of its
broadband network combined with the retail sales of advanced audio-visual and
video conferencing products to its captive visitors on Work.com. The development
of the proposed e-commerce site had an aggressive time schedule that could not
be realized even by the technology-based company's internal resources. Prior to
the launch of the Work.com Web site, Excite@Home invested $2.0 million in
Zengine in exchange for an equity interest. For more information, please see
"Certain Transactions."
ZENGINE SOLUTION: We launched the Work.com Audio-Visual e-commerce store,
the Work.com AV Store, on December 5, 1999, four weeks after initiating
development. Running on our servers, but appearing to be a part of the Work.com
Web site, the Work.com AV Store offers Work.com's business visitors audio,
video, networking, video conferencing, presentation, high speed broadband and
broadcast service products and is found at http://AVStore.Work.com.
Our agreement with Excite@Home is representative of our strategy to develop
strategic alliances with major industry vendors.
REXSTORES.COM, INC.
CLIENT: rexstores.com is a B2C retailer focusing on the sale of consumer
electronics over the Internet. rexstores.com is a wholly-owned subsidiary of REX
Stores Corporation, a New York Stock Exchange listed company and a leading
retailer of consumer electronics and appliances in small to medium market areas
through 238 stores in 35 states. rexstores.com sells its products over its Web
site and on major auction sites.
STRATEGIC IMPERATIVE: rexstores.com was searching for a cost-effective way
to make its successful retail Web site even more interactive and to personalize
the visitor experience in order to increase repeat visits and to increase its
conversion (shop/buy) ratios.
ZENGINE SOLUTION: We worked closely with rexstores.com's technical team in
redesigning the Web site's user interface and connecting their enterprise
resource systems (primarily inventory and distribution) to the KORE Engine. The
rexstores.com Web site was re-launched within five weeks of the signing of our
agreement and can be found at http://rexstores.com.
Our collaboration with rexstores.com illustrates how Zengine's experienced
production and engineering team can work closely with an established group of
e-commerce professionals to create significant results-oriented enhancements.
Zengine is able to add value to existing online retailers by providing them with
collaborative planning and tools to increase the effectiveness of their
e-commerce initiatives.
EVERDREAM CORPORATION
CLIENT: Everdream offers small businesses a comprehensive information
technology package which includes desktop computer hardware, business
application software, unlimited Internet access and live
46
<PAGE>
24/7 technical support for a small monthly fee per user. Everdream, a privately
held, venture capital-backed company, has partnered with many of the country's
leading technology companies to pioneer the concept of affordable
subscription-based computing.
STRATEGIC IMPERATIVE: Everdream needed to ally with a full service
e-commerce partner to provide its customers with an easy to use, highly
personalized shopping experience across a broad range of business products.
ZENGINE SOLUTION: Our service offering and its alliance with MCSi provided
Everdream with the ideal solution. Everdream selected Zengine to manage the
complete online shopping area of the Everdream Web site, from business systems
integration to personalization, product fulfillment, next day delivery and
customer service, all within the Everdream brand name and strategy.
Our services allow Everdream to fill a niche in the resources it provides to
its subscription clients. By utilizing Zengine as an outsourced e-commerce
solution, Everdream is able to realize additional revenue without capital
investment for systems, warehousing, inventory and personnel.
MIAMI COMPUTER SUPPLY CORPORATION
CLIENT: MCSi, our parent corporation, is a leading reseller of computer
products and accessories and a solutions based reseller and integrator of
audio-visual products, with 1999 annual revenues of over $680 million.
STRATEGIC IMPERATIVE: In a competitive industry, MCSi needs to maintain its
strong position, in part, by developing additional sales channels. MCSi
recognized that it could significantly enhance its distribution by developing an
Internet-based method of selling its products to its business clients and to
retail consumers. MCSi initially implemented an e-commerce site relying on
internal development but quickly realized that we could significantly strengthen
its e-commerce efforts through the application of our dedicated technical
expertise.
ZENGINE SOLUTION: We have consulted with and designed MCSi's dedicated Web
sites to permit MCSi to sell its products over its secure extranet to over 400
of MCSi's customers at March 31, 2000. These customers log on to MCSi's Web
site, which, based on the work we have performed, appears as a self-branded,
personalized e-commerce extranet mirroring the design of the customers' Web
site. This B2B service provides authorized client users with the right to
purchase specified products from MCSi at preset pricing levels. Under the
administrative services agreement, MCSi employees have the flexibility and
control to update and maintain this Web site under the guidance of Zengine
employees.
MCSi is now able to offer its customers a way to monitor product purchases
while at the same time making it convenient and seamless for the customers'
employees to obtain the products needed. By serving its clients' extranet pages,
MCSi is able to acquire every purchase transaction made by the customer's
employees.
SALES AND MARKETING
We market our services through a direct sales force to businesses seeking to
initiate, expand or enhance their ability to conduct e-commerce, including
original equipment manufacturers, wholesalers, distributors and other businesses
that create customized vendor and supply chain relationships over the Internet
or a secure extranet, bricks and mortar retailers, online-only retailers and
major Internet Web sites with a large and loyal user base (including portals,
pure content sites, communities, directories and service providers). Our plan is
to continue to pursue these target clients and to penetrate other markets
through indirect distribution channels such as consulting firms, systems and
integrators, advertising firms and other professional services firms.
47
<PAGE>
Because we do not promote our own brand to the retail public, we do not
compete with, and are able to serve as a neutral provider of e-commerce services
to, potential and existing clients. This strategy reflects our commitment to
each of our clients brand preservation and exposure. Our marketing efforts are
two-fold:
- we promote the value of our outsourced e-commerce services by showcasing
our clients' success and leadership; and
- we work cooperatively with clients to promote traffic, revenue and
long-term loyalty against their e-commerce platforms.
Our sales activities generally involve meetings with senior management of
the prospective client in order to educate them about how our services will
fulfill their needs. These meetings also involve a hands-on demonstration of our
service capabilities. Because Zengine's brand is "behind the scenes" and because
a client usually must make an enterprise-wide, strategic decision as to which
company it will choose to operate its e-commerce store or to operate its B2B
e-commerce systems, our sales process typically requires us to compete with a
company's in-house solution and with other e-commerce service vendors. As a
result, the sales cycle is typically long and unpredictable.
We use a variety of marketing activities to increase market awareness for
our services and educate our target audience. In addition to building brand
awareness with our potential clients, our marketing activities focus on
preparing market research, service offering planning, managing press coverage,
identifying potential clients and generating leads to assist in our direct sales
efforts. To build awareness and attract new clients we seek leads from our
current clients, attend and exhibit at trade shows, build relationships with
industry experts to facilitate networking opportunities, and run cooperative
print advertisements in various newspapers, trade journals and publications.
Upon completion of the offering, we intend to greatly expand our marketing
efforts by hiring additional personnel who will be dedicated to business and
market development and public relations, along with increasing our expenditures
for direct marketing, promotion and co-marketing arrangements with strategic
partners.
A critical element of our sales strategy is to enter into strategic business
alliances with software and systems integrators, consulting firms, advertising
firms and other professional service firms to assist us in marketing and selling
our services to potential clients. This approach is intended to increase the
number of personnel available to enhance market credibility, potential for lead
generation, and access to large accounts. We currently have strategic business
alliances with Excite@Home, United Stationers and MCSi. We are currently seeking
to develop additional strategic alliances.
TECHNOLOGY AND INFRASTRUCTURE
We believe that our proprietary technology and infrastructure, the KORE
Engine, enables us to build, deliver and manage e-commerce solutions in less
time, at lower cost and with greater business success than existing
alternatives. KORE is a robust architecture that allows existing and custom
functionality to be combined in any number of brand iterations seamlessly and
with superior efficiencies.
THE KORE ENGINE. Zengine's proprietary technology and infrastructure, the
KORE Engine, enables us to build, deliver and manage e-commerce solutions in
less time and more cost effectively than existing alternatives. The functional
components of KORE are stored on a centralized server array which services all
Zengine clients. This architecture minimizes development costs and reduces
time-to-market because we are able to leverage existing functionality previously
developed within KORE rather than re-engineering the functionality for each
application. Upon completion, the component or feature can be made available to
other Zengine clients without added development time or cost. Development within
the KORE framework significantly differs from other e-commerce solutions that
provide maintenance and upgrades to custom features on an individual and
possibly labor intensive basis.
48
<PAGE>
KORE PERSONALIZATION. KORE Personalization is the foundation for our
real-time, personalized marketing and customer relationship management
capabilities. To increase conversion and optimization rates of browsers to
buyers, to extend relationship connections between our clients and their
customers, and to build long-term brand loyalty, we enable client Web sites to
adapt product presentation and merchandising features in real-time based on
implicit and explicit visitor information. KORE Personalization applies
predictive algorithms to infer a customer's interests and adapts content
presentation, such as product features, advertisements and pricing, accordingly.
As a customer's experience and interaction with a client's site develops,
personalized content becomes more relevant, ultimately bridging a more personal
relationship between our client and its customer.
We employ real-time predictive models that compare selected attributes of a
customer's purchase history, behavior, demographics and preferences to the
attributes of large customer populations in detail. Groups of customers
exhibiting attributes similar to the specific customer analyzed are compared to
determine the likely preferences of the customer. In calendar year 2000, we plan
to introduce customizable personal pages, allowing a client's online customers
to personalize the page layout of the client's site. This feature will also
enable client customers to co-brand the customized layout and operate as an
affiliate e-commerce site where other customers can then shop.
NETWORK ARCHITECTURE. KORE resides on a secure, private fault-tolerant
network architecture that provides highly reliable service. This is accomplished
by distributing Internet traffic across an array of servers that are scalable
and redundant. Because of this distributed model, rapid increases in server load
can be quickly scaled by allocating more servers to immediately accommodate
client Web site demand. In addition, our redundant network architecture allows
for unpredictable hardware failure with little effect to service because the
failure merely results in the balanced distribution of server load across the
server array.
The diagram below depicts a simplified view of our physical network that is
co-located at Above/ Net Communications, a subsidiary of Metromedia Fiber
Network. Above/Net is a Tier 1 Internet Service Provider with multiple OC-48
capacity, offering clear channel circuits across North America.
[Network Architecture Graphic
A series of horizontal boxes connected by double-headed arrows, labeled,
starting from the top as follows; "ATM Fiber Switch" with an arrow to the right
labeled "OC-48" to a cloud shape labeled "Internet Backbone." The ATM Fiber
Switch box is separated by an arrow pointing down and labeled "100Mb" to a box
labeled "Zengine Router" separated by three arrows pointing to three parallel
boxes "Secure Webserver Cluster" separated by three arrows pointing to a box
labeled "Zengine Router" separated by three arrows pointing to three parallel
boxes labeled "KORE Cluster" separated by three arrows pointing to two short
cylinders labeled "Data Center."
Next to the graphic is a box containing the words "Our clients' B2B and B2C
e-commerce platforms are served by Zengine from our secure, redundant and
fault-tolerant network."
The Zengine logo is in the lower right hand corner of the page.]
Zengine utilizes distributed and redundant Sun Microsystems Enterprises
Server technology operating in conjunction with Zeus 128-bit secure Web servers
supported by optimized relational and multi-dimensional databases from MySQL.
Since we handle sensitive information (i.e. credit card numbers and
personalization data), we adhere to 1024-bit secure socket layer (SSL)
encryption to provide the highest level of security available on the market
today.
49
<PAGE>
OPEN SOURCE MOVEMENT. In order to maximize both personalization and speed
of service, we choose to adhere to open source standards and scalable
programming languages. Development within KORE is done in Perl5, a widely
accepted standard programming language for developing object-oriented software
that is the informed choice for building large-scale e-commerce platforms that
require ongoing and rapid development and high-speed dynamically-generated Web
site operations. MySQL, an open source database, is optimized for speed and
scalability and serves as the foundation for KORE daemon instances. KORE creates
multiple database connections for multiple actions both efficiently and quickly,
resulting in high-speed dynamic Web site delivery.
Open adapters (application programming interfaces, or APIs) allow KORE to
seamlessly integrate with our clients back-office systems. These systems may
include ERPs (Enterprise Resource Planning) systems, POS (Point-of-Sale) systems
or other legacy inventory management systems. KORE passes a unique adapter,
called the KORE Object Gateway (KOG), to our clients' systems in various
transfer protocols, such as XML (eXtensible Markup Language), an emerging
standard for data transfer on the Internet, FTP (File Transfer Protocol), ODBC
(Open Database Connectivity), EDI (Electronic Data Interchange) and secure
e-mail.
[KOG Graphic
The upper left hand corner of the page contains the following text "KOG
(KORE Object Gateway)/Abstraction Layer for Client System Integration with The
KORE Engine."
The graphic consists of a series of boxes with arrows pointing to the box on
the right, labeled from left to right, as follows:
Box 1: "KORE"; Box 2: "New order," "Send data," "Receive data,"
"Inventory updates," "User data," "Content," "Client System API (ERP, POS,
etc.)" pointing to a gear symbol labeled "KOG" pointing to Box 3 labeled on
top "Object Protocol" with interior vertical boxes labeled, from top to
bottom, "XML," "ODBC," "EDI," "Flat Text FTP," "Secure E-Mail," pointing to
vertical boxes labeled on top "Application Example" with boxes below labeled
"Everdream" (connected to the XML box), "JD Edwards" (connected to the ODBC
box), "Valley Media" (connected to the EDI box), "MCSi:/Muze" (connected to
the Flat Text FTP box) and "rexstores.com" (connected to the Secure E-mail
box).
The Zengine logo is in the lower right hand corner of the page.]
The design of our KORE Engine, KOG and network architecture enables us to
provide rapid, cost-effective and reliable e-commerce solutions by exploiting
the scalability of open source technologies and multi-processor, shared memory
computers.
PRODUCT DEVELOPMENT
We believe our future success will depend in large part on our ability to
enhance the KORE Engine, develop new products, maintain technological
leadership, and satisfy an evolving range of customer requirements. Our product
development group is responsible for implementing and integrating KORE into our
client's Web sites and business practices, developing content and the user
interface of our client's Web sites, product testing and quality assurance, and
writing product user documentation. In addition, this group supports post-sale
and client account management activities.
We are currently developing the following products and features, all of
which are scheduled to be available in calendar year 2000.
50
<PAGE>
- KORE PERSONALIZATION FEATURES--Key features of the next update to the KORE
Engine will utilize more robust real-time predictive models that we
anticipate will yield a higher degree of relevant content. Later in
calendar year 2000, we plan to implement artificially intelligent systems
that will allow for greater one-to-one personalization across all
e-commerce environments and customer touch-points.
- ENHANCED MERCHANDISING FEATURES--We constantly strive to create more
compelling features that in turn add "stickiness" to client e-commerce
sites. For example, "Scheduled Purchases" will enable customers to set
advance schedules for purchases of products based on consumption or
scheduling. This feature will also serve as a data collection point with
calendar and reminder features.
- ADVANCED TOOLS--Our services are customized and maintained using
browser-based tools easily accessed by our clients via standard Internet
browsers. We will be launching enhancements to our Reporting and Analysis,
Content Management and Design Center Tools to further enable our product
development personnel and our clients to enhance the customization of user
interfaces, and analyzation of traffic, buying habits and trends.
COMPETITION
The market for our services is intensely competitive and subject to rapid
technological change. We expect competition to intensify in the future. Our
primary source of competition comes from companies who develop their own custom
e-commerce systems or purchase software packages and hire consultants to
implement these solutions. Because these companies have likely made significant
initial investments to develop their custom systems, they may be less likely to
employ outsourced transaction processing strategies. We also face competition
from companies such as Art Technology Group, Breakaway Solutions, Broadvision,
E.piphany, Net Perceptions and USinternetworking. In addition, other companies
may enter the market to provide similar services.
Many of our competitors have longer operating histories, substantially
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly than
we can to new or emerging technologies and changes in customer requirements.
Competition could seriously impede our ability to sell additional services on
terms favorable to us. Our current and potential competitors may develop and
market new technologies that render our existing or future services obsolete,
unmarketable or less competitive. Our current and potential competitors may make
strategic acquisitions or establish cooperative relationships among themselves
or with other e-commerce solution providers or fulfillment companies, thereby
increasing the ability of their services to address the needs of our prospective
customers. Competitive pressures could reduce our market share or require the
reduction of the prices of our services, either of which could materially and
adversely affect our business, results of operations or financial condition.
We compete on the basis of certain factors, including:
- technology;
- time-to-market;
- breadth of service features and functionality;
- ease of implementation;
- speed, accessibility and ease of use;
- brand recognition;
- price;
51
<PAGE>
- system reliability and capacity; and
- customer support.
We believe that we presently compete favorably with respect to each of these
factors. However, the market for our services is still rapidly evolving, and we
may not be able to compete successfully against current and potential
competitors.
INTELLECTUAL PROPERTY
Our ability to compete depends to a large degree upon our proprietary
technology. Our success depends on protecting our intellectual property, which,
next to our employees, is our most important asset. If we do not adequately
protect our intellectual property, our business, financial condition and results
of operations could be seriously harmed. We rely on a combination of trademark
and trade secret rights, confidentiality procedures, licensing arrangements and
contractual restrictions to establish and protect our proprietary rights. These
legal provisions afford only limited protection for our technology. Our source
code for our proprietary software is protected as a trade secret. We have not
applied for a patent for our KORE Engine and have not decided whether to do so
in the future, since the source code would be publicly revealed upon receipt of
any patent. Even if we filed a patent application, we could not assure you that
a patent would be issued.
We have applied for trademarks on our marks, such as the Zengine name, the
Zengine "gear" logo, "KORE," "KOG" and our tag line "Fueling Your Brand's
Commerce Engine." However, we cannot assure you that effective trademark
protection will be available for our marks. We have identified another company
that is using the KORE name. We have demanded that this company stop using our
proprietary name and intend to vigorously enforce our intellectual property
rights against this infringement. We cannot assure that we will be successful in
these efforts. It is possible that others will adopt product names or logos
similar to KORE or the Zengine gear logo. This would impede our ability to build
our brand identity, lead to customer confusion, increase our legal expenses and
distract management from the operation of our business.
Finally, we seek to avoid disclosure of our intellectual property by
requiring employees and consultants with access to our proprietary information
to execute confidentiality agreements with us and by restricting access to our
source code. Due to rapid technological change, we believe that factors such as
the technological and creative skills of our personnel, new product developments
and enhancements to existing products are more important than the various legal
protections of our technology to establishing and maintaining a technology
leadership position.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our services or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our software is
difficult and while we are unable to determine the extent to which piracy of our
software exists, if at all, software piracy can be expected to be a persistent
problem. Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets, to determine the ability and
scope of the proprietary rights of others or to defend against claims of
infringement or invalidity. However, the laws of many countries do not protect
our proprietary rights to as great an extent as do the laws of the United
States. Any such resulting litigation could result in substantial costs and
diversion of resources and could seriously harm our business, operating results
and financial condition. We cannot assure you that our means of protecting our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology. Any failure by us to meaningfully
protect our property could have a material adverse effect on our business.
To date, we have not been notified that our products infringe the
proprietary rights of third parties, but we cannot assure you that third parties
will not claim infringement with respect to our
52
<PAGE>
current or future services or technology. Because the e-commerce industry is
relatively new, patents relating to the industry are only now starting to be
issued by the U.S. Patent and Trademark Office. These patents are protecting
certain business processes which many in the industry currently believe are not
proprietary. We expect that developers of Web-based commerce products and
services will increasingly be subject to infringement claims as the number of
products, services and competitors in our industry segment grows and as the
functionality of products in different segments of the industry increasingly
overlaps. Any such claims, with or without merit, could be time-consuming to
defend, result in costly litigation, divert management's attention and
resources, cause delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
acceptable to us or at all. A successful claim of infringement against us and
our failure or inability to license the infringed technology or develop or
license technology with comparable functionality could harm our business. See
"Risk Factors--Risks Related to Our Business--We may not be able to adequately
protect our proprietary technology, and may be infringing upon third party
intellectual property rights."
We integrate third party software into software we use to perform our
services. This third-party software may not continue to be available on
commercially reasonable terms. We license Internet fraud screen from CyberSource
Corporation and payment processing capabilities from Verisign, Inc. If we cannot
maintain licenses to this third-party software, implementation of our services
could be delayed until equivalent software could be developed or licensed and
integrated into our products, which could materially adversely affect our
business.
FACILITIES
Our primary offices are located in approximately 17,900 square feet of space
in Fremont, California under a sublease with MCSi expiring on May 1, 2001. For
more information regarding this sublease, refer to the section titled "Certain
Transactions."
EMPLOYEES
As of March 31, 2000, we had a total of 65 full time and 10 part time
employees, including 10 in management, 25 in technology and systems, 30 in
content, directory and accounting management and 10 persons in sales and
marketing. Our future success will depend, in part, on our ability to attract,
retain and motivate highly qualified technical sales and management personnel,
for whom competition is intense. None of our employees is represented by a labor
union, and we have never experienced a work stoppage. We consider employee
relations to be good.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
REGULATION
Our business may be affected by current and future governmental regulation.
For example, the Internet Tax Freedom Act bars state and local governments from
imposing taxes on Internet access or that would subject buyers and sellers of
e-commerce to taxation in multiple states. This act is in effect through
October 2000. When the act expires or if the act is repealed, Internet access
and sales across the Internet may be subject to additional taxation by state and
local governments, thereby discouraging purchases over the Internet and
adversely affecting the market for our services.
53
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth information regarding our directors and
executive officers as of March 31, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- -------------------------------------------------------
<S> <C> <C>
Michael E. Peppel.................... 33 Chairman of the Board
Joseph M. Savarino................... 30 President, Chief Executive Officer and Director
Louis T. Lipinski.................... 32 Vice President, Chief Financial Officer, Treasurer and
Secretary
Lalit P. Dhadphale................... 28 Vice President of Product Development and Chief
Operating Officer
Christopher R. Feaver................ 23 Vice President and Chief Technology Officer
Christopher R. Lunt.................. 28 Vice President of Engineering
Anthony W. Liberati.................. 68 Director
Donald B. Hutchison.................. 46 Director
Richard V. Hopple.................... 53 Director
Stacey Snider........................ 39 Director
</TABLE>
MICHAEL E. PEPPEL has served as our Chairman of the Board since March 1999
and is also the Chairman of the Board, President and Chief Executive Officer of
MCSi, a publicly traded company. Prior to joining MCSi in May 1996, he was a
Director and Chief Financial Officer of Diversified Data Products, Inc., Ann
Arbor, Michigan. Prior thereto, he was a money desk manager of the DeBartolo
Corporation, Youngstown, Ohio. Mr. Peppel received his BA degree from the
University of Notre Dame.
JOSEPH M. SAVARINO has served as our President since March 1999 and as our
Chief Executive Officer since January 2000. Mr. Savarino became a director of
Zengine in March 1999. Prior to Zengine, he was the Director, Western U.S.
Sales, from November 1998 to February 1999, at Unicast Communications, an online
advertising technology firm, and the Western Region Sales Manager from
October 1997 to November 1998, for INTERVU, Inc., a publicly traded streaming
audio and video solutions provider. From December 1995 to October 1997,
Mr. Savarino served as Business Development Manager of Sumikin Bussan (Sumitomo
Metals Group). Prior thereto, he was a Senior Analyst for The Martec Group, an
international technical market research firm. Mr. Savarino received his BA
degree from the University of Michigan, Ann Arbor.
LOUIS T. LIPINSKI has served as our Vice President, Chief Financial Officer,
Treasurer and Secretary since January 2000. Prior to joining Zengine, he was the
Mergers and Acquisitions Analyst at MCSi from February 1998 until
December 1999. Mr. Lipinski attended the Graduate School of Business at the
University of Chicago from September 1995 until his graduation in May 1997.
Prior thereto, he was a financial consultant with Comerica Bank from June 1994
to August 1995 and with Merrill Lynch & Co. from March 1993 to June 1994. From
October 1990 to February 1993, Mr. Lipinski was an independent futures trader on
the Chicago Mercantile Exchange. Mr. Lipinski received his MBA from the
University of Chicago and his BA degree from the University of Notre Dame.
Mr. Lipinski is also a certified public accountant.
LALIT P. DHADPHALE has served as our Vice President of Product Development
since March 1999 and as Chief Operating Officer since January 2000. He served as
a director of Zengine from May 1999 to January 2000. Mr. Dhadphale was a
producer of Excite Japan from July 1997 until March 1999, where he was involved
with product development, internationalization and localization of Web sites and
Internet products. He also produced the launch of Netscape Netcenter Japan. From
January 1997 to July 1997, Mr. Dhadphale was a member of CNET's international
business development team that
54
<PAGE>
secured relationships throughout Asia and the Pacific Rim. Prior thereto, he was
the New Media Development Manager for P.O.V. Associates from July 1995 to
November 1996 and an Account Executive for the American Chamber of Commerce in
Tokyo, Japan from January 1995 to June 1995. Mr. Dhadphale received his BA
degree from the University of Michigan, Ann Arbor.
CHRISTOPHER R. FEAVER has served as our Chief Technology Officer since
March 1999 and as Vice President since January 2000. Mr. Feaver served as a
director of Zengine from May 1999 to January 2000. Prior to Zengine, Mr. Feaver
was a lead software engineer for Excite@Home, Inc., where he was employed from
July 1997 to February 1999. During his Excite tenure, Mr. Feaver fulfilled
various roles, including systems engineering lead, network operations,
production engineering and software engineering. In 1998, he co-founded and was
an officer and principal stockholder of Silicon Valley Web Hosting Inc., a
private fully scalable, redundant hosting environment for high bandwidth and
broadband Web sites. From January 1995 to July 1996, he served as a Software
Engineer for Internet Media Services. Mr. Feaver attended University of
California, Santa Cruz.
CHRISTOPHER R. LUNT has served as our Vice President of Engineering since
November 1999. Prior to joining Zengine, he was an Engineering Manager and Team
Leader at Excite@Home from August 1997 to October 1999. Prior to his Excite@Home
tenure, Mr. Lunt was a Senior Software Engineer at Oracle Corporation from
August 1993 to August 1997. Mr. Lunt received his BA degree from the University
of Michigan, Ann Arbor with distinction.
ANTHONY W. LIBERATI has been a director of Zengine since March 1999. He was
the Chairman of the Board of MCSi from May 1996 until his retirement in
February 2000. Commencing in 1982 and until his retirement in August 1995,
Mr. Liberati was employed by the Edward J. DeBartolo Corporation, Youngstown,
Ohio, the nation's largest shopping center developer and the owner of the San
Francisco 49ers professional football team. At the time of his retirement,
Mr. Liberati was the Chief Operating Officer of the DeBartolo Corporation. Prior
to his appointment as the Chief Operating Officer, he was the DeBartolo
Corporation's Chief Financial Officer for ten years. Mr. Liberati is a director
of Hawthorne Financial Corporation, Los Angeles, California, a savings
institution holding company which is traded on the Nasdaq National Market, and
First Fidelity Bancorp, Irvine, California, a privately held thrift and loan
holding company and is a former member of the Board of Directors of DeBartolo
Realty Corporation, Youngstown, Ohio, which was a New York Stock Exchange-traded
real estate investment trust until its merger into Simon Property Group, Inc. in
November 1996. He is a current member of the Board of Directors of Imperial Land
Company, Pittsburgh, Pennsylvania, a privately held land-bank company, Quality
Aggregates, Inc., Pittsburgh, Pennsylvania, a privately held materials supply
company, and a former member of the Board of Directors of Pennsylvania Capital
Bank, Pittsburgh, Pennsylvania, a privately held Pennsylvania commercial bank.
He attended Duquesne University, Pittsburgh, Pennsylvania.
DONALD B. HUTCHISON has been a director of Zengine since April 2000.
Mr. Hutchinson is the Chairman and Chief Executive Officer of Work.com, a
business services and information portal focused on the business professional
which is a joint venture between Dow Jones & Co. and Excite@Home. Prior thereto,
he was Senior Vice President and General Manager of Excite@Home, a position he
held from February 1997 to February 2000, Mr. Hutchison increased Excite@Home's
business-to-business division from two accounts to over 5,000 accounts, created
its eBusiness Services hosting division which has several thousand accounts and
launched Work.com. Prior to joining Excite@Home, he was the Senior Vice
President of Netcom from May 1994 to August 1996 where under Mr. Hutchison's
leadership, Netcom's individual subscriber base grew to over 500,000 and
business accounts grew to over 3,000. Mr. Hutchison received his BA degree from
University of California at Santa Barbara and his MBA from Loyola Marymount
University.
RICHARD V. HOPPLE has been a director of Zengine since April 2000. Since
1996, Mr. Hopple has been the Chairman of the Board and Chief Executive Officer
of Unicast Communications, Inc., New
55
<PAGE>
York, New York, a privately held Internet advertising company. Prior thereto,
Mr. Hopple was the President of D'Arcy Masius Benton & Bowles North America for
one year and Vice Chairman for three years. Prior thereto, Mr. Hopple was
President of Wells Rich Greene. Mr. Hopple is a director of the Internet
Advertising Bureau, the American Rivers Foundation and the City Center 55(th)
Street Theatre Foundation, Inc. in New York City.
STACEY SNIDER has been a director of Zengine since April 2000. She is the
Chairman of Universal Studios, Inc., a subsidiary of the Seagram Company, Ltd.,
where she is responsible for all production, marketing and domestic distribution
for the studio. From November 1998 to November 1999, Ms. Snider served Universal
as President, Production, was promoted to head of production in April 1998 and
was appointed as co-President, Production in December 1996. Ms. Snider joined
Universal from TriStar Pictures where she had served as President, Production
since January 1992. Ms. Snider received her BA degree from the University of
Pennsylvania and her Juris Doctor degree from the University of California at
Los Angeles.
BOARD STRUCTURE AND COMMITTEES
Under the amended and restated certificate of incorporation, our board of
directors will be divided into three classes serving staggered terms. Directors
in each class will be elected to serve for three-year terms and until their
successors are elected and qualified. Each year, the directors of one class will
stand for election as their terms of office expire. Presently, Mr. Hutchison and
Ms. Snider are designated as the Class I directors, with their terms of office
expiring in 2001; Messrs. Hopple and Liberati are designated as Class II
directors, with their terms of office expiring in 2002; and Messrs. Savarino and
Peppel are designated as Class III directors, with their terms of office
expiring in 2003.
We have three standing committees: an executive committee, an audit
committee and a compensation committee. Messrs. Peppel, Savarino and Liberati
have been appointed as the initial members of the executive committee.
Messrs. Liberati and Hopple and Ms. Snider have been appointed as the initial
members of the audit committee. Messrs. Liberati, Hopple and Hutchison have been
appointed as the initial members of the compensation committee.
The executive committee generally has the authority to act as the board of
directors when the board is not in session, subject to certain exceptions
contained in the Delaware General Corporation Law. Actions of the executive
committee may be taken upon the affirmative vote of any two of the three members
of the committee, provided that one of the committee members so acting must be a
non-employee director. Executive committee decisions must be ratified by the
board of directors at its next regularly scheduled meeting. The audit committee
will select the independent public accountants to audit our annual financial
statements and will establish the scope and oversee the annual audit. The
compensation committee will determine the compensation for employee directors
and, after receiving and considering the recommendation of our president and
chief executive officer, all officers of the company and any other employee that
the compensation committee may designate from time to time and will approve and
administer employee stock option and incentive plans. Our board of directors may
establish other committees from time to time to facilitate the management of the
business and affairs of our company.
NON-EMPLOYEE DIRECTOR COMPENSATION
Each non-employee director receives a fee of $1,000 for each meeting of the
board of directors or a board committee which he or she attends, plus his or her
expenses related to attendance. Non-employee directors will receive an initial
grant of stock options to purchase 12,000 shares of common stock under the 1999
Stock Option Plan upon the closing of the initial public offering with an
exercise price per share equal to the initial public offering price.
Non-employee directors are also
56
<PAGE>
eligible to receive future discretionary grants under the plan. Directors who
are also employees of Zengine receive no payment for serving as directors or
committee members.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for our
chief executive officer and our four other most highly compensated executive
officers for services rendered in all capacities to Zengine during the year
ended September 30, 1999. These executives are referred to as the named
executive officers in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL --------------------------------------
COMPENSATION SECURITIES
------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS AWARDS($) OPTIONS(#) COMPENSATION
- --------------------------- -------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Joseph M. Savarino........................ $48,461 -- $60,000(1) -- --
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
Lalit P. Dhadphale........................ 45,000 -- 60,000(1) -- --
VICE PRESIDENT OF PRODUCT DEVELOPMENT
AND CHIEF OPERATING OFFICER
Louis T. Lipinski......................... -- -- -- 10,000 --
VICE PRESIDENT, CHIEF FINANCIAL OFFICER,
TREASURER AND SECRETARY
Christopher R. Feaver..................... 48,461 -- 60,000(1) -- --
VICE PRESIDENT AND CHIEF TECHNOLOGY
OFFICER
Christopher R. Lunt....................... -- -- -- -- --
VICE PRESIDENT OF ENGINEERING
</TABLE>
- ------------------------
(1) Represents the grant of 100,000 shares of restricted stock, which had a fair
market value of $60,000 on the date of grant and at September 30, 1999.
One-third (33,333) of the shares vested immediately upon grant in
March 1999 and 5,128 shares vest each calendar quarter thereafter (the
remainder of the unvested shares will vest upon completion of this
offering).
Messrs. Savarino, Dhadphale and Feaver are subject to employment agreements
which provide each of them an annual salary of $90,000. For more information,
please see "Employment Agreements." During fiscal 1999, Mr. Lipinski was
employed by MCSi and he did not become an employee of ours until January 1,
2000. Mr. Lunt joined Zengine on November 1, 1999 at an annual salary of
$100,000.
EMPLOYMENT AGREEMENTS
We have entered into multi-year employment agreements with Joseph Savarino,
our President and Chief Executive Officer, Christopher Feaver, our Chief
Technology Officer, and Lalit Dhadphale, our Vice President of Product
Development and Chief Operating Officer. Each employment agreement is
substantially the same and provides for the following:
- a three year term which ends in March 2002, with automatic one-year
renewals;
- $90,000 annual base salary;
- 100,000 restricted shares of our common stock, of which 33,333 shares
vested upon execution of the employment agreement and 5,128 shares which
vest each calendar quarter; upon a change in
57
<PAGE>
control of our company, which is defined to include the completion of this
offering, the restricted shares will immediately vest;
- participation in any benefit or retirement plans offered by us;
- severance pay under certain circumstances which is capped at $14,795;
- an agreement to keep our proprietary information confidential during the
term of the employment agreement and for a period of seven years following
termination of the employment agreement; and an agreement to not compete
with us in an area within a 75 mile radius of any existing office of ours
or MCSi during the term of the employment agreement and for twelve months
following March 1, 2002; and
- indemnification by us of the executive for actions in which the executive
is made a party or is otherwise involved by reason of being or having been
a director, officer, employee or agent of Zengine, MCSi or any affiliates
of either.
1999 STOCK OPTION PLAN
The Amended and Restated 1999 Stock Option Plan provides for the grant of
stock options to all employees and directors of our company, our subsidiaries
and of MCSi who are eligible to participate. The purpose of the 1999 Stock
Option Plan is to further our growth, development and financial success by
providing incentives to our employees and non-employee directors by assisting
them to become owners of our common stock. An aggregate of 500,000 shares of
common stock are reserved for issuance to employees and directors under the 1999
Stock Option Plan.
The 1999 Stock Option Plan is administered by a committee of our Board of
Directors (the "1999 Stock Option Committee"). The 1999 Stock Option Committee
consists of two or more directors, appointed by our board of directors, who are
"non-employee directors," as defined in Rule 16b-3 under the Securities Exchange
Act of 1934, and "outside directors," as defined in Section 162(m) of the
Internal Revenue Code. The 1999 Stock Option Committee has complete authority
and discretion to determine from among eligible persons those to whom options
will be granted and the number and terms of such options. The current members of
the 1999 Stock Option Committee are Mr. Liberati, Mr. Hutchison and Mr. Hopple.
The 1999 Stock Option Plan provides for the granting of both incentive stock
options and non-qualified stock options under the Internal Revenue Code.
Non-employee directors are eligible to receive only non-incentive stock options
under the plan. The exercise price of incentive stock options granted under the
1999 Stock Option Plan may not be less than 100% of the fair market value on the
date of the grant, except that incentive stock options granted to individuals
owning more than ten percent of the total combined voting power of Zengine may
not have an exercise price less than 110% of the fair market value on the date
of grant. The exercise price of non-qualified stock options is established by
the 1999 Stock Option Committee. Unless otherwise provided for by the 1999 Stock
Option Committee or our Board of Directors, and set forth in the individual
stock option agreements, stock options under the 1999 Stock Option Plan vest
over four years, with 25% vesting one year from the date of grant and 6.25%
vesting each calendar quarter thereafter. Unless otherwise provided for by the
1999 Stock Option Committee or our Board of Directors, stock options issued
under the 1999 Stock Option Plan immediately vest and become exercisable upon
the option holder's death, disability or upon a change of control of Zengine, as
defined in the 1999 Stock Option Plan.
Payment of the exercise price of a stock option may be made in cash, shares
of common stock, or by any other method approved by the 1999 Stock Option
Committee, consistent with Section 422 of the Code and Rule 16b-3 under the
Exchange Act. Incentive stock options are not assignable or transferable except
by will or the laws of descent and distribution, and, during the participant's
lifetime, may be exercised only by the participant. However, an optionee may
transfer non-qualified stock
58
<PAGE>
options to his or her spouse, lineal ascendants, lineal descendants, or to a
duly established trust for the benefit of one or more of these individuals.
At the time of any merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, or other change in the corporate structure or
capitalization affecting our common stock, appropriate adjustments to the
exercise price, number and kind of shares to be issued under the 1999 Stock
Option Plan and any outstanding options will be made. Unless terminated earlier,
the 1999 Stock Option Plan will terminate ten years from its adoption, and no
stock options will be granted after the 1999 Stock Option Plan terminates. Our
board of directors has the authority to amend, modify, suspend or terminate the
1999 Stock Option Plan at any time, subject to any requirement of stockholder
approval under the Internal Revenue Code or other applicable law, and, if
applicable, approval by an optionee whose options would be adversely affected by
the change.
There are currently an aggregate of 193,250 options outstanding under the
1999 Stock Option Plan at a weighted average exercise price of $3.17 per share.
GRANT OF ZENGINE STOCK OPTIONS IN FISCAL 1999
The following table sets forth information with respect to grants of stock
options to purchase shares of our common stock during fiscal 1999 to the named
executive officers reflected in the Summary Compensation Table. All options were
granted under our 1999 Stock Option Plan.
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
----------------------------------------------- AT ASSUMED
% OF TOTAL DEEMED ANNUAL RATES OF
NUMBER OF OPTIONS VALUE STOCK PRICE
SECURITIES GRANTED TO PER APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE SHARE OPTION TERM
OPTIONS IN LAST PRICE PER ON DATE EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR SHARE OF GRANT DATE 5% 10%
- ---- ---------- ----------- --------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph M. Savarino........................ -- -- -- -- -- -- --
Lalit P. Dhadphale........................ -- -- -- -- -- -- --
Louis T. Lipinski......................... 10,000 6.0% $0.51 $0.60 09/01/09 $4,700 $10,500
Christopher R. Feaver..................... -- -- -- -- -- -- --
Christopher R. Lunt....................... -- -- -- -- -- -- --
</TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
None of the named executive officers have exercised options to purchase
shares of our common stock. The following table describes the value of
exercisable and unexercisable options held by the named executive officers as of
September 30, 1999.
The "Value of Unexercised In-the-Money Options at September 30, 1999" is
based on a value of $0.60 per share, the deemed fair market value of our common
stock on that date, less the per share exercise price, multiplied by the number
of shares issuable upon exercise of the option. All options were granted under
our 1999 Stock Option Plan.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
--------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Joseph M. Savarino............. -- -- -- --
Lalit P. Dhadphale............. -- -- -- --
Louis T. Lipinski.............. -- 10,000 -- $900
Christopher R. Feaver.......... -- -- -- --
Christopher R. Lunt............ -- -- -- --
</TABLE>
59
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
We have adopted the 2000 Employee Stock Purchase Plan which will become
effective upon the completion of this offering. The Stock Purchase Plan provides
employees with the opportunity to purchase shares of our common stock on a
regular basis. The purpose of the Stock Purchase Plan is to contribute to our
growth and profitability by allowing our employees to purchase common stock
which will provide them with an incentive to work towards the success of
Zengine. The Stock Purchase Plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
Pursuant to the plan, shares of common stock will be offered to employees of
Zengine in up to two phases known as "offering periods" during which payroll
deductions will be accumulated under the plan during any calendar year.
Generally, there will be two six month offering periods each year. An employee
shall elect to make contributions to the plan by payroll deductions in an
aggregate amount up to 15% of such employee's total compensation. Employees may
not make any separate cash payment to purchase shares pursuant to the plan. On
the first business day of each offering period, Zengine will grant to each
eligible employee who is then a participant in the plan an option to purchase
shares of the common stock at an option price determined by the committee, which
shall not be less than eighty-five percent (85%) of the lesser of (a) the fair
market value of the shares on the first business day of an offering period, or
(b) the fair market value of the shares on the last business day of such
offering period. Shares are purchased on the last day of the offering period.
The common stock purchasable under the Stock Purchase Plan may be shares of
authorized but unissued shares, treasury shares or shares purchased by Zengine
on the open market or from private sources for use under the Stock Purchase
Plan. The maximum number of shares which may be issued over the term of the
Stock Purchase Plan is 100,000, which is subject to anti-dilution provisions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of our compensation committee are Messrs. Hutchison, Liberati
and Hopple. Mr. Liberati also served as the member of the compensation committee
of MCSi until his retirement in February 2000.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our amended and restated certificate of incorporation and amended and
restated bylaws provide that the personal liability of our directors and
officers shall be eliminated to the fullest extent authorized by Delaware law.
Our amended and restated certificate of incorporation and amended and restated
bylaws further provide that our directors and officers shall be indemnified by
us to the fullest extent authorized by Delaware law. We intend to obtain
insurance which insures our directors and officers against specified losses and
which insures us against specific obligations to indemnify our directors and
officers.
60
<PAGE>
CERTAIN TRANSACTIONS
RELATIONSHIP WITH MCSI
Our operations began in January 1999 as a division of MCSi, known as
BuySupply.com, which commenced operations as a branded computer supplies and
accessories e-commerce Web site selling MCSi's inventory. Shortly thereafter,
Messrs. Savarino, Dhadphale and Feaver agreed to combine their prior Internet
experience with funding from MCSi to create an e-commerce services company based
on our current business model. We were subsequently incorporated on March 2,
1999. After the completion of this offering, MCSi will own approximately %
of the outstanding shares of common stock, or approximately % if the
underwriters exercise their over-allotment option in full.
As a subsidiary, we have received various services provided by MCSi,
including administration (i.e., payroll, human resources, cash management,
benefit administration, etc.), warehousing and distribution, and property and
equipment. In addition, we have received the services of certain MCSi employees,
including, in particular, Michael E. Peppel, MCSi's chairman, president and
chief executive officer and Ira H. Stanley, its vice president and chief
financial officer. In consideration for these services, MCSi has historically
allocated a portion of its overhead costs related to such services to us. We
cannot assure you that the prices charged to us, or the overall terms and
conditions under these agreements are not higher or lower than the prices that
may be charged by unaffiliated third parties for similar services.
We have entered into certain agreements with MCSi related to administrative
services, distribution services, e-commerce services and a premises and
equipment lease. A summary description of each of these agreements is set forth
below. This description, which summarizes the material terms of such agreements,
is not complete. You should read the full text of these agreements, which have
been filed with the SEC as exhibits to the registration statement of which this
prospectus is a part.
All of our agreements with MCSi were made in the context of a
parent-subsidiary relationship. Although we generally believe that the terms of
these agreements are consistent with fair market values, we have had no
appraisals or valuations performed and therefore we cannot assure you that the
prices charged to us, or by us, under these agreements are not higher or lower
than the prices that may be charged by, or to, unaffiliated third parties for
similar services.
MCSi has advised us that it intends to evaluate, from time to time,
alternatives to maximize, for the benefit of its stockholders, the value of its
Zengine shareholdings. These alternatives could include retention of all or a
portion of its shareholdings, the sale in one or more transactions of all or a
portion of its shareholdings, the distribution of its shareholdings to MCSi
shareholders (which may be in the form of a tax free spin-off under Section 355
of the Internal Revenue Code), the issuance of debt or equity securities that
will enable MCSi to monetize all or a portion of its investment in Zengine or
other transactions. We cannot assure you as to which alternative MCSi may choose
or whether or when any such transaction will occur, if at all.
ADMINISTRATIVE SERVICES AGREEMENT. Since our formation, we have obtained
many of our administrative services from MCSi. In anticipation of this offering,
effective October 1, 1999, we entered into a two-year agreement with MCSi where
MCSi will provide us with services relating to accounts payable, human resources
and compensation, corporate development, employee benefit administration,
treasury and cash management, risk and insurance management, executive
compensation and benefit plan design, benefit administration, Web site
population services and tax planning. In consideration for providing these
services, we will pay MCSi $60,000 per month. The administrative services
agreement is terminable by either party under a number of circumstances. This
agreement is renewable by mutual agreement between Zengine and MCSi.
DISTRIBUTION SERVICES AGREEMENT. We offer product distribution, fulfillment
and warehousing, customer service and other related services to our clients as
part of our e-commerce service offerings.
61
<PAGE>
Effective October 1, 1999, we entered into a two year non-exclusive Distribution
Services Agreement with MCSi by which MCSi will provide these services to our
clients. Under the agreement, we will pay MCSi a service fee equal to three
percent (3%) of the total gross revenues for any product order fulfilled, for
third party customers, wholly or partly by MCSi (plus certain costs incurred by
MCSi.) If product is purchased from MCSi, Zengine will pay MCSi the actual
retail list price of that product plus the actual cost of freight paid by MCSi.
E-COMMERCE SERVICES AGREEMENT. Effective October 1, 1999, we entered into
an e-commerce services agreement with MCSi in which we will provide certain
design, enhancement and ongoing maintenance services relating to MCSi's B2B
dedicated Web sites for a period of two years. MCSi will pay us ten percent
(10%) of the revenue derived from product sales on the MCSi Web sites we
service.
PROPERTY SUBLEASE AND EQUIPMENT LEASE AGREEMENT. Effective October 1, 1999,
we entered into an agreement to sublease our main office and to lease certain
equipment, including chairs, desks, cubicle offices and computers, from MCSi.
The agreement provides for monthly payments of $2,083 for the equipment lease
and $10,417 for the property sublease, and expires on May 1, 2001.
TRANSACTIONS WITH WILBLAIRCO ASSOCIATES, AT HOME CORPORATION, MCSI AND CERTAIN
STOCKHOLDERS
On October 1, 1999, we entered into an agreement to sell 133,333 shares of
our common stock to each of Wilblairco Associates and At Home Corporation for
$2.0 million each (the "investment transactions"), which was completed in
October 1999. Wilblairco Associates, an Illinois general partnership, is an
affiliate of William Blair & Company, which is the lead underwriter of this
offering.
In conjunction with our sale of equity to Wilblairco Associates and At Home
Corporation, we entered into a Registration Rights Agreement and a Stockholders
Agreement and MCSi entered into Put Agreements with Wilblairco and At Home. We
subsequently entered into a warrant agreement with REX Stores Corporation, in
conjunction with our agrement to provide e-commerce services to REX Stores,
where we agreed to provide REX Stores with the same registration rights as we
gave to Wilblairco and At Home.
REGISTRATION RIGHTS AGREEMENT. At any time after 180 days after we complete
our first public offering of common stock where the aggregate price less
underwriters' and brokers' commissions and certain expenses equals
$25.0 million or more and results in our common stock being listed on the New
York Stock Exchange, American Stock Exchange or the Nasdaq Stock Market (a
"qualified public offering"), Wilblairco, At Home, MCSi, Joseph Savarino, Lalit
Dhadphale, Christopher Feaver and/or REX Stores (the "registration rights
holders") may request registration (a "demand registration") of at least
$15.0 million of our common stock held by them. We are not obligated to effect
more than one demand registration in any six month period and, subject to
certain conditions, we will not be obligated to effect more than three demand
registrations overall. The registration rights holders also have the right,
subject to certain conditions, to include their shares of our common stock in
any registered offering of our common stock that we make (an "incidental
registration").
The ability of the registration rights holders to request demand
registration of their Zengine common stock is subject to the opinion of the
managing underwriter of the proposed offering that the number of shares desired
to be sold exceeds the number of shares which can be sold in the offering or is
reasonably likely to materially and adversely affect the success or offering
price of such offering. If the underwriter makes this determination, the shares
will be included in the offering in the following priority:
- first, shares of the registration rights holders pro rata on the basis of
the number of share requested to be included by each;
- next, shares requested to be included by us; and
- next, any other shares of our common stock requested to be included by a
third person.
62
<PAGE>
If the managing underwriter makes the same determination in connection with an
incidental registration, the shares will be included in the offering in the
following priority:
- shares requested to be included by us;
- next, shares of the registration rights holders pro rata on the basis of
the shares requested to be included by each; and
- next, shares of the holders of any other registration rights granted by us
in writing, pro rata in accordance with the number of such securities each
such holder has requested to be included in the registration.
In addition to the registration priorities discussed in the preceding
paragraph, the registration rights agreement prohibits us from granting
registration rights to any other person, unless the agreement(s) providing for
the rights specifically provides that the holders of the rights ("third party
rights") may not participate in any demand or incidental registration unless the
underwriters of the distribution confirm that the inclusion of the securities
proposed to be included under the third party rights will not materially
adversely affect the offering. We may, however, grant third party rights to a
person who has purchased our securities for an aggregate of at least
$2.0 million prior to a qualified public offering which rights may allow
participation in a demand registration as though such person was a registration
rights holders.
The registration rights agreement sets forth various registration
procedures. It also provides that we will pay all reasonable expenses related to
all demand and incidental registrations other than underwriters discounts and
commissions. The registration rights agreement also contains indemnification and
contribution provisions by us for the benefit of the registration rights
holders, their affiliates and any underwriters, and by the registration rights
holders for the benefit of us and any underwriters. The rights in the
registration rights agreement may not be assigned by a registration rights
holder without our prior consent, which will not be unreasonably withheld.
PUT AGREEMENTS. MCSi entered into put agreements with each of Wilblairco
and At Home which provide that during a period of two years commencing on
September 30, 2002, Wilblairco and At Home each have the right, from time to
time, to require MCSi to purchase all or a portion of their shares purchased in
the investment transactions at a purchase price of $22.81 per share. The rights
in the put agreements are not transferable and are subject to anti-dilution
provisions. The put agreements will terminate upon the completion of this
offering.
STOCKHOLDERS AGREEMENT. The stockholders agreement between Wilblairco, At
Home, MCSi, Zengine, Joseph Savarino, Lalit Dhadphale, Christopher Feaver, REX
Stores and Zengine optionholders specifies and limits the manner and terms upon
and by which the shares outstanding and shares subject to outstanding stock
options as of September 30, 1999 shall or may be transferred in certain
circumstances. The stockholders agreement will terminate upon the completion of
this initial public offering.
We believe that the transactions with Wilblairco Associates, At Home
Corporation, MCSi and certain of our stockholders and REX Stores described
immediately above were made on terms no less favorable to us than we could have
obtained from unaffiliated third parties. All future transactions between us and
our directors, officers, principal stockholders and their affiliates will be
approved by a majority of the independent and disinterested outside members of
our board of directors, but we cannot assure you that future transaction will be
on terms no less favorable to us than could be obtained from unaffiliated third
parties.
63
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of February 29, 2000, by the following
individuals or groups:
- each person or entity who is known by us to own beneficially more than 5%
of our outstanding stock;
- each of the named executive officers;
- each of our directors; and
- all directors and executive officers as a group.
Under the rules of the Securities and Exchange Commission, beneficial
ownership includes voting or investment power with respect to securities and
includes the shares issuable under stock options that are exercisable within
sixty (60) days of February 29, 2000. Shares issuable under stock options are
deemed outstanding for computing the percentage of the person holding options
but are not outstanding for computing the percentage of any other person. The
number of shares of common stock outstanding after this offering includes shares
of common stock being offered for sale by us in this offering. The percentage of
beneficial ownership for the following table is based upon 1,800,000 shares of
common stock outstanding as of February 29, 2000, and shares of common
stock outstanding after the completion of this offering assuming no exercise of
the underwriters' overallotment option and completion of the concurrent private
placement.
The address for each of the stockholders listed in the table, other than
MCSi, Wilblairco Associates and At Home Corporation, is c/o Zengine, Inc., 6100
Stewart Avenue, Fremont, California 94538. To our knowledge, the persons named
in the table have sole voting and investment power with respect to all shares of
common stock held by them. None of the beneficial owners set forth in the table
below will sell any of the shares in this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING
NUMBER OF SHARES --------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- ------------------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
Miami Computer Supply Corporation................. 1,233,334 68.5% %
4750 Hempstead Station Drive
Dayton, Ohio 45429
Wilblairco Associates............................. 133,333 7.4
222 West Adams Street
Chicago, Illinois 60600
At Home Corporation............................... 133,333 7.4
450 Broadway
Redwood City, California 94063
Michael E. Peppel................................. 100,000(1) 5.3
Joseph M. Savarino................................ 100,000(2) 5.6
Louis T. Lipinski................................. -- --
Lalit P. Dhadphale................................ 100,000(2) 5.6
Christopher R. Feaver............................. 100,000(2) 5.6
Christopher R. Lunt............................... -- --
Anthony W. Liberati............................... -- --
Donald B. Hutchinson.............................. -- --
Richard V. Hopple................................. -- --
Stacey Snider..................................... -- --
All directors and officers as a group 400,000 22.2
(10 persons)....................................
</TABLE>
- ------------------------
(1) Represents shares which may be acquired upon the exercise of stock options
exercisable within 60 days.
(2) Represents restricted shares of common stock of which 53,845 shares are
currently vested and the remainder will vest upon completion of this
offering.
64
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Under our amended and restated certificate of incorporation (which will be
effective prior to the completion of this offering), our authorized capital
stock consists of 120,000,000 shares, of which 100,000,000 shares are common
stock, no par value per share, and 20,000,000 shares are preferred stock, no par
value per share, of which none are outstanding. Immediately following this
offering, shares of common stock, or shares if the
underwriters exercise their over-allotment option in full, will be outstanding.
The following description of our capital stock is not complete and is qualified
in its entirety by our amended and restated certificate of incorporation and
amended and restated bylaws, both of which are included as exhibits to the
registration statement of which this prospectus forms a part.
COMMON STOCK
Holders of our common stock will be entitled to one vote per share with
respect to each matter presented to our stockholders on which the holders of
common stock are entitled to vote. Except as may be provided in connection with
any preferred stock in a certificate of designation filed pursuant to the
Delaware General Corporation Law (DGCL), or as may otherwise be required by law
or the amended and restated certificate of incorporation, the common stock will
be the only capital stock of Zengine entitled to vote in the election of
directors and on all other matters presented to our stockholders; provided that
holders of common stock, as such, will not be entitled to vote on any matter
that relates solely to the terms of any outstanding series of preferred stock or
the number of shares of such series and does not affect the number of authorized
shares of preferred stock or the powers, privileges and rights pertaining to the
preferred stock. The common stock does not have cumulative voting rights.
Subject to the prior rights of holders of preferred stock, if any, holders
of common stock are entitled to receive such dividends as may be lawfully
declared from time to time by our board of directors. Upon any liquidation,
dissolution or winding up of Zengine, whether voluntary or involuntary, holders
of common stock will be entitled to receive such assets as are available for
distribution to stockholders after there shall have been paid or set apart for
payment the full amounts necessary to satisfy any preferential or participating
rights to which the holders of each outstanding series of preferred stock are
entitled by the express terms of such series.
The outstanding shares of our common stock are, and the shares of common
stock being offered hereby will be, upon payment therefor, validly issued, fully
paid and nonassessable. The common stock sold in this offering will not have any
preemptive, subscription or conversion rights. Additional shares of authorized
common stock may be issued, as determined by our board of directors from time to
time, without stockholder approval, except as may be required by applicable law
or stock exchange requirements.
PREFERRED STOCK
Our board of directors is empowered, without approval of the stockholders,
to cause shares of preferred stock to be issued from time to time in one or more
series, with the numbers of shares of each series and the designation, powers,
privileges, preferences and rights of the shares of each such series and the
qualifications, limitations and restrictions thereof as fixed by our board of
directors. Among the specific matters that may be determined by our board of
directors are:
- the designation of each series;
- whether the shares of each series has voting rights;
- the rate of dividends, if any
65
<PAGE>
- whether dividends, if any, shall be cumulative or non-cumulative;
- the terms of redemption, if any;
- the amount payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of Zengine;
- rights and terms of conversion or exchange, if any;
- the price for which the shares may be issued;
- restrictions on the payment of dividends on redemptions of stock while any
shares of such series is outstanding; and
- any other powers, preferences and other special rights or qualifications
on limitations.
Although no shares of preferred stock are currently outstanding and we have
no current plans to issue preferred stock, the issuance of shares of preferred
stock, or the issuance of rights to purchase such shares, could be used to
discourage an unsolicited acquisition proposal. For example, a business
combination could be impeded by the issuance of a series of preferred stock
containing class voting rights that would enable the holder or holders of such
series to block any such transaction. Alternatively, a business combination
could be facilitated by the issuance of a series of preferred stock having
sufficient voting rights to provide a required percentage vote of the
stockholders. In addition, under certain circumstances, the issuance of
preferred stock could adversely affect the voting power and other rights of the
holders of the common stock. Although our board of directors is required to make
any determination to issue any such stock based on its judgment as to the best
interests of the stockholders of Zengine, it could act in a manner that would
discourage an acquisition attempt or other transaction that some, or a majority,
of the stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over prevailing market
prices of such stock. Our board of directors does not at present intend to seek
stockholder approval prior to any issuance of currently authorized stock, unless
otherwise required by law or applicable stock exchange requirements.
WARRANT
As of February 29, 2000, there was an agreement to issue one warrant to
purchase 1.7% of the issued and outstanding shares of our common stock
immediately after our initial public offering. We agreed to issue this warrant
in January 2000 to REX Stores Corporation contingent upon completion of a
successful initial public offering at an exercise price equal to the initial
public offering price per share. The warrant will be issued and become
immediately exercisable immediately after the closing of our initial public
offering. It will expire three years after its date of issue.
LIMITATION OF LIABILITY OF DIRECTORS
Our amended and restated certificate of incorporation provides that the
personal liability of our directors for monetary damages shall be eliminated to
the fullest extent provided by the DGCL. Section 102(b)(7) of the DGCL states,
that a director of Zengine will not be personally liable to Zengine or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability imposed by law (as in effect from time to time):
- for any breach of the director's duty of loyalty to Zengine or its
stockholders;
- for any act or omission not in good faith or which involved intentional
misconduct or a knowing violation of law; or
- for any transaction from which the director derived an improper personal
benefit.
66
<PAGE>
The inclusion of this provision in the amended and restated certificate of
incorporation may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefited
Zengine and its stockholders.
Our amended and restated certificate of incorporation also requires that
Zengine provide indemnification to its directors, officers and employees to the
extent currently permitted by the DGCL.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are a Delaware corporation and subject to Section 203 of the DGCL.
Generally, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time such stockholder became an interested
stockholder unless certain conditions are satisfied. Thus, this provision may
make acquisition of control of Zengine more difficult. The prohibitions in
Section 203 of the DGCL do not apply if:
- prior to the time the stockholder became an interested stockholder, the
board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming
an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or
- at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by the board of
directors and authorized by the affirmative vote of at least 66 2/3% of
the outstanding voting stock that is not owned by the interested
stockholder.
Under Section 203 of the DGCL, a "business combination" includes:
- any merger or consolidation of the corporation with the interested
stockholder;
- any sale, lease, exchange or other disposition, except proportionately as
a stockholder of such corporation, to or with the interested stockholder
of assets of the corporation having an aggregate market value equal to 10%
or more of either the aggregate market value of all the assets of the
corporation or the aggregate market value of all the outstanding stock of
the corporation;
- certain transactions resulting in the issuance or transfer by the
corporation of stock of the corporation to the interested stockholder;
- certain transactions involving the corporation which have the effect of
increasing the proportionate share of the stock of any class or series of
the corporation which is owned by the interested stockholder; or
- certain transactions in which the interested stockholder receives
financial benefits provided by the corporation.
Under Section 203 of the DGCL, an "interested stockholder" generally is:
- any person that owns 15% or more of the outstanding voting stock of the
corporation;
- any person that is an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three-year period prior to the date on
which it is sought to be determined whether such person is an interested
stockholder; and
- the affiliates or associates of any such person.
67
<PAGE>
Because MCSi owned more than 15% of our voting stock before we became a
public company in this offering, Section 203 of the DGCL by its terms is
currently not applicable to business combinations between MCSi and us even
though MCSi owns 15% or more of our outstanding stock. If any other person
acquires 15% or more of our outstanding stock, such person will be subject to
the provisions of Section 203 of the DGCL.
CERTAIN PROVISIONS OF OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
Our amended and restated certificate of incorporation and amended and
restated bylaws contain provisions governing various methods and procedures to
be followed in connection with stockholder actions. These provisions include a
requirement that advance notice be delivered to Zengine of any business to be
brought by a stockholder before an annual or special meeting of stockholders and
for certain procedures to be followed by stockholders in nominating persons for
election to our board of directors. Generally, special meetings of stockholders
may only be called by our board of directors, chairman, president or holders of
35% or more of our outstanding common stock. Only such business may be conducted
at a special meeting of stockholders as is set forth in the notice for such
meeting. Stockholders may act without a meeting provided that written consents
signed by not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all of the stockholders who
would be entitled to vote at a meeting called for that purpose were present and
voted.
Our amended and restated certificate of incorporation provides that, except
as may be provided in connection with the issuance of any series of preferred
stock, the number of directors shall be fixed from time to time pursuant to a
resolution adopted by our board of directors. Our amended and restated
certificate of incorporation provides for a classified board of directors,
consisting of three classes as nearly equal in size as practicable. Each class
holds office until the third annual stockholders' meeting for election of
directors following the most recent election of such class, except that the
initial terms of the three classes expire in 2001, 2002 and 2003, respectively.
Directors may only be removed for cause on the affirmative vote of a majority of
the outstanding shares then entitled to vote. Vacancies on the board of
directors may be filled by a vote of the directors then in office.
LISTING
Application has been made for quotation of our common stock on the Nasdaq
National Market under the symbol "ZNGN."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Registrar and
Transfer Company. Its address is 10 Commerce Drive, Cranford, New Jersey 07016.
68
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
The shares of our common stock sold in this offering, or
shares if the underwriters exercise their over-allotment option in
full, will be freely tradable without restriction under the Securities Act,
except for any such shares which may be acquired by an "affiliate" of Zengine
(an "Affiliate") as that term is defined in Rule 144 under the Securities Act,
which shares will remain subject to the resale limitations of Rule 144.
The shares of our common stock that will continue to be held by
MCSi after this offering constitute "restricted securities" within the meaning
of Rule 144, and will be eligible for sale by MCSi in the open market on
, 2000, subject to certain contractual lockup provisions and the
applicable requirements of Rule 144, both of which are described below. Zengine
has granted certain registration rights to MCSi. See "--Registration Rights."
Generally, Rule 144 provides that a person who has beneficially owned
"restricted" shares for at least one year will be entitled to sell on the open
market in brokers' transactions within any three month period a number of shares
that does not exceed the greater of:
- 1% of the then outstanding shares of common stock; and
- the average weekly trading volume in the common stock on the open market
during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain post-sale notice requirements
and the availability of current public information about Zengine.
In the event that any person other than MCSi who is deemed to be an
Affiliate purchases shares of our common stock pursuant to this offering or
acquires shares of our common stock pursuant to an employee benefit plan of
Zengine, the shares held by such person are required under Rule 144 to be sold
in brokers' transactions, subject to the volume limitations described above.
Shares properly sold in reliance upon Rule 144 to persons who are not Affiliates
are thereafter freely tradable without restriction.
Sales of substantial amounts of our common stock in the open market, or the
availability of such shares for sale, could adversely affect the price of our
common stock.
Each of Zengine, MCSi and the directors and executive officers of Zengine
and MCSi (and certain other investors) have agreed that, without the prior
written consent of William Blair & Company on behalf of the underwriters, they
will not, during the period ending 180 days after the date of this prospectus,
sell or otherwise dispose of any shares of our common stock, subject to certain
exceptions. See "Underwriters."
An aggregate of 600,000 shares of our common stock are reserved for issuance
under our stock option plan and employee stock purchase plan. We intend to
file a registration statement on Form S-8 covering the issuance of shares of our
common stock pursuant to these plans. Accordingly, the shares issued pursuant to
these stock option plans will be freely tradable, subject to the restrictions on
resale by Affiliates under Rule 144.
REGISTRATION RIGHTS
We have entered into a registration rights agreement with Wilblairco, At
Home, REX Stores, MCSi and Messrs. Savarino, Dhadphale and Feaver which provides
that they may require us to register under the Securities Act all or a portion
of our common stock that they hold at any time after 180 days after this
offering, subject to certain conditions. Any shares of our common stock sold
pursuant to these registration rights would be eligible for immediate resale in
the public market without restriction
69
<PAGE>
by persons other than our Affiliates. For more information regarding this
registration rights agreement, please see "Certain Transactions."
Any sales of substantial amounts of our common stock in the public market,
or the perception that such sales might occur (whether as a result of MCSi's
registration rights or otherwise), could have a material adverse effect on the
market price of our common stock. See "Risk Factors."
PLAN OF DISTRIBUTION
Of the shares offered by this prospectus, shares are being
offering by means of an underwritten public offering and shares are being
offered by means of the MCSi Subscription Program to stockholders of Miami
Computer Supply Corporation, or MCSi, our parent company and principal
stockholder.
UNDERWRITTEN PUBLIC OFFERING
The several underwriters named below, for which William Blair & Company,
L.L.C., Friedman, Billings, Ramsey and Co., Inc., E*OFFERING Corp. and Morgan
Keegan & Company, Inc. are acting as representatives, have severally agreed,
subject to the terms and conditions set forth in the underwriting agreement
among Zengine and the underwriters, to purchase from Zengine, and Zengine has
agreed to sell to each of the underwriters, the respective number of shares of
common stock set forth opposite each underwriter's name in the table below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
William Blair & Company, L.L.C..............................
Friedman, Billings, Ramsey & Co., Inc.......................
E*OFFERING Corp.............................................
Morgan Keegan & Company, Inc................................
---------
Total.................................................
=========
</TABLE>
This offering will be underwritten on a firm commitment basis. In the
underwriting agreement, the underwriters have agreed, subject to the terms and
conditions set forth therein, to purchase the shares of common stock being sold
pursuant thereto at a price per share equal to the public offering price less
the underwriting discount specified on the cover page of this prospectus.
According to the terms of the underwriting agreement, the underwriters will
either purchase all of the shares or none of them. In the event of default by
any underwriter, in certain circumstances the purchase commitments of the
non-defaulting underwriters may be increased or the underwriting agreement may
be terminated.
The representatives of the underwriters have advised Zengine that the
underwriters will offer the shares of common stock to the public at the public
offering price specified on the cover page of this prospectus. The underwriters
may also offer the shares to dealers at the public offering price less a
concession of up to per share. The underwriters may allow, and these
dealers may re-allow, a concession of up to per share to certain other
dealers. The underwriters will offer the shares subject to prior sale and
subject to receipt and acceptance of the shares by the underwriters. The
underwriters may reject any order to purchase shares in whole or in part. The
underwriters expect that Zengine will deliver the shares to the underwriters
through the facilities of the Depository Trust Company in New York, New York on
or about , 2000. At that time, the underwriters will pay Zengine for
the shares in immediately available funds. After the commencement of the initial
public offering, the representatives may change the public offering price and
the other selling terms.
The underwriters have the option to purchase up to an aggregate of
additional shares of common stock from Zengine at the same price
they are paying for the shares offered
70
<PAGE>
hereby in the underwritten public offering. The underwriters may purchase
additional shares only to cover over-allotments made in connection with this
offering and only within 30 days after the date of this prospectus. If the
underwriters decide to exercise this over-allotment option, each underwriter
will be required to purchase additional shares in approximately the same
proportion as set forth in the table above. The underwriters will offer any
additional shares that they purchase on the terms described in the preceding
paragraph.
The following table summarizes the compensation to be paid by Zengine to the
underwriters:
<TABLE>
<CAPTION>
TOTAL
-------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Public offering price................................... $ $ $
Underwriting discount paid by Zengine...................
</TABLE>
Zengine estimates the expenses of this offering payable by Zengine
(excluding the underwriting discount) to be $ .
Zengine has agreed to indemnify the underwriters and their controlling
persons against specific liabilities, including liabilities under the Securities
Act.
Zengine, its executive officers and directors, and MCSi have agreed not to
sell or transfer any shares of common stock, or to engage in hedging
transactions with respect to the common stock, for a period of 180 days from the
date of this prospectus without the consent of William Blair. After giving
effect to this offering, stockholders who have agreed to this lock-up
arrangement will hold an aggregate of shares of common stock and
options to purchase shares of common stock. For more information,
see "Shares Eligible for Future Sale."
In connection with this offering, the underwriters and other persons
participating in this offering may engage in transactions which affect the
market price of the common stock. These may include stabilizing and
over-allotment transactions and purchases to cover syndicate short positions.
Stabilizing transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the common stock. Over-allotment
involves selling more shares of common stock in this offering than are specified
on the cover page of this prospectus, which results in a syndicate short
position. The underwriters may cover this short position by purchasing common
stock in the open market or by exercising all or part of their over-allotment
option. In addition, the representatives of the underwriters may impose a
penalty bid. This allows the representatives to reclaim the selling concession
allowed to an underwriter or selling group member if common stock sold by such
underwriter or selling group member in this offering is repurchased by the
representatives in stabilizing or syndicate short covering transactions. These
transactions, which may be effected on the Nasdaq National Market or otherwise,
may stabilize, maintain or otherwise affect the market price of the common stock
and could cause the price to be higher than it would be without these
transactions. The underwriters and other participants in this offering are not
required to engage in any of these activities and may discontinue any of these
activities at any time without notice. Neither Zengine nor any of the
underwriters makes any representation or prediction as to whether the
underwriters will engage in these transactions or choose to discontinue any
transactions engaged in or as to the direction or magnitude of any effect that
these transactions may have on the price of the common stock.
The representatives of the underwriters have advised Zengine that the
underwriters do not intend to confirm, without client authorization, sales to
any account over which they exercise discretionary authority.
Prior to this offering, there has been no public market for Zengine's common
stock. Consequently, Zengine and the representatives of the underwriters will
negotiate to determine the initial public offering price. They will consider
current market conditions, Zengine's operating results in recent
71
<PAGE>
periods, the market capitalization of other companies in its industry, estimates
of Zengine's potential and other factors they deem relevant. The estimated price
range specified on the cover page of this prospectus may change because of
market conditions and other factors.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of common stock in this offering for Zengine
employees and other individuals with a relationship with Zengine. Purchases of
the reserved shares would reduce the number of shares available for sale to the
general public. The underwriters will offer any reserved shares which are not so
purchased to the general public on the same terms as the other shares.
We have applied for listing of the common stock on the Nasdaq National
Market under the symbol "ZNGN."
In October 1999, we sold 133,333 shares of our common stock to Wilblairco
Associates for $2.0 million. Wilblairco Associates, an Illinois general
partnership, is an affiliate of William Blair & Company, which is the lead
underwriter of this offering.
fbr.com, a division of FBR Investment Services, Inc., which is an affiliate
of Friedman, Billings, Ramsey & Co., Inc., will be providing an Internet
distribution channel for this offering. Friedman, Billings, Ramsey & Co., Inc.
has agreed to allocate a limited number of shares to fbr.com for sale to its
online brokerage account holders. An electronic prospectus is available on the
Web site maintained by fbr.com Other than the prospectus in electronic format,
the information on the fbr.com Web site relating to this offering is not a part
of this prospectus and should not be relied upon by prospective investors.
E*OFFERING Corp., one of the underwriters, will allocate for distribution by
E*TRADE Securities, Inc. a portion of the shares that E*OFFERING is underwriting
in this offering. Copies of the prospectus in electronic format, from which you
can link to a "Meet the Management" presentation through an embedded hyperlink,
will be made available on Internet Web site, maintained by E*OFFERING Corp. and
E*TRADE Securities, Inc. Customers of E*TRADE Securities, Inc. who complete and
pass an online eligibility profile may place conditional offers to purchase
shares in this offering through E*TRADE's Internet Web site.
MCSI SUBSCRIPTION PROGRAM
As part of this offering, we are offering shares of our common
stock in the MCSi Subscription Program to stockholders of MCSi, our parent
company and principal stockholder. MCSi's stockholders may subscribe for one
share of common stock for every shares of MCSi common stock held by them,
and may not transfer the opportunity to subscribe to another person except
involuntarily by operation of law. Persons who owned at least 100 shares of MCSi
common stock as of , 2000 are eligible to purchase shares from us under
the program. Shareholders who own less than 100 shares of MCSi common stock will
be ineligible to participate in the MCSi Subscription Program.
Under a standby purchase agreement, MCSi will purchase from us any of the
shares offered by us under the program that are not purchased by the
stockholders of MCSi. Distribution of share certificates purchased through the
MCSi Subscription Program will be made to the purchasers as soon as practicable
following closing of the sale of the shares to the public. It is expected that
sales under the MCSi Subscription Program will be reflected in purchasers'
book-entry accounts at the Depository Trust Company, if any, upon the closing of
these sales. After the closing of these sales, we will mail stock certificates
to all purchasers who do not maintain book-entry accounts at the Depository
Trust Company. Prior to this offering, MCSi owned % of our common stock.
After this offering, MCSi will own approximately % of our common stock,
assuming that shares are purchased in the subscription program. The
purchase price under the program, whether paid by MCSi stockholders
72
<PAGE>
or MCSi, will be the same price per share as set forth on the cover page of this
prospectus. All shares will be sold to stockholders of MCSi or to MCSi. MCSi
will not receive any compensation from Zengine or any other person, with respect
to this offering, including any underwriting discounts or commissions.
The total proceeds before expenses to be received by Zengine from both the
underwritten public offering and the MCSi Subscription Program will be
approximately $ million, assuming no exercise of the over-allotment option.
73
<PAGE>
The expenses of the MCSi Subscription Program are estimated at $ and
are payable by us. The total expenses for the offering, including the expenses
associated with the underwritten public offering, are estimated at approximately
$ million.
MCSi is an underwriter with respect to the shares included in the MCSi
Subscription Program. MCSi is not an underwriter with respect to the other
shares offered by this prospectus. MCSi is not included in the term
"underwriter" as used in this prospectus. MCSi's sole condition to purchase any
shares that are not purchased by its stockholders in the MCSi Subscription
Program is that the conditions to the underwriter's obligation have been met.
This means that MCSi will be required to purchase these shares if, and only if,
the underwriters are obligated to purchase shares in the underwritten public
offering. MCSi has not participated in any discussions or negotiations with
Zengine and the underwriters regarding the initial public offering price. MCSi
will not have any right to seek indemnification from Zengine regarding its
agreement to accept underwriter liability with respect to the shares included in
the MCSi Subscription Program.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Sidley & Austin, Chicago, Illinois.
EXPERTS
The financial statements of Zengine, Inc., as of September 30, 1999 and
February 29, 2000, and for each of the periods from inception (January 1, 1999)
to September 30, 1999 and from October 1, 1999 to February 29, 2000 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement, as amended, on
Form S-1 under the Securities Act with respect to the shares of our common stock
offered hereby. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedules thereto. Some
items are omitted in accordance with the rules and regulations of the SEC. For
further information about us and our common stock, reference is made to the
registration statement and the exhibits and any schedules filed therewith.
Statements contained in this prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance, if
such contract or document is filed as an exhibit, reference is made to the copy
of such contract or other documents filed as an exhibit to the registration
statement, each statement being qualified in all respects by such reference. A
copy of the registration statement, including the exhibits and schedules
thereto, may be read and copied at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices at Seven
World Trade Center, New York, New York 10048 and 500 West Madison Street,
Chicago, Illinois 60661. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains an Internet site at http://www.sec.gov, from which interested persons
can electronically access the registration statement, including the exhibits and
any schedules thereto.
Subject to the foregoing, you should rely only on the information contained
in this prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus. The information
contained in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any sale of common
stock.
74
<PAGE>
As a result of this offering, we will become subject to the full
informational requirements of the Securities Exchange Act of 1934, as amended.
We will fulfill our obligations with respect to such requirements by filing
periodic reports and other information with the SEC. We intend to furnish our
stockholders with annual reports containing consolidated financial statements
certified by an independent public accounting firm. We also maintain our
Internet site at http://www.zengine.com. Our Internet site and the information
contained therein or connected thereto shall not be deemed to be incorporated
into this prospectus or the registration statement of which it forms a part.
Our name, logo, KORE, KOG and certain other tag lines, titles and logos of
our products and other products and services mentioned in this prospectus are
either our trademarks or service marks or trademarks or service marks that have
been licensed to us or are owned by others. Each trademark, trade name or
service mark of any other company appearing in this prospectus belongs to its
holder.
75
<PAGE>
ZENGINE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
----------------
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets as of September 30, 1999 and February 29,
2000...................................................... F-3
Statements of Operations for the period from inception
(January 1, 1999) to September 30, 1999 and the five
months ended February 29, 2000............................ F-4
Statements of Changes in Stockholders' Equity for the period
from inception (January 1, 1999) to September 30, 1999 and
the five months ended February 29, 2000................... F-5
Statements of Cash Flows for the period from inception
(January 1, 1999) to September 30, 1999 and the five
months ended February 29, 2000............................ F-6
Notes to Financial Statements............................... F-7-F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Zengine, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' equity and cash flows present fairly, in
all material respects, the financial position of Zengine, Inc. ("Zengine"), a
majority owned subsidiary of Miami Computer Supply Corporation, at
September 30, 1999 and February 29, 2000, and the results of its operations and
its cash flows for the period from inception (January 1, 1999) to September 30,
1999 and the five months ended February 29, 2000 in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of Zengine's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Cincinnati, Ohio
April 7, 2000
F-2
<PAGE>
ZENGINE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, FEBRUARY 29,
1999 2000
------------- ------------
<S> <C> <C>
Assets:
Current assets:
Cash.................................................... $ 406 $ 86,122
Accounts receivable..................................... -- 663,055
Amounts receivable from MCSi (Note 4)................... -- 2,731,582
Other current assets.................................... -- 460,774
----------- -----------
Total current assets.................................. 406 3,941,533
Property and equipment, net of accumulated depreciation... 15,113 38,082
Capitalized software costs, net of accumulated
amortization............................................ 339,801 398,115
Other assets.............................................. -- 175,000
----------- -----------
Total assets.......................................... $ 355,320 $ 4,552,730
=========== ===========
Liabilities and stockholders' equity:
Liabilities:
Accrued expenses (Note 6)............................... $ 92,573 $ 444,991
Deferred revenue........................................ -- 23,333
----------- -----------
Total liabilities..................................... 92,573 468,324
----------- -----------
Commitments and contingencies (Notes 3 and 4)............. -- --
Stockholders' equity:
Common stock, no par value, 5,000,000 shares authorized,
1,800,000 shares issued and outstanding at September
30, 1999 and February 29, 2000........................ -- --
Additional paid-in capital.............................. 1,301,895 5,462,319
Unearned compensation................................... (105,525) (89,829)
Accumulated deficit..................................... (933,623) (1,288,084)
----------- -----------
Total stockholders' equity............................ 262,747 4,084,406
----------- -----------
Total liabilities and stockholders' equity............ $ 355,320 $ 4,552,730
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ZENGINE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JANUARY 1, FIVE MONTHS
1999) ENDED
TO SEPTEMBER 30, FEBRUARY 29,
1999 2000
---------------- ------------
<S> <C> <C>
Revenue..................................................... $ 4,089 $ 1,812,954
Cost of revenue............................................. 23,511 224,891
----------- -----------
Gross profit (loss)......................................... (19,422) 1,588,063
Selling, general and administrative expenses................ 914,201 2,010,584
----------- -----------
Loss from operations........................................ (933,623) (422,521)
Interest income............................................. -- 68,060
----------- -----------
Loss before income taxes.................................... (933,623) (354,461)
Provision for income taxes (Note 5)......................... -- --
----------- -----------
Net loss.................................................... $ (933,623) $ (354,461)
=========== ===========
Loss per share of common stock -- basic and diluted......... $ (.59) $ (.22)
=========== ===========
Weighted average number of common shares
outstanding -- basic and diluted.......................... 1,580,877 1,636,944
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ZENGINE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
SHARES PAID-IN UNEARNED ACCUMULATED
OUTSTANDING CAPITAL COMPENSATION DEFICIT TOTAL
----------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Incorporation of the Company..... 1,500,000 $ 1,000 $ -- $ -- $ 1,000
Capital contributions from MCSi
(Note 4)....................... -- 1,105,887 -- -- 1,105,887
Stock based compensation (Note
7)............................. 300,000 195,008 (195,008) -- --
Amortization of stock based
compensation (Note 7).......... -- -- 89,483 -- 89,483
Net loss......................... -- -- -- (933,623) (933,623)
--------- ---------- --------- ----------- ----------
Balance at September 30, 1999.... 1,800,000 1,301,895 (105,525) (933,623) 262,747
Contribution of shares by MCSi
(Note 3)....................... (266,666) -- -- -- --
Sale of common stock, net of
related costs (Note 3)......... 266,666 3,871,049 -- -- 3,871,049
Amortization of stock based
compensation (Note 7).......... -- -- 15,696 -- 15,696
Amortization of put option
written by MCSi (Note 3)....... -- 289,375 -- -- 289,375
Net loss......................... -- -- -- (354,461) (354,461)
--------- ---------- --------- ----------- ----------
Balance at February 29, 2000..... 1,800,000 $5,462,319 $ (89,829) $(1,288,084) $4,084,406
========= ========== ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ZENGINE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION FIVE MONTHS
(JANUARY 1, 1999) ENDED
TO SEPTEMBER 30, FEBRUARY 29,
1999 2000
------------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (933,623) $ (354,461)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization........................... 21,491 353,464
Non-cash compensation expense........................... 89,483 15,696
Changes in assets and liabilities:
Accounts receivable................................... -- (663,055)
Deferred revenue...................................... -- 23,333
Accrued expenses...................................... 92,573 352,418
Other assets.......................................... -- (635,774)
----------- -----------
Cash used in operating activities................... (730,076) (908,379)
----------- -----------
Cash flows from investing activities:
Capital expenditures...................................... (16,140) (28,626)
Capitalized software costs................................ (360,265) (116,746)
Issuance of demand note--MCSi............................. -- (2,731,582)
----------- -----------
Cash used in investing activities................... (376,405) (2,876,954)
----------- -----------
Cash flows from financing activities:
Sale of common stock to MCSi.............................. 1,000 --
Capital contributions from MCSi........................... 1,105,887 --
Sale of common stock, net of related expenses............. -- 3,871,049
----------- -----------
Cash provided by financing activities............... 1,106,887 3,871,049
----------- -----------
Net increase in cash........................................ 406 85,716
Cash--beginning of period................................... -- 406
----------- -----------
Cash--end of period......................................... $ 406 $ 86,122
=========== ===========
Supplemental cash flow information:
Income taxes paid......................................... $ -- $ --
=========== ===========
Interest paid............................................. $ -- $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ZENGINE, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Zengine, Inc. (the "Company") commenced operations in January 1999 as a
division of Miami Computer Supply Corporation ("MCSi") and was incorporated as
BuySupply.com, Inc. ("BuySupply"), a wholly owned subsidiary of MCSi in
March 1999. BuySupply changed its name to Zengine, Inc. in September 1999. At
September 30, 1999 and February 29, 2000, MCSi owned 83.3% and 68.5%,
respectively, of the outstanding shares of the Company. As BuySupply, the
Company sold computer supplies and audio-visual equipment over the Internet. In
the Spring of 1999, the Company began to develop the Zengine business model
(described below) and implemented it throughout the Summer and Fall of 1999,
while maintaining its Internet operations. Subsequent to September 30, 1999, the
Company focused its efforts solely on implementing the Zengine business model
and no longer utilizes the BuySupply model. The Company emerged from the
development stage during the five month period ended February 29, 2000 as it
began to earn revenues from the Zengine business model. Start-up costs incurred
in the preoperating stage were expensed as incurred. The Company has adopted a
fiscal year ending September 30, and these financial statements cover the period
January 1, 1999 through September 30, 1999 and the five month period ended
February 29, 2000.
The Company provides a comprehensive suite of technology-based solutions
that enable businesses to conduct electronic commerce. The Company's solutions,
delivered on an outsourced and private label basis, allow its clients to quickly
and cost-effectively create, maintain and enhance enterprise wide e-commerce
platforms. The Company offers a full range of integrated services for both
business-to-business, and business-to-consumer e-commerce including Web site
user interface design, product content and merchandising, personalization and
customer relationship management, advertising and sponsorship management, order
management, inventory management and order fulfillment, end-user customer
service and reporting and analysis. These solutions allow the Company's clients
to build, manage and understand online customer relationships and to market,
sell and support products and service more effectively. The Company provides its
services on an outsourced basis that is brand transparent to the end-user,
allowing clients to leverage the Company's technology and infrastructure for
their own branded e-commerce platform.
The Company has looked to MCSi for financial and business support since its
inception. Through September 30, 1999 MCSi contributed $1,106,887 to the capital
of the Company; no capital has been contributed by MCSi since September 30,
1999. Revenues for the five month period ended February 29, 2000 include
$978,365 of revenue from the administration of MCSi's business-to-business
dedicated Web sites under an e-commerce services agreement. In addition,
advertising revenue of $798,737 for the five month period ended February 29,
2000 was generated primarily from the sale of product placement and banner
advertisements to OEM suppliers with whom MCSi has supply agreements, under
arrangements facilitated by MCSi and negotiated by the Company. The Company also
conducts business with MCSi under a distribution services agreement,
administrative services agreement and sublease and equipment leasing agreements.
All of these transactions are more fully described in Note 4.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenues are recognized when goods are shipped or services are performed and
accepted by the customer. Revenues for the nine month period ended
September 30, 1999 represent revenues of the
F-7
<PAGE>
ZENGINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BuySupply business model. Subsequent to October 1, 1999, all revenues were
derived from the Zengine business model.
Revenues under the Zengine business model are comprised of (a) service fees,
which include integration and set-up fees, transaction fees and monthly
subscription fees, and (b) advertising fees. Revenues are recognized as follows:
SERVICE FEES
INTEGRATION AND SET-UP FEES
The Company provides integration and set-up services to its clients. Under
these arrangements, services may include the development or design of a client's
Web site, migration of the client's current Web site content to the Company's
technology, integration of the client's Web site to the client's current
computer systems, or other similar activities. To the extent that these fees are
associated with a contract to provide subsequent outsourced transaction-based
services to a client, these fees are recognized ratably over the term of the
transaction services agreement. Otherwise, revenue is recognized when the
service is completed, the client has accepted the service and there is no future
obligation to provide any additional service.
TRANSACTION FEES
The Company provides outsourced transaction-based services to customers such
as providing product content and merchandising, invoice processing, order
management, custom fulfillment and end-user customer service on a commission
basis. Pursuant to the Company's arrangements with its first two third party
clients, commission revenue is determined as a percentage of the gross margin on
the sales value to the end customer. Under all subsequent arrangements,
commission revenue is based on a percentage of net sales value to the end
customer. Revenue from transaction fees is recognized when the service is
completed.
MONTHLY SUBSCRIPTION FEES
To date the Company has not generated any revenues from subscription fees.
Subscription arrangements provide for maintenance and related services for a
fee. Revenue from subscription fees will be recognized ratably over the term of
the subscription.
ADVERTISING AND SPONSORSHIP FEES
Revenues from advertising take the form of fees when the Company sells
banner advertising or product placement advertising on clients' Web sites. These
arrangements call for continuous advertising or product placement over a certain
time period and are not contingent upon events such as obtaining certain levels
of sales, Web site visits or other factors. Revenue is recognized ratably over
the period of the advertising/placement services based on the fulfillment of
obligations under the advertising/ placement arrangement.
F-8
<PAGE>
ZENGINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SUMMARY
Revenue for the nine month period ended September 30, 1999 and the five
month period ended February 29, 2000 is summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS FIVE MONTHS
ENDED ENDED
SEPTEMBER 30, FEBRUARY 29,
1999 2000
-------------- -------------
<S> <C> <C>
Service fees........................................ $ -- $1,014,217
Advertising and sponsorship fees.................... -- 798,737
Product sales....................................... 4,089 --
------ ----------
$4,089 $1,812,954
====== ==========
</TABLE>
COST OF REVENUE
Cost of revenue consists of the salaries, employee benefits and related
expense of employees who work on site preparation and on providing outsourcing
services to clients. It also includes the depreciation of the computer hardware
and software utilized in providing these services and the three percent
distribution fee charged by MCSi, which is described in Note 4.
PROPERTY AND EQUIPMENT
Property and equipment primarily consists of computer technology equipment
and is stated at cost, less accumulated depreciation. Depreciation is computed
on the straight-line method over the estimated useful lives of the assets
(currently, three years for all assets). At September 30, 1999 and February 29,
2000, accumulated depreciation totaled $1,027 and $6,684, respectively.
Depreciation expense totaled $1,027 and $5,657, respectively, for the nine month
period ended September 30, 1999 and the five month period ended February 29,
2000.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," costs to develop the
Company's software have been capitalized subsequent to the Company determining
that technological feasibility of the software had been achieved. Software
development costs are being amortized over a three year period on a
straight-line basis, subject to tests for ultimate realizability based on future
estimated revenues. At September 30, 1999 and February 29, 2000, accumulated
amortization totaled $20,464 and $78,896, respectively. Amortization expense
totaled $20,464 and $58,432, respectively, for the nine month period ended
September 30, 1999 and the five month period ended February 29, 2000.
OTHER ASSETS
Other assets include the Company's prepayments to a client for the
contractual right to be the sole audio visual store provider for the client.
These costs are being charged to expense on a straight-line basis over the two
year term of the related arrangement and total $475,000 ($300,00 and $175,000 of
F-9
<PAGE>
ZENGINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
other current assets and other assets, respectively) at February 29, 2000. The
remainder of the other assets relate to the Company's prepayment of fees
relating to its planned initial public offering.
INCOME TAXES
Through September 30, 1999, the Company was included in the consolidated
income tax return of MCSi. The provision for income taxes is computed on a
separate company basis. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the tax bases of assets and liabilities. The
Company records a valuation allowance related to its deferred income tax assets
when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed as if the Company had been
incorporated on January 1, 1999. Basic per share amounts represent the weighted
average number of shares outstanding during the period, while diluted per share
amounts give effect to the conversion of all other convertible equity securities
(stock options and stock awards) to the extent their assumed conversion is not
anti-dilutive. For the periods October 1, 1999 through February 29, 2000 and
January 1, 1999 through September 30, 1999, the assumed conversion of stock
options (190,494 and 25,013, respectively) and stock awards (153,845 and
169,230, respectively) were excluded from diluted loss per share because their
assumed conversion was anti-dilutive.
The following table summarizes the shares included in the basic and diluted
loss per share calculations.
<TABLE>
<CAPTION>
NINE MONTHS FIVE MONTHS
ENDED ENDED
SEPTEMBER 30, FEBRUARY 29,
1999 2000
-------------- -------------
<S> <C> <C>
Net loss for the period................................. $ (933,623) $ (354,461)
========== ==========
Weighted average number of shares outstanding--basic.... 1,580,877 1,636,944
Dilutive impact of assumed conversion exercises......... -- --
---------- ----------
Weighted average number of shares
outstanding--diluted.................................. 1,580,877 1,636,944
========== ==========
Loss per share--basic and diluted....................... $ (.59) $ (.22)
========== ==========
</TABLE>
COMPREHENSIVE INCOME (LOSS)
The Company has no components of other comprehensive income; accordingly,
net loss and comprehensive loss are the same.
CONCENTRATIONS OF CREDIT RISK
The Company's operations are presently conducted in North America. While the
Company intends to expand the scope of its operations internationally, no such
activity had occurred through
F-10
<PAGE>
ZENGINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
February 29, 2000. At February 29, 2000, accounts receivables totaled $663,055.
Based on management's assessment, accounts receivable are collectible in full,
and no allowance for uncollectible accounts is considered necessary. Accounts
receivable are recorded net of amounts owed to the Company's clients as the
right of offset of gross receivables and payables exists between the parties.
During the five month period ended February 29, 2000, in addition to revenues
from MCSi, one other customer accounted for 10.2% of revenue. Management
monitors its credit risks using policies it considers appropriate in the
circumstances.
FAIR VALUES AND DERIVATIVE TRANSACTIONS
The Company believes that the fair value of its monetary assets and
liabilities approximates the carrying value in these financial instruments. The
Company does not engage in derivative transactions.
STOCK COMPENSATION
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and has provided in Note 7
the pro forma disclosures of the effect on net income (loss) and earnings (loss)
per common share as if the fair value-based method had been applied in measuring
compensation expense.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the periods.
Actual results could differ from these estimates.
3. EQUITY TRANSACTIONS
In October 1999, the Company sold to one of its clients and an unrelated
investor (the "investors") 266,666 shares of common stock of the Company at a
price of $15 per share for total gross proceeds of $4,000,000 (net proceeds,
after offering costs, were $3,871,049). MCSi cancelled 266,666 shares of the
Company it owned to facilitate this transaction. MCSi has provided the investors
with a put option whereby the investors can require MCSi to repurchase the
Company shares which they acquired in this transaction at a price of $22.81 per
share. This put option is not exercisable until after September 30, 2002 and
expires on September 30, 2004. Upon an initial public offering of the Company's
common stock with net proceeds in excess of $25 million, the investors have
agreed to waive the put option. The Company is accreting the difference between
the sales price of the stock in this transaction and its redemption amount over
the period ending September 30, 2002. This accretion takes the form of a charge
against earnings and equates to an annual charge of $694,500; $289,375 was
charged to expense during the five month period ending February 29, 2000. There
is no agreement or arrangement whereby the Company will advance funds to MCSi in
the event the put option is exercised.
In connection with the transaction described in the preceding paragraph, the
Company paid $600,000 to the client for the contractual right to be the sole
audio visual store provider to the client.
F-11
<PAGE>
ZENGINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. EQUITY TRANSACTIONS (CONTINUED)
The amount was capitalized as other assets and is being charged to expense on a
straight-line basis over the term of the arrangement. In addition, the Company
has committed to purchase $3,400,000 of advertising services over 24 months
beginning in December 1999 from one of the investors in monthly installments of
$141,667. The Company is recognizing the expense associated with this
advertising program as the advertising services are provided on a straight-line
basis over the term of the agreement.
In conjunction with an e-commerce services agreement entered into with one
of the Company's clients in February 2000, the Company and the client agreed
that the client would be granted a warrant to purchase the Company shares if the
Company completes an initial public offering ("IPO"). If granted, the warrant
will entitle the client to purchase the lesser of 600,000 shares, or 1.7% of
outstanding shares of the Company subsequent to the IPO, at the IPO price. The
warrant would be exercisable for a three year period, commencing on the date of
grant. Since the issuance of this warrant is based upon uncertain future events,
these financial statements do not reflect any accounting relative to this
warrant.
4. RELATED PARTY TRANSACTIONS
Effective October 1, 1999, the Company entered into an e-commerce services
agreement with MCSi for a two year period. Under the terms of the e-commerce
agreement, the Company receives a commission equal to 10% of retail value of
products sold through MCSi's dedicated customer Web sites ("Web sites") in
exchange for the Company designing, enhancing and providing certain support
services for these Web sites.
Additionally, effective October 1, 1999, the Company entered into three
other agreements with MCSi; these are (a) a distribution services agreement
whereby the Company will pay MCSi a fee of three percent of the retail value of
the goods sold to or through third party clients for which MCSi performs the
fulfillment and distribution function, (b) an administrative services agreement
whereby the Company will be charged $720,000 per year in reimbursement for
treasury and cash management services, accounting services, corporate
development services, risk management and administrative insurance services,
benefit plan design services, human resources and compensation services, Web
site population services and advertising sales services costs which MCSi incurs
for the Company's benefit, and (c) a leasing agreement whereby the Company will
pay MCSi $125,000 per year to lease corporate offices and $25,000 per year to
lease certain personal property. These agreements between the Company and MCSi
have a two year term, except for the leasing agreement, which expires on May 1,
2001.
F-12
<PAGE>
ZENGINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
The income statement for the five months ended February 29, 2000 includes
the following relative to these transactions with MCSi:
<TABLE>
<S> <C>
Revenues associated with the e-commerce services
agreement................................................. $978,365
========
Cost of revenues associated with the distribution services
agreement................................................. $ 3,141
========
Expenses associated with the administrative services
agreement and leasing agreement:
Cost of revenue........................................... $ 40,000
Selling, general and administrative expenses.............. 322,500
--------
$362,500
========
</TABLE>
Using the proceeds from the sale of stock described in Note 3, in October,
1999, the Company and MCSi entered into a demand note arrangement ("Demand
Note"), whereby the Company loaned $3,871,049 to MCSi. The demand note is
payable on demand and accrues interest quarterly at the Merrill Lynch Ready
Asset Trust rate (5.27% at February 29, 2000).
In December 1999, MCSi purchased advertising of $47,000 from the Company. In
addition, advertising revenue of $798,737 for the nine months ended
February 29, 2000 was generated primarily from the sale of product placement and
banner advertisments to OEM suppliers with whom MCSi has supply arrangements.
With respect to all of its transactions with MCSi, the Company and MCSi have
agreed to a monthly "net" settlement. The following table summarizes the net
receivable due from MCSi related to the aforementioned agreements as of
February 29, 2000:
<TABLE>
<S> <C>
Net amount receivable from MCSi arising from the Demand
Note...................................................... $3,871,049
Amounts receivable from MCSi arising from the e-commerce
services agreement........................................ 978,365
Amounts receivable arising from advertising services........ 47,000
Amounts receivable arising from interest on the Demand
Note...................................................... 68,060
Accounts payable arising from current account activity...... (1,867,251)
Amounts payable to MCSi arising from the distribution
services agreement........................................ (3,141)
Amounts payable to MCSi arising from the administrative
services and the leasing agreement........................ (362,500)
----------
Net amount receivable from MCSi............................. $2,731,582
==========
</TABLE>
Amounts payable arising from current account activity include trade accounts
payable and other expenses of the Company which are being paid by MCSi on the
Company's behalf. Accordingly, no separate trade accounts payable are included
on the accompanying balance sheet.
F-13
<PAGE>
ZENGINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
As a result of entering into the leasing agreement with MCSi, the Company is
committed to the following minimum lease payments for the periods presented
below:
<TABLE>
<S> <C>
Seven months ended September 30, 2000....................... $ 87,500
Year ended September 30, 2001............................... 100,000
--------
Total..................................................... $187,500
========
</TABLE>
Through September 30, 1999 the Company looked to MCSi for many of the
services it currently receives under the administrative services agreement
entered into effective October 1, 1999. These included administrative services
such as treasury, payroll, accounting and financial support functions. The
financial statements for the nine month period ended September 30, 1999 include
charges for these services from MCSi totalling $435,623 and have been allocated
from MCSi to the Company on a basis which management believes is reasonable in
the circumstances.
Through September 30, 1999 MCSi had contributed to the Company, as capital,
all of the financial support it had provided rather than loaning funds to the
Company. The following table summarizes the interest free financial support that
MCSi provided to the Company on a monthly basis from January 1999 through
September 30, 1999 that has been recorded as additional paid in capital:
<TABLE>
<S> <C>
January......................................... $ 56,782
February........................................ 39,609
March........................................... 14,941
April........................................... 140,616
May............................................. 106,822
June............................................ 149,664
July............................................ 137,447
August.......................................... 239,987
September....................................... 220,019
----------
$1,105,887
==========
</TABLE>
Prior to entering into the leasing agreement effective October 1, 1999, the
Company operated from premises leased to it, on a month to month basis, by MCSi.
During the period ended September 30, 1999, MCSi charged the Company $77,497 for
rental of these facilities.
The employees of the Company are permitted to participate in MCSi's defined
contribution pension plan. This plan covers substantially all employees, who
meet certain eligibility requirements, and the Company's expense related thereto
comprises matches to employee contributions to the Plan, limited to a percent of
the employees' compensation. Expenses under the plan were nil and $3,102,
respectively, for the nine month period ended September 30, 1999 and the five
month period ended February 29, 2000.
F-14
<PAGE>
ZENGINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
From January 1, 1999 through February 29, 2000 the Company paid no income
taxes and had no provision for income taxes due to its operating losses since
inception. The components of the provision for income taxes follows:
<TABLE>
<CAPTION>
NINE MONTHS FIVE MONTHS
ENDED ENDED
SEPTEMBER 30, FEBRUARY 29,
1999 2000
-------------- -------------
<S> <C> <C>
Current
U.S. Federal...................................... $ -- $ --
State and local................................... -- --
--------- --------
Total current provision......................... -- --
--------- --------
Deferred
U.S. Federal...................................... (326,767) (22,779)
State and local................................... (28,009) (1,952)
Valuation allowance............................... 354,776 24,731
--------- --------
Total deferred provision........................ -- --
--------- --------
Total provision for income taxes................ $ -- $ --
========= ========
</TABLE>
A summary of the components of deferred income taxes follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, FEBRUARY 29,
1999 2000
------------- ------------
<S> <C> <C>
Start up costs.................................... $ 347,396 $ 318,446
Net operating losses.............................. 132,316 208,039
Stock based compensation.......................... 4,188 4,306
Capitalized software.............................. (129,124) (151,284)
Valuation allowance............................... (354,776) (379,507)
--------- ---------
$ -- $ --
========= =========
</TABLE>
Startup costs above relate to selling, general and administrative costs
which the Company incurred in its development stage and were expensed in the
Company's income statement, but must be capitalized and amortized to expense
over a five year period for income tax purposes. The Company began amortizing
these costs for tax purposes as it generated revenue from its planned business
activities during the five month period ended February 29, 2000.
The Company has provided a valuation allowance against its net deferred tax
assets because management, at the present time, is of the view that it is more
likely than not that these assets will not be realized. The Company's effective
tax rate differs from the expected statutory rate by virtue of the inability to
currently deduct net operating losses and the valuation allowance described
above. The Company's net operating losses of $348,200 and $547,471 at
September 30, 1999 and February 29, 2000, respectively, are subject to
carryfoward provisions which expire from 2014 through 2015.
F-15
<PAGE>
ZENGINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. ACCRUED LIABILITIES
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, FEBRUARY 29,
1999 2000
------------- ------------
<S> <C> <C>
Payroll and payroll related costs................... $36,317 $105,957
Advertising costs................................... -- 283,334
Other............................................... 56,256 55,700
------- --------
$92,573 $444,991
======= ========
</TABLE>
7. STOCK COMPENSATION AND RELATED MATTERS
In March 1999, the Company granted to three key executives a total of
300,000 shares of common stock. These grants vest one third commencing on the
date of grant and ratably thereafter, on a quarterly basis, through June 30,
2002. Based on an independent appraisal of the fair value of the shares granted,
the Company will recognize compensation expense of $180,000 over the vesting
period, of which $78,462 was recognized during the nine month period ended
September 30, 1999 and $15,385 was recognized during the five month period ended
February 29, 2000.
In August 1999, the Board of Directors formally adopted the Zengine 1999
Stock Option Plan (the "Plan") which had been in effect since March 1999. The
Plan provides that up to 200,000 options to purchase common stock of the Company
may be granted to employees and others. Options may be granted with exercise
prices equivalent to the estimated fair value of the stock on the grant date,
although options granted prior to August 31, 1999, were granted with a exercise
price of $0.51 per share when the estimated fair value of the shares was $0.60.
The grants with exercise prices less than the fair market value of the stock
will result in aggregate compensation charges over the vesting period of $15,008
and resulted in compensation charges of $311 and $11,021 for the five months
ended February 29, 2000 and the nine months ended September 30, 1999,
respectively. Vesting occurs ratably over a four-year period, although two
grants totaling 120,000 options vested on the date of grant. All options expire,
if not exercised, ten years from the date of grant. At February 29, 2000, 6,750
options remain which could be granted under the Plan.
The following table summarizes activity in the stock option plan in number
of shares:
<TABLE>
<CAPTION>
NINE MONTHS FIVE MONTHS
ENDED ENDED
SEPTEMBER 30, FEBRUARY 29,
1999 2000
-------------- -------------
<S> <C> <C>
Outstanding, beginning balance...................... -- 166,750
Granted............................................. 166,750 27,000
Exercised........................................... -- --
Expired............................................. -- --
Forfeited........................................... -- (500)
------- -------
Outstanding, ending balance......................... 166,750 193,250
======= =======
</TABLE>
F-16
<PAGE>
ZENGINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCK COMPENSATION AND RELATED MATTERS (CONTINUED)
At February 29, 2000, 120,000 options were exercisable. Outstanding stock
options at February 29, 2000 were exercisable at the following amounts per
share: $25 (13,000 shares), $15 (13,500 shares) and $0.51 (166,750 shares).
The following table illustrates the impact, on a pro forma basis, on the
Company's net loss and net loss per share assuming the fair value based method
of stock based compensation had been followed by the Company for all stock-based
compensation transactions.
<TABLE>
<CAPTION>
NINE MONTHS FIVE MONTHS
ENDED ENDED
SEPTEMBER 30, FEBRUARY 29,
1999 2000
------------- ------------
<S> <C> <C>
As reported:
Net loss........................................ $(933,623) $(354,461)
========= =========
Loss per share (basic and diluted).............. $ (.59) $ (.22)
========= =========
Pro forma:
Net loss........................................ $(948,140) $(360,808)
========= =========
Loss per share (basic and diluted).............. $ (.60) $ (.22)
========= =========
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value option pricing model, as the Company has no history of stock
price volatility, with the following assumptions:
<TABLE>
<CAPTION>
NINE MONTHS FIVE MONTHS
ENDED ENDED
SEPTEMBER 30, FEBRUARY 29,
1999 2000
------------------- -------------------
<S> <C> <C>
Expected term.................................. 5 years 5 years
Risk-free interest rate........................ 5.41%-6.07% 6.06%-6.47%
Dividend yield................................. 0.00% 0.00%
</TABLE>
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
WHICH IS SET FORTH IN THIS PROSPECTUS. WE ARE OFFERING TO SELL SHARES OF COMMON
STOCK AND SEEKING OFFERS TO BUY SHARES OF COMMON STOCK ONLY IN JURISDICTIONS
WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE
TIME OF DELIVERY OF THE PROSPECTUS OR OF ANY SALE OF COMMON STOCK.
-------------------
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
SHARES
ZENGINE, INC.
(LOGO)
COMMON STOCK
-----------------
PROSPECTUS
, 2000
-------------------
WILLIAM BLAIR & COMPANY
FRIEDMAN BILLINGS RAMSEY
E*OFFERING
MORGAN KEEGAN & COMPANY, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission registration fee and the NASD
registration fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- --------
<S> <C>
Securities and Exchange Commission registration fee......... $ 15,840
NASD registration fee....................................... 6,500
Nasdaq Stock Market listing fees............................ *
Blue Sky qualification fees and expenses.................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer agent and registrar fees........................... *
Printing and engraving expenses............................. *
Miscellaneous expenses...................................... *
--------
Total................................................. $ *
========
</TABLE>
- ------------------------
* To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Zengine is incorporated under the laws of the State of Delaware.
Section 145 ("Section 145") of the General Corporation Law of the State of
Delaware (the "General Corporation Law") provides that a Delaware corporation
may indemnify any persons who were, are or are threatened to be made, parties to
any threatened pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his conduct was illegal.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
Zengine's amended and restated certificate of incorporation and amended and
restated bylaws provide for the indemnification of officers and directors to the
fullest extent permitted by the General Corporation Law.
II-1
<PAGE>
Zengine anticipates that all of its directors and officers will be covered
by insurance policies against certain liabilities for actions taken in their
capacities as such, including liabilities under the Securities Act of 1933, as
amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since the Registrant's incorporation on March 2, 1999, it has issued
unregistered securities to a limited number of persons as described below:
(1) In connection with its incorporation, the Registrant issued 10,000
shares of common stock to Miami Computer Supply Corporation for an
aggregate of $1,000, and other non-monetary consideration.
(2) On September 14, 1999, the Registrant issued 100,000 shares of common
stock to each of Joseph M. Savarino, Lalit P. Dhadphale and Christopher
Feaver, pursuant to employment agreements entered into between the
recipients and the Registrant and 1,590,000 shares to Miami Computer
Supply Corporation for non-monetary consideration, 366,666 of which
shares were surrendered back to the Registrant on September 29, 1999.
(3) On October 1, 1999, the Registrant sold 133,333 shares of common stock
to Wilblairco Associates for $2.0 million.
(4) On October 1, 1999, the Registrant sold 133,333 shares of common stock
to At Home Corporation for $2.0 million.
(5) On January 21, 2000, in connection with the transactions contemplated by
a software services agreement with rexstores.com, Inc. and REX Stores
Corporation, the Registrant agreed to issue a warrant to REX Stores
Corporation to purchase the number of shares of common stock that is
equal to 1.7 percent of the number of shares outstanding on the day
immediately following the date on which this offering is completed (not
including the underwriters' overallotment option). The per share exercise
price of the warrant equals the initial public per share offering price
of this offering.
On September 29, 1999, the Registrant effected a 10-for-1 split of its
common stock. The numbers of shares described in this Item 15 already reflect
such stock split.
The Registrant believes that all of the above issuances were exempt from
registration under Section 4(2) of the Securities Act as transactions not
involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement*
1.2 Standby Stock Purchase Agreement
3.1 Amended and Restated Certificate of Incorporation
3.2 Amended and Restated Bylaws
4.1 Form of Common Stock Certificate of Zengine
4.2 Form of Warrant to Purchase Common Stock of Zengine
5.1 Opinion of Elias, Matz, Tiernan & Herrick L.L.P.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
10.1 Amended and Restated 1999 Stock Option Plan
10.2 Form of 2000 Employee Stock Purchase Plan
10.3 Administrative Services Agreement by and between MCSi and
Zengine dated as of October 1, 1999
10.4 Distribution Services Agreement by and between MCSi and
Zengine dated as of October 1, 1999
10.5 Sublease and Equipment Lease Agreement by and between MCSi
and Zengine dated as of October 1, 1999
10.6 Stock Purchase Agreement by and among Zengine, MCSi and
certain listed purchasers dated as of September 30, 1999
10.7 Registration Rights Agreement by and among Zengine, MCSi and
certain investors and founders dated as of September 30,
1999
10.8 Stockholders Agreement by and among Zengine, MCSi and
certain investors and option holders dated as of
September 30, 1999
10.9 E-commerce Services Agreement by and between MCSi and
Zengine dated October 1, 1999
10.10 Employment Agreement by and between Zengine, Inc. and Joseph
M. Savarino dated March 1, 1999
10.11 Employment Agreement by and between Zengine, Inc. and Latit
Dhadphale dated March 15, 1999
10.12 Employment Agreement by and between Zengine, Inc. and
Christopher Feaver dated March 8, 1999
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Elias, Matz, Tiernan & Herrick L.L.P.*
24.1 Power of Attorney (contained on Page II-5)
27.1 Financial Data Schedule
99.1 Form of letter from Zengine to holders of more than 100
shares of MCSi common stock describing the MCSi Subscription
Program
99.2 Form of letter from William Blair & Company to MCSi
stockholders
99.3 Form of letter from Zengine to brokers describing the MCSi
Subscription Program
99.4 Form of Subscription Form for MCSi Subscription Program
99.5 Consent of Excite@Home, Inc.
99.6 Consent of rexstores.com, Inc.
99.7 Consent of Everdream Corporation
99.8 MCSi Subscription Program Web site presentation
</TABLE>
- ------------------------
* To be filed by amendment.
II-3
<PAGE>
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set forth
therein is not applicable, is immaterial or is shown in the financial statements
included in the prospectus.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as the indemnification for liabilities arising under the Securities
Act of 1933 may be permitted as to directors, officers and controlling persons
of the Registrant pursuant to the provisions described in Item 14, or otherwise,
the Registrant has been advised that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payments by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fremont, State of
California, on May 4, 2000.
<TABLE>
<S> <C> <C>
/S/ JOSEPH M. SAVARINO
---------------------------------------------
Joseph M. Savarino
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes Joseph M. Savarino or Michael E. Peppel to execute in the name
of such person and to file any amendment to this Registration Statement that
Registrant deems appropriate, and appoints each such agent as his
attorney-in-fact to sign on his behalf individually and in each capacity stated
below and file all amendments and post-effective amendments to this Registration
Statement.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL E. PEPPEL Chairman of the Board
------------------------------------------- May 4, 2000
Michael E. Peppel
/s/ JOSEPH M. SAVARINO President, Chief Executive
------------------------------------------- Officer and Director (Principal May 4, 2000
Joseph M. Savarino Executive Officer)
Vice President, Chief Financial
/s/ LOUIS T. LIPINSKI Officer, Treasurer and
------------------------------------------- Secretary (Principal Financial May 4, 2000
Louis T. Lipinski and Accounting Officer)
/s/ ANTHONY W. LIBERATI Director
------------------------------------------- May 4, 2000
Anthony W. Liberati
/s/ DONALD B. HUTCHISON Director
------------------------------------------- May 4, 2000
Donald B. Hutchison
/s/ RICHARD V. HOPPLE Director
------------------------------------------- May 4, 2000
Richard V. Hopple
/s/ STACEY SNIDER Director
------------------------------------------- May 4, 2000
Stacey Snider
</TABLE>
II-5
<PAGE>
EXHIBIT 1.2
STANDBY STOCK PURCHASE AGREEMENT
BY AND BETWEEN
MIAMI COMPUTER SUPPLY CORPORATION
AND
ZENGINE, INC.
DATED JUNE __, 2000
<PAGE>
STANDBY STOCK PURCHASE AGREEMENT
THIS STANDBY STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into on this June _, 2000 between Miami Computer Supply Corporation, an
Ohio corporation ("MCSi"), and Zengine Inc., a Delaware corporation (the
"Company").
BACKGROUND
A. The Company is contemplating an initial public offering (the "Public
Offering") of its common stock, no par value (the "Common Stock"), through an
underwritten public offering lead by William Blair & Company as the
representative of the several underwriters (the "Underwriters").
B. In connection with the Public Offering the Company will offer
_______ shares of its Common Stock (the "Program Shares") directly to the
shareholders of MCSi pursuant to a share subscription program (the "Program").
C. If and to the extent any of the Program Shares are not subscribed
for or, if subscribed for, are not purchased by the shareholders of MCSi under
the Program, MCSi has agreed to purchase all such Program Shares directly from
the Company for its own account for investment purposes only on the terms and
subject to the conditions set forth herein.
D. Registrar and Transfer Company ("R&T") will act as the offering
agent for the Program and as the Company's transfer agent. The offering agent
will determine the record date shareholders eligible to participate in the
Program and will collect subscriptions and subscription payments from eligible
MCSi shareholders until 5:00 p.m. on the third business day following the date
the Company determines the initial public offering price for the Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, intending to be legally bound hereby, the parties
hereto hereby agree as follows:
1
<PAGE>
ARTICLE 1
THE TRANSACTION
1.1. Purchase and Purchase Price.
(a) In the event that any of the Program Shares are not subscribed for
or, if subscribed for are not purchased by the shareholders of
MCSi under the Program, MCSi shall, or shall cause any of its
wholly owned subsidiaries to, purchase these remaining shares.
(b) The purchase price for the Program Shares (the "Purchase Price")
shall be equal to the product of multiplying (i) the aggregate
number of Program Shares, by (ii) the price per share of Common
Stock sold pursuant to the Public Offering (the "IPO Price").
(c) MCSi shall transfer, or MCSi shall cause its wholly owned
subsidiary, to transfer, or shall cause R&T to pay out of
subscription funds received on behalf of MCSi's shareholders
participating in the Program, to the Company, an amount equal to
the Purchase Price on the day of the closing of the Public
Offering by wire transfer.
1.2. Closing.
(a) Time and Place. The closing under this Agreement (the "Closing")
will take place on the same date as the closing of the Public
Offering, at the offices of Elias, Matz, Tiernan & Herrick L.L.P.,
or at such other time, date or place as the parties shall mutually
agree. The date on which the Closing occurs is sometimes referred
to herein as the "Closing Date."
(b) Deliveries and Proceedings to the Offering Agent. On the Closing
Date, the Company shall instruct R&T to accept instructions from
___________, or her designee at MCSi, for:
(i) delivery of the subscription funds collected by the offering
agent to the extent not paid to the Company at the Closing.
(c) Deliveries and Proceedings to the Transfer Agent. On the Closing
Date, the Company shall instruct R&T to accept instructions from
____________, or her designee at MCSi, for:
(i) delivery of the shares of Program Shares purchased in the
Program; and
(ii)delivery to MCSi of the Program Shares not purchased by MCSi
shareholders.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to MCSi as follows:
2.1 Organization. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware.
2.2. Power and Authority. The Company has full corporate power and authority
to make, execute, deliver and perform this Agreement and the
transactions contemplated hereby.
2.3. Authorization and Enforceability. The execution, delivery and
performance of this Agreement by the Company have been duly authorized
by all necessary corporate action on the part of the Company,
2
<PAGE>
and this Agreement constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its
terms.
ARTICLE 3
REPRESENTATION AND WARRANTIES OF MCSI
MCSi represents and warrants to the Company as follows:
3.1 Organization. MCSi is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Ohio.
3.2. Power and Authority. MCSi has full corporate power and authority to
make, execute, deliver and perform this Agreement and the transactions
contemplated hereby.
3.3. Authorization and Enforceability. The execution, delivery and
performance of this Agreement by MCSi have been duly authorized by all
necessary corporate action on the part of MCSi, and this Agreement
constitutes the legal, valid and binding obligation of MCSi,
enforceable against MCSi in accordance with its terms.
3.4 Authorization and Approvals. All consents, approvals, authorizations
and orders necessary for the execution and delivery of this Agreement;
and MCSi, or an affiliate have full rights, power and authority to
enter into this Agreement as provided hereunder.
3.5 Investment Intent. MCSi represents, warrants and covenants that it is
acquiring the Program Shares for its own account, as a long-term
investment, and not with the view to resale or redistribution.
ARTICLE 4
CONDITIONS TO CLOSING; TERMINATION
4.1 Conditions Precedent to Obligations of MCSi. The obligations of MCSi to
proceed with the Closing are subject to the fulfillment prior to or at
Closing of the following conditions (any one or more of which may be
waived in whole or in part by MCSi at MCSi's option):
(a) Bringdown of Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and
correct on and as of the time of Closing, with the same force and
effect as though such representations and warranties had been made on,
as of and with reference to such time, and MCSi shall have received a
certificate, signed by an executive officer of the Company, to such
effect.
(b) Performance and Compliance. The Company shall have performed all of the
covenants and complied with all of the provisions required by this
Agreement to be performed or complied with by it on or before the
Closing, and MCSi shall have received a certificate, signed by any
executive officer, to such effect.
(c) Public Offering. The Closing of the Public Offering shall have
occurred.
4.2. Conditions Precedent to the Obligations of the Company. The obligations
of the Company to proceed with the Closing hereunder are subject to the
fulfillment prior to or at Closing of the following conditions (any one
or more of which may be waived in whole or in part by the Company at
the Company's option):
3
<PAGE>
(a) Bringdown of Representations and Warranties. The representations and
warranties of MCSi contained in this Agreement shall be true and
correct on and as of the time of Closing, with the same force and
effect as though such representations and warranties had been made on,
as of and with reference to such time, and MCSi shall have delivered to
the Company a certificate, signed by an executive officer of MCSi, to
such effect.
(b) Performance and Compliance. MCSi shall have performed all of the
covenants and complied with all the provisions required by this
Agreement to be performed or complied with by it on or before the
Closing and MCSi shall have delivered to the Company a certificate,
signed by any executive officer of MCSi, to such effect.
(c) Public Offering. The closing of the Public Offering shall have
occurred.
4.3. Termination.
(a) When Agreement May Be Terminated. This Agreement may be terminated at
any time prior to Closing:
(i) by mutual consent of MCSi and the Company; or
(ii) by MCSi or the Company, if the Company shall have withdrawn its
Registration Statement on Form S-1 relating to the Public
Offering.
(b) Effect of Termination. In the event of termination of this Agreement by
either MCSi or the Company, as provided above, this Agreement shall
forthwith terminate and there shall be no liability on the part of
either MCSi or the Company, except for liabilities arising from a
breach of this Agreement prior to such termination; provided, however,
that the obligations set forth in Article 5 hereof shall survive such
termination.
ARTICLE 5
CERTAIN ADDITIONAL COVENANTS
5.1 Indemnification.
(a) MCSi hereby agrees to indemnify the Company and its underwriters,
affiliates, officers, employees, representatives and directors (the
"Indemnified Persons") against, and hold them harmless from, any loss,
liability, claim, damage or expense, joint or several ("Losses"),
arising directly or indirectly, out of or in connection with, the
Program, including, without limitation,
(i) costs and expenses associated with the failure of any shareholders
of MCSi to consummate purchases of Program Shares for which they
have subscribed and (ii) any claims by shareholders of MCSi or
other persons arising from the Program, and expenses, arising from
the establishment, execution and performance of the Program.
Notwithstanding the foregoing, MCSi shall not indemnify the
Company against liabilities arising from any untrue or allegedly
untrue statement of a material fact, or omission or alleged
omission of a material fact required to be stated to make the
statements not misleading, in the prospectus contained in the
Company's Registration Statement on Form S-1 (the "Prospectus"),
except for statements or omissions regarding the Program and
except for any materials related to the Program delivered to
MCSi's shareholders and not to other recipients of the Prospectus
generally. MCSi agrees to reimburse the Indemnified Persons, as
incurred, for any reasonable legal or other expenses reasonably
incurred by them in connection with investigating or defending any
Losses.
4
<PAGE>
(b) Promptly after receipt by an Indemnified Person of notice of the
commencement of any action for which indemnification or contribution
may be sought hereunder, such Indemnified Person will notify MCSi in
writing of the commencement thereof. The failure to so notify MCSi will
not relieve MCSi from liability under Section 5.1(a) above unless and
to the extent that MCSi did not otherwise learn of such action and such
failure results in the forfeiture of substantial rights and defenses.
MCSi shall be entitled to appoint counsel at MCSi's expense to
represent the Indemnified Person in any action for which
indemnification is sought (in which case MCSi shall not thereafter be
liable for the fees and expenses of separate counsel retained by the
Indemnified Person except as set forth below); provided, however, that
such counsel shall be reasonably satisfactory to the Indemnified
Person. Notwithstanding MCSi's election to appoint counsel to represent
the Indemnified Person in an action, the Indemnified Person shall have
the right to employ separate counsel (including local counsel), and
MCSi shall bear the reasonable fees, costs and expenses of such counsel
if (i) the use of counsel chosen by MCSi to represent the Indemnified
Person would present such counsel with a conflict of interest, (ii) the
actual or potential defendants in, or targets of, any such action
include both MCSi and the Indemnified Person and the Indemnified Person
shall have reasonably concluded that there may be legal defenses
available to it that are different from or in addition to those
available to MCSi, (iii) MCSi shall not have employed counsel
reasonably satisfactory to the Indemnified Person within a reasonable
time after notification of the commencement of such action or (iv) MCSi
shall have authorized the Indemnified Person to employ separate counsel
at the expense of MCSi.
(c) MCSi shall not, without the prior written consent of the relevant
Indemnified Person, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit
or proceeding in respect of which indemnification or contribution may
be sought hereunder unless such settlement, compromise or consent
includes an unconditional release of such Indemnified Person from all
liability arising from such claim, action, suit or proceeding. An
Indemnified Person may not settle or compromise or consent to the entry
of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder without the consent of MCSi, such
consent not to be unreasonably withheld.
(d) In the event that the indemnity provided for in this Article 5 is
unavailable to or insufficient to hold harmless an Indemnified Person
for any reason, the Indemnified Persons and MCSi shall contribute to
the Losses (including the legal and other expenses attributable to
investigating or defending same) to which the Indemnified Person may be
subject in such proportion as is appropriate to reflect the relative
fault of the Indemnified Person and MCSi in connection with the
statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations, including that the Company
performed the Program as an accommodation to MCSi without any legal
obligation to do so. Relative fault shall be determined by reference
to, among other things, whether any untrue or allegedly untrue
statement of a material fact or the omission or alleged omission to
state a material fact relates to information provided by the
Indemnified Person or MCSi, the intent of the Indemnified Person and
MCSi, and their relative knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contribution was determined by any method of allocation that does not
take into account the equitable considerations discussed above.
ARTICLE 6
MISCELLANEOUS
6.1. Nature and Survival of Representations. The representations,
warranties, covenants and agreements of MCSi and the Company contained
in this Agreement, and all statements contained in this
5
<PAGE>
Agreement or any exhibit hereto or any certificate or other document
delivered pursuant to this Agreement or in connection with the
transactions contemplated hereby, shall be deemed to constitute
representations, warranties, covenants and agreements of the respective
party delivering the same. All such representations, warranties,
covenants and agreements shall survive the Closing.
6.2. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or, if mailed, when mailed by United
States first-class, certified or registered mail, postage prepaid, to
the other party at the following addresses (or at such other address as
shall be given in writing by any party to the other):
(a) If to MCSi, to:
Miami Computer Supply Corporation
4750 Hempstead Drive
Dayton, Ohio 45429
Attention: Michael E. Pepple
(b) If to the Company, to:
Zengine, Inc.
6100 Stewart Avenue
Fremont, California 94538
Attention: Joseph M. Savarino
With a required copy to:
Elias, Matz, Tiernan & Herrick LLP
734 15th Street, N.W..
Washington, DC 20005
Attention: Jeffrey A. Koeppel
6.3. Third Party Beneficiaries. MCSi acknowledges that each of the
Underwriters of the Public Offering shall be a third party beneficiary
entitled to exercise the rights and remedies provided for herein
directly against MCSi. The Company shall cooperate with and assist each
of the Underwriters of the Public Offering with respect to any action
such Underwriters take to exercise such rights and remedies directly
against MCSi.
6.4. Successors and Assigns. This Agreement, and all rights and powers
granted hereby, will bind and inure to the benefit of the parties
hereto and their respective successors and permitted assigns but shall
not be assignable or delegable by any party without the prior written
consent of the other party.
6.5. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of Delaware, without giving effect to
its principles of conflicts of laws or choice of forum.
6.6. Headings. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference,
and shall not constitute a part of this Agreement, nor shall they
affect its meaning, construction or effect.
6.7. Counterparts. This Agreement may be executed in two counterparts, each
of which shall be deemed an original, but which together shall
constitute one and the same instrument. Each such copy shall be
6
<PAGE>
deemed an original and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such
counterpart.
6.8. Further Assurances. Each party shall cooperate and take such action as
may be reasonably requested by the other party in order to carry out
the provisions and purposes of this Agreement and the transactions
contemplated hereby.
6.9. Amendment and Waiver. The parties may by mutual agreement amend this
Agreement in any respect, and either party, as to such party, may (a)
extend the time for the performance of any of the obligations of the
other party, (b) waive any inaccuracies in representations by the other
party, (c) waive compliance by the other party with any of the
agreements contained herein and performance of any obligations by the
other party, and (d) waive the fulfillment of any condition that is
precedent to the performance by such party of any of its obligations
under this Agreement. To be effective, any such amendment or waiver
must be in writing and be signed by the party against whom enforcement
of the same is sought.
6.10. Entire Agreement. This Agreement sets forth all of the promises,
covenants, agreements, conditions and undertakings between the parties
hereto with respect to the subject matter hereof, and supersedes all
prior and contemporaneous agreements and understandings, inducements or
conditions, express or implied, oral or written.
6.11. Interpretations. No party to this Agreement shall be considered the
draftsman. This Agreement has been reviewed, negotiated and accepted by
all parties and their attorneys and shall be construed and interpreted
according to the ordinary meaning of the words used so as fairly to
accomplish the purposes and intentions of all parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
MIAMI COMPUTER SUPPLY CORPORATION
By:______________________________________________
Name:
Title:
ZENGINE, INC.
By:________________________________________________
Name:
Title:
7
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
ZENGINE INC.
The undersigned, Joseph M. Savarino, President of Zengine, Inc., a
Delaware corporation, does hereby certify to the Secretary of State of Delaware
(the "Secretary") as follows that:
The following Amended and Restated Certificate of Incorporation hereby
amends and completely restates the Certificate of Incorporation, as amended, of
Zengine, Inc. (the "Corporation"), as originally filed with the Secretary on
March 2, 1999 under the name BuySupply.com Corporation.
The Amended and Restated Certificate of Incorporation was
unanimously adopted by a unanimous written consent of the Board of Directors
of the Corporation on April _____, 2000, pursuant to Section 245 of the
General Corporation Law of the State of Delaware ("DGCL"), which set forth
the proposed amendment and restatement and declared it advisable and directed
that the proposed amendment and restatement be submitted for consideration by
the stockholders of the Corporation. The Amended and Restated Certificate of
Incorporation was approved, pursuant to Sections 228, 242 and 245 of the
DGCL, by all of the stockholders of the Corporation who would be entitled to
notice of a meeting held for that purpose by unanimous written consent on
April ______, 2000.
The Corporation desires to restate its Certificate of Incorporation as
currently in effect and the provisions set forth in the Amended and Restated
Certificate of Incorporation include each and every charter provision currently
in effect. The following Amended and Restated Certificate of Incorporation
hereby amends and restates the Certificate of Incorporation, as amended, in its
entirety, and was adopted to supersede and take the place of the Certificate of
Incorporation and all amendments thereto, as follows:
ARTICLE 1. NAME. The name of the corporation is Zengine, Inc.
(hereinafter referred to as the "Corporation").
ARTICLE 2. PURPOSE OF AMENDMENT AND RESTATEMENT. This Amended and
Restated Certificate of Incorporation takes the place of, and supersedes, the
Corporation's existing Certificate of Incorporation, as heretofore amended.
ARTICLE 3. ORIGINAL FILING DATE; AMENDMENTS. The date of filing the
original Certificate of Incorporation with the Secretary of State of the State
of Delaware was March 2, 1999. The Certificate of Incorporation was amended on
September 14, 1999 and September 29, 1999.
ARTICLE 4. REGISTERED OFFICE AND REGISTERED AGENT. The address of the
registered office of the Corporation in the State of Delaware is 1209 North
Orange Street, in the city of Wilmington, county of New Castle. The name of the
registered agent at such address is The Corporation Trust Company.
<PAGE>
Zengine, Inc.
Amended and Restated Certificate of Incorporation
Page 2
ARTICLE 5. NATURE OF BUSINESS. The purpose of the Corporation is to
engage in any lawful act or activity for which a corporation may be organized
under the General Corporation Law of the State of Delaware ("DGCL").
ARTICLE 6. CAPITAL STOCK. The total number of shares of stock which the
Corporation shall have the authority to issue without stockholder approval is
120,000,000 shares, divided into two classes as follows: (i) 20,000,000 shares
of Preferred Stock, no par value per share ("Preferred Stock"); and (ii)
100,000,000 shares of Common Stock, no par value per share ("Common Stock").
A. PREFERRED STOCK. The Board of Directors is hereby expressly
authorized to provide, by resolution or resolutions, out of the unissued shares
of Preferred Stock, for series of Preferred Stock. Before any shares of any such
series are issued, the Board of Directors shall fix, and hereby is expressly
empowered to fix, by resolution or resolutions, the following provisions of the
shares thereof:
(i) The designation of such series, the number of shares to constitute
such series and the stated value thereof;
(ii) Whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights, which may be general or limited;
(iii) The dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
or any other class or any other series of this class;
(iv) Whether the shares of such series shall be subject to redemption
by the Corporation, and, if so, the times, prices and other conditions of such
redemption;
(v) The amount or amounts payable upon shares of such series upon, and
the rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the assets,
of the Corporation;
(vi) Whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and manner
in which any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such series for retirement or other corporate
purposes and the terms and provisions relative to the operation thereof;
(vii) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of this
class or any other securities, and, if so,
<PAGE>
Zengine, Inc.
Amended and Restated Certificate of Incorporation
Page 3
the price or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same, and any other terms and conditions of
conversion or exchange;
(viii) The price or other consideration for which the shares of such
series shall be issued;
(ix) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of preferred stock and
whether such shares may be reissued as shares of the same or any other series of
preferred stock;
(x) The limitations and restrictions, if any, to be effective while any
shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of this class;
(xi) The conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of this class
or of any other class; and
(xii) Any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations and
restrictions thereof.
The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series, except that shares of any one series issued at different times
may differ as to the dates from which dividends thereon shall accrue and/or be
cumulative.
Prior to the issuance of any shares of a series of capital stock
established by resolution adopted by the Board of Directors, if such issuance is
the first issuance of shares of such series since the resolution was adopted,
the Corporation shall file with the Secretary an amendment as required by the
DGCL. Upon the filing of such articles of amendment with the Secretary, the
resolution establishing and designating the series and fixing and determining
the preferences, limitations and relative rights thereof shall become an
amendment of this Amended and Restated Certificate of Incorporation, without any
stockholder action.
B. COMMON STOCK. Except as provided in Article 6.A. (or in any
resolution or resolutions adopted by the Board of Directors pursuant thereto),
the exclusive voting power shall be vested in the Common Stock, the holders
thereof being entitled to one vote for each share of such Common Stock standing
in the holder's name on the books of the Corporation. Subject to any rights and
preferences of any class of stock having preference over the Common Stock,
holders of Common Stock shall be entitled to such dividends as may be declared
by the Board of Directors out of funds lawfully available therefor. Upon any
liquidation, dissolution or winding up of the affairs
<PAGE>
Zengine, Inc.
Amended and Restated Certificate of Incorporation
Page 4
of the Corporation, whether voluntary or involuntary, holders of Common Stock
shall be entitled to receive pro rata the remaining assets of the Corporation
after the payment or provision for payment of the Corporation's debts and
liabilities and after the holders of any class of stock having preference over
the Common Stock have been paid in full any sums to which they may be entitled.
C. NO PREEMPTIVE RIGHTS. No holder of the capital stock of the
Corporation shall be entitled as such, as a matter of right or otherwise, to
subscribe for or purchase any part of any new or additional issue of equity or
debt of any class or series whatsoever, of the Corporation, or of securities
convertible into equity or debt of any class whatsoever, whether now or
hereafter authorized, or whether issued for cash or other consideration or by
way of a dividend.
D. NO CUMULATIVE VOTING. Stockholders shall not be permitted to
cumulate their votes for the election of directors.
ARTICLE 7. DURATION. The Corporation shall have perpetual existence.
ARTICLE 8. DIRECTORS. The business and affairs of the Corporation shall
be managed by or under the direction of a Board of Directors. The name and
mailing address of the current members of the Corporation's Board of Directors
is as follows:
NAME MAILING ADDRESS
- ----- ------------------
Anthony W. Liberati 4750 Hempstead Station Drive
Dayton, Ohio 45429
Michael E. Peppel 4750 Hempstead Station Drive
Dayton, Ohio 45429
Joseph M. Savarino 6100 Stewart Avenue
Fremont, California 94538
Richard V. Hopple 6100 Stewart Avenue
Fremont, California 94538
Stacey Snider 6100 Stewart Avenue
Fremont, California 94538
Donald B. Hutchison 6100 Stewart Avenue
Fremont, California 94538
A. NUMBER; CLASSIFICATION. The number of directors constituting the
Board of Directors shall be determined and may at any time be increased or
decreased by resolution of the Board of Directors, provided that no decrease
shall have the effect of shortening the term of any incumbent director and,
provided further, that such number shall be no fewer than three and no more than
fifteen (plus such number of directors as may be elected from time to time
pursuant to the terms
<PAGE>
Zengine, Inc.
Amended and Restated Certificate of Incorporation
Page 5
of any series of Preferred Stock that may be issued and outstanding from time
to time). The directors of the Corporation (exclusive of directors who are
elected pursuant to the terms of, and serve as representatives of the holders
of, any series of Preferred Stock) shall be referred to herein as "Classified
Directors" and shall be divided into three classes, with the first class
referred to herein as "Class I," the second class as "Class II," and the
third class as "Class III." Each class shall consist as nearly as possible of
one-third (1/3) of the total number of directors making up the entire Board
of Directors. The initial members of Class I shall be Mr. Hutchison and Ms.
Snider; the initial members of Class II shall be Mr. Hopple and Mr. Liberati;
and the initial members of Class III shall be Michael E. Peppel and Joseph M.
Savarino. The term of office of the initial Class I directors shall expire at
the 2001 annual meeting of stockholders, the term of office of the initial
Class II directors shall expire at the 2002 annual meeting of stockholders,
and the term of office of the initial Class III directors shall expire at the
2003 annual meeting of stockholders, with each director to hold office until
his successor shall have been duly elected and qualified. At each annual
meeting of stockholders, directors elected to succeed those directors whose
terms then expire shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders after their election, with
each director to hold office until his successor shall have been duly elected
and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by series or by class (excluding holders of Common
Stock), to elect directors, the election, term of office, filling of vacancies,
and other features of such directorships shall be governed by the terms of this
Amended and Restated Certificate of Incorporation (including any amendment to
this Amended and Restated Certificate of Incorporation that designates a series
of Preferred Stock) and the Amended and Restated Bylaws, and such directors so
elected by the holders of Preferred Stock shall not be divided into classes
pursuant to this Article unless expressly provided by the terms of any amendment
to this Amended and Restated Certificate of Incorporation that designates a
series of Preferred Stock.
B. REMOVAL; VACANCIES. Any or all Classified Directors may be removed
only with cause, at any annual or special meeting of stockholders, upon the
affirmative vote of the holders of a majority of the outstanding shares of each
class of capital stock of the Corporation then entitled to vote in person or by
proxy at an election of such Classified Directors, provided that notice of the
intention to act upon such matter shall have been given in the notice calling
such meeting. Unless otherwise provided by the terms of this Amended and
Restated Certificate of Incorporation (including any amendment hereto that
designates a series of Preferred Stock) any vacancies occurring in the Board of
Directors caused by an increase in the number of Classified Directors, or the
death, resignation, retirement, disqualification, removal or other termination
from office of any Classified Director may be filled by the vote of a majority
of the Classified Directors then in office, though less than a quorum, or by the
affirmative vote, at any annual meeting or any special meeting of the
stockholders called for the purpose of filling such directorship, of a plurality
of the outstanding shares of each class of capital stock then entitled to vote
in person or by proxy at an
<PAGE>
Zengine, Inc.
Amended and Restated Certificate of Incorporation
Page 6
election of such directors. Each successor director so chosen shall hold office
until the next election of the class for which such director shall have been
chosen and until his respective successor shall have been duly elected and
qualified.
C. NOMINATIONS OF DIRECTORS. (i) Nominations of candidates for election
as directors of the Corporation at any annual or special meeting of stockholders
may be made (A) by, or at the direction of, a majority of the Board of
Directors, or (B) by any stockholder of record entitled to vote at such annual
meeting. Only persons nominated in accordance with the procedures set forth in
this Article 8.C. shall be eligible for election as directors at an annual
meeting. Ballots bearing the names of all the persons who have been nominated
for election as directors at an annual or special meeting in accordance with the
procedures set forth in this Article 8.C. shall be provided for use at the
annual or special meeting.
(ii) Subject to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation, nominations, other than those made by or at the direction of the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Article 8.C. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal office of the Corporation not less than (A) with respect to an
election to be held at any annual meeting of stockholders of the Corporation,
(1) for the first such annual meeting after the filing of this Amended and
Restated Certificate of Incorporation, the close of business on the tenth day
following the date on which notice of such meeting is first given to
stockholders, and (2) thereafter, sixty (60) days prior to the anniversary date
of the mailing of proxy materials by the Corporation in connection with the
immediately preceding annual meeting of stockholders of the Corporation; and (B)
with respect to a special meeting of stockholders for the election of directors,
the close of business on the tenth day following the date on which notice of
such meeting is first given to stockholders.
(iii) Such stockholder's notice shall set forth (A) as to each person
whom the stockholder proposes to nominate for election or re-election as a
director and as to the stockholder giving the notice (1) the name, age, business
address and residence address of such person, (2) the principal occupation or
employment of such person, (3) the class and number of shares of Corporation
stock which are beneficially owned by such person on the date of such
stockholder notice, and (4) any other information relating to such person that
is required to be disclosed in solicitations of proxies with respect to nominees
for election as directors pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including, but not
limited to, information required to be disclosed by Items 4, 5, 6 and 7 of
Schedule 14A (or any successors of such items); and (B) as to the stockholder
giving the notice (1) the name and address, as they appear on the Corporation's
books, of such stockholder and any other stockholders known by such stockholder
to be supporting such nominees and (2) the class and number of shares of
Corporation stock which are beneficially owned by such stockholder on the date
of such stockholder notice and, to the extent known, by any other stockholders
known by such stockholder to be supporting such nominees on
<PAGE>
Zengine, Inc.
Amended and Restated Certificate of Incorporation
Page 7
the date of such stockholder notice. At the request of the Board of Directors,
any person nominatedby, or at the direction of, the Board for election as a
director at an annual or special meeting of stockholders shall furnish to the
Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee.
(iv) The Board of Directors may reject any nomination by a stockholder
not timely made in accordance with the requirements of this Article 8.C. If the
Board of Directors, or a designated committee thereof, determines that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Article 8.C. in any material respect, the
Secretary of the Corporation shall promptly notify such stockholder of the
deficiency in the notice. The stockholder shall have an opportunity to cure the
deficiency by providing additional information to the Secretary of the
Corporation within such period of time, not to exceed five (5) days from the
date such deficiency notice is given to the stockholder, as the Board of
Directors or such committee thereof shall reasonably determine. If the
deficiency is not cured within such period, or if the Board of Directors or such
committee thereof reasonably determines that the additional information provided
by the stockholder, together with information previously provided, does not
satisfy the requirements of this Article 8.C. in any material respect, then the
Board of Directors may reject such stockholder's nomination. The Secretary of
the Corporation shall notify a stockholder in writing whether his nomination has
been made in accordance with the time and informational requirements of this
Article 8.C. Notwithstanding the procedures set forth in this paragraph, if
neither the Board of Directors nor such committee thereof makes a determination
as to the validity of any nominations by a stockholder, the presiding officer of
the annual or special meeting shall determine and declare at the annual or
special meeting whether the nomination was made in accordance with the terms of
this Article 8.C. If the presiding officer determines that a nomination was made
in accordance with the terms of this Article 8.C., he shall so declare at the
annual or special meeting and ballots shall be provided for use at the meeting
with respect to such nominee. If the presiding officer determines that a
nomination was not made in accordance with the terms of this Article 8.C., he
shall so declare at the annual or special meeting and the defective nomination
shall be disregarded.
(v) Notwithstanding the foregoing, and except as otherwise required by
law or by further amendment of this Amended and Restated Certificate of
Incorporation, whenever the holders of any one or more series of Preferred Stock
shall have the right, voting separately as a class, to elect one or more
directors of the Corporation, the provisions of this Article 8.C. shall not
apply with respect to the director or directors nominated or elected by such
holders of Preferred Stock.
ARTICLE 9. MEETINGS OF STOCKHOLDERS; STOCKHOLDER PROPOSALS.
A. SPECIAL MEETINGS OF STOCKHOLDERS. Except as otherwise required by
law and subject to the rights of the holders of any class or series of Preferred
Stock, special meetings of the stockholders of the Corporation may be called
only by (i) the Board of Directors pursuant to a resolution approved by the
affirmative vote of a majority of the Board of Directors then serving
<PAGE>
Zengine, Inc.
Amended and Restated Certificate of Incorporation
Page 8
(ii) the Chairman of the Board, (iii) the President, or (iv) the holders of not
less than 35 percent of all votes outstanding and entitled to be cast on any
issue proposed to be considered at such special meeting. A request for a special
meeting of stockholders by stockholders of the Corporation shall state the
purpose of the meeting and the matters proposed to be acted on. The Secretary of
the Corporation shall inform the stockholders who make the request for the
special meeting of the reasonably estimated cost of preparing and mailing a
notice of the meeting and on payment of such costs to the Corporation, and shall
notify each stockholder entitled to notice of the special meeting.
B. STOCKHOLDER PROPOSALS. (i) At an annual meeting of stockholders,
only such business shall be conducted, and only such proposals shall be acted
upon, as shall have been brought before the annual meeting by, or at the
discretion of, (A) the Board of Directors or (B) any stockholder of the
Corporation who complies with all the requirements set forth in this Article
9.B.
(ii) Proposals, other than those made by or at the discretion of the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Article 9.B. For stockholder
proposals to be included in the Corporation's proxy materials, the stockholder
must comply with all the timing and informational requirements of Rule 14a-8 of
the Exchange Act (or any successor regulation). With respect to stockholder
proposals to be considered at an annual or special meeting of stockholders but
not included in the Corporation's proxy materials, the stockholder's notice
shall be delivered to, or mailed and received at, the principal office of the
Corporation (A) for the first such annual meeting after the filing of this
Amended and Restated Certificate of Incorporation at the close of business on
the tenth day following the date on which notice of such meeting is first given
to stockholders, and (B) thereafter not less than sixty (60) days prior to the
anniversary date of the mailing of proxy materials by the Corporation in
connection with the immediately preceding annual meeting of stockholders of the
Corporation; and (C) with respect to a special meeting of stockholders, the
close of business on the tenth day following the date on which notice of such
meeting is first given to stockholders. Such stockholder's notice shall set
forth as to each matter the stockholder proposes to bring before the annual or
special meeting (1) a brief description of the proposal desired to be brought
before the annual or special meeting and the reasons for conducting such
business at the annual or special meeting, (2) the name and address, as they
appear on the Corporation's books of the stockholder proposing such business
and, to the extent known, any other stockholders known by such stockholder to be
supporting such proposal, (3) the class and number of shares of the Corporation
stock which are beneficially owned by the stockholder on the date of such
stockholder notice and, to the extent known, by any other stockholders known by
such stockholder to be supporting such proposal on the date of such stockholder
notice, and (4) any financial interest of the stockholder in such proposal
(other than interests which all stockholders would have).
(iii) The Board of Directors may reject any stockholder proposal not
timely made in accordance with the terms of this Article 9.B. If the Board of
Directors, or a designated committee thereof, determines that the information
provided in a stockholder's notice does not satisfy the
<PAGE>
Zengine, Inc.
Amended and Restated Certificate of Incorporation
Page 9
informational requirements of this Article 9.B. in any material respect, the
Secretary of the Corporation shall promptly notify such stockholder of the
deficiency in the notice. The stockholder shall have an opportunity to cure the
deficiency by providing additional information to the Secretary of the
Corporation within such period of time, not to exceed five (5) days from the
date such deficiency notice is given to the stockholder, as the Board of
Directors or such committee thereof shall reasonably determine. If the
deficiency is not cured within such period, or if the Board of Directors or such
committee thereof determines that the additional information provided by the
stockholder, together with information previously provided, does not satisfy the
requirements of this Article 9.B. in any material respect, then the Board of
Directors may reject such stockholder's proposal. The Secretary of the
Corporation shall notify a stockholder in writing whether his proposal has been
made in accordance with the time and informational requirements of this Article
9.B. Notwithstanding the procedures set forth in this paragraph, if neither the
Board of Directors nor such committee thereof makes a determination as to the
validity of any stockholder proposal, the presiding officer of the annual or
special meeting shall determine and declare at the annual or special meeting
whether the stockholder proposal was made in accordance with the terms of this
Article 9.B. If the presiding officer determines that a stockholder proposal was
made in accordance with the terms of this Article 9.B., he shall so declare at
the annual or special meeting and ballots shall be provided for use at the
meeting with respect to any such proposal. If the presiding officer determines
that a stockholder proposal was not made in accordance with the terms of this
Article 9.B., he shall so declare at the annual or special meeting and any such
proposal shall not be acted upon at the annual or special meeting.
(iv) This provision shall not prevent the consideration and approval or
disapproval at the annual or special meeting of reports of officers, directors
and committees of the Board of Directors, but in connection with such reports,
no new business shall be acted upon at such annual or special meeting unless
stated, filed and received as herein provided.
C. ACTION WITHOUT A MEETING. Any action required by the DGCL to be
taken at any annual or special meetings of stockholders, and any action which
may be taken at any annual or special meetings of stockholders, may be taken
without a meeting, without prior notice and without a vote of such stockholders,
if a consent or consents in writing, setting forth the action so taken, shall be
signed by not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all of the stockholders who
would be entitled to vote at a meeting for such purpose were present and voted,
and such consent is filed with the Secretary of the Corporation as part of the
corporate records.
ARTICLE 10. LIABILITY OF DIRECTORS; INDEMNIFICATION. The personal
liability of the directors of the Corporation for monetary damages shall be
eliminated to the fullest extent permitted by the DGCL. The directors and
officers of the Corporation shall be indemnified by the Corporation to the
fullest extent permitted by DGCL. No amendment, modification or repeal of this
Article 10 shall adversely affect the rights provided hereby with respect to any
claim, issue or matter in any
<PAGE>
Zengine, Inc.
Amended and Restated Certificate of Incorporation
Page 10
proceeding that is based in any respect on any alleged action or failure to act
prior to such amendment, modification or repeal.
ARTICLE 11. SECTION 203. The Corporation expressly elects to be
governed by Section 203 of the DGCL.
ARTICLE 12. AMENDMENT.
A. AMENDED AND RESTATED CERTIFICATE OF INCORPORATION. The Corporation
reserves the right to amend, alter, change or repeal any provision contained in
this Amended and Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by law, and all rights conferred upon stockholders herein
are granted subject to this reservation. No amendment, addition, alteration,
change or repeal of this Amended and Restated Certificate of Incorporation shall
be made unless it is first approved by the Board of Directors of the Corporation
pursuant to a resolution adopted by the affirmative vote of a majority of the
directors then in office, and thereafter is approved by the holders of a
majority of the shares of the Corporation entitled to vote generally in an
election of directors, voting together as a single class.
B. AMENDED AND RESTATED BYLAWS. The Board of Directors may adopt,
alter, amend or repeal the Amended and Restated Bylaws of the Corporation. Such
action by the Board of Directors shall require the affirmative vote of a
majority of the directors then in office at any regular or special meeting of
the Board of Directors.
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be executed and attested on this ____
day of April 2000.
ZENGINE, INC.
Attest:
/s/ Ira H. Stanley By:/s/ Joseph M. Savarino
- ------------------------- -------------------------
Ira H. Stanley Joseph M. Savarino
Secretary President
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
OF
ZENGINE, INC.
ARTICLE I. OFFICES
1.1 REGISTERED OFFICE AND REGISTERED AGENT. The registered office of
Zengine, Inc. ("Corporation") shall be located in the State of Delaware at such
place as may be fixed from time to time by the Board of Directors upon filing of
such notices as may be required by law, and the registered agent shall have a
business office identical with such registered office.
1.2 OTHER OFFICES. The Corporation may have other offices within or
outside the State of Delaware at such place or places as the Board of Directors
may from time to time determine.
ARTICLE II. STOCKHOLDERS' MEETINGS
2.1 MEETING PLACE. All meetings of the stockholders shall be held at the
principal place of business of the Corporation, or at such other place within or
outside the State of Delaware as shall be determined from time to time by the
Board of Directors, and the place at which any such meeting shall be held shall
be stated in the notice of the meeting.
2.2 ANNUAL MEETING TIME. The annual meeting of the shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on the first Monday in the fourth
month following the close of each fiscal year of the Corporation at the hour of
10:00 a.m., if not a legal holiday, and if a legal holiday, then on the next
business day not a legal holiday, at the same hour, or at such other date and
time as may be determined by the Board of Directors and stated in the notice of
such meeting.
2.3 ORGANIZATION. Each meeting of the stockholders shall be presided
over by the Chairman of the Board, or by the President, or if neither the
Chairman, nor the President is present, then by a Vice President or such other
officer as designated by the Board of Directors. The Secretary, or in his or her
absence a temporary Secretary, shall act as secretary of each meeting of the
stockholders. In the absence of the Secretary and any temporary Secretary, the
chairman of the meeting may appoint any person present to act as secretary of
the meeting. The chairman of any meeting of the stockholders, unless prescribed
by law or unless the Chairman of the Board has determined otherwise, shall
determine the order of the business and the procedure at the meeting, including
such regulation of the manner of voting and the conduct of discussions as shall
be deemed appropriate in the chairman's sole discretion.
2.4 SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose may be called at any time in the manner provided in the Amended and
Restated Certificate of Incorporation which is incorporated herein with the same
effect as if it were set forth herein.
<PAGE>
Zengine, Inc.
Amended and Restated Bylaws
Page 2
2.5 NOTICE.
(a) Notice of the time and place of the annual meeting of stockholders
shall be given by delivering personally or by mailing a written notice of the
same, not less than ten days and not more than sixty days prior to the date of
the meeting, to each stockholder of record entitled to vote at such meeting.
(b) Not less than ten days and not more than sixty days prior to the
meeting, a written notice of each special meeting of stockholders, stating the
place, day and hour of such meeting, and the purpose or purposes for which the
meeting is called, shall be either delivered personally or mailed to each
stockholder of record entitled to vote at such meeting.
(c) When any stockholders' meeting, either annual or special, is
adjourned for thirty days or more, or if a new record date is fixed for an
adjourned meeting of stockholders, notice of the adjourned meeting shall be
given as in the case of an original meeting. It shall not be necessary to give
any notice of the time and place of any meeting adjourned for less than thirty
days (unless a new record date is fixed therefor), other than an announcement at
the meeting at which such adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting.
2.6 QUORUM; ACTIONS OF STOCKHOLDERS. Except as otherwise required by
law:
(a) A quorum for the transaction of business at any annual or special
meeting of stockholders shall consist of stockholders representing, either in
person or by proxy, a majority of the outstanding capital stock of the
Corporation entitled to vote on that matter at such meeting, but in no event
shall a quorum consist of less than one-third of the shares entitled to vote at
the meeting, except as otherwise provided by statute, the Amended and Restated
Certificate of Incorporation or these Amended and Restated Bylaws. In the
absence of such a quorum, the holders of a majority of the shares represented at
the meeting shall have the right successively to adjourn the meeting to a
specified date. At the adjourned meeting, the Corporation may transact any
business that might have been transacted at the original meeting. The absence
from any meeting of the number of shares required by law, the Amended and
Restated Certificate of Incorporation or these Amended and Restated Bylaws for
action upon one matter shall not prevent action at such meeting upon any other
matter or matters that properly may come before the meeting, if the number of
shares required in respect of such other matters shall be present.
(b) With respect to any other matter other than the election of
directors, the votes of a majority of all votes cast at any properly called
meeting or adjourned meeting of stockholders at which a quorum, as defined
above, is present, shall be sufficient to approve any matter that properly comes
before the meeting, unless the proposition or question is one upon which by
express provisions of law or of the Amended and Restated Certificate of
Incorporation or these Amended
<PAGE>
Zengine, Inc.
Amended and Restated Bylaws
Page 3
and Restated Bylaws, a different vote is required, in which case the express
provision shall govern and establish the number of votes required to determine
such proposition or questions.
(c) Directors are to be elected by a plurality of votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present. Stockholders shall not be permitted to cumulate their votes for the
election of directors. If, at any meeting of the stockholders, due to a vacancy
or vacancies or otherwise, directors of more than one class of the Board of
Directors are to be elected, each class of directors to be elected at the
meeting shall be elected in a separate election by a plurality vote.
2.7 VOTING OF SHARES. Except as otherwise provided in these Amended and
Restated Bylaws or to the extent that voting rights of the shares of any class
or classes are limited or denied by the Amended and Restated Certificate of
Incorporation, each stockholder, on each matter submitted to a vote at a meeting
of stockholders, shall have one vote for each share of stock registered in his
name on the books of the Corporation.
2.8 FIXING OF THE RECORD DATE. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders, or
any adjournment thereof, or entitled to receive payment of any dividend, the
Board of Directors may fix in advance a record date for any such determination
of stockholders, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty days and, in case of a meeting of
stockholders, not less than ten days prior to the date on which the particular
action requiring such determination of stockholders is to be taken.
2.9 PROXIES. A stockholder may vote either in person or by proxy
executed in writing by the stockholder, or his duly authorized attorney-in-fact.
No proxy shall be valid after three years from the date of its execution, unless
the proxy provides for a longer period. A stockholder may authorize another
person or persons to act for him as proxy by transmitting or authorizing the
transmission of a telegram, cablegram, or other means of electronic transmission
to the person who will be the holder of the proxy or to a proxy solicitation
firm, proxy support service organization or like agent duly authorized by the
person who will be the holder of the proxy to receive such transmission,
provided that any such telegram, cablegram or other means of electronic
transmission must either set forth or be submitted with information from which
it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. If it is determined that such
telegrams, cablegrams or other electronic transmissions are valid, the
inspectors or, if there are no inspectors, such other persons making that
determination shall specify the information upon which they relied.
2.10 VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When ownership
stands in the name of two or more persons, in the absence of written directions
to the Secretary of the Corporation to the contrary, at any meeting of the
stockholders of the Corporation any one or more of such
<PAGE>
Zengine, Inc.
Amended and Restated Bylaws
Page 4
stockholders may cast, in person or by proxy, all of the votes to which such
ownership is entitled. In the event an attempt is made to cast conflicting
votes, in person or by proxy, by the several persons in whose names shares of
stock stand, the vote or votes to which those persons are entitled shall be cast
as directed by a majority of those holding such stock and present in person or
by proxy at such meeting. In the event an attempt is made to cast conflicting
votes by more than one person and the number executing consents exceeds the
number executing objections to consents, the former may act for all, and
likewise if the number executing objections to consents exceeds the number
executing consents, then the greater number may act for all, and if only one
person attends the meeting, or executes a consent and no other of said persons
executes an objection to such consent, then that one person may act for all, and
if more than one person votes, but the vote is evenly split on any particular
matter, then each faction may vote its shares in question proportionately.
2.11 VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name of
another corporation may be voted by the chairman of the board, president, any
vice president, the secretary or the treasurer of the corporation holding such
shares and any such officer shall conclusively be deemed to have authority to
vote on behalf of such corporation and to appoint proxies and execute consents,
waivers or releases unless it appears by a certified copy of the regulations,
bylaws or a resolution of the board of directors or executive committee of such
corporation that such authority does not exist or is vested in some other
officer or person. Shares registered in the name of another held by a fiduciary
may be voted by him or her, either in person or by proxy, on proof of the fact
that legal title to the stock has devolved on him or her in a fiduciary capacity
and that he or she is qualified to act in that capacity. A stockholder whose
shares are pledged shall be entitled to vote such shares until the shares have
been transferred into the name of the pledgee, and thereafter the pledgee shall
be entitled to vote the shares so transferred, but these Amended and Restated
Bylaws do not affect the validity of any agreement between the pledgor and
pledgee as to the giving of proxies or the exercise of voting rights.
2.12 INSPECTORS. For each meeting of stockholders, the Board of
Directors in advance of the meeting, may appoint one or more inspectors of
election. If for any meeting the inspector(s) appointed by the Board of
Directors shall be unable to act or the Board of Directors shall fail to appoint
any inspector, then one or more inspectors may be appointed at the meeting by
the chairman thereof. Such inspectors shall determine the number of shares
outstanding, the voting rights with respect to each, the shares represented at
the meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, and shall receive and canvass the votes for the election of directors
and/or any proposal voted on by ballot and/or by proxy, and shall hear and
determine and retain for a reasonable period a record of all challenges and
questions arising in connection with the vote, count and tabulate all votes,
consents, waivers and releases, determine and announce the result and do all
acts as are proper to conduct the election or vote with fairness to all
stockholders. For all cases in which the right to vote upon any share of the
Corporation shall be questioned, it shall be the duty of the inspectors to
examine the stock ledger of the Corporation as evidence of the shares held, and
all shares that appear standing thereon in the name of any person or persons may
be voted upon by
<PAGE>
Zengine, Inc.
Amended and Restated Bylaws
Page 5
such person or persons. Each inspector before entering upon the duties of such
office shall take an oath to execute his or her duties with strict impartiality
and to the best of his or her ability.
2.13 WAIVER OF NOTICE. A waiver of any notice required to be given any
stockholder, signed by the person or persons entitled to such notice, whether
before or after the time stated therein for the meeting, shall be equivalent to
the giving of such notice.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary of the
Corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present. Upon the willful neglect or refusal of the directors to produce such a
list at any meeting for the election of directors, they shall be ineligible for
election to any office at such meeting. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list of stockholder or the books of the corporation, or to vote in person or
by proxy at any meeting of such stockholders.
ARTICLE III. CAPITAL STOCK
3.1 CERTIFICATES. Certificates of stock shall be issued in numerical
order, and each stockholder shall be entitled to a certificate signed, either
manually or by facsimile, by the Chairman of the Board, President or a Vice
President, and the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer, and may be sealed with the seal of the Corporation or a
facsimile thereof. If an officer who has signed or whose facsimile signature has
been placed upon such certificate ceases to be an officer before the certificate
is issued, the certificate may still be issued by the Corporation with the same
effect as if the person were an officer on the date of issue. Each certificate
of stock shall state:
(a) that the Corporation is organized under the laws of the State of
Delaware;
(b) the name of the person to whom issued; and
(c) the number of shares which such certificate represents.
<PAGE>
Zengine, Inc.
Amended and Restated Bylaws
Page 6
3.2 TRANSFERS.
(a) Transfers of stock shall be made only upon the stock transfer books
of the Corporation, kept at the principal office of the Corporation or at its
principal place of business, or at the office of its transfer agent or
registrar, by the person or person named in the certificate or by the attorney
lawfully constituted in writing representing such person or persons and upon
surrender of the certificate or certificates being transferred which certificate
shall be properly endorsed for transfer or accompanied by a duly executed stock
power. Whenever a certificate is endorsed by or accompanied by a stock power
executed by someone other than the person or persons named in the certificate,
evidence of authority to transfer shall also be submitted with the certificate.
All certificates surrendered to the Corporation for transfer shall be cancelled.
(b) The Board of Directors shall have the power and authority to make
all such rules and regulations as it shall deem expedient concerning the
issuance, transfer and registration of certificates for shares of stock of the
Corporation, subject to the Delaware General Corporation Law ("DGCL").
(c) Transfer agents and registrars for the Corporation's stock shall be
banks, trust companies or other corporations located within or without the State
of Delaware as shall be appointed by the Board of Directors. The Board also
shall define the authority of such transfer agents and registrars. The Board of
Directors, by resolution, may open a share register in any state of the United
States, and may employ an agent or agents to keep such register, and to record
transfers of shares therein.
3.3 REGISTERED OWNER. Registered stockholders shall be treated by the
Corporation as the holders in fact of the stock standing in their respective
names and the Corporation shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as expressly provided
by the laws of the State of Delaware. The Board of Directors may adopt by
resolution a procedure whereby a stockholder of the Corporation may certify in
writing to the Corporation that all or a portion of the shares registered in the
name of such stockholder are held for the account of a specified person or
persons.
3.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may issue a
new certificate of stock in place of any certificate previously issued by it
which is alleged to have been lost, stolen or destroyed, and the Corporation may
require the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation proof of loss, theft or destruction or
an affidavit relating thereto and a bond sufficient to indemnify it against any
claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
<PAGE>
Zengine, Inc.
Amended and Restated Bylaws
Page 7
3.5 FRACTIONAL SHARES OR SCRIP. The Corporation may (a) issue fractions
of a share which shall entitle the holder to exercise voting rights, to receive
dividends thereon and to participate in any of the assets of the Corporation in
the event of liquidation; (b) arrange for the disposition of fractional
interests by those entitled thereto; (c) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such shares are
determined; or (d) issue scrip in registered or bearer form which shall entitle
the holder to receive a certificate for a full share upon the surrender of such
scrip aggregating a full share.
3.6 SHARES OF ANOTHER CORPORATION. Shares owned by the Corporation in
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Board of Directors may determine or, in the absence of such
determination, by the President or a Vice President of the Corporation.
ARTICLE IV. BOARD OF DIRECTORS
4.1 NUMBER AND POWERS. The management of all the affairs, property and
interests of the Corporation shall be vested in a Board of Directors. The Board
of Directors shall consist of five (5) persons as of the effective date of these
Amended and Restated Bylaws. Directors need not be residents of the State of
Delaware nor hold stock of the Corporation. Directors shall be elected annually
as set forth in the Amended and Restated Certificate of Incorporation. In
addition to the powers and authorities expressly conferred upon it by these
Amended and Restated Bylaws and the Amended and Restated Certificate of
Incorporation, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Amended and Restated Certificate of Incorporation or by these Amended and
Restated Bylaws directed or required to be exercised or done by the
stockholders.
4.2 CHANGE OF NUMBER. The number of directors may at any time be
increased or decreased by a vote of a majority of the Board of Directors
provided that no decrease shall have the effect of shortening the term of any
incumbent director except as provided in Sections 4.3 and 4.4 hereunder.
4.3 VACANCIES. All vacancies in the Board of Directors shall be filled
by the Board of Directors in the manner provided in the Amended and Restated
Certificate of Incorporation which is incorporated herein with the same effect
as if it were set forth herein.
4.4 REMOVAL OF DIRECTORS. Directors may be removed in the manner
provided in the Amended and Restated Certificate of Incorporation which is
incorporated herein with the same effect as if it were set forth herein.
4.5 REGULAR MEETINGS. Regular meetings of the Board of Directors shall
be held at least once each quarter on such day as the Board of Directors by
resolution shall prescribe and at such hour as may be stated in the notice of
the meeting. Meetings of committees of the Board shall be
<PAGE>
Zengine, Inc.
Amended and Restated Bylaws
Page 8
held as prescribed by resolution of the Board of Directors or by resolution of
such committee. At least two days' notice of the time and place of each meeting
of the directors or a committee of theBoard shall be personally delivered,
mailed, sent by facsimile with receipt confirmed by telephone at the director's
residence or principal place of business or given by telephone to each member of
the Board or such committee. Such notice shall be deemed to be delivered four
days after it is deposited in the mail so addressed with postage prepaid.
Neither the business to be transacted at, nor the purpose of, any regular
meeting need be specified in the notice or any waiver of notice of such meeting.
Regular meetings of the Board of Directors or any committee may be held at the
principal place of business of the Corporation or at such other place or places,
either within or without the State of Delaware, as the Board of Directors or
such committee, as the case may be, may from time to time designate. The annual
meeting of the Board of Directors shall be held without notice immediately after
the adjournment of the annual meeting of stockholders, for the purpose of
organizing the Board, electing officers and members of committees and
transacting other business.
4.6 SPECIAL MEETINGS.
(a) Special meetings of the Board of Directors may be called at any time
by the Chairman, the President or by a majority of the authorized number of
directors, to be held at the principal place of business of the Corporation or
at such other place or places as the Board of Directors or the person or persons
calling such meeting may from time to time designate. Notice of all special
meetings of the Board of Directors shall be given to each director by at least
two days' service of the same by facsimile with receipt confirmed by telephone,
telephone or personally, and by at least four days' service when delivered by
mail at the address at which the director is most likely to be reached. Such
notice shall be deemed to be delivered four days after it is deposited in the
mail so addressed with postage prepaid. Such notice need not specify the
business to be transacted at, nor the purpose of, the meeting.
(b) Special meetings of any committee may be called at any time by such
person or persons and with such notice as shall be specified for such committee
by the Board of Directors, or in the absence of such specification, in the
manner and with the notice required for special meetings of the Board of
Directors.
4.7 QUORUM.
(a) A majority of the Board of Directors of the Corporation at the time
of a meeting of the Board of Directors shall be necessary at all meetings to
constitute a quorum for the transaction of business. At any meeting of the
Board, no action shall be taken (except adjournment, in the manner provided
below) until after a quorum has been established.
(b) The act of a majority of directors who are present at a meeting at
which a quorum previously has been established (or at any adjournment of such
meeting, provided that a quorum
<PAGE>
Zengine, Inc.
Amended and Restated Bylaws
Page 9
previously shall have been established at such adjourned meeting) shall be the
act of the Board of Directors, regardless of whether or not a quorum is present
at the time such action is taken.
(c) In the event a quorum cannot be established at the beginning of a
meeting, a majority of the directors present at the meeting, or the director, if
there be only one person, or the Secretary of the Corporation, if there be no
director present, may adjourn the meeting from time to time until a quorum be
present. If the meeting is adjourned, only announcement of adjournment at such
meeting is necessary.
4.8 WAIVER OF NOTICE. Attendance of a director at a meeting of directors
shall constitute a waiver of notice of such meeting, except where a director
attends for the express purpose of objecting, prior to or at the commencement of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. A waiver of notice may be given in writing by the
director either before or after the meeting.
4.9 REGISTERING DISSENT. A director who is present at a meeting of the
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless the director announces his
dissent at the meeting and his dissent shall be entered in the minutes of the
meeting, or unless he shall file his written dissent to such action with the
person acting as the secretary of the meeting, before the adjournment thereof,
or shall forward such dissent by certified mail, return receipt requested,
bearing a postmark from the United States Postal Service to the Secretary of the
Corporation within a reasonable time after the adjournment of the meeting. Such
right to dissent shall not apply to a director who voted in favor of such action
or failed to make his dissent known at the meeting.
4.10 EXECUTIVE, AUDIT AND OTHER COMMITTEES.
(a) Standing or special committees may be appointed from the directors'
own number by the Board of Directors from time to time, and the Board of
Directors from time to time may invest such committees with such powers as it
may see fit, subject to such conditions as may be prescribed by the Board and
subject to the limitations imposed by the DGCL. An Executive Committee may be
appointed by resolution passed by a majority of the Board of Directors. It shall
have and exercise all of the authority of the Board of Directors, except in
reference to the filling of vacancies among the directors or in any committee of
the directors. All committees so appointed shall consist of two or more
directors, shall keep regular minutes of the transactions of their meetings and
shall cause them to be recorded in books kept for that purpose at the principal
office of the Corporation. The designation of any such committee, and the
delegation of authority thereto, shall not relieve the Board of Directors, or
any member thereof, of any responsibility imposed by law.
(b) Unless otherwise provided by the Board of Directors, a majority of
the members of any committee shall constitute a quorum for the transaction of
business at any meeting of such
<PAGE>
Zengine, Inc.
Amended and Restated Bylaws
Page 10
committee and the acts of a majority of the members present at a meeting at
which a quorum is present shall be the acts of the committee.
4.11 REMUNERATION. Directors, as such, may receive a stated salary
and/or shares of, or the right to purchase shares of, capital stock of the
Corporation, for their service, and by resolution of the Board of Directors, a
fixed sum and expenses of attendance, if any, may be allowed for attendance at
each regular or special meeting of such Board. Members of standing or special
committees may be allowed like compensation for attending committee meetings.
4.12 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or which
may be taken at a meeting of the directors, or of a committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so
taken or to be taken, shall be signed by all of the directors, or all of the
members of the committee, as the case may be and filed with the corporate
records reflecting the action taken or with the minutes of the proceedings of
the Board or Committee. Such consent shall have the same effect as a unanimous
vote.
4.13 ACTION OF DIRECTORS BY COMMUNICATIONS EQUIPMENT. Any action that is
required or that may be taken at a meeting of directors, or of a committee
thereof, may be taken by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other simultaneously. Directors who participate by the use
of such equipment shall be deemed to have been present at any such meeting.
4.14 PRESIDING OFFICER. The Chairman of the Board shall preside at all
meetings of the Board of Directors at which the Chairman is present. In the
Chairman's absence, the President shall preside. In the absence of the Chairman
and/or President, the Board shall select a chairman of the meeting from among
the directors present.
ARTICLE V. OFFICERS
5.1 DESIGNATIONS. The officers of the Corporation shall be a President,
a Vice President, Treasurer and a Secretary and, as the Board may designate,
such Vice Presidents, Assistant Secretaries and Assistant Treasurers, each of
whom shall be elected by a majority vote of the Board of Directors for a
one-year term at their first meeting after the annual meeting of stockholders,
and who shall hold office until their successors are elected and qualified. The
Board of Directors also may elect or authorize the appointment of such other
officers as the business of the Corporation may require. Any two or more offices
may be held by the same person, but such an individual who occupies dual offices
may not execute, acknowledge or verify an instrument required by law to be
executed, acknowledged or verified by two or more officers. The Board of
Directors may appoint a Chairman or a Vice Chairman of the Board, but the person
who holds that position shall not be considered an officer of the Corporation.
<PAGE>
Zengine, Inc.
Amended and Restated Bylaws
Page 11
5.2 POWERS AND DUTIES. The officers of the Corporation shall have
such authority and perform such duties as the Board of Directors may from
time to time authorize or determine. In the absence of action of the Board of
Directors, the officers shall have such powers and duties as may be provided
in these Amended and Restated Bylaws, as permitted by applicable law, and as
generally pertain to their respective offices.
5.3 PRESIDENT.
(a) The President shall be the President of the Corporation,
shall have general and active management of the business of the Corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect.
(b) The President shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed, and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the Corporation.
5.4 VICE PRESIDENTS. The Vice-President, or if there shall be more
than one, the Vice- Presidents in the order determined by the Board of
Directors, shall, in the absence or disability of the President, perform the
duties and exercise the powers of the President and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
5.5 TREASURER AND ASSISTANT TREASURERS.
(a) The Treasurer shall have the custody of the corporate funds and
securities, and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation, and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors.
(b) The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all of his or her transactions as Treasurer and of the financial condition of
the Corporation.
(c) If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of the office of Treasurer and for the restoration to the Corporation, in
case of his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession or
under the treasurer's control, belonging to the corporation.
<PAGE>
Zengine, Inc.
Amended and Restated Bylaws
Page 12
(d) The Assistant Treasurer or, if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors, shall,
in the absence or disability of the Treasurer, perform the duties and exercise
the powers of the Treasurer, and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
5.6 SECRETARY AND ASSISTANT SECRETARIES.
(a) The Secretary shall attend all meetings of the board of directors
and all meetings of the stockholders, and shall record all the proceedings of
the meetings of the Corporation and of the Board of Directors in a book to be
kept for that purpose, and shall perform like duties for the standing committees
when required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, under whose supervision the Secretary shall be. The Secretary
shall have custody of the corporate seal of the Corporation, if any, and the
Secretary, or an Assistant Secretary, shall have authority to affix the same to
any instrument requiring it, and when so affixed, it may be attested by the
Secretary's signature or by the signature of such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his or her signature.
(b) The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors, shall, in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary, and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
5.7 DELEGATION. In the case of the absence or inability to act of any
officer of the Corporation and of any person herein authorized to act in such
officer's place, the Board of Directors may from time to time delegate the
powers or duties of such officer to any other officer or any director or other
person whom it may select.
5.8 VACANCIES. Vacancies in any office arising from any cause may be
filled by a vote of a majority of the Board of Directors at any regular or
special meeting of the Board.
5.9 OTHER OFFICERS. The Board of Directors may appoint such other
officers and agents as it shall deem necessary or expedient, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
5.10 TERM; REMOVAL. The officers of the Corporation shall hold office
until their successors are chosen and qualified. Any officer or agent elected or
appointed by the Board of Directors may be removed at any time, with or without
cause, by the affirmative vote of a majority of the Board
<PAGE>
Zengine, Inc.
Amended and Restated Bylaws
Page 13
of Directors, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
5.11 SALARIES. The salaries and other compensation of all officers of
the Corporation shall be fixed by the Board of Directors.
ARTICLE VI. INDEMNIFICATION OF DIRECTORS AND OFFICERS
6.1 INDEMNIFICATION. The Corporation shall indemnify its directors and
officers in the manner provided in the Amended and Restated Certificate of
Incorporation, which is incorporated herein with the same effect as if it were
set forth herein.
ARTICLE VII. DIVIDENDS; FINANCE; AND FISCAL YEAR
7.1 DIVIDENDS. Subject to the applicable provisions of the General
Corporation Law of the State of Delaware, dividends upon the capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, in property or in shares of the
capital stock of the Corporation. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the Board of Directors from time to time, in its absolute discretion,
may deem proper as a reserve or reserves to meet contingencies, or for repairing
or maintaining any property of the Corporation, or for any other proper purpose,
and the Board of Directors may modify or abolish any such reserve.
7.2 DISBURSEMENTS. All checks or demand for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate by resolution.
In the absence of such a resolution, the President and Treasurer shall be deemed
authorized to sign such documents.
7.3 DEPOSITORIES. The monies of the Corporation shall be deposited in
the name of the Corporation in such bank or banks or financial institutions as
the Board of Directors shall designate, and shall be drawn out only by check or
other order for payment of money signed by such persons and in such manner as
may be determined by resolution of the Board of Directors.
7.4 CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents to enter into any contracts or execute and deliver any
instrument in the name and on behalf of the Corporation. Such authority may be
general or confined to specific instances. Unless otherwise directed by the
Board of Directors, the Chairman of the Board shall have the authority to bind
the Corporation to those contracts made in the ordinary and usual course of
business of the Corporation.
<PAGE>
Zengine, Inc.
Amended and Restated Bylaws
Page 14
7.5 LOANS. No loan shall be contracted on behalf of the Corporation
and no evidence of indebtedness shall be issued in its name unless authorized
by the Board of Directors. Such authority may be general or confined to
specific purposes.
7.6 FISCAL YEAR. The fiscal year of the Corporation shall end on the
30th day of September of each year. The Corporation shall be subject to an
annual audit as of the end of its fiscal year by independent public accountants
appointed by and responsible to the Board of Directors.
ARTICLE VIII. CORPORATE SEAL
The corporate seal of the Corporation shall be in such form and bear
such inscription as may be adopted by resolution of the Board of Directors, or
by usage of the officers on behalf of the Corporation.
ARTICLE IX. BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account and shall keep minutes and proceedings of its stockholders and Board of
Directors. It also shall keep at its principal office, or at the office of its
transfer agent or registrar, a record of its stockholders, giving the names and
addresses of all stockholders and the number and class of the shares held by
each. Any books, records and/or minutes may be in written form or any other form
capable of being converted into written form within a reasonable time.
ARTICLE X. AMENDMENTS
10.1 AMENDMENTS. These Amended and Restated Bylaws may be altered,
amended or repealed in the manner provided in the Amended and Restated
Certificate of Incorporation, which is incorporated herein with the same effect
as if it were set forth herein.
10.2 EMERGENCY BYLAWS. The Board of Directors may adopt emergency
Bylaws, subject to repeal or change or by action of the stockholders, which
shall be operative during any emergency in the conduct of the business of the
Corporation resulting from an attack on the United States, any nuclear or atomic
disaster or during the existence of any catastrophe or other similar emergency
condition.
As adopted by the Board of Directors of the Corporation this __ day of
April, 2000.
-------------------
Ira H. Stanley
<PAGE>
Zengine, Inc.
Amended and Restated Bylaws
Page 15
Secretary
<PAGE>
Exhibit 4.1
NO. [FORM OF COMMON STOCK CERTIFICATE] SHARES
CUSIP
See reverse
or certain
definitions
[LOGO]
ZENGINE, INC.
Incorporated Under The Laws Of
The State Of Delaware
NO PAR VALUE, COMMON STOCK
This certifies that _________________________ is the registered
holder of ________________ (___________ ) fully paid and non-assessable
shares of the Common Stock, no par value per share, of Zengine, Inc. (the
"Corporation"), incorporated under the laws of the State of Delaware. These
shares are transferable on the books of the Corporation by the holder of
record hereof, in person, or by a duly authorized attorney or legal
representative upon surrender of this Stock Certificate properly endorsed.
This Stock Certificate is not valid until countersigned by the Transfer Agent
and Registrar.
WITNESS the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
ZENGINE, INC. Dated:
CORPORATE
SEAL
DELAWARE
1999 ____________________________ ______________________
Joseph M. Savarino Louis T. Lipinski
President Secretary
Countersigned and Registered:
REGISTRAR AND TRANSFER COMPANY
Transfer Agent and Registrar
By:____________________________________
Authorized Officer
<PAGE>
[REVERSE SIDE]
THE SHARES REPRESENTED BY THIS STOCK CERTIFICATE ARE SUBJECT TO LIMITATIONS AND
RESTRICTIONS AS SET FORTH IN THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION OF THE CORPORATION WHICH IS ON FILE IN THE OFFICE OF THE DELAWARE
SECRETARY OF STATE, AND THE AMENDED AND RESTATED BYLAWS OF THE CORPORATION WHICH
ARE ON FILE WITH THE SECRETARY OF THE CORPORATION. THE CORPORATION IS AUTHORIZED
TO ISSUE MORE THAN ONE CLASS OF STOCK. THE CORPORATION WILL FURNISH TO ANY
STOCKHOLDER UPON REQUEST AND WITHOUT CHARGE A FULL STATEMENT OF THE
DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE SHARES OF EACH
CLASS OF STOCK AUTHORIZED TO BE ISSUED.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT______Custodian______
(Cust) (Minor)
TEN ENT -as tenants by the entireties under Uniform Gifts to Minors
JT TEN -as joint tenants with right of
survivorship and not as Act ________________________________
tenants in common (State)
Additional abbreviations may also be used though not in the
above list.
For value received, __________________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------
--------------------
- -------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
__________________Shares of the capital stock represented by the within
Certificate, and do hereby irrevocably constitute and appoint ________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,_________________________
-----------------------------------------
The signature(s) must be guaranteed by an
eligible guarantor institution (Banks,
Stockbrokers, Savings and Loan Associations
and Credit Unions with membership in an
approved signature guarantee Medallion
Program), pursuant to S.E.C. Rule 17Ad-15.
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the Certificate, in every
particular, without alteration or
enlargement, or any change whatever.
<PAGE>
Exhibit 4.2
EXHIBIT A
FORM OF WARRANT
<PAGE>
EXHIBIT A
WARRANT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE WARRANT UNDER SUCH ACT AND APPLICABLE
LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
No. 1 of 1
Dated: , 2000
------------------
Warrant to Purchase Shares of Common
Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
OF
ZENGINE, INC.
VOID AFTER __, 2003
This certifies that, for value received, REX Stores Corporation ("RSC")
and its permitted and registered assigns ("Holder") is entitled, subject to the
terms set forth below, to purchase from ZENGINE, INC. (the "Company"), a
Delaware corporation, a number of unregistered shares of the common stock, no
par value per share ("Common Stock"), of the Company equal to 1.7% of the number
of shares of Common Stock which are issued and outstanding on the day
immediately following the date the Company's Common Stock is issued and sold as
a result of the Company's initial public offering (not including the
underwriters' overallotment option) ("IPO"), as constituted on the date thereof,
upon surrender hereof, at the principal office of the Company referred to below,
with the subscription form attached hereto duly executed, and simultaneous
payment therefor in lawful money of the United States or otherwise as
hereinafter provided, at the Exercise Price as set forth in Section 2 below. The
number, character and Exercise Price of such shares of Common Stock are subject
to adjustment as provided below. The term "Warrant" as used herein shall include
this Warrant, and any warrants delivered in substitution or exchange therefor as
provided herein.
<PAGE>
1. TERM OF WARRANT. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on the date of issue set forth on the face of this Warrant (the
"Warrant Issue Date") and ending at 5:00 p.m., Pacific time, on the earlier of:
(i) the termination of the Software Services Agreement by and among the Company,
rexstores.com, Inc. and RSC dated January 21, 2000 prior to the expiration of
the Term (as defined therein); or (ii) on __, 2003, and shall be void
thereafter. This Warrant shall not be exercisable unless and until Zengine
completes an IPO.
2. EXERCISE PRICE. The Exercise Price at which this Warrant may be
exercised shall be the price per share of a share of Company Common Stock sold
in the Company's IPO, as adjusted from time to time pursuant to Section 11
hereof.
EXERCISE OF WARRANT.
(a) The purchase rights represented by this Warrant are
exercisable by the Holder in whole or in part, but not for less than five
hundred (500) shares at a time (or such lesser number of shares which may then
constitute the maximum number purchasable; such number being subject to
adjustment as provided in Section 11 below), at any time, or from time to time,
during the term hereof as described in Section 1 above, by the surrender of this
Warrant and the Notice of Exercise annexed hereto duly completed and executed on
behalf of the Holder, at the office of the Company (or such other office or
agency of the Company as it may designate by notice in writing to the Holder at
the address of the Holder appearing on the books of the Company), upon payment
(i) in cash or by check acceptable to the Company, (ii) by cancellation by the
Holder of indebtedness or other obligations of the Company to the Holder, (iii)
by a combination of (i) and (ii), of the purchase price of the shares to be
purchased, or (iv) as set forth in Section 3(c), below.
(b) This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of record of such shares as of the close of business on such date. As
promptly as practicable on or after such date and in any event within ten (10)
days thereafter, the Company at its expense shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of shares issuable upon such exercise. In the event that this Warrant
is exercised in part, the Company at its expense will execute and deliver a new
warrant of like tenor exercisable for the number of shares for which this
Warrant may then be exercised.
(c) NET ISSUE EXERCISE. Notwithstanding any provisions herein
to the contrary, if the fair market value of one share of Common Stock is
greater than the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising this Warrant for cash, the Holder may elect to receive
shares equal to the value (as determined below) of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant at the principal office of
the Company together with
2
<PAGE>
the properly endorsed Notice of Exercise and notice of such election in which
event the Company shall issue to the Holder a number of shares of Common Stock
computed using the following formula:
Y (A-B)
-------
X = A
Where X = the number of shares of Common Stock to be issued to
the holder;
Y = the number of shares of Common Stock purchasable
under the Warrant or, if only a portion of the
Warrant is being exercised, the portion of the
Warrant being canceled (at the date of such
calculation);
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation); and,
B = Exercise Price (as adjusted to the date of such
calculation).
For purposes of the above calculation, fair market value of one share of Common
Stock shall be determined by the Company's Board of Directors in good faith;
provided, however, that where there exists a public market for the Company's
Common Stock at the time of such exercise, the fair market value per share shall
be the average of the closing bid and asked prices of the Common Stock quoted in
the Over-The-Counter Market Summary or the last reported sale price of the
Common Stock or the closing price quoted on the Nasdaq National Market or on any
exchange on which the Common Stock is listed, whichever is applicable, as
published in the Eastern Edition of THE WALL STREET JOURNAL for the five (5)
trading days prior to the date of determination of fair market value.
Notwithstanding the foregoing, in the event the Warrant is exercised in
connection with the Company's initial public offering of Common Stock, the fair
market value per share shall be the per share offering price to the public of
the Company's initial public offering.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement and bond reasonably satisfactory in form and substance to
the Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of this
Warrant, a new warrant of like tenor and amount.
3
<PAGE>
6. RIGHTS OF STOCKHOLDERS. Subject to Sections 9 and 11 of this
Warrant, the Holder shall not be entitled to vote or receive dividends or be
deemed the holder of Common Stock or any other securities of the Company that
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the Holder, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value, or change of stock to no par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have been
exercised as provided herein.
7. TRANSFER OF WARRANT.
(a) WARRANT REGISTER. The Company will maintain a register
(the "Warrant Register") containing the names and addresses of the Holder or
Holders. Any Holder of this Warrant or any portion thereof may change his or her
address as shown on the Warrant Register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown on the Warrant Register and at the address shown on the Warrant
Register. Until this Warrant is transferred on the Warrant Register of the
Company, the Company may treat the Holder as shown on the Warrant Register as
the absolute owner of this Warrant for all purposes, notwithstanding any notice
to the contrary.
(b) WARRANT AGENT. The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section 7(a) above, issuing the Common Stock or other securities then
issuable upon the exercise of this Warrant, exchanging this Warrant, replacing
this Warrant, or any or all of the foregoing. Thereafter, any such registration,
issuance, exchange, or replacement, as the case may be, shall be made at the
office of such agent.
(c) TRANSFERABILITY AND NONNEGOTIABILITY OF WARRANT. This Warrant may
not be transferred or assigned in whole or in part without the prior written
consent of the Company, which shall not be unreasonably withheld, except that
RSC may transfer this Warrant to any affiliate (as such term is defined by the
Securities Exchange Act of 1934, as amended) of RSC which is majority owned by
RSC. All transfers must comply with all applicable federal and state securities
laws by the transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are requested by the Company). Subject to the provisions of
this Warrant with respect to compliance with the Securities Act of 1933, as
amended (the "Act") and with the limitations on assignments and transfers set
forth above, title to this Warrant may be transferred by endorsement (by the
Holder executing the Assignment Form annexed hereto) and delivery in the same
manner as a negotiable instrument transferable by endorsement and delivery.
4
<PAGE>
(d) EXCHANGE OF WARRANT UPON A TRANSFER. On surrender of this Warrant
for exchange, properly endorsed on the Assignment Form and subject to the
provisions of this Warrant with respect to compliance with the Act and with the
limitations on assignments and transfers contained in this Section 7, the
Company at its expense shall issue to or on the order of the Holder a new
warrant or warrants of like tenor, in the name of the Holder or as the Holder
(on payment by the Holder of any applicable transfer taxes) may direct, for the
number of shares issuable upon exercise hereof.
(e) COMPLIANCE WITH SECURITIES LAWS.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Common Stock to be issued upon
exercise hereof are being acquired solely for the Holder's own account and not
as a nominee for any other party, and for investment, and that the Holder will
not offer, sell or otherwise dispose of this Warrant or any shares of Common
Stock to be issued upon exercise hereof except under circumstances that will not
result in a violation of the Act or any state securities laws. Upon exercise of
this Warrant, the Holder shall, if requested by the Company, confirm in writing,
in a form satisfactory to the Company, that the shares of Common Stock so
purchased are being acquired solely for the Holder's own account and not as a
nominee for any other party, for investment, and not with a view toward
distribution or resale.
(ii) This Warrant and all shares of Common Stock issued upon
exercise hereof shall be stamped or imprinted with a legend in substantially the
following form (in addition to any legend required by state securities laws):
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES
LAWS. SUCH SECURITIES AND ANY SECURITIES ISSUED HEREUNDER OR
THEREUNDER MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND
APPLICABLE LAWS. COPIES OF THE WARRANT AGREEMENT COVERING THE
PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR
SALE MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD HEREOF TO THE SECRETARY OF THE COMPANY AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY."
8. RESERVATION OF STOCK. The Company covenants that during the term
this Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its Certificate of Incorporation (the
5
<PAGE>
"Certificate") to provide sufficient reserves of shares of Common Stock issuable
upon exercise of the Warrant. The Company further covenants that all shares that
may be issued upon the exercise of rights represented by this Warrant and
payment of the Exercise Price, all as set forth herein, will be free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously or otherwise specified
herein). The Company agrees that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the exercise of this Warrant.
9. NOTICES.
(a) Whenever the Exercise Price or number of shares
purchasable hereunder shall be adjusted pursuant to Section 11 hereof, the
Company shall issue a certificate signed by its Chief Financial Officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Exercise Price and number of shares purchasable hereunder after giving effect to
such adjustment, and shall cause a copy of such certificate to be mailed (by
first-class mail, postage prepaid) to the Holder of this Warrant.
(b) In case:
(i) the Company shall take a record of the holders of
its Common Stock (or other stock or securities at the time receivable upon the
exercise of this Warrant) for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right, or
(ii) of any capital reorganization of the Company,
any reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Holder or Holders a notice specifying, as the case may be, (A) the date on which
a record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right, or
(B) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place, and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or such stock or securities at the time receivable upon the exercise of
this Warrant) shall be entitled to exchange their shares of Common Stock (or
such other stock or securities) for securities or other property deliverable
upon
6
<PAGE>
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 15
days prior to the date therein specified.
(c) All such notices, advices and communications shall be
deemed to have been received (i) in the case of personal delivery, on the date
of such delivery, and (ii) in the case of mailing, on the third business day
following the date of such mailing.
10. AMENDMENTS.
(a) Any term of this Warrant may be amended only with the
written consent of the Company and the Holder. Any amendment effected in
accordance with this Section 10 shall be binding upon each holder of any of the
warrants outstanding for the Common Stock relating to this Warrant (the "Common
Stock Warrants"), and the Company; provided, however, that no special
consideration or inducement may be given to any such holder in connection with
such consent that is not given ratably to all such holders, and that such
amendment must apply to all such holders equally and ratably in accordance with
the number of shares of Common Stock issuable upon exercise of their Common
Stock Warrants. The Company shall promptly give notice to all holders of Common
Stock Warrants of any amendment effected in accordance with this Section 10.
(b) No waivers of, or exceptions to, any term, condition or
provision of this Warrant, in any one or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such term, condition or
provision.
11. ADJUSTMENTS. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment from time to time as follows:
11.1 MERGER, SALE OF ASSETS, ETC. If at any time while this
Warrant, or any portion hereof, is outstanding and unexpired there shall be (i)
a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash, or
otherwise, or (iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entirety to any other person, then, as a part of
such reorganization, merger, consolidation, sale or transfer, lawful provision
shall be made so that the holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Exercise Price then in effect, the number of shares of stock
or other securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization, merger
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 11. The foregoing provisions of this Section 11.1 shall
7
<PAGE>
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that
are at the time receivable upon the exercise of this Warrant. If the
per-share consideration payable to the holder hereof for shares in connection
with any such transaction is in a form other than cash or marketable
securities, then the value of such consideration shall be determined in good
faith by the Company's Board of Directors. In all events, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant with
respect to the rights and interests of the Holder after the transaction, to
the end that the provisions of this Warrant shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other
property deliverable after that event upon exercise of this Warrant.
11.2 RECLASSIFICATION, ETC. If the Company, at any time while this
Warrant, or any portion hereof, remains outstanding and unexpired by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 11.
11.3 SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time while this Warrant, or any portion hereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the Exercise Price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination.
11.4 ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR
PROPERTY. If while this Warrant, or any portion hereof, remains outstanding and
unexpired, the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the
amount of such other or additional stock or other securities or property (other
than cash) of the Company that such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 11.
11.5 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 11, the Company at its
expense shall promptly compute such
8
<PAGE>
adjustment or readjustment in accordance with the terms hereof and furnish to
each Holder of this Warrant a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon the written request, at any time,
of any such Holder, furnish or cause to be furnished to such Holder a like
certificate setting forth: (i) such adjustments and readjustments; (ii) the
Exercise Price at the time in effect; and (iii) the number of shares and the
amount, if any, of other property that at the time would be received upon the
exercise of the Warrant.
11.6 NO IMPAIRMENT. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 11 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder of this Warrant against impairment.
12. MISCELLANEOUS.
12.1 GENERAL DISPUTE PRINCIPLES. (a) All disputes between the
parties under this Warrant shall be settled, if possible, through good faith
negotiations between the relevant parties. In the event such disputes cannot be
so resolved, such disputes shall be resolved as provided in Section 12.1(b).
(b) The parties shall submit any controversy or claim
arising out of, relating to or in connection with this Warrant, or the breach
hereof or thereof ("Demand for Arbitration"), to arbitration administered by the
American Arbitration Association ("AAA") in accordance with its Commercial
Arbitration Rules then in effect (collectively, "AAA Rules") and judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
(c) The place of arbitration shall be Dayton, Ohio.
(d) The parties shall attempt, by agreement, to
nominate a sole arbitrator for confirmation by the AAA. If the parties fail to
so nominate a sole arbitrator within thirty (30) days from the date when the
Demand for Arbitration has been communicated by the initiating party, the
arbitrator shall be appointed by the AAA in accordance with the AAA Rules. For
purposes of this Section, the "commencement of the arbitration proceeding" shall
be deemed to be the date upon which the Demand for Arbitration has been
delivered to the parties in accordance with this Section 12.1. A hearing on the
matter in dispute shall commence within thirty (30) days following selection of
the arbitrator, and the decision of the arbitrator shall be rendered no later
than sixty (60) days after commencement of such hearing.
(e) An award rendered in connection with an
arbitration pursuant to this Section shall be final and binding upon the
parties, and the parties agree and consent that the arbitral award shall be
conclusive proof of the validity of the determinations of the arbitrator set
forth in the
9
<PAGE>
award and any judgment upon such an award may be entered and enforced in any
court of competent jurisdiction.
(f) The parties agree that the award of the arbitral
tribunal will be the sole and exclusive remedy between them regarding any and
all claims and counterclaims between them with respect to the subject matter of
the arbitrated dispute. The parties hereby waive all IN PERSONAM jurisdictional
defenses in connection with any arbitration hereunder or the enforcement of an
order or award rendered pursuant thereto (assuming that the terms and conditions
of this arbitration clause have been complied with).
(g) The arbitrator shall issue a written explanation
of the reasons for the award and a full statement of the facts as found and the
rules of law applied in reaching his decision to both parties. The arbitrator
shall apportion to each party all costs (including attorneys' and witness fees,
if any) incurred in conducting the arbitration in accordance with what the
arbitrator deems just and equitable under the circumstances. Any provisional
remedy which would be available to a court of law shall be available from the
arbitrator pending arbitration of the dispute. Either party may make an
application to the arbitrator seeking injunctive or other interim relief, and
the arbitrator may take whatever interim measures he deems necessary in respect
of the subject matter of the dispute, including measures to maintain the status
quo until such time as the arbitration award is rendered or the controversy is
otherwise resolved. The arbitrator shall only have the authority to award any
remedy or relief (except EX PARTE relief) that a Court of Common Pleas of the
State of Ohio could order or grant, including, without limitation, specific
performance of any obligation created under this Agreement, the issuance of an
injunction, or the imposition of sanctions for abuse or frustration of the
arbitration process, but specifically excluding punitive damages.
(h) Either party may file an application in any
proper court for a provisional remedy in connection with an arbitrable
controversy, but only upon the ground that the award to which the application
may be entitled may be rendered ineffectual without provisional relief. The
parties may also commence legal action in lieu of any arbitration under this
Section 12.1 in connection with any third party litigation proceedings.
(i) For purposes of any suit, action or legal
proceeding permitted under this Section 12.1, each party (a) hereby irrevocably
submits itself to and consents to the non-exclusive jurisdiction of the courts
of the State of Ohio or, if it has or can require jurisdiction, United States
District Court for the Southern District (Western Division) of Ohio for the
purposes of any suit, action or legal proceeding in connection with this Warrant
including to enforce an arbitral resolution, settlement, order or award made
pursuant to this Warrant (including pursuant to the U.S. Arbitration Act or
otherwise), and (b) the extent permitted by applicable law, hereby waives, and
agrees not to assert, by way of motion, as a defense, or otherwise, in any such
suit, action or legal proceeding pending in such event, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
legal proceeding is brought in an inconvenient forum or that the venue of the
suit, action or legal proceeding is improper. Each party hereby agrees to the
entry of an order to enforce any resolution, settlement, order or award made
pursuant to this Section by the courts of the State of Ohio or, if it has or can
require jurisdiction, the United States District Court
10
<PAGE>
for the Southern District (Western Division) of Ohio and in connection therewith
hereby waives, and agrees not to assert by way of motion, as a defense, or
otherwise, any claim that such resolution, settlement, order or award is
inconsistent with or violative of the laws or public policy of the laws of the
State of Ohio or any other jurisdiction.
12.2 GOVERNING LAW. This Warrant shall be governed by the laws of the
State of Ohio without regard to choice of law provisions thereof.
12.3 ENTIRE AGREEMENT; AMENDMENT. This Warrant and the attachments
hereto together with the Software Services Agreement by and among the Company,
rexstores.com, Inc. and RSC dated January 21, 2000, constitute the full and
entire agreement between the parties with respect to the subject matter hereof,
and supersede all prior oral and written agreements and understandings between
the parties. Except as expressly provided in this Warrant, neither this Warrant
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
12.4 NOTICES, ETC. All notices and other communications hereunder shall
be deemed given if given in writing and delivered by hand, prepaid express or
courier delivery service or by facsimile transmission confirmed electronically
or by voice or mailed by registered or certified mail (return receipt
requested), or postage fees prepaid, to the party to receive the same at the
respective addresses set forth below (or at such other address as may from time
to time be designated by such Party in accordance with this Section 12.4):
11
<PAGE>
If to REX Stores Corporation :
REX Stores Corporation
2875 Needmore Road
Dayton, Ohio 45414
Telephone: (937) 276-3931
Facsimile: (937) 276-8643
Attn: Douglas Bruggeman, Vice President-Finance
With copies to:
Chernesky, Heyman & Kress, P.L.L.
10 Courthouse Plaza, SW
Suite 1100
Dayton, Ohio 45401
Telephone: (937) 449-2830
Facsimile: (937) 449-2821
Attn: Edward M. Kress, Esq.
If to Zengine:
Zengine, Inc.
6100 Stewart Boulevard
Fremont, California 94538
Telephone: (510) 651-6400
Facsimile: (510) 651-3200
Attn: Joseph M. Savarino, President
With copies to:
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W., Suite 1200
Washington, D.C. 20005
Telephone: (202) 347-0300
Facsimile: (202) 347-2172
Attn: Jeffrey A. Koeppel, Esq.
All such notices and communications hereunder shall for all purposes of
this Warrant be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or
seventy-two (72) hours after the same has been deposited in a regularly
maintained receptacle for the deposit of United States mail, addressed and
postage prepaid as
12
<PAGE>
aforesaid. For purposes of this Warrant, "Business Day" is any day that banks
are open for business in the State of Ohio.
12.5 EXPENSES. Each of the parties shall bear all legal, accounting and
other transaction expenses incurred by it in connection with the negotiation,
execution, delivery and performance of this Warrant.
12.6 COUNTERPARTS. This Warrant may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
12.7 SEVERABILITY. In the event that any provision of this Warrant
becomes or is declared by an arbitrator or a court of competent jurisdiction to
be illegal, unenforceable or void, this Warrant shall continue in full force and
effect without said provision; provided that such remainder shall be interpreted
by the parties so as best to reasonably affect the intent of the parties and to
maintain the economic benefit of this Warrant to all parties.
12.8 TITLES AND SUBTITLES. The titles and subtitles used in this
Warrant are used for convenience only and are not considered in construing or
interpreting this Warrant.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be
executed by their respective officers thereunto duly authorized.
HOLDER: REX STORES CORPORATION ISSUER: ZENGINE, INC.
By: ____________________________ By: ______________________
Name: ____________________________ Name: _____________________
Title: ____________________________ Title: __________________
14
<PAGE>
NOTICE OF EXERCISE
To: ZENGINE, INC.
(1) The undersigned hereby (A) elects to purchase ______ shares of
Common Stock of Zengine, Inc., pursuant to the provisions of Section 3(a) of the
attached Warrant, and tenders herewith payment of the purchase price for such
shares in full, or (B) elects to exercise this Warrant for the purchase of
______ shares of Common Stock, pursuant to the provisions of Section 3(c) of the
attached Warrant.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of the Common Stock to be issued upon exercise
thereof are being acquired solely for the account of the undersigned and not as
a nominee for any other party, and for investment, and that the undersigned will
not offer, sell or otherwise dispose of any such shares of Common Stock except
under circumstances that will not result in a violation of the Securities Act of
1933, as amended, or any applicable state securities laws.
(3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant, if any, in the name of the undersigned or in such other name
as is specified in the space following:
- -------------------------------------------------------------------------------
- ----------------------------- -----------------------------
(Date) (Name)
------------------------------
(Signature)
------------------------------
(Address)
------------------------------
(Telephone No./Facsimile No.)
------------------------------
(Tax payer Identification No.)
15
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock set forth below:
NAME OF ASSIGNEE ADDRESS TAXPAYER I.D. NO. NO. OF SHARES
- --------------------------------------------------------------------------------
and does hereby irrevocably constitute and appoint ______________ Attorney to
make such transfer on the books of ZENGINE, INC., maintained for the purpose,
with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the
Assignee has acknowledged to it in writing that this Warrant and the shares of
stock to be issued upon exercise hereof are being acquired for investment and
that the Assignee will not offer, sell or otherwise dispose of this Warrant or
any shares of stock to be issued upon exercise hereof except under circumstances
which will not result in a violation of the Securities Act of 1933, as amended,
or any state securities laws. Further, the Assignee has acknowledged that upon
exercise of this Warrant the Assignee shall, if requested by the Company,
confirm in writing, in a form satisfactory to the Company, that the shares of
stock so purchased are being acquired for investment and not with a view toward
distribution or resale.
REX Stores Corporation
Dated: _________________________
Signature of Holder
Name: ______________________________
Title: _____________________________
16
<PAGE>
Exhibit 10.1
ZENGINE, INC.
AMENDED AND RESTATED 1999 STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Zengine, Inc. (the "Corporation") hereby establishes this Amended and
Restated 1999 Stock Option Plan (the "Plan") upon the terms and conditions
hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of
the Corporation and its Subsidiary Companies by providing Employees and
Non-Employee Directors with proprietary interests in the Corporation as an
incentive to contribute to the success of the Corporation and its Subsidiary
Companies and reward Employees for outstanding performance. All Incentive Stock
Options issued under this Plan are intended to comply with the requirements of
Section 422 of the Code, and the regulations thereunder, and all provisions
hereunder shall be read, interpreted and applied with that purpose in mind. Each
recipient of an Option hereunder is advised to consult with his or her personal
tax advisor with respect to the tax consequences under federal, state, local and
other tax laws of the receipt and/or exercise of an Option hereunder.
ARTICLE III
DEFINITIONS
3.01 "Board" means the Board of Directors of the Corporation.
3.02 "Change in Control of the Corporation" shall mean the occurrence
of any of the following:
(a) The consummation of a merger or consolidation of the Corporation
with or into another entity or any other corporate reorganization, if persons
who were not stockholders of the Corporation immediately prior to such merger,
consolidation or other reorganization own immediately after such merger,
consolidation or other reorganization 50% or more of the voting power of the
outstanding securities of each of (i) the continuing or surviving entity and
(ii) any direct or indirect parent corporation of such continuing or surviving
entity;
(b) The sale, transfer or other disposition of all or substantially all
of the Corporation's assets;
<PAGE>
(c) A change in the composition of the Board, as a result of which
fewer than two-thirds of the incumbent directors are directors who either (i)
had been directors of the Corporation on the date 24 months prior to the date of
the event that may constitute a Change in Control (the "original directors") or
(ii) were elected, or nominated for election, to the Board with the affirmative
votes of at least a majority of the aggregate of the original directors who were
still in office at the time of the election or nomination and the directors
whose election or nomination was previously so approved; or
(d) Any transaction as a result of which any person is the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing at least 50% of the
total voting power represented by the Corporation's then outstanding voting
securities. For purposes of this Subsection (d), the term "person" shall have
the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act
but shall exclude (i) a trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation or of a Parent or Subsidiary and (ii) a
corporation owned directly or indirectly by the stockholders of the Corporation
in substantially the same proportions as their ownership of the common stock of
the Corporation.
A transaction shall not constitute a Change in Control of the
Corporation if its sole purpose is to change the state of the Corporation's
incorporation or to create a holding company that will be owned in substantially
the same proportions by the persons who held the Corporation's securities
immediately before such transaction.
3.03 "Code" means the Internal Revenue Code of 1986, as amended.
3.04 "Committee" means a committee of two or more directors appointed
by the Board pursuant to Article IV hereof each of whom shall be a Non-Employee
Director as defined in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor
thereto and within the meaning of Section 162(m) of the Code and the regulations
promulgated thereunder.
3.05 "Common Stock" means shares of the common stock, no par value, of
the Corporation.
3.06 "Disability" means any physical or mental impairment which
qualifies an individual for disability benefits under the applicable long-term
disability plan maintained by the Parent Company, the Corporation or a
Subsidiary Company, or, if no such plan applies, which would qualify such
individual for disability benefits under any such plan as if such individual
were covered by that plan.
3.07 "Effective Date" means the day upon which the Board approves this
Plan.
2
<PAGE>
3.08 "Employee" means any person who is employed by the Corporation, a
Subsidiary Company or the Parent Company, or is an Officer of the Corporation, a
Subsidiary Company or the Parent Company, including directors who are also
Officers of or otherwise employed by the Corporation, a Subsidiary Company or
the Parent Company.
3.09 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
3.10 "Fair Market Value" shall be equal to the fair market value per
share of the Corporation's Common Stock on the date an Option is granted, which
value shall be determined by the Board in its sole discretion. However, if the
Common Stock is publicly traded, the Fair Market Value of a share of Common
Stock shall be the closing sale price of a share of Common Stock on the date in
question (or, if such day is not a trading day in the U.S. markets, on the
nearest preceding trading day), as reported with respect to the principal market
(or the composite of the markets, if more than one) or national quotation system
in which such shares are then traded, or if no such closing prices are reported,
the mean between the high bid and low asked prices that day on the principal
market or national quotation system then in use, or if no such quotations are
available, the price furnished by a professional securities dealer making a
market in such shares selected by the Committee.
3.11 "Incentive Stock Option" means any Option granted under this Plan
which the Board or Committee intends (at the time it is granted) to be an
"incentive stock option" within the meaning of Section 422 of the Code or any
successor thereto.
3.12 "Non-Employee Director" means a member of the Board of Directors
of the Corporation, any Subsidiary Company or a Parent Company who is not also
an Officer or Employee.
3.13 "Non-Qualified Option" means any Option granted under this Plan
which is not an Incentive Stock Option.
3.14 "Officer" means an Employee whose position in the Parent Company,
the Corporation or a Subsidiary Company is that of a corporate officer, as
determined by the Board.
3.15 "Option" means a right granted under this Plan to purchase Common
Stock.
3.16 "Optionee" means an Employee, former Employee, Non-Employee
Director, or former Non-Employee Director to whom an Option is granted under the
Plan.
3.17 "Parent Company" means any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the Corporation,
if each of the corporations other than the Corporation owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
3
<PAGE>
3.18 "Retirement" means a termination of service which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained by
the Parent Company, the Corporation or a Subsidiary Company, or, if no such plan
is applicable, which would constitute "retirement" under any such plan, as if
such individual was a participant in that plan.
3.19 "Subsidiary Companies" means those subsidiaries of the Corporation
which meet the definition of "subsidiary corporations" set forth in Section
424(f) of the Code, at the time of granting of the Option in question.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 DUTIES OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, as appointed from time to time by the Board
pursuant to Section 4.02. The Committee shall have the authority to adopt, amend
and rescind such rules, regulations and procedures as, in its opinion, may be
advisable in the administration of the Plan, including, without limitation,
rules, regulations and procedures which (i) deal with satisfaction of an
Optionee's tax withholding obligation pursuant to Article XII hereof, (ii)
include arrangements to facilitate the Optionee's ability to borrow funds for
payment of the exercise or purchase price of an Option, if applicable, from
securities brokers and dealers, (iii) establish the method and arrangements by
which certain Optionees may defer Non-Qualified Options pursuant to Article XIII
hereof, and (iv) include arrangements which provide for the payment of some or
all of such exercise or purchase price by delivery of previously-owned shares of
Common Stock or other property and/or by withholding some of the shares of
Common Stock which are being acquired. The interpretation and construction by
the Committee of any provisions of the Plan, any rule, regulation or procedure
adopted by it pursuant thereto or of any Option shall be final and binding in
the absence of action by the Board.
4.02 APPOINTMENT AND OPERATION OF THE COMMITTEE. The members of the
Committee shall be appointed by, and will serve at the pleasure of, the Board.
The Board from time to time may remove members from, or add members to, the
Committee, provided the Committee shall continue to consist of two or more
members of the Board, each of whom shall be a "non-employee director," as
defined in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor thereto. In
addition, each member of the Committee shall be an "outside director" within the
meaning of Section 162(m) of the Code and regulations thereunder at such times
as is required under such regulations. The Committee shall act by vote or
written consent of a majority of its members. Subject to the express provisions
and limitations of the Plan, the Committee may adopt such rules, regulations and
procedures as it deems appropriate for the conduct of its affairs. It may
appoint one of its members to be chairman and any person, whether or not a
member, to be its secretary or agent. The Committee shall report its actions and
decisions to the Board at appropriate times but in no event less than one time
per calendar year.
4
<PAGE>
4.03 REVOCATION FOR MISCONDUCT. The Board or the Committee may by
resolution immediately revoke, rescind and terminate any Option, or portion
thereof, to the extent not yet vested, previously granted under this Plan to an
Employee who is discharged from the employ of the Corporation, a Subsidiary
Company or the Parent Company for cause, which, for purposes hereof, shall mean
termination because of the Employee's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order. Options granted to a Non-Employee Director who is
removed for cause pursuant to the Articles and/or Bylaws of the Corporation,
Subsidiary Company or Parent Company, shall terminate as of the effective date
of such removal.
4.04 LIMITATION ON LIABILITY. Neither the members of the Board nor any
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan, any rule, regulation or procedure adopted
by it pursuant thereto or any Options granted under it. If a member of the Board
or the Committee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Corporation
shall, subject to the requirements of applicable laws and regulations, indemnify
such member against all liabilities and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in the best interests of the
Corporation and its Subsidiary Companies and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
4.05 COMPLIANCE WITH LAW AND REGULATIONS. All Options granted hereunder
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
The Corporation shall not be required to issue or deliver any certificates for
shares of Common Stock prior to the completion of any registration or
qualification of or obtaining of consents or approvals with respect to such
shares under any federal or state law or any rule or regulation of any
government body, which the Corporation shall, in its sole discretion, determine
to be necessary or advisable. Moreover, no Option may be exercised if such
exercise would be contrary to applicable laws and regulations.
4.06 RESTRICTIONS ON TRANSFER. The Corporation may place a legend upon
any certificate representing shares acquired pursuant to an Option granted
hereunder noting that the transfer of such shares may be restricted by
applicable laws and regulations. Nothing herein shall require the Corporation to
register any shares of Common Stock issuable under this Plan.
5
<PAGE>
ARTICLE V
ELIGIBILITY
Options may be granted to such Employees and Non-Employee Directors of
the Parent Company, the Corporation and the Subsidiary Companies as may be
designated from time to time by the Board or the Committee. Options may not be
granted to individuals who are not Employees or Non-Employee Directors of the
Parent Company, the Corporation or a Subsidiary Company.
ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 OPTION SHARES. The aggregate number of shares of Common Stock
which may be issued pursuant to this Plan, subject to adjustment as provided in
Article IX, shall be 500,000. None of such shares shall be the subject of more
than one Option at any time, but if an Option as to any shares is surrendered
before exercise, expires or terminates for any reason without having been
exercised in full, or for any other reason ceases to be exercisable, the number
of shares covered thereby shall again become available for grant under the Plan
as if no Options had been previously granted with respect to such shares. During
the time this Plan remains in effect, Option grants to each Employee shall not
exceed 50% of the shares of Common Stock available under the Plan.
6.02 SOURCE OF SHARES. The shares of Common Stock issued under the Plan
may be authorized but unissued shares, treasury shares or shares purchased by
the Corporation on the open market or from private sources for use under the
Plan.
ARTICLE VII
DETERMINATION OF
OPTIONS, NUMBER OF SHARES, ETC.
The Board or the Committee shall, in its discretion, determine from
time to time which Employees and Non-Employee Directors will be granted Options
under the Plan, the number of shares of Common Stock subject to each Option,
whether each Option will be an Incentive Stock Option or a Non-Qualified Stock
Option and the exercise price of each Option. In making all such determinations
there shall be taken into account the duties, responsibilities and performance
of each respective Employee or Non-Employee Director, as the case may be, his or
her present and potential contributions to the growth and success of the
Corporation and/or the Subsidiary Companies, his other salary and such other
factors deemed relevant to accomplishing the purposes of the Plan.
6
<PAGE>
ARTICLE VIII
OPTIONS
Each Option granted hereunder shall be on the following terms and
conditions:
8.01 STOCK OPTION AGREEMENT. The proper officers, on behalf of the
Corporation and each Optionee, shall execute a Stock Option Agreement which
shall set forth the total number of shares of Common Stock to which it pertains,
the exercise price, whether it is a Non-Qualified Option or an Incentive Stock
Option, and such other terms, conditions, restrictions and privileges as the
Board or the Committee in each instance shall deem appropriate, provided they
are not inconsistent with the terms, conditions and provisions of this Plan.
Each Optionee shall receive a copy of his or her executed Stock Option
Agreement.
8.02 OPTION EXERCISE PRICE.
(A) INCENTIVE STOCK OPTIONS. The per share price at which the
subject Common Stock may be purchased upon exercise of an Incentive Stock Option
shall be no less than one hundred percent (100%) of the Fair Market Value of a
share of Common Stock at the time such Incentive Stock Option is granted, except
as provided in Section 8.09(b).
(B) NON-QUALIFIED OPTIONS. The per share price at which the
subject Common Stock may be purchased upon exercise of a Non-Qualified Option
shall be established by the Committee at the time of grant.
8.03 VESTING AND EXERCISE OF OPTIONS.
(A) GENERAL RULES. Unless and except as otherwise set forth by
the Board or the Committee in the Stock Option Agreement, Incentive Stock
Options and Non-Qualified Options granted to Optionees shall become vested and
exercisable as follows: 25% shall vest and become exercisable on the first
anniversary of the date of grant of the Stock Option and 6.25% shall vest and
become exercisable at the end of each three month period thereafter. The right
to exercise shall be cumulative. Notwithstanding the foregoing, except as
provided in Section 8.03(b) hereof, no vesting shall occur on or after an
Optionee's service is terminated for any reason. In determining the number of
shares of Common Stock with respect to which Options are vested and/or
exercisable, fractional shares will be rounded up to the nearest whole number if
the fraction is 0.5 or higher, and down if it is less.
(B) ACCELERATED VESTING. Unless the Board or the Committee
shall specifically state otherwise at the time an Option is granted, all Options
granted under this Plan shall become vested and exercisable in full on the date
an Optionee terminates his or her service with the Corporation, all Subsidiary
Companies and the Parent Company, because of his or her Disability, Retirement
or death. In addition, all Options hereunder shall become immediately vested and
exercisable in full as of the effective time of a Change in Control of the
Corporation.
7
<PAGE>
8.04 DURATION OF OPTIONS.
(A) GENERAL RULE. Except as provided in Sections 8.04(b) and
8.09 hereof, each Option or portion thereof granted shall be exercisable at any
time on or after it vests and remain exercisable until the earlier of (i) ten
(10) years after its date of grant or (ii) six (6) months after the date on
which the Optionee ceases his or her service with the Corporation, all
Subsidiary Companies and the Parent Company, unless the Board or the Committee
in its discretion decides at the time of grant or thereafter to extend such
period of exercise upon termination of service to a period not exceeding five
(5) years.
(B) EXCEPTIONS. Unless the Board or the Committee shall
specifically state otherwise at the time an Option is granted, if an Optionee
terminates his or her service with the Corporation, all Subsidiary Companies and
the Parent Company as a result of Disability or Retirement without having fully
exercised his or her Options, the Optionee shall have the right, during the
three (3) year period following his or her termination of service to exercise
such Options.
Unless the Board or the Committee shall specifically state otherwise at
the time an Option is granted, if an Optionee terminates his or her service with
the Corporation, all Subsidiary Companies and the Parent Company following a
Change in Control of the Corporation without having fully exercised his Options,
the Optionee shall have the right to exercise such Options during the remainder
of the original ten (10) year term of the Option from the date of grant.
If an Optionee dies while in the service of the Corporation, a
Subsidiary Company or the Parent Company or terminates service with the
Corporation, all Subsidiary Companies and the Parent Company as a result of
Disability or Retirement and dies without having fully exercised his or her
Options, the executors, administrators, legatees or distributees of his or her
estate shall have the right, during the one (1) year period following his or her
death, to exercise such Options.
(C) LIMITATIONS. In no event, however, shall any Option be
exercisable more than ten (10) years from the date it was granted.
8.05 NONASSIGNABILITY. Options shall not be transferable by an Optionee
except by will or the laws of descent or distribution, and during an Optionee's
lifetime shall be exercisable only by such Optionee or the Optionee's guardian
or legal representative. Notwithstanding the foregoing, or any other provision
of this Plan, an Optionee who holds Non-Qualified Options may transfer such
Options to his or her spouse, lineal ascendants, lineal descendants, or to a
duly established trust for the benefit of one or more of these individuals.
Options so transferred may thereafter be transferred only to the Optionee who
originally received the grant or to an individual or trust to whom the Optionee
could have initially transferred the Option pursuant to this Section 8.05.
Options which are transferred pursuant to this Section 8.05 shall be exercisable
by the transferee according to the same terms and conditions as applied to the
Optionee.
8
<PAGE>
8.06 MANNER OF EXERCISE. Options may be exercised in part or in whole
and at one time or from time to time. The procedures for exercise shall be set
forth in the written Stock Option Agreement provided for in Section 8.01 above.
8.07 PAYMENT FOR SHARES. Payment in full of the purchase price for
shares of Common Stock purchased pursuant to the exercise of any Option shall be
made to the Corporation upon the exercise of the Option. All shares sold under
the Plan shall be fully paid and nonassessable. Payment for shares may be made
by the Optionee (i) in cash or by certified or cashiers check, (ii) by delivery
of a properly executed exercise notice, together with irrevocable instructions
to a broker to sell the shares and then to properly deliver to the Corporation
the amount of sale proceeds to pay the exercise price, all in accordance with
applicable laws and regulations, or (iii) at the discretion of the Committee, by
delivering shares of Common Stock equal in Fair Market Value to the purchase
price of the shares to be acquired pursuant to the Option, or any combination of
the foregoing. With respect to subclause (iii) hereof, the shares of Common
Stock delivered to pay the purchase price must have either been (a) purchased in
open market transactions or (b) issued by the Corporation pursuant to a plan
thereof, in each case more than six (6) months prior to the exercise date of the
Option.
8.08 VOTING AND DIVIDEND RIGHTS. No Optionee shall have any voting or
dividend rights or other rights of a stockholder in respect of any shares of
Common Stock covered by an Option prior to the time that his name is recorded on
the Corporation's stockholder ledger as the holder of record of such shares
acquired pursuant to an exercise of an Option.
8.09 ADDITIONAL TERMS APPLICABLE TO INCENTIVE STOCK OPTIONS. All
Options issued under the Plan as Incentive Stock Options will be subject, in
addition to the terms detailed in Sections 8.01 to 8.08 above, to those
contained in this Section 8.09.
(A) Notwithstanding any contrary provisions contained
elsewhere in this Plan and as long as required by Section 422 of the Code, the
aggregate Fair Market Value, determined as of the time an Incentive Stock Option
is granted, of the Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by the Optionee during any calendar year
under this Plan, and stock options that satisfy the requirements of Section 422
of the Code under any other stock option plan or plans maintained by the
Corporation (or any Parent Company or Subsidiary Company), shall not exceed
$100,000.
(B) LIMITATION ON TEN PERCENT STOCKHOLDERS. The price at which
shares of Common Stock may be purchased upon exercise of an Incentive Stock
Option granted to an individual who, at the time such Incentive Stock Option is
granted, owns, directly or indirectly, more than ten percent (10%) of the total
combined voting power of all classes of stock issued to stockholders of a Parent
Company, the Corporation or any Subsidiary Company, shall be no less than one
hundred and ten percent (110%) of the Fair Market Value of a share of the Common
Stock of the Corporation at the time of grant, and such Incentive Stock Option
shall by its terms not be
9
<PAGE>
exercisable after the earlier of the date determined under Section 8.03 or the
expiration of five (5) years from the date such Incentive Stock Option is
granted.
(C) NOTICE OF DISPOSITION; WITHHOLDING; ESCROW. An Optionee
shall immediately notify the Corporation in writing of any sale, transfer,
assignment or other disposition (or action constituting a disqualifying
disposition within the meaning of Section 421 of the Code) of any shares of
Common Stock acquired through exercise of an Incentive Stock Option, within two
(2) years after the grant of such Incentive Stock Option or within one (1) year
after the acquisition of such shares, setting forth the date and manner of
disposition, the number of shares disposed of and the price at which such shares
were disposed of. The Corporation shall be entitled to withhold from any
compensation or other payments then or thereafter due to the Optionee such
amounts as may be necessary to satisfy any withholding requirements of federal
or state law or regulation and, further, to collect from the Optionee any
additional amounts which may be required for such purpose. The Committee or the
Board may, in its discretion, require shares of Common Stock acquired by an
Optionee upon exercise of an Incentive Stock Option to be held in an escrow
arrangement for the purpose of enabling compliance with the provisions of this
Section 8.09(c).
ARTICLE IX
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance
under this Plan, the number of shares to which any outstanding Option relates,
the maximum number of shares that can be covered by Options to each Employee and
the exercise price per share of Common Stock under any outstanding Option shall
be proportionately adjusted for any increase or decrease in the total number of
outstanding shares of Common Stock issued subsequent to the effective date of
this Plan resulting from a split, subdivision or consolidation of shares or any
other capital adjustment, the payment of a stock dividend, or other increase or
decrease in such shares effected without receipt or payment of consideration by
the Corporation. If, upon a merger, consolidation, reorganization, liquidation,
recapitalization or the like of the Corporation, the shares of the Corporation's
Common Stock shall be exchanged for other securities of the Corporation or of
another corporation, each recipient of an Option shall be entitled, subject to
the conditions herein stated, to purchase or acquire such number of shares of
Common Stock or amount of other securities of the Corporation or such other
corporation as were exchangeable for the number of shares of Common Stock of the
Corporation which such optionees would have been entitled to purchase or acquire
except for such action, and appropriate adjustments shall be made to the per
share exercise price of outstanding Options. Notwithstanding any provision to
the contrary herein and to the extent permitted by applicable laws and
regulations and interpretations thereof, the exercise price of shares subject to
outstanding Options may be proportionately adjusted upon the payment of a
special large and nonrecurring dividend that has the effect of a return of
capital to the stockholders, providing that the adjustment to the per share
exercise price shall satisfy the criteria set forth in Emerging Issues Task
Force 90-9 (or any successor thereto) so that the adjustments do not result in
compensation expense, and provided further that if such adjustment with respect
to incentive stock options would be treated
10
<PAGE>
as a modification of the outstanding incentive stock options with the effect
that, for purposes of Sections 422 and 424(h) of the Code, and the rules and
regulations promulgated thereunder, new Incentive Stock Options would be deemed
to be granted hereunder, then no adjustment to the per share exercise price of
outstanding stock options shall be made.
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend the Plan
with respect to any shares of Common Stock as to which Options have not been
granted, subject to any required stockholder approval or any stockholder
approval which the Board may deem to be advisable for any reason, such as for
the purpose of obtaining or retaining any statutory or regulatory benefits under
tax, securities or other laws or satisfying any applicable stock exchange
listing requirements. The Board may not, without the consent of the holder of an
Option, alter or impair any Option previously granted or awarded under this Plan
except as specifically authorized herein.
ARTICLE XI
EMPLOYMENT AND SERVICE RIGHTS
Neither the Plan nor the grant of any Options hereunder nor any action
taken by the Committee or the Board in connection with the Plan shall create any
right on the part of any Employee, Officer or Non-Employee Director to continue
in any such capacity.
ARTICLE XII
WITHHOLDING
12.01 TAX WITHHOLDING. The Corporation may withhold from any
distributions made under this Plan sufficient amounts to cover any applicable
withholding and employment taxes, and if the amount of such distributions is
insufficient or the Board prohibits the withholding of shares, the Corporation
may require the Optionee to pay to the Corporation the amount required to be
withheld as a condition to delivering the shares acquired pursuant to an Option.
The Corporation also may withhold or collect amounts with respect to a
disqualifying disposition of shares of Common Stock acquired pursuant to
exercise of an Incentive Stock Option, as provided in Section 8.09(c) hereof.
12.02 METHODS OF TAX WITHHOLDING. The Board or the Committee is
authorized to adopt rules, regulations or procedures which provide for the
satisfaction of an Optionee's tax withholding obligation by the retention of
shares of Common Stock to which the Employee would otherwise be entitled
pursuant to an Option and/or by the Optionee's delivery of previously owned
shares of Common Stock or other property.
11
<PAGE>
ARTICLE XIII
DEFERRED PAYMENTS
13.01 DEFERRAL OF OPTIONS. Notwithstanding any other provision of this
Plan, any Optionee who is either an Officer or a Non-Employee Director may
elect, with the approval of the Committee and consistent with any rules and
regulations established by the Board, to defer the delivery of the proceeds of
the exercise of any Non-Qualified Option not transferred under the provisions of
Section 8.05 hereof.
13.02 TIMING OF ELECTION. The election to defer the delivery of the
proceeds from the exercise of any eligible Non-Qualified Option must be made at
least six (6) months prior to the date such Option is exercised or at such other
time as the Committee may specify. Deferrals of eligible Non-Qualified Options
shall only be allowed for exercises of Options that occur while the Optionee is
in active service with the Corporation, a Subsidiary Company or the Parent
Company. Any election to defer the proceeds from the exercise of an eligible
Non-Qualified Option shall be irrevocable.
ARTICLE XIV
EFFECTIVE DATE OF THE PLAN; TERM
14.01 EFFECTIVE DATE OF THE PLAN. This Plan shall become effective on
the Effective Date, and Options may be granted hereunder no earlier than the
date that this Plan is approved by stockholders of the Corporation and prior to
the termination of the Plan, provided that this Plan is approved by stockholders
of the Corporation pursuant to Article XV hereof.
14.02 TERM OF THE PLAN. Unless sooner terminated, this Plan shall
remain in effect for a period of ten (10) years ending on the tenth anniversary
of the Effective Date. Termination of the Plan shall not affect any Options
previously granted and such Options shall remain valid and in effect until they
have been fully exercised or earned, are surrendered or by their terms expire or
are forfeited.
ARTICLE XV
STOCKHOLDER APPROVAL
The Corporation shall submit this Plan to stockholders for approval at
a meeting of stockholders of the Corporation held within twelve (12) months
following the Effective Date in order to meet the requirements of (i) Section
422 of the Code and regulations thereunder and (ii) Section 162(m) of the Code
and regulations thereunder.
12
<PAGE>
ARTICLE XVI
MISCELLANEOUS
16.01 GOVERNING LAW. To the extent not governed by federal law, this
Plan shall be construed under the laws of the State of Delaware.
16.02 PRONOUNS. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun, and the singular shall include the plural.
13
<PAGE>
Exhibit 10.2
FORM OF
ZENGINE, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
ESTABLISHMENT OF PLAN
Zengine, Inc. ("Company") hereby establishes this 2000 Employee Stock
Purchase Plan (the "Plan") on the terms and conditions hereinafter set forth.
The Company intends that this Plan shall qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code of 1986 (the "Code")
(including any future amendments or replacements of such section), and the Plan
shall be so construed. Any term not expressly defined in the Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein.
ARTICLE II
PURPOSE
The Plan is established to provide eligible employees of the Company
and any current or future subsidiary corporation(s) of the Company (collectively
referred to as the "Company") with an opportunity through payroll deductions to
acquire a proprietary interest in the Company by the purchase of common stock,
no par value per share of the Company ("Common Stock"). For purposes of this
Plan, subsidiary corporation shall be as defined in Sections 424(f) of the Code.
Because a participant in the Plan (a "Participant") may withdraw the
Participant's accumulated payroll deductions and terminate participation in the
Plan at any time during an Offering Period as defined below, the Participant is,
in effect, given an option which may or may not be exercised during any Offering
Period.
ARTICLE III
SHARES SUBJECT TO THE PLAN
The number of shares which may be issued under this Plan shall be
________ (the "Shares"); and such Shares may be authorized but unissued shares
of Common Stock or shares of Common Stock reacquired by the Company from
stockholders of the Company in public or private transactions. In the event that
any option granted under the Plan (an "Option") for any reason expires or is
terminated, the Shares allocable to the unexercised portion of such Option may
again be the subject of an Option.
ARTICLE IV
ADMINISTRATION
The Plan shall be administered by a duly appointed committee of the
Board of directors of the Company having such powers as shall be specified by
the Board ("Committee"). All
<PAGE>
questions of interpretation of the Plan or of any Options shall be determined by
the Committee and shall be final and binding upon all persons having an interest
in the Plan and/or any Option, unless otherwise determined by the Board. Subject
to the provisions of the Plan, the Committee shall determine all of the relevant
terms and conditions of Options granted pursuant to the Plan; provided, however,
that all Participants granted Options pursuant to the Plan shall have the same
rights and privileges within the meaning of Section 423(b)(5) of the Code. No
member of the Board of Directors or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Option
granted under it. All expenses incurred in connection with the administration of
the Plan shall be held by the Company.
ARTICLE V
ELIGIBILITY
Any employee of the Company who is employed by the Company for at least
twenty (20) hours per week on a regular basis is eligible to participate in the
Plan, provided that employees who own or hold options to purchase or who, as a
result of participation in this Plan, would own or hold options to purchase
stock of the Company possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company within the meaning
of Section 423(b)(3) of the Code shall not be eligible to participate in the
Plan.
ARTICLE VI
OFFERING DATES
(a) INDIVIDUAL OFFERING PERIODS. The Committee may establish up to two
Offering Periods during which payroll deductions will be accumulated under the
Plan during any calendar year, provided, however, that there may be only one
Offering Period outstanding at any one time. The Committee shall announce an
Offering Period by taking actions reasonably expected to notify all employees of
the Offering Period. Each Offering Period shall include only regular paydays
falling within it.
(b) GOVERNMENTAL APPROVAL; STOCKHOLDER APPROVAL. Notwithstanding any
other provision to the contrary, any Option granted pursuant to the Plan shall
be subject, in addition to the requirements specified in Article XX, to (i)
obtaining all necessary governmental approvals and/or qualifications of the sale
and/or issuance of the Options and/or Shares, and (ii) in the case of Options
relating to an Offering Period after an amendment to the Plan, obtaining any
necessary approval of the stockholders of the Company required by Article XIX.
ARTICLE VII
PARTICIPATION IN THE PLAN
(a) INITIAL PARTICIPATION. An eligible employee shall become a
Participant in an Offering Period after satisfying the eligibility requirements
by delivering to the Company's Human Resources Department a subscription
agreement authorizing payroll deductions not less than ten (10) business days
prior to such Offering Period. An eligible employee who does not
<PAGE>
deliver a subscription agreement to the Company's Human Resources Department ten
(10) business days prior to an Offering Period after becoming eligible to
participate in the Plan shall not participate in the Plan for that Offering
Period or for any subsequent Offering Period unless such employee subsequently
enrolls in the Plan by filing the subscription agreement with the Company at
least ten (10) business days prior to a subsequent Offering Period.
(b) CONTINUED PARTICIPATION. A Participant shall automatically
participate in each successive Offering Period until such time as such
Participant withdraws from the Plan pursuant to Article XII. A Participant is
not required to file any additional subscription agreements for subsequent
Offering Periods in order to continue participation in the Plan. A Participant
may not concurrently participate in more than one Offering Period.
ARTICLE VIII
PURCHASE PRICE
(a) PURCHASE PRICE. The purchase price at which Shares shall be sold in
any Offering Period under the Plan shall be set by the Committee; provided,
however, that the purchase price shall not be less than eighty-five percent
(85%) of the lesser of (a) the fair market value of the Shares on the first
business day in the Offering Period, or (b) the fair market value of the Shares
on the last business day of such Offering Period. Unless otherwise provided by
the Committee prior to the commencement of an Offering Period, the purchase
price for the Offering Period shall be eighty-five percent (85%) of the lesser
of (a) the fair market value of the Shares on the first business day in the
Offering Period or (b) the fair market value of the Shares on the last business
day of such Offering Period.
(b) FAIR MARKET VALUE. The fair market value of a Share shall be the
closing sale price on the date in question of a share of Common Stock on the
principal United States securities exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed, or, if such stock is not
listed on any such exchange, the highest closing bid quotation with respect to a
share of such stock on the date in question on the National Association of
Securities Dealers Automated Quotation System or any system then in use, or if
no such quotations are available, the fair market value on the date in question
of a Share shall be as determined by the Committee in good faith.
ARTICLE IX
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
(a) ACCUMULATION OF PAYROLL DEDUCTIONS. The purchase price of the
Shares shall be accumulated by payroll deductions over the Offering Period.
Deductions made from the Participant's pay on each payday during the Offering
Period shall not be less than one percent (1%) nor more than fifteen percent
(15%) of the Participant's total compensation for that pay period. Total
compensation means total taxable compensation paid to an employee and reflected
on of such employee's Internal Revenue Service Form W-2, as prepared by the
Company, including salary, commissions, bonuses, overtime pay, shift
differentials, vacation pay and
<PAGE>
holiday pay, and shall also include any contributions made by the Company on
behalf of an employee pursuant to a salary deferral agreement pursuant to Code
Section 401 and/or Code Section 125. Payroll deductions shall commence on the
first payday during the Offering Period and shall continue to the end of the
Offering Period unless sooner altered or terminated as provided in the Plan.
(b) CHANGE IN PAYROLL DEDUCTION RATE. A Participant may not decrease or
increase the rate of payroll deductions during an Offering Period. A Participant
may increase or decrease the rate of payroll deductions for any subsequent
Offering Period by filing with the Company a new authorization for payroll
deductions not less than ten (10) business days prior to such subsequent
Offering Period.
(c) PARTICIPANT ACCOUNTS. Individual accounts shall be maintained for
each Participant in the Plan. All payroll deductions made for a Participant
shall be credited to the Participant's account under the Plan and shall be
deposited with the general funds of the Company. No interest shall be paid on,
or added to, such amounts. All payroll deductions received or held by the
Company may be used by the Company for any corporate purpose.
ARTICLE X
PURCHASE OF SHARES
(a) PURCHASE. On the last business day of an Offering Period, a
Participant shall automatically purchase, subject to the limitations in Article
X(b) and X(c) below, that number of Shares, including fractional Shares, that
can be acquired based on funds credited to the Participant's account pursuant to
Article IX(c) at the purchase price established for the Offering Period pursuant
to Article VIII. No Shares shall be purchased on behalf of a Participant whose
participation in the Plan has terminated prior to the last day of the Offering
Period.
(b) SHARE LIMITATION. The maximum number of Shares which a Participant
may purchase in each Offering Period shall be that number of Shares arrived at
by dividing the total amount of the Participant's expected payroll deductions
during the Offering Period by the purchase price of the shares as shall be set
by the Committee pursuant to Article VIII hereof.
(c) FAIR MARKET VALUE LIMITATION. No Participant shall be granted an
Option which permits his or her rights to purchase shares of Common Stock under
this Plan and any similar plans of the Company to accrue at a rate which exceeds
$25,000 of fair market value of such shares (determined at the time such Option
is granted) for each calendar year in which such Option is outstanding at any
time, as determined in accordance with Section 423(b)(8) of the Code.
(d) RIGHTS AS A STOCKHOLDER AND EMPLOYEE. A Participant shall have no
rights as a stockholder by virtue of the Participant's participation in the Plan
until shares are purchased and recorded to a Participant's account pursuant to
the exercise of the Participant's Option. Unless otherwise determined by the
Committee, no adjustment shall be made for dividends or
<PAGE>
distributions or other rights for which the record date is prior to the date
such stock is purchased. Nothing herein shall confer upon a Participant any
right to continue in the employ of the Company or interfere in any way with any
right of the Company to terminate the Participant's employment at any time.
ARTICLE XI
LEGENDS
Any certificate representing any Shares issued hereunder shall have
endorsed thereon such legends as may be designated by the Company.
ARTICLE XII
WITHDRAWAL
(a) NOTICE OF WITHDRAWAL. A Participant may withdraw from the Plan by
signing and delivering to the Company's Human Resources Department a written
notice of withdrawal on a form provided by the Company for such purpose. Such
withdrawal may be elected at any time prior to the end of an Offering Period.
(b) RETURN OF PAYROLL DEDUCTIONS; SUBSEQUENT PARTICIPANT. Upon
withdrawal from the Plan, the withdrawn Participant's accumulated payroll
deductions shall be returned to the Participant and the Participant's interest
in the Plan shall terminate. In the event a Participant voluntarily elects to
withdraw from the Plan, the Participant may not resume participation in the Plan
during the same Offering Period, but may participate in any succeeding Offering
Period under the Plan by filing a new authorization for payroll deductions in
the same manner as set forth above for initial participation in the Plan.
(c) ISSUANCE OF SHARE CERTIFICATES. A Participant may withdraw any
number of whole Shares held in the Plan at any time by notifying the Company's
Human Resources Department, in writing. The transfer agent will issue the
Participant a certificate for the number of whole Shares requested, and will
retain any whole or fractional Shares in the Participant's account in the Plan
if the Participant continues participation in the Plan. If a Participant makes a
complete withdrawal from the Plan, the transfer agent will issue the Participant
a share certificate for all whole Shares held in a Participant's account and
remit any fractional share interest in cash.
ARTICLE XIII
TERMINATION OF EMPLOYMENT
Termination of a Participant's employment with the Company for any
reason, including retirement or death or the failure of a Participant to remain
an eligible employee, shall terminate the Participant's participation in the
Plan immediately. In such event, the payroll deductions credited to the
Participant's account shall be returned to the Participant or, in the case of
the Participant's death, to the Participant's legal representative, and all
rights under the Plan shall
<PAGE>
terminate. A Participant whose participation has been so terminated may again
become eligible to participate in the Plan by again satisfying the requirements
of Article V.
ARTICLE XIV
REPAYMENT OF PAYROLL DEDUCTIONS
In the event a Participant's interest in the Plan is terminated, the
Company shall promptly deliver to the Participant the payroll deductions,
without interest, credited to the Participant's account.
ARTICLE XV
CAPITAL CHANGES
In the event of changes in the Common Stock of the Company due to stock
dividends or other changes in capitalization, or in the event of any merger,
sale or any other reorganization, appropriate adjustments shall be made by the
Company in the Shares subject to purchase and in the purchase price per share.
ARTICLE XVI
NONASSIGNABILITY
Only the Participant may elect to exercise the Participant's Option by
continuing participation in the Plan, and no rights or accumulated payroll
deductions of any Participant under the Plan may be pledged, assigned or
transferred for any reason and any such attempt may be treated by the Company as
an election by the Participant to withdraw from the Plan.
ARTICLE XVII
REPORTS
Each Participant shall receive promptly after the last day of each
Offering Period a report of the Participant's account setting forth the total
payroll deductions accumulated, the number of Shares purchased and the remaining
cash balance, if any, to be refunded or applied to a succeeding Offering Period
pursuant to Article X(a).
ARTICLE XVIII
PLAN TERM
This Plan will continue until terminated by the Board or until all of
the Shares reserved for issuance under the Plan have been issued, whichever
shall first occur.
<PAGE>
ARTICLE XIX
AMENDMENT OR TERMINATION OF THE PLAN
The Board may at any time amend or terminate the Plan, except that such
termination cannot affect Options previously granted under the Plan, nor may any
amendment make any change in an Option previously granted which would adversely
affect the right of any Participant, nor may any amendment be made without
approval of the stockholders of the Company within twelve (12) months of the
adoption of such amendment if such amendment would authorize the sale of more
shares than are authorized for issuanc under the Plan or would change the
designation of corporations whose employees may be offered Options under the
Plan. Notwithstanding any other provision of the Plan to the contrary, in the
event of an amendment to the Plan which affects the rights or privileges of
Options to be offered under the Plan, each Participant with an outstanding
Option shall have the right to exercise such outstanding Option on the effective
date of the amendment and to participate in the Plan for the remaining term of
such outstanding Option pursuant to the terms and conditions of the Plan as
amended. If in accordance with the preceding sentence a Participant elects to
exercise such outstanding Option and to commence participation in the Plan as
amended on the effective date of such amendment, the Participant shall be deemed
to have received a new Option on such effective date.
ARTICLE XX
APPROVAL OF STOCKHOLDERS
This Plan shall be subject to approval by the holders of the Common
Stock of the Company at a duly called meeting of stockholders, which approval
must occur within the period ending twelve (12) months after the date on which
this Plan was adopted by the Board of Directors. In the event that the approval
of the stockholders is not received before the last day of the first Offering
Period, any and all Options granted on the first business day of the first
Offering Period shall be rescinded, and th Company shall promptly refund the
balance of each participating eligible employee's deductions, as provided
herein.
ARTICLE XXI
GOVERNING LAW
To the extent not governed by federal law, this Plan shall be construed
under the laws of the state of California.
<PAGE>
Exhibit 10.3
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
ZENGINE, INC.
AND
MIAMI COMPUTER SUPPLY CORPORATION
DATED AS OF: OCTOBER 1, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
Recitals
<S> <C> <C>
Section 1. Services ..........................................................1
Section 2. Compensation ....................................................2
Section 3. Standards .......................................................3
Section 4. Term ............................................................4
Section 5. Records and Accounts ............................................4
Section 6. Directors and Officers of Zengine and MCSC ......................5
Section 7. Liability; Indemnification ......................................5
Section 8. Other Agreements.................................................5
Section 9. Confidentiality .................................................6
Section 10. Notice ..........................................................6
Section 11. Termination .....................................................6
Section 12. Effect of Termination ...........................................7
Section 13. Miscellaneous ...................................................7
Signatures ................................................................11
Schedule I -- General Corporate Services........................................12
</TABLE>
<PAGE>
FINAL
2/29/00
ADMINISTRATIVE SERVICES AGREEMENT
This ADMINISTRATIVE SERVICES AGREEMENT is effective as of October 1,
1999 (this "Agreement") by and between Miami Computer Supply Corporation, an
Ohio corporation (AMCSC"), and Zengine, Inc., a Delaware corporation
("Zengine"), individually a "party," and collectively, the "parties."
RECITALS
WHEREAS, Zengine is issuing shares of its Common Stock, no par value
per share ("Common Stock"), to the public in an offering (the "Initial Public
Offering") registered under the Securities Act of 1933, as amended;
WHEREAS, MCSC beneficially owns a majority of the issued and
outstanding Zengine Common Stock;
WHEREAS, MCSC has heretofore directly or indirectly provided certain
administrative, financial, management and other services to Zengine;
WHEREAS, on the terms and subject to the conditions set forth herein,
Zengine desires to retain MCSC as an independent contractor to provide, directly
or indirectly, certain of those services to Zengine as of the effective date
hereof; and
WHEREAS, on the terms and subject to the conditions set forth herein,
MCSC desires to provide, directly or indirectly, such services to Zengine.
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, for themselves,
their successors and assigns, hereby agree as follows:
SECTION 1. SERVICES
(a) On the terms and subject to the conditions of this Agreement and in
consideration of the payment described in Section 2, below, MCSC hereby agrees
to provide to Zengine, or procure the provision to Zengine of, and Zengine
agrees to purchase from MCSC, the services described in Schedule I (the
"Services"). Unless otherwise specifically agreed by MCSC and Zengine, the
Services to be provided or procured by MCSC hereunder shall be substantially
similar in scope, quality, and nature to those provided to, or procured on
behalf of, Zengine prior to the date hereof.
<PAGE>
Administrative Services Agreement
Page 2
(b) It is understood that (i) the Services to be provided to Zengine
under this Agreement will, at Zengine's request, be provided to subsidiaries of
Zengine, and (ii) MCSC may satisfy its obligation to provide or procure Services
hereunder by causing one or more of its subsidiaries to provide or procure such
Services. With respect to Services provided to, or procured on behalf of, any
subsidiary of Zengine, Zengine agrees to pay on behalf of such subsidiary all
amounts payable by or in respect of such Services.
(c) In addition to the Services to be provided or procured by MCSC
pursuant to Section 1(a), if requested by Zengine, and to the extent that MCSC
and Zengine may mutually agree, MCSC shall provide additional services
(including services not provided by MCSC to Zengine prior to the date hereof) to
Zengine. The scope of any such services, as well as the term, costs, and other
terms and conditions applicable to such services, shall be as mutually agreed by
MCSC and Zengine.
SECTION 2. COMPENSATION
(a) Zengine shall pay to MCSC an aggregate amount of Seven Hundred
Twenty Thousand Dollars ($720,000.00) (the "Service Payment") for the rendering
of such Services during the Term of this Agreement in monthly increments of
Sixty Thousand and 00/100 Dollars ($60,000.00) per month in arrears on the
fifteenth (15th) day of the following month by check, wire transfer or the
netting of accounts payable and accounts receivable between the parties, as the
parties may agree from time to time. If the parties cannot agree on a netted
amount for a particular month, such month's payment shall be made by check. If
Zengine fails to pay any monthly payment within ninety (90) days of the date it
is due hereunder, Zengine shall be obligated to pay, in addition to the amount
due, interest on such amount at the rate of 0.5% per month from the relevant due
date through the date of payment.
(b) Prior to the date hereof, certain Zengine employees participated in
certain benefit plans sponsored by MCSC (the "MCSC Plans"). On and after the
date hereof, Zengine employees shall continue to be eligible to participate in
the MCSC Plans, subject to the terms of the governing plan documents as
interpreted by the appropriate plan fiduciaries. On and after the date hereof,
subject to regulatory requirements and the provisions of Section 3(a) hereof,
MCSC will continue to provide benefits Services to and in respect of Zengine
employees with reference to the MCSC Plans as it administered the plans prior to
the date hereof.
(c) MCSC and Zengine agree to cooperate fully with each other in the
administration and coordination of regulatory and administrative requirements
associated with the MCSC Plans. Such coordination, upon request, will include
(but is not limited to) the following: sharing payroll data for determination of
highly compensated employees, providing census information (including accrued
benefits) for purposes of running discrimination tests, providing actuarial
reports for purposes of determining the funded status of any plan, review and
coordination of insurance and other independent third party contracts, and
providing for review of all summary plan descriptions,
<PAGE>
Administrative Services Agreement
Page 3
requests for determination letters, insurance contracts, Forms 5500, financial
statement disclosures and plan documents.
(d) In connection with the invoicing described in this Section 2(e),
MCSC will provide to Zengine the same billing data and level of detail as it
customarily provides to other MCSC subsidiaries and such other data as may be
reasonably requested by Zengine.
(e) Except as otherwise agreed in writing by the parties, Zengine shall
take such action as is necessary to establish bank accounts (to be funded by
Zengine) or to otherwise fund all wage and salary payments to Zengine employees
and to fund all medical, retirement and other benefit claims payable to or on
behalf of Zengine employees and their dependents to the extent not covered by
third party insurance. Payroll services and benefit claims processing activities
performed by MCSC or MCSC's subcontractors shall be coordinated to facilitate
payments. Following prior written notice of not less than fifteen (15) business
days, MCSC shall be relieved of any obligation to deliver benefit and payroll
services under this Agreement to the extent that such bank accounts or other
funding arrangements are not established at the time drafts are presented for
payment, or at any time when there are insufficient funds in the relevant
account or such other arrangements fail to satisfy a properly presented claim.
SECTION 3. STANDARDS
(a) Except as otherwise agreed with Zengine or described in this
Agreement, and provided that MCSC is not restricted by contract with third
parties or by applicable law, MCSC agrees that the nature, quality, and standard
of care applicable to the delivery of the Services hereunder will be
substantially the same as that of the Services which MCSC provides from time to
time to its subsidiaries; PROVIDED that in no event shall such standard of care
be less than the standard of care that MCSC has customarily provided to Zengine
with respect to the relevant Service prior to the date hereof. MCSC shall use
its reasonable efforts to ensure that the nature and quality of Services
provided to Zengine employees either by MCSC directly or through administrators
under contract shall be undifferentiated as compared with the same services
provided to or on behalf of MCSC employees under the MCSC Plans.
(b) Subject to Section 3(a) above, Zengine hereby delegates to MCSC
final, binding, and exclusive authority, responsibility, and discretion to
interpret and construe the provisions of employee benefit plans in which Zengine
has elected to participate and which are administered by MCSC under this
Agreement (collectively, "Employee Benefit Plans"). MCSC may further delegate
such authority to plan administrators to:
(i) provide administrative and other services
(ii) reach factually supported conclusions consistent with the
terms of the Employee Benefit Plans;
<PAGE>
Administrative Services Agreement
Page 4
(iii) make a full and fair review of each claim denial and
decision related to the provision of benefits provided or arranged for under the
Employee Benefit Plans, pursuant to the requirements of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), if within sixty (60) days
after receipt of the notice of denial, a claimant requests in writing a review
for reconsideration of such decisions. Administrator shall notify the claimant
in writing of its decision on review. Such notice shall satisfy all ERISA
requirements relating thereto; and
(iv) notify the claimant in writing of its decision on review.
(c) MCSC shall provide or shall cause to be provided to Zengine data or
reports requested by Zengine relating to (i) benefits paid to or on behalf of
Zengine employees under the MCSC Plans, including but not limited to financial
statements, claims history, and census information, and (ii) other information
relating to the Services that is required to satisfy any reporting or disclosure
requirement of ERISA or the Code. MCSC will provide such information within a
reasonable period of time after it is requested. The costs for reports which are
substantially similar to reports prepared by MCSC or on behalf of MCSC generally
for its businesses shall be considered a part of the Service Payment.
SECTION 4. TERM
The initial term of this Agreement shall commence on the date hereof
and shall continue for a period of two (2) years (the "Term") unless renewed or
extended by mutual agreement of the parties. Specific categories of Services may
be cancelled as agreed in writing by the parties from time to time without a
reduction in the Service Payment.
SECTION 5. RECORDS AND ACCOUNTS
MCSC shall maintain accurate records and accounts of the transactions
relating to the Services performed by it pursuant to this Agreement. Zengine
shall have the right to inspect and copy, upon reasonable notice and at
reasonable intervals during MCSC's regular office hours, the separate records
and accounts maintained by MCSC relating to the Services.
SECTION 6. DIRECTORS AND OFFICERS OF ZENGINE AND MCSC
(a) Nothing contained in this Agreement shall be deemed to relieve the
officers and directors of Zengine from the performance of their duties or limit
the exercise of their powers in accordance with Zengine's Certificate of
Incorporation (as amended) or the laws of the State of Delaware. The services of
MCSC's officers and employees which are rendered to Zengine under this Agreement
shall at all times be in accordance with the instructions of Zengine's officers.
(b) Nothing in this Agreement shall limit or restrict the right of any
of MCSC's directors,
<PAGE>
Administrative Services Agreement
Page 5
officers or employees to engage in any other business or devote their time and
attention in part to the management or other aspects of any other business,
whether of a similar nature, or to limit or restrict the right of MCSC to engage
in any other business or to render services of any kind to any corporation,
firm, individual, trust or association.
SECTION 7. LIABILITY; INDEMNIFICATION
(a) MCSC shall have no liability whatsoever to Zengine for any error,
act or omission in connection with the Services to be rendered by MCSC to
Zengine hereunder unless any such error, act or omission is attributable to
MCSC's misconduct or negligence. Each party agrees to indemnify, defend and hold
the other harmless from and against and in respect of any and all costs,
expenses (including without limitation, attorneys= fees and litigation and
investigation costs), losses, damages and claims arising from, in connection
with or relating to (i) the Services to be rendered under this Agreement or (ii)
any breach of this Agreement; provided, however, that, notwithstanding anything
contained herein, no party shall be liable for consequential damages of any kind
(even if advised of the possibility or likelihood thereof) or any punitive
damages in connection with any claim or matter arising under or in connection
with this Agreement. Except as expressly set forth herein, no party makes any
representation or warranty of any kind. The provisions of this Section shall
survive any termination or non-renewal of this Agreement.
(b) MCSC is an independent contractor and when its employees act under
the terms of this Agreement, they shall be deemed at all times to be under the
supervision and responsibility of MCSC; and no person employed by MCSC and
acting under the terms of this Agreement shall be deemed to be acting as agent
or employee of Zengine or any customer of Zengine for any purpose whatsoever.
SECTION 8. OTHER AGREEMENTS
From time to time, Zengine may find it necessary or desirable either to
enter into agreements covering services of the type contemplated by this
Agreement to be provided by parties other than MCSC or to enter into other
agreements covering functions to be performed by MCSC hereunder. Nothing in this
Agreement shall be deemed to limit in any way the right of Zengine to acquire
such services from others or to enter into such other agreements; provided that
in no such event shall the fees to be paid to MCSC pursuant to Section 2 hereof
be reduced on account thereof unless this Agreement is terminated, or the
applicable categories of Services, are cancelled in accordance with Section 3
hereof.
SECTION 9. CONFIDENTIALITY
MCSC agrees to hold in strict confidence, and to use reasonable efforts
to cause its employees and representatives to hold in strict confidence, all
confidential information concerning Zengine furnished to or obtained by MCSC in
the course of providing the Services (except to the
<PAGE>
Administrative Services Agreement
Page 6
extent that such information has been (a) in the public domain through no fault
of MCSC or (b) lawfully acquired by MCSC from sources other than Zengine); and
MCSC shall not disclose or release any such confidential information to any
person, except its employees, representatives and agents who have a need to know
such information in connection with MCSC's performance under this Agreement,
unless (i) such disclosure or release is compelled by the judicial or
administrative process, or (ii) in the opinion of counsel to MCSC, such
disclosure or release is necessary pursuant to requirements of law or the
requirements of any governmental entity including, without limitation,
disclosure requirements under the Securities Exchange Act of 1934, as amended.
SECTION 10. NOTICE
Unless otherwise agreed in writing by the parties, Zengine agrees to
provide MCSC with at least two (2) months prior written notice of any material
change in the eligible Zengine employees and retirees covered by the MCSC Plan,
and any change in the scope of Services to be provided by MCSC with respect to
such plans and arrangements. Notwithstanding the preceding sentence, if Zengine
provides MCSC with less than two (2) months' notice of any such change and MCSC
is nonetheless able, with reasonable efforts, to effectuate such change with
such shorter notice, then MCSC shall implement the requested change.
SECTION 11. TERMINATION
(a) MCSC may, at its option, terminate this Agreement as it relates to
any given Service (without a reduction in the Service Payment) if MCSC would
otherwise be required to provide such Service with respect to any employee
benefit plan or program that is not substantially similar to a corresponding
plan or program of MCSC (as such plans and programs of MCSC exist from time to
time) or if the method of delivering such Service would no longer be
substantially similar to the manner in which such Service was delivered to
Zengine as such delivery may change from time to time.
(b) MCSC may terminate any affected Service at any time if Zengine
shall have failed to perform any of its material obligations under this
Agreement relating to any such Service, MCSC has notified Zengine in writing of
such failure, and such failure shall have continued for a period of sixty (60)
days after receipt by Zengine of notice of such failure.
(c) Zengine may terminate any affected Service at any time if MCSC
shall have failed to perform any of its material obligations under this
Agreement relating to any such Service, Zengine has notified MCSC in writing of
such failure, and such failure shall have continued for a period of sixty (60)
days after receipt by MCSC of notice of such failure.
(d) Each of Zengine and MCSC agrees that prior to exercising its rights
under this Section 11, it will consult for a reasonable period with the other
party in advance of such termination as to its implementation.
<PAGE>
Administrative Services Agreement
Page 7
SECTION 12. EFFECT OF TERMINATION
(a) Other than as required by law, and except as otherwise set forth in
Section 11, upon termination of any Service pursuant to Section 11, and upon
termination of this Agreement in accordance with its terms, MCSC will have no
further obligation to provide the terminated Service (or any Service, in the
case of termination of this Agreement) and Zengine will have no obligation to
make any Service Payments or make any other payments hereunder; PROVIDED that
notwithstanding such termination, (i) Zengine shall remain liable to MCSC for
fees owed and payable in respect of Services provided prior to the effective
date of the termination; (ii) MCSC shall continue to charge Zengine for
administrative and program costs relating to benefits paid after but incurred
prior to the termination of any Service and other services required to be
provided after the termination of such Service and Zengine shall be obligated to
pay such expenses in accordance with the terms of this Agreement; and (iii) the
provisions of Sections 4, 6, 7, 8, 9, 10 and this Section 12 for the MCSC Plans
that relate to any period after the effective date of any such termination shall
be for the account of Zengine.
(b) Following termination of this Agreement with respect to any
Service, MCSC and Zengine agree to cooperate in providing for an orderly
transition of such Service to Zengine or to a successor service provider.
Without limiting the foregoing, MCSC agrees to (i) provide, within ninety (90)
days of the termination, copies in a format designated by MCSC, of all records
relating directly or indirectly to benefit determinations of Zengine employees,
including but not limited to compensation and service records, correspondence,
plan interpretive policies, plan procedures, administration guidelines, minutes,
or any data or records required to be maintained by law and (ii) work with
Zengine in developing a transition schedule.
SECTION 13. MISCELLANEOUS
(a) This Agreement may not be transferred or assigned by either party,
whether voluntarily or by operation of law, without the prior written consent of
the other. This Agreement shall inure to the benefit of and be binding upon all
permitted successors and assigns.
(b) This Agreement shall be governed by the laws of the State of Ohio
(regardless of the laws that might otherwise govern under applicable principles
of conflicts of law) as to all matters, including, but not limited to, matters
of validity, construction, effect, performance and remedies.
(c) This Agreement may be executed in counterparts, each of which shall
constitute an original and both of which together shall be deemed to be one and
the same instrument.
(d) In the event there is any conflict between the provisions of this
Agreement, on the one hand, and provisions of prior services agreements among
MCSC or its subsidiaries and Zengine
<PAGE>
Administrative Services Agreement
Page 8
(the "Prior Agreements"), on the other hand, the provisions of this Agreement
shall govern and such provisions in the Prior Agreements are deemed to be
amended so as to conform with this Agreement.
(e) In the event that Zengine (or any of its officers or directors) or
MCSC (or any of its officers or directors) at any time after the date hereof
initiates or becomes subject to any litigation or other proceedings before any
governmental authority or arbitration panel with respect to which the parties
have no prior agreements (as to indemnification or otherwise), the party (and
its officers and directors) that has not initiated and is not subject to such
litigation or other proceedings shall comply, at the other party's expense, with
any reasonable requests by the other party for assistance in connection with
such litigation or other proceedings (including by way of provision of
information and making available of employees as witnesses).
(f) Nothing in this Agreement shall constitute or be deemed to
constitute a partnership or joint venture between the parties hereto or, except
to the extent provided in Section 3(b), constitute or be deemed to constitute
any party the agent or employee of the other party for any purpose whatsoever
and neither party shall have authority or power to bind the other or to contract
in the name of, or create a liability against, the other in any way or for any
purpose.
(g) MCSC may hire or engage one or more subcontractors to perform all
or any of its obligations under this Agreement, provided that MCSC will in all
cases remain primarily responsible for all obligations undertaken by it in this
Agreement with respect to the scope, quality and nature of the Services provided
to Zengine.
(h)(i) For purposes of this Section, "force majeure" means an event
beyond the control of either party, which by its nature could not have been
foreseen by such party, or, if it could have been foreseen, was unavoidable, and
includes without limitation, acts of God, earthquakes, storms, floods, riots,
fires, sabotage, civil commotion or civil unrest, interference by civil or
military authorities, acts of war (declared or undeclared) and failure of
communications, electrical or energy sources.
(ii) Neither party shall be under any liability for failure to
fulfill any obligation under this Agreement, so long as and to the extent to
which the fulfillment of such obligation is prevented, frustrated, hindered, or
delayed as a consequence of circumstances of force majeure, provided always that
such party shall have exercised all due diligence to minimize to the greatest
extent possible the effect of force majeure on its obligations hereunder.
(iii) Promptly on becoming aware of force majeure causing a
delay in performance or preventing performance of any obligations imposed by
this Agreement (and termination of such delay), the party affected shall give
written notice to the other party giving details of the same, including
particulars of the actual and, if applicable, estimated continuing effects of
such force majeure on the obligations of the party whose performance is
prevented or delayed. If such notice shall have been duly given, and actual
delay resulting from such force majeure shall be deemed not to be a breach of
this Agreement, and the period for performance of the obligation to which it
relates
<PAGE>
Administrative Services Agreement
Page 9
shall be extended accordingly, provided that if force majeure results in the
performance of a party being delayed by more than sixty (60) days, the other
party shall have the right to terminate this Agreement with respect to any
affected by such delay forthwith by written notice.
(i) This Agreement (including the Schedules constituting a part of this
Agreement) and any other writing signed by the parties that specifically
references this Agreement constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements,
understandings and negotiations, both written and oral, between the parties with
respect to the subject matter hereof. This Agreement is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder.
(j) All notices, requests, demands, waivers and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given if delivered personally or by facsimile
transmission or mailed (certified or registered mail, postage prepaid, return
receipt requested):
If to Zengine, Inc:
6100 Stewart Avenue
Fremont, California 94538
Telephone: (510) 650-6400
Facsimile: (510) 651-3200
Attn: Joseph M. Savarino, President
If to Miami Computer Supply Corporation:
4750 Hempstead Station Drive
Dayton, Ohio 45429
Telephone: (937) 291-8282
Facsimile: (937) 291-8298
Attn: Michael E. Peppel, President
With a copy to:
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W., 12th Floor
Washington, DC 20005
Telephone: (202) 347-0300
Facsimile: (202) 347-2172
Attn: Jeffrey A. Koeppel, Esq.
or to such other person or address as any party shall specify by notice in
writing to the other party.
<PAGE>
Administrative Services Agreement
Page 10
All such notices, requests, demands, waivers and communications shall be deemed
to have been received on the date on which hand delivered, upon transmission of
the facsimile transmission by the sender and issuance by the transmitting
machine of a confirmation slip confirming that the number of pages constituting
the notice have been transmitted without error, or on the third business day
following the date on which so mailed, except for a notice of change of address,
which shall be effective only upon receipt thereof. In the case of a notice sent
by facsimile transmission, the sender shall contemporaneously mail a copy of the
notice to the addressee at the address provided for above. However, such mailing
shall in no way alter the time at which the facsimile notice is deemed received.
In no event shall the provision of notice pursuant to this Section 13(j)
constitute notice for service of process.
(k) If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall not render the entire
Agreement invalid. Rather, the Agreement shall be construed as if not containing
the particular invalid or unenforceable provision, and the rights and
obligations of each party shall be construed and enforced accordingly.
(l) This Agreement may only be amended by a written agreement executed
by both parties hereto.
(m) Zengine agrees to permit MCSC and its subsidiaries to use the
trademarks and service marks owned by Zengine or any of its subsidiaries at no
cost to MCSC or its subsidiaries in MCSC's annual report to shareholders and
publicity materials and for other similar purposes.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
Administrative Services Agreement
Page 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above on the date set forth below.
ZENGINE, INC.
By: /s/ JOSEPH M. SAVARINO
--------------------------------------
Name: JOSEPH M. SAVARINO
--------------------------------------
Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER
--------------------------------------
Date: February 29, 2000
MIAMI COMPUTER SUPPLY CORPORATION
By: /s/ MICHAEL E. PEPPEL
--------------------------------------
Name: MICHAEL E. PEPPEL
--------------------------------------
Title: CHIEF EXECUTIVE OFFICER
--------------------------------------
Date: February 29, 2000
<PAGE>
Administrative Services Agreement
Page 12
ADMINISTRATIVE SERVICES AGREEMENT -- SCHEDULE I
GENERAL CORPORATE SERVICES
- Treasury and Cash Management
(including loans and investments)
- Accounts Payable
- Corporate Development
- Risk Management and Administrative Insurance
- Executive Compensation and Benefit Plan Design Services
- Human Resources and Compensation
- Insurance Policies
(liability, property, casualty and fiduciary)
- Services to update the MCSC dedicated business-to-business
websites.
EMPLOYEE BENEFIT PLANS:
- BENEFITS/CLAIMS
- ADMINISTRATION
- Administration of MCSC plans and program in which
Zengine employees may participate.
<PAGE>
Administrative Services Agreement
Page 13
- OTHER BENEFIT SUPPORT SERVICEs
- Accounting, Legal, Actuarial Fees and related
recoveries.
- Payroll support of benefits administration
(insurance, savings, other benefit plans and
statutory requirements).
- Other.
- EMPLOYEE STOCK PURCHASE PROGRAM (WHEN INSTITUTED)
- Payroll Services.
- Other.
<PAGE>
Exhibit 10.4
DISTRIBUTION SERVICES AGREEMENT
BY AND BETWEEN
ZENGINE, INC.
AND
MIAMI COMPUTER SUPPLY CORPORATION
DATED AS OF: OCTOBER 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Recitals .........................................................................1
Section 1 Services ............................................................1
Section 2 Compensation ........................................................3
Section 3 Term ................................................................4
Section 4 Sales Tax ...........................................................4
Section 5 Insurance; Standard of Care .........................................4
Section 6 Directors and Officers of MCSC and Zengine ..........................5
Section 7 Liability; Indemnification ..........................................5
Section 8 Non-Exclusivity .....................................................5
Section 9 Restrictive Covenants ...............................................6
Section 10 Trademark............................................................6
Section 11 Warranties ..........................................................6
Section 12 Termination .........................................................7
Section 13 Confidentiality .....................................................7
Section 14 Miscellaneous .......................................................8
Signatures ......................................................................11
</TABLE>
<PAGE>
DISTRIBUTION SERVICES AGREEMENT
This DISTRIBUTION SERVICES AGREEMENT (this "Agreement") is effective as
of the 1st day of October, 1999 by and between Miami Computer Supply
Corporation, an Ohio corporation ("MCSC"), and Zengine, Inc., a Delaware
corporation ("Zengine"), individually a "party," and collectively, the
"parties."
RECITALS
WHEREAS, Zengine is issuing shares of its Common Stock, no par value
per share ("Common Stock"), to the public in an offering (the "Initial Public
Offering") registered under the Securities Act of 1933, as amended;
WHEREAS, MCSC beneficially owns a majority of the issued and
outstanding Zengine Common Stock;
WHEREAS, MCSC has heretofore directly or indirectly provided certain
purchasing, storage, shipping and other transaction management services to
Zengine;
WHEREAS, on the terms and subject to the conditions set forth herein,
Zengine desires to retain MCSC as an independent contractor to provide, directly
or indirectly, certain of those services to Zengine as of the effective date
hereof; and
WHEREAS, on the terms and subject to the conditions set forth herein,
MCSC desires to provide, directly or indirectly, such services to Zengine.
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, for themselves,
their successors and assigns, hereby agree as follows:
SECTION 1. SERVICES
(a) On the terms and subject to the conditions of this Agreement and in
consideration of the payment described in Section 2, below, MCSC hereby agrees
to provide to Zengine, or procure the provision to Zengine of, and Zengine
agrees to purchase from MCSC, the following services: (i) sale of certain
products to Zengine or to Zengine's clients as MCSC may have in its inventory,
from time to time; (ii) receipt of inventory for or from Zengine's clients or
from third party suppliers or vendors for Zengine's clients; (iii) the storage
and warehousing of inventory for or on behalf of Zengine's clients; (iv)
purchase and inventory management services (including the sourcing of product);
(v) the picking, packaging and shipping (via third party carriers, including the
U.S. Postal Service, UPS, Federal Express and others) of inventory for Zengine
or Zengine's clients (whether
<PAGE>
Distribution Services Agreement
Page 2
such inventory is purchased from MCSC or from third party suppliers or vendors
and just warehoused by MCSC); (vi) product return administration; (vii) the
provision of real time information regarding purchases, inventory, purchase
orders, shipment tracking and product returns; and (viii) call center
administration relating to product purchases by Zengine's clients' customers
(the "Services"). Services shall be performed by MCSC at the request of Zengine
from time to time and may include some or all of the Services listed above.
(b)(i) In order to provide its Services to Zengine, MCSC will rely upon
information provided to it by Zengine. Zengine will provide MCSC all information
necessary for MCSC to perform its obligations hereunder, including information
relating to product orders, customer information, costs, pricing, documentary
requirements, technical information, call center scripts or guidelines, customer
and credit guidelines and limits, sales tax informtaion, returns criteria or
policies and similar information MCSC has no responsibility with respect to the
adequacy, accuracy or validity of any of the information, guidelines, limits or
criteria provided by Zengine to it hereunder. In performing the Services
hereunder, MCSC shall act in accordance with, and shall be entitled to rely
upon, the instructions and authorizations (whether written or oral) received
from Zengine, without investigation, including all customer, credit, shipping,
allocation, pricing and other information and instructions as shall be provided
by Zengine hereunder. In connection therewith, MCSC shall permit Zengine to
connect into MCSC's J.D. Edwards enterprise resource planning network on terms
and conditions as agreed to by the parties from time to time.
(ii) MCSC will establish and maintain methods of reporting to
Zengine such reports and in such formats as shall be mutually agreed, including
but not limited to, reports of perpetual inventory located at MCSC warehouses,
product shipped, actual sales and order history of each customer.
(iii) MCSC shall maintain accurate records and accounts of all
transactions relating to the Services performed by it pursuant to this
Agreement. Such records and accounts shall be maintained separately from MCSC's
own records and accounts. Zengine shall have the right to inspect and copy, upon
reasonable notice and at reasonable intervals during MCSC's regular office
hours, the separate records and accounts maintained by MCSC relating to the
Services.
<PAGE>
Distribution Services Agreement
Page 3
SECTION 2. COMPENSATION.
(a) In consideration of the Services to be provided by MCSC, Zengine
shall pay to MCSC an amount equal to three percent (3%) of the total gross
revenues (as determined in accordance with generally accepted accounting
principles) that Zengine receives for any product orders fulfilled wholly or
partially by MCSC. If product is purchased from MCSC, Zengine shall pay to MCSC
MCSC's actual cost of the product (excluding rebates or other credits) plus the
actual cost of freight-in to MCSC as charged to MCSC by its vendor or supplier.
Zengine shall report all transactions subject to this Agreement to MCSC within
five (5) business days after the end of each month in such detail as the parties
may agree from time to time and all such reports shall be accurate and complete.
All such payments shall be payable in arrears each month that Zengine receives
gross revenues, on or before the twentieth (20th) day of each month by check,
wire transfer or the netting of accounts payable and accounts receivable between
the parties, as the parties may agree from time to time. If the parties cannot
agree on a netted amount for a particular month, such month's payment shall be
made by check. If Zengine fails to pay any monthly payment within ninety (90)
days of the date it is due hereunder, Zengine shall be obligated to pay, in
addition to the amount due, interest on such amount at the rate of 0.5% per
month from the relevant due date through the date of payment.
(b)(i) Zengine promptly will reimburse MCSC for any freight costs "out"
to persons who have purchased product and for any freight costs "in" incurred
for product returns, except for returns of Defective Products, Unmerchandisable
Products (if shipped in that condition by MCSC), Damaged Products (if improperly
packaged by MCSC) and/or product shipped erroneously to customers (collectively,
"Free Return Products"). MCSC promptly will issue a credit to Zengine equal to
the charge for shipment from customers to MCSC by the means used by the customer
of Free Return Products and MCSC will be responsible for freight costs to ship
replacement product to customers for Free Return Products. As used in this
Agreement: (i) "Defective Products" means products which contain manufactured
defects which prevent them from being used for their intended purpose; (ii)
"Damaged Products" means products which are damaged during shipment to customers
which prevent them from being used for their intended purpose; and (iii)
"Unmerchandisable Products" means products which are shopworn and/or soiled.
(ii) The risk of parcel loss or damage shall pass from MCSC to
Zengine when the product is delivered to third party carriers for shipment to
customers. Zengine may pass such risk of loss to its clients pursuant to its
agreements with such clients. Title to product shall transfer from MCSC to the
customer (or to Zengine's client based on Zengine's agreements with third
parties) when the product is delivered to the third party carrier for shipment
to the customer. Zengine will be liable for any product which is damaged, lost
and/or misdirected by the third party carrier and/or refused by customers and
will issue a credit to MCSC therefor.
<PAGE>
Distribution Services Agreement
Page 4
SECTION 3. TERM.
This Agreement will begin on October 1, 1999, the effective date hereof
(the "Effective Date") and will expire on the second anniversary of the
Effective Date, unless renewed or extended by the mutual agreement of the
parties (the "Initial Term"). This Agreement may be renewed at the option of
either MCSC or Zengine for an additional two (2) year term (a "Renewal Term,"
and with the Initial Term, the "Term") after the Initial Term, and the renewing
party shall provide to the other party written notice of such renewal on or
prior to the sixtieth (60th) day prior to the last day of the Initial Term.
Failure to provide such renewal notice shall result in automatic termination of
this Agreement effective as of the day after the last day of the Initial Term,
unless the Parties otherwise agree.
SECTION 4. SALES TAX.
MCSC shall have no liability for the payment, collection or remittance
to the proper authorities of any sales tax, use tax or other tax arising from
the sale of product to Zengine or to Zengine's clients or to Zengine's clients'
customers, the storage of product in the MCSC warehouses or the shipment of
product to or from any jurisdiction, and Zengine shall indemnify and hold
harmless in respect thereof (including any costs incurred by MCSC in connection
with any audit or inquiry of any taxing authority). Zengine is responsible to
determine the applicable taxing jurisdictions arising in connection with the
sale of product and for providing MCSC with copies of any resale certificates or
other documentation as may be required by MCSC to perform its services
hereunder.
SECTION 5. INSURANCE; STANDARD OF CARE.
(a) MCSC shall provide insurance for all product stored in the MCSC
warehouses. Such insurance (which may include self-insurance) shall cover
damage, destruction, theft and other risks to the product until such product is
delivered to the carrier. Neither Zengine nor any Zengine client shall be an
insured under MCSC's insurance policies or a third party beneficiary thereof
without the prior written consent of MCSC, in its sole discretion. Upon
Zengine's request, MCSC shall provide Zengine with a certificate of insurance
and, upon request, will provide for not less than ten (10) days' prior notice of
nonrenewal or cancellation.
(b) MCSC shall perform its Services hereunder with the ordinary level
of care it provides to its other customers. In the event of any loss or damage
to product arising from the failure of MCSC to provide such level of care, MCSC
shall, as its sole liability, reimburse Zengine for the actual cost of such lost
or damaged product.
<PAGE>
Distribution Services Agreement
Page 5
SECTION 6. DIRECTORS AND OFFICERS OF ZENGINE AND MCSC.
Nothing contained in this Agreement shall be deemed to relieve the
officers and directors of Zengine from the performance of their duties or limit
the exercise of their powers in accordance with Zengine's Certificate of
Incorporation (as amended) or the laws of the State of Delaware. The services of
MCSC's officers and employees which are rendered to Zengine under this Agreement
shall at all times be in accordance with the instructions of Zengine's officers.
SECTION 7. LIABILITY; INDEMNIFICATION.
(a) MCSC shall have no liability whatsoever to Zengine for any error,
act or omission in connection with the Services to be rendered by MCSC to
Zengine hereunder unless any such error, act or omission is attributable to
MCSC's misconduct or negligence.
(b) Zengine agrees to indemnify, defend and hold MCSC, its directors
officers, agents and employees harmless from and against and in respect of any
and all costs, expenses (including without limitation, attorneys' fees and
litigation and investigation costs), losses, damages and claims, as incurred,
arising from, in connection with or relating to (i) the Services to be rendered
under this Agreement (except where such loss, damage or claim is finally
determined by a court of competent jurisdiction to have been caused directly by
MCSC's negligence or misconduct), or (ii) any breach of this Agreement;
provided, however, that, notwithstanding anything contained herein, Zengine
shall not be liable for indirect, incidental or consequential damages of any
kind (even if advised of the possibility or likelihood thereof) or any punitive
damages in connection with any claim or matter arising under or in connection
with this Agreement.
(c) MCSC agrees to indemnify, defend and hold Zengine, its directors,
officers, agents and employees harmless from and against and in respect of any
and all costs, expenses (including without limitation, attorneys' fees and
litigation and investigation costs), losses, damages and claims, as incurred,
arising from, in connection with or relating to (i) any loss, damage or claim
which is finally determined by a court of competent jurisdiction to have been
caused directly by MCSC's negligence or misconduct, or (ii) any breach of this
Agreement by MCSC; provided, however, that notwithstanding anything contained
herein, MCSC shall not be liable for indirect, incidental or consequential
damages of any kind (even if advised of the possibility or likelihood thereof)
or any punitive damages in connection with any claim or matter arising under or
in connection with this Agreement. The provisions of this Section shall survive
any termination or non-renewal of this Agreement.
SECTION 8. NON-EXCLUSIVITY.
(a) Nothing in this Agreement shall limit or restrict the right of any
of MCSC's directors, officers or employees to engage in any other business or
devote their time and attention in part to the management or other aspects of
any other business, whether of a similar nature, or to limit or
<PAGE>
Distribution Services Agreement
Page 6
restrict the right of MCSC to engage in any other business or to render services
of any kind to any corporation, firm, individual, trust or association.
(b) From time to time, Zengine may find it necessary or desirable
either to enter into agreements covering services of the type contemplated by
this Agreement to be provided by parties other than MCSC or to enter into other
agreements covering functions to be performed by MCSC hereunder. Nothing in this
Agreement shall be deemed to limit in any way the right of Zengine to acquire
such services from others or to enter into such other agreements; provided that
in no such event shall the fees to be paid to MCSC pursuant to Section 2 hereof
be reduced on account thereof unless this Agreement is terminated.
SECTION 9. RESTRICTIVE COVENANTS.
(a) Zengine covenants and agrees that, during the Term of this
Agreement, it will not, on its own behalf, engage in the business of selling or
distributing, on a retail basis, any product now sold, or sold during the Term
of this Agreement, by MCSC.
(b) MCSC covenants and agrees that, during the Term of this Agreement,
it will not, on its own behalf, engage in the business of providing e-commerce
solutions similar to those provided by Zengine from time to time.
SECTION 10. TRADEMARK.
MCSC represents that it has a valid and effective license and right to
use all trademarks, service marks, tradenames and logos which appear on the
product and to sell the product to Zengine and to Zengine's clients' customers
and to its other customers and shall continue to have such rights during the
term of this Agreement, free of any claim of infringement or unlawful use, and
MCSC shall indemnify and hold Zengine harmless in respect of all matters arising
in connection therewith.
SECTION 11. WARRANTIES.
Except as expressly set forth herein, no party makes any representation
or warranty of any kind. MCSC warrants that it has good title to the products
purchased from its inventory by Zengine, Zengine's clients or Zengine's clients'
customers and to be delivered to Zengine or to Zengine's clients or to Zengine's
clients' customers pursuant to this Agreement. EXCEPT FOR THE FOREGOING
WARRANTY, THERE ARE NO OTHER EXPRESS WARRANTIES, AND THERE ARE NO IMPLIED
WARRANTIES. EXPRESSLY EXCLUDED ARE ALL WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE. NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN BY MCSC
OR ITS AGENTS OR EMPLOYEES WILL CREATE A WARRANTY OR IN ANY WAY INCREASE THE
SCOPE OF THE FOREGOING WARRANTY. This Section shall survive the termination or
expiration of this Agreement.
<PAGE>
Distribution Services Agreement
Page 7
SECTION 12. TERMINATION.
(a) Either party may terminate this Agreement upon the occurrence of an
Event of Default by the other party. An "Event of Default"A is hereby defined to
mean the defaulting party's failure to cure, (i) within thirty (30) days after
receipt of written notice from the non-defaulting party, any of the following:
(i) failure of the defaulting party to observe or perform any material condition
or obligation imposed under this Agreement on the defaulting party not relating
to the payment of money, (ii) material breach of any warranty made by the
defaulting party under this Agreement, (iii) filing of a voluntary petition in
bankruptcy or having a involuntary petition filed against it, the appointment of
a receiver or trustee, the execution of an assignment for the benefit of
creditors; and (iv) within ninety (90) days after receipt of written notice from
the non-defaulting party of the failure of the defaulting party to make any
payments when due hereunder. The option to terminate this Agreement shall be in
addition to, and not in lieu of, any other remedy available to the terminating
party under this Agreement or at law or equity, all such remedies being
cumulative.
(b) Termination of this Agreement upon either party's default, or the
expiration of this Agreement will not affect:
(i) the rights of either party with respect to any breach of
this Agreement;
(ii) the obligations of either party already accrued prior to
the effective date of expiration or termination (including obligations
with respect to returned product); or
(iii) those obligations of the parties that, by their terms,
survive termination or expiration of this Agreement.
SECTION 13. CONFIDENTIALITY.
(a) The parties acknowledge that each may be exposed to confidential
information and trade secrets relating to the other party's business or the
business of Zengine's clients under this Agreement, including, but not limited
to, the terms of this Agreement, quantities of products, dollar volumes,
revenues of products, customer information, wholesale prices and similar
information. The parties agree that, during the term of this Agreement, and for
a period of five (5) years after the date of expiration or termination (unless a
shorter date is agreed to by the parties), neither party will disclose to any
third party any confidential information without the prior written consent of
the other party, except to employees, agents, auditors, contractors, directors
and similar entities as long as such third parties agree to be bound by the
confidentiality provisions hereof. Except as expressly provided herein, neither
party will use, disclose or transfer the trade secrets of the other party so
long as such information constitutes a trade secret under applicable law. MCSC
shall also comply with confidentiality agreements signed by Zengine with its
clients and noticed to MCSC in writing. The confidentiality obligations between
the parties will not apply to any information (a) which is in the
<PAGE>
Distribution Services Agreement
Page 8
public domain or which becomes part of the public domain through no fault of the
receiving party; (b) which is known to the receiving party prior to the
disclosure thereof by the disclosing party (as established by documentary
evidence); (c) which is lawfully received by the receiving party from a third
party who provided such information without breach of any separate
confidentiality obligation owed to the disclosing party; or (d) which is
independently developed by personnel having no access to the disclosing party's
confidential information (as established by documentary evidence).
Notwithstanding the foregoing, the parties agree that either party may describe
the terms, and include a copy, of this Agreement and the exhibits hereto in any
filing under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, provided that the parties shall cooperate as to any
Request for Confidential Treatment of certain mutually agreed upon portions of
this Agreement from the Securities and Exchange Commission.
SECTION 14. MISCELLANEOUS.
(a) Neither party will be liable for any failure to perform, or delay
in the performance of, any of its obligations hereunder (nor will the same
constitute an Event of Default) if and to the extent the failure or delay is
caused, directly or indirectly, by events beyond its control, such as acts of
God, acts of the public enemy, acts of any governmental body in its sovereign or
contractual capacity, fires, floods, earthquakes, epidemics, quarantine
restrictions, strikes or other labor disputes, freight embargoes, and/or
unusually severe weather. Lack of funds by either party will not excuse its
timely performance of its obligations hereunder. In the event of an occurrence
described in the first sentence, the non-performing party affected will be
excused from further performance or observance of the obligation(s) so affected
for as long as such circumstances prevail and if the party continues to use its
best efforts to recommence performance or observance whenever and to whatever
extent possible without delay.
(b) This Agreement shall be construed in accordance with the laws of
the State of Ohio, without giving effect to the conflict of laws provisions
thereof.
(c) No representation, promise, inducement or agreement relating to the
transactions contemplated by this Agreement has been made by either party that
is not set forth in this Agreement, and neither party shall be bound by or
liable for any representation, promise, inducement or agreement not so set
forth.
(d) All notices, requests, consents, and other communications hereunder
shall be in writing and shall be deemed effectively given and received upon
delivery in person, or one (1) business day after delivery by national overnight
courier service, or by telecopier transmission with acknowledgment of
transmission receipt, or three (3) business days after deposit with the U.S.
Postal Service, via certified or registered mail, return receipt requested, in
each case addressed as follows:
<PAGE>
Distribution Services Agreement
Page 9
If to Zengine:
Zengine, Inc.
6100 Stewart Avenue
Fremont, California 94538
Telephone: (510) 650-6400
Facsimile: (510) 651-3200
Attn.: Joseph M. Savarino, President
If to MCSC:
Miami Computer Supply Corporation
4750 Hempstead Station Drive
Dayton, Ohio 45429
Telephone: (937) 291-8282
Facsimile: (937) 291-8298
Attn.: Michael E. Peppel, President
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the other. All notices given by courier or
by telecopy will be deemed received at the notice address and all notices given
by registered or certified mail will be deemed delivered five (5) days after
deposit with the U.S. Postal Service. Either party may change its notice address
from time to time by notification in writing to the other party, however any
such notification will not be deemed given until actually received by the
recipient party.
(e) The waiver or failure of either party to exercise in any respect
any right provided for herein will not be deemed a waiver of any further right
hereunder.
(f) The provisions of this Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and each of their respective
successors and assigns. Neither party hereto shall assign its rights or
obligations hereunder without the prior written consent of the other party
hereto, which consent shall not be unreasonably withheld, conditioned or
delayed. Nothing herein is intended to benefit any third party not otherwise
described herein.
(g) Nothing contained in this Agreement shall be deemed or construed to
create a partnership or joint venture of or between Zengine and MCSC, or to
create any other relationship between the parties other than that of independent
contractors. When MCSC's employees act under the Terms of this Agreement, they
shall be deemed at all times to be under the supervision and responsibility of
MCSC; and no person employed by MCSC and acting under the terms of this
Agreement shall be deemed to be acting as agent or employee of Zengine or any
client of Zengine for any purpose whatsoever.
<PAGE>
Distribution Services Agreement
Page 10
(h) The captions used herein are for convenience of reference only and
are not part of this Agreement, and shall in no way be deemed to define, limit,
describe, or modify the meaning of any provision of this Agreement.
(i) Any and all disputes arising hereunder shall, upon the request of
either party, be submitted to binding arbitration in Dayton, Ohio. In accordance
with the rules and regulations of the American Arbitration Association and each
party agrees that (i) all notices and service of process in respect thereof may
be delivered or served at the address for notice set forth herein, (ii) each
party consents and submits to the jurisdiction of said arbitration and to the
state and federal courts of the State of Ohio for the purpose of enforcing the
provisions of this Agreement and entering a judgment in respect thereof and
(iii) the foregoing shall not preclude the joinder of any party in respect of
any third party claim or the pursuit of equitable remedies.
(j) If any term or provision of this Agreement or applications thereof
to any person or circumstances is, to any extent, held to be invalid or
unenforceable, the remaining terms and provisions of this Agreement will be
unimpaired, and the invalid or unenforceable provision will be replaced by a
mutually acceptable valid legal and enforceable provision that is closest to the
original intention of the parties.
(k) This Agreement contains and embodies the entire agreement of the
parties hereto, and no representations, inducements, or agreements, oral or
otherwise between the parties not contained in this Agreement, if any, will be
of any force or effect. This Agreement may not be modified or changed, in whole
or in part, in any manner other than by an agreement in writing duly signed by
both parties.
(l) This Agreement may be signed in counterparts both of which taken
together shall be deemed one original. Telecopied facsimiles of a signed
counterpart of this Agreement from one party to the other will be deemed to be
delivery of a signed counterpart by the party sending the telecopied facsimile.
[The remainder of this page is intentionally left blank.]
<PAGE>
Distribution Services Agreement
Page 11
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written on the date written below.
ZENGINE, INC.
By: /s/ JOSEPH M. SAVARINO
---------------------------
Name: JOSEPH M. SAVARINO
---------------------------
Title: PRESIDENT AND CEO
----------------------------
Date: February 29, 2000
MIAMI COMPUTER SUPPLY CORPORATION
By: /s/ MICHAEL E. PEPPEL
---------------------------
Name: MICHAEL E. PEPPEL
----------------------------
Title: CHIEF EXECUTIVE OFFICER
----------------------------
Date: February 29, 2000
<PAGE>
Exhibit 10.5
SUBLEASE AND EQUIPMENT
LEASE AGREEMENT
BY AND BETWEEN
ZENGINE, INC.
AND
MIAMI COMPUTER SUPPLY CORPORATION
DATED AS OF: OCTOBER 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Recitals .........................................................................................1
1. Grant .......................................................................................1
2. Provisions Constituting Sublease ............................................................1
3. Provisions Constituting Equipment Lease .....................................................2
4. Term ........................................................................................3
5. Rent ........................................................................................3
6. Use .........................................................................................3
7. Condition of the Premises and Equipment .....................................................3
8. Title; Relocation or Sublease; Assignment ...................................................4
9. Representations and Warranties ..............................................................5
10. Indemnity ..................................................................................6
11. Risk of Loss ...............................................................................7
12. Default; Remedies; Mitigation ..............................................................7
13. Additional Provisions ......................................................................9
14. Definitions ................................................................................11
Signatures........................................................................................13
</TABLE>
SCHEDULES
Schedule A -- Master Agreement
Schedule B -- Description of the Premises
Schedule C -- Description of the Equipment
<PAGE>
SUBLEASE AND EQUIPMENT LEASE AGREEMENT
This SUBLEASE AND EQUIPMENT LEASE AGREEMENT is effective as of October
1, 1999 ("Agreement") by and between Zengine, Inc., a Delaware corporation
("Sublessee"), and Miami Computer Supply Corporation, an Ohio corporation, the
successor in interest to TBS Printware Corporation, a California corporation
("Sublessor"), individually a "party," and collectively, the "parties."
RECITALS
WHEREAS, TBS Printware Corporation entered into a lease agreement (the
"Master Agreement") dated February 7, 1996, with SSMRT, Pacific Business Center
(1), Inc. ("Landlord"), a copy of which is set forth in SCHEDULE A, attached
hereto and made a part hereof, for certain real estate located at 6100 Stewart
Avenue, Fremont, California 95438 (the "Leased Property") as defined in the
Master Agreement;
WHEREAS, TBS Printware Corporation merged with and into Miami Computer
Supply Corporation effective January 3, 2000;
WHEREAS, Sublessor desires to sublease to Sublessee and Sublessee
desires to sublease from Sublessor certain office and warehouse space within the
Leased Property as set forth in SCHEDULE B, attached hereto and made a part
thereof (the "Premises");
WHEREAS, Sublessor desires to lease the equipment owned by Sublessor
which is listed on SCHEDULE C, attached hereto and made a part hereof (the
"Equipment").
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, for
themselves, their sucessors and assigns, hereby agree as follows:
1. GRANT.
1.1 Sublessor hereby subleases the Premises to Sublessee, subject to
the terms and conditions of this Agreement.
1.2 Sublessor hereby leases the Equipment to Sublessee, subject to the
terms and conditions of this Agreement.
2. PROVISIONS CONSTITUTING SUBLEASE.
2.1 This Agreement is subject to all of the terms and conditions of the
Master Agreement to the extent applicable thereto, a copy of which is attached
as SCHEDULE A. In the event of any inconsistencies between this Sublease
Agreement and the Master Agreement, the terms of the Master Agreement will
control.
<PAGE>
Sublease and Equipment Lease Agreement
Page 2
2.2 Sublessee shall assume and perform all monetary and nonmonetary
obligations of the Sublessor, as Sublessee in the Master Agreement to the extent
the terms and conditions are applicable to the Premises, and to pay rent as set
forth in Section 5.1 hereof. Sublessee specifically acknowledges that the Master
Agreement is a triple net lease and therefore the monetary obligations it is
assuming include, but are not limited to, its proportionate share of all
property taxes on the Premises, applicable insurance, utilities, assessments and
maintenance of the premises. Sublessee acknowledges it has reviewed the terms of
the Master Agreement and agrees to pay these monetary obligations.
2.3 Neither Sublessor nor Sublessee shall commit or permit to be
committed on the Premises any act or omission that shall violate any term or
condition of the Master Agreement or breach the terms of the Master Agreement or
cause the Master Agreement to be terminated.
3. PROVISIONS CONSTITUTING EQUIPMENT LEASE.
3.1 This Agreement constitutes a net equipment lease and therefore
Sublessee's monetary obligations may include, in addition to the Equipment Rent,
property taxes, insurance, assessments and maintenance. Sublessee's obligation
to pay Equipment Rent and all other amounts due hereunder is absolute and
unconditional and is not subject to any abatement, reduction, set-off, defense,
counterclaim, interruption, deferment or recoupment for any reason whatsoever.
3.2 Sublessee will pay when due or reimburse Sublessor for all taxes,
fees or any other charges (together with any related interest or penalties not
arising from the willful misconduct or gross negligence of Sublessor) accrued
for or arising during the Term of this Agreement against Sublessor, Sublessee or
the Equipment by any governmental authority (except only Federal, state, local
and franchise taxes on the capital or the net income of Sublessor). Sublessor
will file all personal property tax returns for the Equipment and pay all such
property taxes due. Sublessee will reimburse Sublessor for all such property
taxes within thirty (30) days of receipt of an invoice.
3.3 Sublessee will maintain the Equipment in good operating order and
appearance, protect the Equipment from material deterioration, other than normal
wear and tear, and will not use the Equipment for any purpose other than that
for which it was designed. If commercially available and considered common
business practice for each item of Equipment, Sublessee will maintain in force a
standard maintenance contract with the manufacturer of the Equipment, or another
party acceptable to Sublessor, and will provide Sublessor with a complete copy
of that contract.
3.4 Upon reasonable advance notice, Sublessee, during reasonable
business hours and subject to Sublessee's security requirements, will make the
Equipment and its related log and maintenance records available to Sublessor for
inspection, which inspection shall not interfere with Sublessee's business
operations.
<PAGE>
Sublease and Equipment Lease Agreement
Page 3
4. TERM.
4.1 The term of this Agreement shall commence on the date hereof
and shall terminate on May 1, 2001 (the "Term").
5. RENT.
5.1 Sublessee shall pay to Sublessor rent ("Premises Rent") for the
sublease of the Premises in the amount of $10,416.67 per month (plus its
pro-rata share of the other charges as required by the Master Agreement) (in
lawful money of the United States) in advance on the first day of each calendar
month during the Term of this Agreement. If any Premises Rent payment is not
made by the date due, Sublessee will pay a Late Charge on the overdue amount. A
Late Charge shall mean five percent (5%) of the payment due.
5.2 Sublessee shall pay to the Sublessor rent ("Equipment Rent") in the
amount of $2,083.33 per month (plus its pro-rata share of the other charges as
may be required by Section 3.1) (in lawful money of the United States) in
advance of the first day of each calendar month during the Term of this
Agreement. If any Equipment Rent is not paid by the due date, Sublessee will pay
a Late Charge on the overdue amount.
6. USE.
6.1 The Premises and Equipment shall be used only for the purpose of
operating an e-commerce services business and for no other purpose without the
prior express and written consent of the Sublessor.
7. CONDITION OF THE PREMISES AND EQUIPMENT.
7.1 Sublessee accepts the Premises and Equipment in its condition as of
the date hereof. Upon termination (by expiration or otherwise) of this
Agreement, Sublessee shall, pursuant to Sublessor's instructions and at
Sublessee's full expense (including, without limitation, expenses of
transportation and in transit insurance), return the Equipment to Sublessor in
the same operating order, repair, condition and appearance as when received,
less normal depreciation and wear and tear. Sublessee shall return the Equipment
to Sublessor at 6100 Stewart Avenue, Fremont, California 94538 or at such other
address within the continental United States as directed by Sublessor, provided,
however, that Sublessee's expense shall be limited to the cost of returning the
equipment to Sublessor's address as set forth herein.
7.2 Upon request, Sublessee will mark the Equipment indicating
Sublessor's interest with labels provided by Sublessor. Sublessee will keep all
Equipment free from any other marking or labeling which might be interpreted as
a claim of ownership.
<PAGE>
Sublease and Equipment Lease Agreement
Page 4
8. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
8.1 Sublessee holds the Equipment subject and subordinate to the rights
of the Owner (if other than the Sublessor), the Sublessor and any Secured Party.
Sublessee authorizes Sublessor, as Sublessee's agent, and at Sublessor's
expense, to prepare, execute and file in Sublessee's name one or more
precautionary Uniform Commercial Code financing statements showing the interest
of the Owner, Sublessor, and any Assignee or Secured Party in the Equipment.
Sublessee will, at its expense, keep the Equipment free and clear from any liens
or encumbrances of any kind (except any caused by Sublessor) and will indemnify
and hold the Owner (if other than the Sublessor), the Sublessor, any Assignee
and Secured Party harmless from and against any loss caused by Sublessee's
failure to do so, except where such failure is caused by Sublessor.
8.2 Upon prior written notice, Sublessee may relocate Equipment to any
location within the continental United States provided: (i) Sublessee notifies
the Sublessor of such relocation and the new address at which the Equipment will
be located in writing; (ii) the Equipment will not be used by an entity exempt
from federal income tax, and (iii) all additional costs (including any
administrative fees, additional taxes and insurance coverage) are reconciled and
promptly paid by Sublessee.
8.3 Sublessee may sublease the Equipment upon the consent of the
Sublessor and any Secured Party, in their sole discretion, and any such consent
to sublease will be conditioned upon the following: (i) Sublessee meets the
relocation requirements set out in Section 9.2, above, (ii) Sublessee assigns
its rights in the sublease to Sublessor and any Secured Party as additional
collateral and security, (iii) Sublessee's obligation to maintain and insure the
Equipment is not altered, (iv) all financing statements required to continue any
Secured Party's prior perfected security interest are filed, and (v) Sublessee
executes sublease documents acceptable to Sublessor.
8.4 No relocation or sublease will relieve Sublessee from any of its
obligations under this Agreement.
8.5 The terms and conditions of this Agreement permit Sublessor to sell
and/or assign or transfer its interest or grant a security interest in each item
of Equipment to a Secured Party or Assignee. In that event, the term "Sublessor"
will mean the Assignee and any Secured Party. However, any assignment, sale, or
other transfer by Sublessor will not relieve Sublessor of its obligations to
Sublessee and will not materially change Sublessee's duties or materially
increase the burdens or risks imposed on Sublessee. The Sublessee consents to
and will acknowledge such assignments in a written notice given to Sublessor.
Sublessee also agrees that:
(a) Upon default by the Sublessor or otherwise as set forth in
Sublessor's agreement with the Secured Party, the Secured Party will be entitled
to exercise all of Sublessor's rights, but will not be obligated to perform any
of the obligations of Sublessor. The Secured Party will not disturb Sublessee's
quiet and peaceful possession and unrestricted use of the
<PAGE>
Sublease and Equipment Lease Agreement
Page 5
Equipment so long as Sublessee is not in default and the Secured Party continues
to receive all Equipment Rent payable under this Agreement;
(b) Sublessee will pay all Equipment Rent and all other
amounts payable to the Secured Party, despite any defense or claim which it has
against Sublessor. Sublessee reserves its right to have recourse directly
against Sublessor for any defense or claim; and
(c) Subject to and without impairment of Sublessee's leasehold
rights in the Equipment, Sublessee holds the Equipment for the Secured Party to
the extent of the Secured Party's rights in the Equipment.
9. REPRESENTATIONS AND WARRANTIES.
9.1 Sublessee hereby represents and warrants to Sublessor:
(a) The Sublessee is a corporation duly organized and validly
existing in good standing under the laws of Delaware, is duly qualified to do
business in each jurisdiction (including the jurisdiction where the Premises and
the Equipment are located) where its ownership or lease of property or the
conduct of its business requires such qualification, except for where such lack
of qualification would not have a material adverse effect on the Sublessee's
business, and has full corporate power and authority to hold property under this
Agreement and to enter into and perform its obligations under this Agreement.
(b) The execution and delivery by the Sublessee of this
Agreement and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Sublessee, and this Agreement is
not inconsistent with the Sublessee's Certificate of Incorporation or Bylaws,
does not contravene any law or governmental rule, regulation or order applicable
to it, does not and will not contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other instrument to which it
is a party or by which it is bound, and this Agreement constitutes the legal,
valid and binding agreement of the Sublessee, enforceable against Sublessee in
accordance with its terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and rules of law
concerning equitable remedies.
(c) The Equipment is personal property and when subjected to
use by the Sublessee will not be or become fixtures under applicable law.
9.2 Sublessor hereby represents and warrants and covenants to
Sublessee:
(a) The Sublessor is a corporation duly organized and validly
existing in good standing under the laws of California, is duly qualified to do
business in each jurisdiction (including the jurisdiction where the Premises and
Equipment are located) where its ownership or lease of property or the conduct
of its business requires such qualification, except for where such lack of
qualification would not have a material adverse effect on the Sublessor's
business,
<PAGE>
Sublease and Equipment Lease Agreement
Page 6
and has full corporate power and authority to hold property under this Agreement
and to enter into and perform its obligations under this Agreement.
(b) The execution and delivery by the Sublessor of this
Agreement and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Sublessor, and this Agreement is
not inconsistent with the Sublessor's Articles of Incorporation or Bylaws, does
not contravene any law or governmental rule, regulation or order applicable to
it, does not and will not contravene any provision of, or constitute a default
under, any indenture, mortgage, contract or other instrument to which it is a
party or by which it is bound, and this Agreement constitutes legal, valid and
binding agreement of the Sublessor, enforceable against Sublessor in accordance
with its terms, subject to the effect of applicable bankruptcy and other similar
laws affecting the rights of creditors generally and rules of law concerning
equitable remedies.
(c) The Equipment is personal property and when subjected to
use by the Sublessee will not be or become fixtures under applicable law.
(d) Sublessor warrants to Sublessee that, so long as Sublessee
is not in default, Sublessor will not disturb Sublessee's quiet and peaceful
possession, and unrestricted use of the Premises and the Equipment.
(e) To the extent permitted by the manufacturer, Sublessor
assigns to Sublessee during the Term of this Agreement any manufacturer's
warranties for the Equipment. SUBLESSOR MAKES NO OTHER WARRANTY, WITH RESPECT TO
THE EQUIPMENT, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING,
WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS FITNESS FOR A
PARTICULAR PURPOSE. Sublessor is not responsible for any liability, claim, loss,
damage or expense of any kind (including strict liability in tort) caused by the
Equipment except for any loss or damage finally determined by a court of
competent jurisdiction to have been directly caused by the misconduct or
negligence of Sublessor. In no event shall Sublessor responsible for special,
incidental, consequential or punitive damages.
10. INDEMNITY.
10.1 With regard to bodily injury and property damage liability only,
Sublessee will indemnify and hold Sublessor, any Assignee and any Secured Party
harmless from and against any and all claims, costs, expenses, damages and
liabilities, including reasonable attorneys' fees, arising out of the ownership
(for strict liability in tort only), selection, possession, leasing, operation,
control, use, maintenance, delivery, return or other disposition of the
Equipment during the Term of this Agreement. However, Sublessee is not
responsible to a party indemnified hereunder for any claims, costs, expenses,
damages and liabilities occasioned by the misconduct or negligence of such
indemnified party. Sublessor agrees to carry bodily injury and property damage
liability insurance during the Term of this Agreement in amounts and against
risks customarily insured against by the Sublessor on equipment owned by it. Any
amounts
<PAGE>
Sublease and Equipment Lease Agreement
Page 7
received by Sublessor under the insurance will be credited against Sublessee's
obligations under this Section.
11. RISK OF LOSS.
11.1 Effective upon delivery and until the Equipment is returned
pursuant to Section 7.1 hereof, Sublessor shall have responsibility for all
risks of physical damage to or loss or destruction of the Equipment. Sublessor
will carry casualty insurance for each item of Equipment in an amount not less
than the Casualty Value. All policies for such insurance will name the Sublessor
and any Secured Party as additional insureds and as loss payees, and will
provide for at least thirty (30) days prior written notice to the Sublessor of
cancellation or expiration, and will insure Sublessor's interests regardless of
any breach or violation by Sublessee of any representation, warranty or
condition contained in such policies and will be primary without right to
contribution from any insurance effected by Sublessor. Upon the execution of
this Agreement, the Sublessee will furnish appropriate evidence of such
insurance acceptable to Sublessor.
11.2 Sublessee will promptly repair any damaged item of Equipment
unless such Equipment has suffered a Casualty Loss. Within fifteen (15) days of
a Casualty Loss, Sublessee will provide written notice of that loss to Sublessor
and Sublessee will, at Sublessee's option, either (a) replace the item of
Equipment with Like Equipment and marketable title to the Like Equipment will
automatically vest in Sublessor, or (b) pay the Casualty Value and after that
payment and the payment of all other amounts due and owing with respect to that
item of Equipment, Sublessee's obligation to pay further Equipment Rent for that
item of Equipment will cease.
12. DEFAULT; REMEDIES; MITIGATION.
12.1 The occurrence of any one or more of the following Events of
Default constitutes a default under this Agreement:
(a) Sublessee's failure to pay the Premises Rent or the
Equipment Rent or other amounts payable by Sublessee when due if that failure
continues for five (5) business days after written notice; or
(b) Sublessee's failure to perform any other term or condition
of this Agreement or the material inaccuracy of any representation or warranty
made by the Sublessee in this Agreement or in any document or certificate
furnished to the Sublessor hereunder if that failure or inaccuracy continues for
ten (10) business days after written notice; or
(c) An assignment by Sublessee for the benefit of its
creditors, the failure by Sublessee to pay its debts when due, the insolvency of
Sublessee, the filing by Sublessee or the filing against Sublessee of any
petition under any bankruptcy or insolvency law or for the appointment of a
trustee or other officer with similar powers, the adjudication of Sublessee as
<PAGE>
Sublease and Equipment Lease Agreement
Page 8
insolvent, the liquidation of Sublessee, or the taking of any action for the
purpose of the foregoing which, in the case of an involuntary petition or
action, remains unstayed and undismissed for at least sixty (60) days.
12.2 Upon the occurrence of any of the above Events of Default,
Sublessor, at its option, may:
(a) enforce Sublessee's performance of the provisions of
this Agreement by appropriate court action in law or in equity;
(b) recover from Sublessee any damages and or expenses,
including Default Costs;
(c) if a default in the payment of Equipment Rent, with notice
and demand, recover all sums due and accelerate and recover the present value of
the remaining payment stream of all Equipment Rent due hereunder (discounted at
the same rate of interest at which Equipment was discounted with a Secured Party
plus any prepayment fees charged to Sublessor by the Secured Party or, if there
is no Secured Party, then discounted at 6%) together with all Equipment Rent and
other amounts currently, due as liquidated damages and not as a penalty;
(d) with reasonable prior notice and pursuant to the process
of law and in compliance with Sublessee's security requirements, Sublessor may
enter on Sublessee's premises to remove and repossess the Equipment without
being liable to Sublessee for damages due to the repossession except those
resulting from Sublessor's, its Assignees', agents' or representatives' gross
negligence or willful misconduct; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Sublessor's discretion and to the extent
permitted by law, are cumulative and may be exercised successively or
concurrently.
12.3 Upon return of the Equipment pursuant to the terms of Section
12.2, Sublessor will use its best efforts in accordance with its normal business
procedures (and without obligation to give any priority to such Equipment) to
mitigate Sublessor's damages as described below. EXCEPT AS SET FORTH IN THIS
SECTION, SUBLESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUTE OR OTHERWISE WHICH MAY REQUIRE SUBLESSOR TO MITIGATE ITS DAMAGES OR
MODIFY ANY OF SUBLESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Sublessor may sell,
lease or otherwise dispose of all or any part of the Equipment at a public or
private sale for cash or credit with the privilege of purchasing the Equipment.
The proceeds from any sale, lease or other disposition of the Equipment are
defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less
the Fair Market Value of the Equipment at the expiration of the Term less the
Default Costs; or
<PAGE>
Sublease and Equipment Lease Agreement
Page 9
(b) if leased, the present value (discounted at 3 percent (3%)
over the interest rate of U.S. Treasury Notes of comparable maturity to the term
of the re-lease) of the rentals for a term not to exceed the Term, less the
Default Costs.
Any proceeds will be applied against liquidated damages and any other
sums due to Sublessor from Sublessee. However, Sublessee is liable to Sublessor
for, and Sublessor may recover, the amount by which the proceeds are less than
the liquidated damages and other sums due to Sublessor from Sublessee.
13. ADDITIONAL PROVISIONS.
13.1 Sublessee will notify Sublessor of any proposed Merger at least
twenty (20) days prior to the closing date thereof. Sublessor may, in its
discretion, either (i) consent to the assignment of this Agreement to the
successor entity (which consent shall not be unreasonably withheld, conditioned
or delayed), or (ii) terminate this Agreement. If Sublessor elects to consent to
the assignment, Sublessee and its successor will sign the assignment
documentation provided by Sublessor. If Sublessor elects to terminate this
Agreement, then Sublessee will pay Sublessor all amounts then due and owing and
a termination fee equal to the present value (discounted at 6%) of the remaining
Premises Rent and Equipment Rent for the balance of the Term, and will return
the Equipment in accordance with Section 7.2.
13.2 This Agreement supersedes all other oral or written agreements or
understandings between the parties concerning the sublease of the Premises and
the lease of the Equipment. Any amendment of this Agreement, may only be
accomplished by a writing signed by the party against whom the amendment is
sought to be enforced.
13.3 No action taken by Sublessor or Sublessor will be deemed to
constitute a waiver of compliance with any representation, warranty or covenant
contained in this Agreement. The waiver by Sublessor or Sublessee of a breach of
any provision of this Agreement will not operate or be construed as a waiver of
any subsequent breach.
13.4 This Agreement is binding upon, and inures to the benefit of the
parties hereto and their permitted successors and assigns. Sublessee May Not
Assign Its Rights Or Obligations, Except As Provided In Section 13.1. Nothing in
this Agreement is intended to benefit any person not a party to this Agreement.
13.5 All agreements, obligations, representations and warranties
contained in this Agreement, or in any document delivered in connection
herewith, are for the benefit of Sublessor and any Assignee or Secured Party and
survive the execution, delivery, expiration or termination of this Agreement.
13.6 Any notice, request or other communication to either party by the
other will be given in writing and deemed received upon the earlier of (i)
actual receipt, or (ii) three (3) days
<PAGE>
Sublease and Equipment Lease Agreement
Page 10
after mailing if mailed, postage prepaid by regular or airmail, or (iii) one (1)
day after it is sent by nationally recognized overnight courier, or (4) on the
same day as sent via facsimile transmission, provided the original is sent by
personal delivery or mail by the sending party, at the following addresses.
If to Sublessor:
Miami Computer Supply Corporation (successor in interest to
TBS Printware Corporation)
4750 Hempstead Station Drive
Dayton, Ohio 45429
Attn: Michael E. Peppel, Vice President
If to Sublessee:
Zengine, Inc.
6100 Stewart Avenue
Fremont, California 94538
Attn: Joseph M. Savarino, President
or at such other address as the parties may, by notice set forth above, provide.
13.7 This Agreement has been made, executed and delivered in the State
of California and will be governed and construed for all purposes in accordance
with the laws of the State of California without giving effect to conflict of
law provisions. No rights or remedies referred to in Article 2a of the Uniform
Commercial Code will be conferred on Sublessee unless expressly granted in this
Agreement.
13.8 If any one or more of the provisions of this Agreement is for any
reason held invalid, illegal or unenforceable, the remaining provisions of this
Agreement will be unimpaired, and the invalid, illegal or unenforceable
provision replaced by a mutually acceptable valid legal and enforceable
provision that is closest to the original intention of the parties.
13.9 This Agreement may be executed in any number of counterparts, each
of which will be deemed an original, but all such counterparts together
constitute one and the same instrument.
13.10 Sublessee will obtain no title to Licensed Products which will at
all times remain the property of the owner of the Licensed Products. A license
from the owner may be required and it is Sublessee's responsibility to obtain
any required license before the use of the Licensed Products. Sublessee agrees
to treat the Licensed Products as confidential information of the owner, to
observe all copyright restrictions, and not to reproduce or sell the Licensed
Products, except as may be permitted by the applicable license agreement.
<PAGE>
Sublease and Equipment Lease Agreement
Page 11
13.11 Each of the parties may communicate with the other by electronic
means under mutually agreeable terms.
13.12 Sublessee agrees to provide Sublessor with a Landlord/Mortgagee
Waiver with respect to the Premises and/or the Equipment. Such waiver shall be
in a form reasonably satisfactory to Sublessor.
13.13 Sublessee hereby agrees that Sublessor shall not, by virtue of
its entering into this Agreement, be required to remit any payments to any
manufacturer or other third party until Sublessee accepts the Equipment subject
to this Agreement.
14. DEFINITIONS.
14.1 ASSIGNEE - means an entity to whom Sublessor has sold or assigned
its rights as owner and Sublessor of Equipment.
14.2 CASUALTY LOSS - means the irreparable loss or destruction of
Equipment.
14.3 CASUALTY VALUE - means the greater of the aggregate Equipment Rent
remaining to be paid for the balance of the Equipment lease Term or the Fair
Market Value of the Equipment immediately prior to the Casualty Loss.
14.4 COMMENCEMENT DATE - means October 1, 1999.
14.5 DEFAULT COSTS - means reasonable attorney's fees and remarketing
costs resulting from a Sublessee default or Sublessor's enforcement of its
remedies.
14.6 EQUIPMENT - means the property described on SCHEDULE B hereto and
any replacement for that property required or permitted by this Agreement.
14.7 EVENT OF DEFAULT - means the events described in Subsection 12.1.
14.8 FAIR MARKET VALUE - means the aggregate amount which would be
obtainable in an arm's-length transaction between an informed and willing
buyer/user and an informed and willing seller under no compulsion to sell.
14.9 TERM - means the period of time beginning on the Commencement Date
until May 1, 2001.
14.10 LATE CHARGE - is defined in Subsection 5.1.
14.11 LICENSED PRODUCTS - means any software or other licensed products
attached to the Equipment.
<PAGE>
Sublease and Equipment Lease Agreement
Page 12
14.12 LIKE EQUIPMENT - means replacement Equipment which is lien free
and of the same model, type, configuration and manufacture as Equipment.
14.13 MERGER - means any consolidation or merger of the Sublessee with
or into any other corporation or entity, any sale or conveyance of all or
substantially all of the assets or stock of the Sublessee by or to any other
person or entity in which Sublessee is not the surviving entity.
14.14 OWNER - means the owner of Equipment.
14.15 SECURED PARTY - means an entity to whom Sublessor has granted a
security interest (for the purpose of securing a loan).
[The remainder of this page is intentionally left blank.]
<PAGE>
Sublease and Equipment Lease Agreement
Page 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written on the date written below.
ZENGINE, INC. MIAMI COMPUTER SUPPLY CORPORATION,
THE SUCCESSOR IN INTEREST TO
TBS PRINTWARE CORPORATION
as Sublessee as Sublessor
<TABLE>
<S> <C>
By:/s/ Joseph M. Savarino By: /s/ Michael E. Peppel
-------------------------- --------------------------
Name: Joseph M. Savarino Name: Michael E. Peppel
---------------------- --------------------------
Title: President and CEO Title: Chief Executive Officer
---------------------- --------------------------
Date: February 29, 2000 Date: February 29, 2000
</TABLE>
<PAGE>
SCHEDULE A
MASTER AGREEMENT
<PAGE>
SCHEDULE B
DESCRIPTION OF THE PREMISES
SUBJECT TO THE SUBLEASE
<PAGE>
SCHEDULE C
DESCRIPTION OF THE EQUIPMENT
<PAGE>
Exhibit 10.6
STOCK PURCHASE AGREEMENT
Stock Purchase Agreement (this "AGREEMENT"), dated as of September 30,
1999 among Zengine, Inc., a Delaware corporation (the "COMPANY"), the Purchasers
listed on Exhibit A to this Agreement (collectively, the "PURCHASERS") and Miami
Computer Supply Corporation, an Ohio corporation (the "PARENT").
PRELIMINARY STATEMENT
The Company wishes to sell shares of its authorized but unissued common
stock, no par value per share (the "COMMON STOCK") and the Purchasers wish to
purchase shares of the Common Stock from the Company, on the terms and subject
to the conditions provided in this Agreement.
In consideration of the mutual representations and agreements set forth
in this Agreement, the Parent, the Company and the Purchasers therefore agree as
follows.
SECTION 1. DEFINITIONS.
SECTION 1.1. As used in this Agreement, the following terms shall have
the following meanings:
"AFFILIATE" means, with respect to any person, any entity controlling,
controlled by or under common control with such designated person. For the
purposes of this definition "CONTROL" shall have the meaning specified as of the
date of this Agreement for that word in Rule 405 promulgated by the Securities
and Exchange Commission under the Securities Act.
"BOARD" means the Board of Directors of the Company.
"BY-LAWS" means the By-laws of the Company in the form attached to this
Agreement as Exhibit B, as they may be amended from time to time.
"COMMON STOCK" means the Company's Common Stock, no par value per
share.
"CONFIDENTIAL INFORMATION" means any proprietary or confidential
information of a party disclosed to the other party in the course of this
Agreement in writing which is identified as confidential by the disclosing
party, including but not limited to, this Agreement and all exhibits and
schedules hereto, know-how, trade secrets, innovations, technical processes and
formulas, product designs, sales and cost and other unpublished financial
information and business plans, projections and marketing data. "Confidential
Information" excludes information which: (a) is known or becomes known to the
recipient directly or indirectly from a third party source other than one known
by the recipient to have an obligation of confidentiality to the disclosing
party; (b) is or becomes publicly available or otherwise ceases to be secret or
confidential, except through a breach of this Agreement by the recipient; or (c)
is or was independently developed by
<PAGE>
the recipient without use or reference to the disclosing party's Confidential
Information, as shown by evidence in the recipient's possession.
"ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" means all applicable federal,
state and local laws, rules, regulations, orders, guidelines, ordinances and
requirements relating to pollution or protection of the environment, public
health and safety, or employee health and safety, including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. ss.9601 ET SEQ., the Resource Conservation and Recovery Act of 1976, 42
U.S.C. ss.6901 ET SEQ., the Emergency Planning and Community Right-to-Know Act,
42 U.S.C. ss.11001 ET SEQ., the Clean Air Act, 42 U.S.C. ss.7401 ET SEQ., the
Federal Water Pollution Control Act, 33 U.S.C. ss.1251 ET SEQ., the Toxic
Substances Control Act, 15 U.S.C. ss.2601 ET SEQ., the Safe Drinking Water Act,
42 U.S.C. ss.300F ET SEQ., the Hazardous Materials Transportation Act, 49 U.S.C.
ss.1801, and the Occupational Safety and Health Act, 42 U.S.C. ss.651 ET SEQ.,
each as amended, and any regulations, rules, ordinances adopted or publications
promulgated pursuant thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, together with all rules and regulations promulgated thereunder.
"INTELLECTUAL PROPERTY" means any and all of the following which is
owned by, licensed by, licensed to, used or held for use by the Company
(including all copies and embodiments thereof, in electronic, written or other
media): (i) all registered and unregistered trademarks, trade dress, service
marks, logos, trade names, corporate names (including but not necessarily
limited to the name "Zengine" and all applications to register the same (the
"TRADEMARKS"); (ii) all issued U.S. and foreign patents and pending patent
applications, including but not limited to reissuances, continuations and
continuations-in-part, patent disclosures and improvements thereto (the
"PATENTS"); (iii) all registered and unregistered copyrights, mask work rights
and all applications to register the same (the "COPYRIGHTS"); (iv) all computer
software and databases owned or used (excluding software and databases licensed
to the Company under standard, non-exclusive software licenses which are
generally commercially available to end-user customers from third parties in the
ordinary course of such third parties' businesses) by the Company or under
development for the Company by third parties (the "SOFTWARE"), (v) all
categories of trade secrets, know-how, inventions (whether or not patentable and
whether or not reduced to practice), processes, procedures, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial, marketing, and business, data, pricing and cost information, business
and marketing plans, customer and supplier lists and information and other
confidential and proprietary information ("PROPRIETARY RIGHTS"); (vi) all
licenses and agreements pursuant to which the Company has acquired rights in or
to any of the Trademarks, Patents, Copyrights, Software or Proprietary Rights
(excluding software and databases licensed to the Company under standard,
non-exclusive software licenses which are generally commercially available to
end-user customers from third parties in the ordinary course of such third
parties' businesses) ("LICENSES-IN"); and (vii) all licenses and agreements
pursuant to which the Company has licensed or transferred any rights to any of
the Trademarks, Patents, Copyrights, Software or Proprietary Rights (excluding
software licensed by the Company under standard, non-exclusive software licenses
to end-user customers in the ordinary course of business which do not include
rights to sublicense) ("LICENSES-OUT").
-2-
<PAGE>
"PERSON" means an individual, partnership, corporation, business trust,
limited liability company, joint stock company, trust, unincorporated
association, joint venture, or other similar entity.
"PLANS" means all employee benefit plans, as defined in Section 3(3) of
ERISA, which (i) are (or have been) sponsored by, (ii) cover (or have covered)
the employees or former employees) of, or (iii) to which contributions are (or
have been) made by, the Company or any Subsidiary or any employee of the Company
or any Subsidiary.
"PUT AGREEMENT" means the letter agreement between Wilblairco
Associates and the Parent in the form attached to this Agreement as Exhibit J.
"QUALIFIED PUBLIC OFFERING" means the first sale to the public of
Common Stock pursuant to an effective registration statement under the
Securities Act under which (a) the aggregate price to the public of the Common
Stock actually sold to the public in such first sale, less the amount of
underwriters' and brokers' commissions and expense allowances paid by the
Company in connection with the original sale of such Common Stock, is $25.0
million or more, and (b) results in the Common Stock being listed on the New
York Stock Exchange, the American Stock Exchange or the Nasdaq Stock Market
(formerly known as the NASDAQ National Market).
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
among the Company, the Parent and the Purchasers in the form attached to this
Agreement as Exhibit C, as it may be amended from time to time.
"RELATED AGREEMENTS" means the Stockholders' Agreement, the Put
Agreement and the Registration Rights Agreement.
"RESTATED CHARTER" means the Amended and Restated Certificate of
Incorporation of the Company in the form attached to this Agreement as Exhibit
D.
"SECURITIES" means any debt or equity securities of the Company,
whether now or hereafter authorized, and any security or other instrument
convertible into, or exercisable or exchangeable for, Securities or a Security.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"STOCKHOLDERS' AGREEMENT" means the Stockholders' Agreement among, the
Company, the Purchasers, the Parent and the other persons named therein in the
from attached to this Agreement as Exhibit E, as amended from time to time.
"SUBSIDIARY" means (a) any corporation more than 50% of whose
outstanding Voting Stock, or any class thereof, is owned or controlled, directly
or indirectly, by the Company or by one or more Subsidiaries or by the Company
and one or more Subsidiaries, (b) any partnership of
-3-
<PAGE>
which the Company or one or more Subsidiaries is a general partner, for which
the Company or one or more Subsidiaries possesses the power to direct the
affairs or of which the Company or any Subsidiary owns, directly or indirectly,
more than 50% of any class of partnership interest, (c) any limited liability
company for which the Company or one or more Subsidiaries possesses the power to
direct the affairs of the limited liability company or of which the Company or
any Subsidiary owns, directly or indirectly, more than 50% of any class of
membership interest.
"TRANSFER" means any voluntary or involuntary sale, assignment,
transfer, negotiation, pledge, hypothecation, or other disposition, and any
other event or transaction in which a lien is created.
"VOTING STOCK" as applied to the stock of any corporation, means stock
of any class or classes (however designated) having ordinary voting power for
the election of a majority of the members of the board of directors (or other
governing body) of such corporation, other than stock having such power only by
reason of the happening of a contingency.
SECTION 2. PURCHASE AND SALE OF STOCK.
SECTION 2.1. SALE AND ISSUANCE OF COMMON STOCK TO PURCHASERS. Subject
to the terms and conditions of this Agreement, and upon the basis of the
representations and warranties contained in this Agreement, the Company agrees
to issue and sell to each Purchaser or, with the prior written consent of the
Company which shall not be unreasonably withheld, that Purchaser's nominee, and
each Purchaser severally agrees to purchase from the Company the number of
shares of Common Stock set forth in the appropriate column next to the
Purchaser's name on Exhibit A to this Agreement for the purchase price of $15.00
per share.
SECTION 2.2. CLOSING; PAYMENT AND DELIVERY. Payment for and delivery
of the certificates evidencing the Common Stock to be sold to the Purchasers
(the "CLOSING") shall be effected at the offices of Excite, Inc., at 10:00 a.m.
Pacific time on September 30, 1999, or at such other place, time or date upon
which the Company and the Purchasers shall mutually agree. At the Closing, the
purchase price for the Common Stock purchased by the Purchasers shall be paid in
immediately available funds against delivery by the Company to the respective
Purchasers of certificates representing the appropriate number of shares of
Common Stock set forth next to such Purchaser's name on Exhibit A hereto.
SECTION 3. CONDITIONS OF COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of the to Company to consummate the sale of the Common
Stock to the Purchasers are subject to simultaneous payment of the purchase
price, and the satisfaction of the following conditions, any of which may be
waived by the Company in writing.
SECTION 3.1. STOCKHOLDERS' AGREEMENT. The Purchasers shall have
entered into the Stockholders' Agreement, subject to the consummation of the
transactions to occur at the Closing.
-4-
<PAGE>
SECTION 3.2. REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties made by the Purchasers in Section 6 of this
Agreement shall have been true and correct when made, and shall be true and
correct as of the Closing as if made at the Closing.
SECTION 3.3. QUALIFICATIONS. All authorizations, approvals or permits,
if any, of any governmental authority or regulatory body that are required in
connection with the lawful issuance and sale of the Common Stock pursuant to
this Agreement shall have been obtained and be effective as of the Closing.
SECTION 4. CONDITIONS OF PURCHASERS' OBLIGATIONS AT CLOSING.
The obligation of each Purchaser to purchase the Common Stock to be
purchased by it under this Agreement is subject to the satisfaction of the
following conditions, any of which may be waived by such Purchaser in writing.
SECTION 4.1. CHARTER. The Company shall have adopted the Restated
Charter, filed it with the appropriate offices in the State of Delaware and the
Restated Charter shall constitute the Company's certificate of incorporation, as
amended and restated through the date of the Closing, and the Company shall
deliver evidence of such filing certified by the Secretary of State of the State
of Delaware.
SECTION 4.2. BY-LAWS. The Company shall have adopted the By-laws, and
the By-laws shall constitute the Company's by-laws, as amended through the date
of the Closing.
SECTION 4.3. STOCKHOLDERS' AGREEMENT. The Company, the Parent and the
other stockholders named therein shall have entered into the Stockholders'
Agreement, subject to the consummation of the transactions to occur at the
Closing.
SECTION 4.4. REGISTRATION RIGHTS AGREEMENT. The Company shall have
entered into the Registration Rights Agreement, subject to the consummation of
the transactions to occur at the Closing.
SECTION 4.5. PUT AGREEMENT. The Parent shall have entered into the Put
Agreement, subject to the consummation of the transactions to occur at the
Closing.
SECTION 4.6. REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties made by the Company and the Parent in Section 5
of this Agreement shall have been true and correct when made, and shall be true
and correct as of the Closing as if made at the Closing.
SECTION 4.7. CORPORATE PROCEEDINGS. All corporate and other
proceedings required to be taken by the Company and Parent in connection with
the transactions contemplated hereby and all documents incident thereto shall be
satisfactory in form and substance to each Purchaser, and each Purchaser shall
have received all such counterpart originals or certified or other copies of
such documents as it shall request.
-5-
<PAGE>
SECTION 4.8. OFFICER'S CERTIFICATE. The Company and the Parent shall
have delivered to each Purchaser an officer's certificate dated the Closing Date
stating that the conditions specified in Sections 4.1 through 4.7, inclusive,
relating to the Company and the Parent, as applicable, have been satisfied.
SECTION 4.9. CLOSING CERTIFICATES. At the Closing, the Company shall
have delivered to the Purchasers copies of each of the following, in each case
certified as of the date of the Closing by the Secretary of the Company:
(a) the By-laws of the Company; and
(b) resolutions of the Board adopting and authorizing the
execution and filing of the Restated Charter, and authorizing the execution,
delivery and performance of this Agreement and the Related Agreements and
the transactions contemplated hereby and thereby and the issuance and sale
of the Common Stock to be sold pursuant to this Agreement.
SECTION 4.10. CORPORATE STANDING. The Company shall be in good standing
as a Delaware corporation, and the Company shall have delivered to the
Purchasers copies of a current good standing certificate for the Company in the
State of Delaware, certified by the Secretary of State of the State of Delaware.
SECTION 4.11. OPINION OF COUNSEL FOR THE COMPANY. Each Purchaser shall
have received from Elias, Matz, Tiernan & Herrick, L.L.P., counsel to the
Company, an opinion with respect to the Closing substantially in the form
attached as Exhibit F to this Agreement.
SECTION 4.12. CONSENTS. The Company shall have obtained all consents
necessary for the sale of the Common Stock under this Agreement, including,
without limitation, those set forth on Exhibit G.
SECTION 4.13. EXPENSES. The Company shall have paid the fees and
expenses of Chapman and Cutler, counsel to Wilblairco Associates.
SECTION 4.14. SIMULTANEOUS PURCHASE; AT HOME CORPORATION CONTRACT. Each
Purchaser shall have concurrently purchased the number of shares of Common Stock
set forth on Exhibit A. The Company shall have entered into the contract with At
Home Corporation in the form attached as Exhibit G (the "EXCITE CONTRACT"), and
such contract shall remain in full force and effect as of the Closing Date.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PARENT.
The Company and the Parent, jointly and severally, represent and
warrant to each Purchaser on the date hereof and as of the Closing Date that,
except as set forth on the schedules set forth on Exhibit H to this Agreement:
-6-
<PAGE>
SECTION 5.1. ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized and validly existing in good standing under the laws
of Delaware and has the requisite legal and corporate power to own its property
and to carry on its business as proposed to be conducted by it. The Company is
qualified and authorized to transact business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to so qualify
would have a material adverse effect on its business, properties or financial
condition (a "MATERIAL ADVERSE EFFECT").
SECTION 5.2. POWER. The Company and the Parent have all requisite
legal power to enter into this Agreement and the Related Agreements and to carry
out and perform its respective obligations under the terms hereof and thereof.
The Company has all requisite legal power to issue the Common Stock.
SECTION 5.3. CAPITALIZATION; SUBSIDIARIES. (a) At the Closing, the
authorized capital stock of the Company will consist of 5,000,000 shares of
Common Stock. After giving effect to the consummation of the transactions
contemplated by this Agreement at the Closing, all of the capital stock of the
Company which is either issued or outstanding, reserved for issuance or
committed to be issued will consist of:
(i) 1,800,000 fully paid and non-assessable outstanding
shares of Common Stock; and
(ii) 200,000 shares of authorized, unissued Common Stock
reserved for issuance to employees of the Company pursuant to the terms
of stock options of which options to purchase 139,250 shares of Common
Stock at an exercise price of $0.45 per share will be issued and
outstanding.
Of the 1,800,000 outstanding shares of Common Stock referred to in (i)
above, 1,233,334 are owned directly by the Parent and the remainder are owned by
the persons and in the amounts set forth on Exhibit I hereto.
(b) As of the Closing, neither the Company nor any Subsidiary shall be
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock or any warrants, options or
other rights to acquire its capital stock, except as set forth on Schedule 5.3.
As of the Closing, all of the outstanding shares of the Company's capital stock
shall be validly issued, fully paid and nonassessable. There are no statutory or
contractual stockholders preemptive rights or rights of refusal with respect to
the issuance of the Common Stock or otherwise. The Company has not violated any
applicable federal or state securities laws in connection with the offer, sale
or issuance of any of its capital stock, and the offer, sale and issuance of the
Common Stock hereunder do not require registration under the Securities Act or
any applicable state securities laws. To the Company's knowledge, there are no
agreements between the Company's stockholders with respect to the voting or
transfer of the Company's capital stock or with respect to any other aspect of
the Company's affairs, except for the Related Agreements contemplated hereby.
-7-
<PAGE>
(c) The Company does not own of record or beneficially any securities
of any corporation or any interest or investment in any partnership, limited
liability company, association, fund or other business entity.
SECTION 5.4. AUTHORIZATION; NO BREACH. The execution, delivery and
performance of this Agreement, and the Related Agreements and all other
agreements contemplated hereby and thereby to which either the Company or Parent
is a party, the Restated Charter and the Company's bylaws have been duly
authorized by the Company and the Parent, as applicable. This Agreement, the
Related Agreements, the Restated Charter and all other agreements contemplated
hereby and thereby each constitutes a valid and binding obligation of the
Company and the Parent, as applicable, enforceable in accordance with their
respective terms, except (i) as limited by bankruptcy, insolvency, fraudulent
conveyance or other laws affecting the enforcement of creditors rights
generally, (ii) that the availability of equitable relief is subject to the
discretion of the court before which any proceeding therefor may be brought, and
(iii) to the extent any indemnification provisions herein or in the Related
Agreements may be limited by applicable law or public policy (the "STANDARD
EXCEPTIONS"). The execution and delivery by the Company and the Parent of this
Agreement and the Related Agreements, as applicable, and all other agreements
contemplated hereby and thereby to which the Company or the Parent is a party,
the offering, sale and issuance of the Common Stock, the amendment of the
Certificate of Incorporation and the fulfillment of and compliance with the
respective terms hereof and thereof by the Company and the Parent, as
applicable, do not (i) conflict with or result in a breach of the terms,
conditions or provisions of, (ii) constitute a default under, (iii) result in
the creation of any lien, security interest, charge or encumbrance upon the
Company's, the Parent's or any Subsidiary's capital stock or assets pursuant to,
(iv) give any third party the right to modify, terminate or accelerate any
obligation under, (v) result in a violation of, or (vi) require any
authorization, consent, approval, exemption or other action by or notice to any
court or administrative or governmental body pursuant to the charter or bylaws
of the Company, the Parent or any Subsidiary, or any law, statute, rule or
regulation to which the Company, the Parent or any Subsidiary is subject, or any
agreement, instrument, order, judgment or decree to which the Company, the
Parent or any Subsidiary is subject.
SECTION 5.5. FINANCIAL STATEMENTS. Attached hereto on Schedule 5.5 are
the unaudited consolidated balance sheet of the Company as of August 31, 1999
(the "LATEST BALANCE SHEET"), and the related statements of income and cash
flows (or the equivalent) for the eight-month period then ended.
Each of the foregoing financial statements (including in all cases the
notes thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects), present fairly the financial
position and results of operations of the Company as of the dates and for the
periods indicated, and has been prepared in accordance with generally accepted
accounting principles, consistently applied, subject to the lack of footnote
disclosure and changes resulting from normal year-end adjustments (none of which
would, alone or in the aggregate, be materially adverse to the financial
condition, operating results, assets, operations or business prospects of the
Company).
-8-
<PAGE>
SECTION 5.6. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth
on Schedule 5.6, the Company does not have any material obligation or liability
(whether accrued, absolute, contingent, unliquidated or otherwise, whether due
or to become due and regardless of when asserted) arising out of transactions
entered into at or prior to the Closing, or any action or inaction at or prior
to the Closing, or any state of facts existing at or prior to the Closing other
than: (i) liabilities set forth on the Latest Balance Sheet (including any notes
thereto), and (ii) liabilities and obligations which have arisen after the date
of the Latest Balance Sheet in the ordinary course of business (none of which is
a material liability resulting from breach of contract, breach of warranty,
tort, infringement of third party intellectual property rights, claim or
lawsuit).
SECTION 5.7. VALIDITY OF SECURITIES. Except for liens, charges, claims
or encumbrances created by or through the Purchasers or imposed by this
Agreement or the Related Agreements, the Common Stock, when issued, sold and
delivered in accordance with the terms of this Agreement, will be duly and
validly issued, fully paid, non-assessable and free and clear of all liens,
charges, claims and encumbrances.
SECTION 5.8. GOVERNMENTAL AUTHORIZATIONS. All consents, approvals,
qualifications, licenses, orders or authorizations of, or filings with, any
governmental authority, including state securities or blue sky offices, required
in connection with the valid execution, delivery or performance of any of this
Agreement or the Related Agreements by the Company and the Parent, as
applicable, or with the offer, sale or issuance of the Common Stock, or the
consummation of any other transaction contemplated on the part of the Company
and the Parent, as applicable, hereby, or the operation after the Closing by the
Company of its business, have been or will be obtained or made the absence of
which would have a Material Adverse Effect on the Company or the Parent.
SECTION 5.9. ASSETS. The Company has good and marketable title to, or
a valid leasehold interest in, the properties and assets owned, leased or used
by it or shown on the Latest Balance Sheet or acquired thereafter, free and
clear of all liens, security interests, charges and encumbrances, except for
properties and assets disposed of in the ordinary course of business since the
date of the Latest Balance Sheet and except for perfected liens properly filed
and disclosed on Schedule 5.9 and liens for current property and other taxes,
fees and charges not yet due and payable. The Company's buildings, equipment and
other tangible assets are in good operating condition in all material respects.
The Company owns, or has a valid leasehold interest in, all assets necessary for
the conduct of its business as presently conducted and as presently proposed to
be conducted.
SECTION 5.10. TAX MATTERS. The Company has filed all tax returns
which it is required to file under applicable laws and regulations; all such
returns were complete and correct in all material respects; the Company in
all material respects has paid all taxes due and owing by it and has withheld
and paid over all taxes which it is obligated to withhold from amounts paid
or owing to any employee, stockholder, creditor or other third party; the
Company has not waived any statute of limitations with respect to taxes or
agreed to any extension of time with respect to a tax assessment or
deficiency; there are no accruals for current taxes on the Latest Balance
Sheet and the Company had no tax liabilities if its current tax year were
treated as ending on the date of
-9-
<PAGE>
the Latest Balance Sheet; the assessment of any additional taxes for periods
for which returns have been filed is not expected to exceed the recorded
liability therefor on the Latest Balance Sheet; no foreign, federal, state or
local tax audits are pending or being conducted with respect to the Company;
no information related to tax matters has been requested by any foreign,
federal, state or local taxing authority and no notice indicating an intent
to open an audit or other review has been received by the Company from any
foreign, federal, state or local taxing authority; and there are no material
unresolved questions or claims concerning the Company's tax liability. The
Company has not made an election under Sections 341(f) of the Internal
Revenue Code of 1986, as amended.
SECTION 5.11. INTELLECTUAL PROPERTY. (a) Schedule 5.11 contains a
complete list and an accurate functional description by category and indication
of status (completed or in process) of all Patents, Trademarks, Software,
Licenses-In, Licenses-Out and other material items of Intellectual Property
which are owned, licensed by, licensed to, used or held for use in or necessary
for the conduct of the business of the Company as such business is currently
conducted and presently contemplated to be conducted, or as to which the Company
has a contractual right to an assignment, including, in the case of
Licenses-Out, if any, an indication of whether each such License-Out is
exclusive or non-exclusive and whether it is terminable by the Company.
(b) Other than the lien of the Parent's lenders and Intellectual
Property covered by Licenses-In, the rights of the Company in and to each item
of the Intellectual Property are owned outright by the Company, free and clear
of any liens, encumbrances, security interests and other rights. Except to the
extent provided in the Licenses-In, the Company's rights in and to the
Intellectual Property are freely assignable in its own name, including the right
to create derivatives, and the Company is under no obligation to pay any royalty
or other compensation to any third party or to obtain any approval or consent
for use of any of the Intellectual Property. None of the Intellectual Property
is subject to any outstanding judgment, order, decree, stipulation, injunction
or charge; no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand is pending or, to the knowledge of the Company,
threatened, which challenges the legality, validity, enforceability, use or
ownership of any of the Intellectual Property; and, except to the extent
provided in the Licenses-Out [and contracts to provide services to third
parties], the Company has never agreed to indemnify any Person for or against
any interference, infringement, misappropriation, or other conflict with respect
to Intellectual Property.
(c) No breach or default (or event which with notice or lapse of time
or both would result in a breach or default) by the Company exists or has
occurred under any License-In or other agreement pursuant to which the Company
uses any Intellectual Property, and the consummation of the transactions
contemplated by this Agreement will not violate or conflict with or constitute a
breach or default (or an event which, with notice or lapse of time or both,
would constitute a breach or default) or result in a forfeiture under, or
constitute a basis for termination of any such License-In or other agreement,
except where such breaches, defaults, violations, conflicts or other events
would not, individually or in the aggregate, result in a Material Adverse
Effect.
-10-
<PAGE>
(d) The Company owns or has the right to use all the Intellectual
Property necessary to provide, produce, sell and license the services and
products currently provided, produced, sold and licensed by the Company, and to
conduct the Company's business as presently conducted, and the consummation of
the transactions contemplated hereby will not materially alter or impair any
such rights, including any right of the Company to use or sublicense any
Intellectual Property owned by others. The Company has no knowledge of any
reason the Company will not be able to continue to own, possess or have access
to, and to use, license and sub-license on reasonable terms, all Intellectual
Property and other proprietary rights necessary for the lawful conduct of its
business as presently conducted and currently contemplated to be conducted,
without any infringement or conflict with the rights of others.
(e) To the Company's knowledge, no Intellectual Property owned by the
Company, and no product or service practiced, offered, licensed, sold or under
development by the Company, infringes any trademark, trade name, copyright,
trade secret, patent, right of publicity, right of privacy or other proprietary
right of any Person or, except for co-authorship of content relating to the
Company's agreement with Mpath Interactive, Inc., would give rise to an
obligation to render an accounting to any Person as a result of co-authorship,
co-invention or an express or implied contract for any use or transfer which, in
any such case, would have a Material Adverse Effect on the Company. The Company
has received no notice of any patent, invention, trademark, copyright, service
mark, trade name or trade secret of any other Person alleging or threatening to
assert that the Company's use of any of the Intellectual Property infringes upon
or is in conflict with any intellectual property or proprietary rights of any
third party. The Company has no knowledge of any basis for any charge or claim,
threatened claim or any suit or action asserting any such infringement or
conflict or asserting that the Company does not have the legal right to own,
enforce, sell, license, sublicense, lease or otherwise use any such Intellectual
Property, process, product or service, and the Company has no knowledge of any
facts which should give such Person reason to believe that there exists any
basis for such claim, threatened claim or suit or that any such claim,
threatened claim or suit may be asserted or instituted in the future.
(f) The Company has not sent or otherwise communicated to any other
Person any notice, charge, claim or assertion of, and the Company has no
knowledge of, any present, impending or threatened infringement by any other
Person of any Intellectual Property.
(g) All the Company's Patents, Trademarks and Copyrights listed in
Schedule 5.11 as having been issued by, registered with or filed with the United
States Patent and Trademark Office or Register of Copyrights or the
corresponding offices of other countries identified in Schedule 5.11 of the
Schedule have been so duly registered, filed in or issued, as the case may be,
and have been properly maintained and renewed in accordance with all applicable
provisions of law and administrative regulations in the United States and each
such other country. Except as set forth in the preceding sentence, the Company
has at all times diligently protected its rights in the Intellectual Property
and any related apparatus or processes and has maintained the confidentiality of
its trade secrets, pending patent applications, know-how and other confidential
Intellectual Property, and there have been no acts or omissions by the Company,
the result of which would be to compromise the rights of the Company to apply
for or enforce appropriate legal protection of such Intellectual Property.
-11-
<PAGE>
(h) No former employees or independent contractors of the Company or
Parent have any claims or rights to any of the Intellectual Property necessary
for the lawful conduct of the Company's business as now conducted. To the
knowledge of the Company, no employee of the Company is a party to or otherwise
bound by any agreement with or obligated to any other Person (including any
former employer) which in any respect conflicts with any obligation, commitment
or job responsibility of such employee to the Company under any agreement to
which currently he or she is a party or otherwise.
(i) Schedule 5.11 identifies each Person to whom the Company has sold,
licensed, leased or otherwise transferred or granted any interest or rights to
any Intellectual Property, and the date of each such sale, license, lease or
other transfer or grant, other than Intellectual Property licensed to end users
pursuant to standard, non-exclusive "shrink wrap" license agreements in the
ordinary course of business, none of which is a license of any source code
("SHRINK WRAP LICENSES"). The Company has previously delivered or made available
to the Purchasers complete and accurate copies of all documents relating to each
such sale, license, lease or other transfer or grant.
SECTION 5.12. ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set
forth on Schedule 5.12, since the date of the Latest Balance Sheet, the Company
has conducted its business only in the ordinary course and there has not been
any:
(a) increase by the Company of any bonuses, salaries, or
other compensation to any stockholder, director, officer or employee or
entry into any employment, severance or similar agreement with any director,
officer or employee;
(b) damage to or destruction or loss of any asset or
property of the Company, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business or financial condition
of the Company;
(c) entry into, termination of, or receipt of notice of
termination of any license, joint venture, credit or similar agreement;
(d) sale, lease or other disposition of any material
asset or property of the Company, or mortgage, pledge or imposition of any
lien or other encumbrance on any material asset or property of the Company,
including the sale, lease or other disposition of any of the Intellectual
Property (other than licenses in the ordinary course of business);
(e) declaration or payment or distribution of cash or
other property to its stockholders with respect to its stock or purchase or
redemption of any shares of its stock or any warrants, options or other
rights to acquire its stock;
(f) mortgage or pledge of any of its properties or assets
or imposition of any material lien, security, interest, charge or other
encumbrance, except liens for current property taxes and other fees and
charges not yet due and payable;
-12-
<PAGE>
(g) sale, assignment or transfer of any Intellectual
Property or disclosure of any material proprietary confidential information
to any Person;
(h) capital expenditures or commitments therefor that
aggregate in excess of $200,000.
(i) consummation of any other material transaction,
whether or not in the ordinary course of business;
(j) loans or advances by the Company to, guarantees by
the Company for the benefit of, or any investments by the Company in, any
Person in excess of $100,000 in the aggregate; or
(k) agreement, whether oral or written, by the Company to
do any of the foregoing.
SECTION 5.13. CONTRACTS; NO DEFAULTS. The Company has provided access
to the Purchasers to true and complete copies of all employment agreements,
written contracts and agreements involving performance of services or delivery
of goods or materials to or by the Company, each lease, rental, license and
conditional sale agreement affecting any real or personal property used, owned
or licensed by the Company, all agreements relating to Intellectual Property
used, owned or licensed by the Company, and all other contracts and agreements
to which the Company is a party or is bound, and a written summary of any oral
agreement of the type described above, in each case if the contract or agreement
involves the payment of $200,000 or more in either a single aggregate payment or
over a twelve month period. Each such contract is in full force and effect and,
to the Company's knowledge, is valid and enforceable in accordance with its
terms, subject to the Standard Exceptions. The Company is not in default with
respect to the performance of any Company obligations under any such contracts,
except for any default or defaults which would not, either individually or in
the aggregate, have a Material Adverse Effect on the Company.
SECTION 5.14. LITIGATION. There are no actions, suits, arbitrations or
other proceedings, or, to the Company's knowledge investigations pending or, to
its knowledge, threatened against or affecting the Company before any court or
before any administrative agency or administrative officer or executive. There
are no actions, suits, arbitrations or other proceedings pending or, to its
knowledge, threatened against any member of management of the Company by reason
of the past employment relationship of any member of management.
SECTION 5.15. EMPLOYEES. The Company is not aware that any executive or
key employee of the Company or any group of employees of the Company has any
plans to terminate employment with the Company. The Company has complied in all
material respects with all laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes, and the Company
is not aware that it has any material labor relations problems (including any
union organization activities, threatened or actual strikes or work stoppages or
material grievances). Neither the Company nor, to the best of the Company's
knowledge, any of its employees is
-13-
<PAGE>
subject to any noncompete, nondisclosure, confidentiality, employment,
consulting or similar agreements in conflict with the present or proposed
business activities of the Company, except for agreements between the Company
and its present and former employees.
SECTION 5.16. ERISA. The Company does not have, and has never had, any
Plans or trusts subject to ERISA.
SECTION 5.17. OFFERING. Subject to the truth of the representations and
warranties of the Purchasers contained in Section 6 hereof, the offer, sale and
issuance of the Common Stock as contemplated by this Agreement, to the Company's
knowledge, is exempt from the registration requirements of the Securities Act.
SECTION 5.18. FEES AND COMMISSIONS. Neither the Company nor the Parent
has retained any finder, broker, agent, financial adviser or other intermediary
in connection with the transactions contemplated by this Agreement, and neither
the Company nor the Parent owes any such fees to any person in connection
therewith.
SECTION 5.19. ENVIRONMENTAL. (a) To the Company's knowledge, the
Company has complied in all material respects with all Environmental, Health,
and Safety Laws, and no notice of action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand has been delivered, filed or
commenced against it alleging any failure so to comply. Without limiting the
generality of the preceding sentence, to the Company's knowledge, the Company
has obtained and been in compliance in all material respects with all of the
terms and conditions of all permits, licenses, and other authorizations which
are required with respect to the Company under, and have complied in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and timetables
which are contained in, all Environmental, Health, and Safety Laws.
(b) To the Company's knowledge, the Company has no liability (and the
Company has not handled or disposed of any substance, arranged for the disposal
of any substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner in
violation of any Environmental, Health and Safety Law that could form the basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against the Company giving rise to any
liability) for damage to any site, location, or body of water (surface or
subsurface), for any illness of or personal injury to any employee or other
individual, or for any reason as a result of the violation of any Environmental,
Health, and Safety Law.
SECTION 5.20. CASUALTY INSURANCE. The Company or its Parent has
procured, in customary types and amounts in light of the size and nature of the
Company's business, effective not later than the Closing, with financially sound
and reputable insurers, insurance against loss or damage with respect to the
Company's properties and business.
SECTION 5.21. DISCLOSURE. Neither this Agreement, nor any Related
Agreement, nor any written statement made to the Purchasers or their
representatives by the Company or the Parent in connection herewith or
therewith, or the transactions contemplated hereby or thereby, contains
-14-
<PAGE>
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained herein or therein complete
and not misleading. All information provided to the Purchasers and their agents
by the Company and the Parent or their respective agents is true, complete and
correct in all material respects.
SECTION 5.22. CONDUCT. During the last five years, neither the Company,
the Parent nor any of their respective executive officers or directors has been:
(i) convicted of nor pleaded NOLO CONTENDERE to any felony or misdemeanor in
connection with the purchase or sale of any security or in connection with the
making of any false filing with the Securities and Exchange Commission ("SEC")
or any state securities administrator, or of any felony involving fraud or
deceit, including but not limited to, forgery, embezzlement, obtaining money
under false pretenses, larceny, conspiracy to defraud or theft; (ii) subject to
any order, judgment, or decree of any court of competent jurisdiction
temporarily or preliminarily restraining or enjoining, or are subject to any
order, judgment, or decree of any court of competent jurisdiction, permanently
restraining or enjoining that Person from engaging in or continuing any conduct
or practice in connection with the purchase or sale of any security or in
connection with the making of any false filing with the SEC or any state
securities administrator; (iii) subject to a United States Postal Service false
representation order; or (iv) subject to any state administrative order entered
by a state securities administrator in which fraud or deceit was found.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser severally represents and warrants to the Company that:
SECTION 6.1. CONDUCT; ACTS AND PROCEEDINGS. During the last five
years, no Purchaser has been: (i) convicted of nor pleaded NOLO CONTENDERE to
any felony or misdemeanor in connection with the purchase or sale of any
security or in connection with the making of any false filing with the SEC or
any state securities administrator, or of any felony involving fraud or deceit,
including but not limited to, forgery, embezzlement, obtaining money under false
pretenses, larceny, conspiracy to defraud or theft; (ii) subject to any order,
judgment, or decree of any court of competent jurisdiction temporarily or
preliminarily restraining or enjoining, or are subject to any order, judgment,
or decree of any court of competent jurisdiction, permanently restraining or
enjoining that Person from engaging in or continuing any conduct or practice in
connection with the purchase or sale of any security or in connection with the
making of any false filing with the SEC or any state securities administrator;
(iii) subject to a United States Postal Service false representation order; or
(iv) subject to any state administrative order entered by a state securities
administrator in which fraud or deceit was found. Such Purchaser has taken all
necessary action to authorize its execution, delivery and performance of and
under this Agreement and the Related Agreements. This Agreement and the Related
Agreements are the valid and binding agreements of such Purchaser and
enforceable against it in accordance with their respective terms, except for the
Standard Exceptions.
SECTION 6.2. INVESTMENT INTENT. Such Purchaser is acquiring the Common
Stock for its own account for investment and not with a view to, or for sale or
other disposition in connection with, any distribution thereof, nor with any
present intention of selling or otherwise disposing of the same. Except for the
Related Agreements, each Purchaser represents that such Purchaser
-15-
<PAGE>
does not have any contract, undertaking, agreement or arrangement with any
Person to sell, transfer or grant participations to such Person or to any third
Person, with respect to the Common Stock. Each Purchaser understands that stop
transfer instructions relating to the Common Stock will be placed in the
Company's stock register and that the certificates representing the Common Stock
will bear a legend which shall read:
"The shares of Common Stock represented by this certificate have been
issued pursuant to a claim of exemption from the registration or
qualification requirements of federal and state securities laws and may
not be sold, assigned, hypothecated, pledged or otherwise transferred
without registration or qualification or otherwise except pursuant to
an applicable exemption therefrom as evidenced by an opinion of counsel
reasonably satisfactory to the issuer hereof."
SECTION 6.3. INVESTMENT EXPERIENCE; ACCREDITED INVESTOR STATUS. Such
Purchaser is experienced in evaluating and investing in companies such as the
Company, and has sufficient knowledge and experience in business and financial
matters to permit it to evaluate the merits and risks of an investment in the
Company. Such Purchaser is domiciled in the United States and an "accredited
investor" as defined in Regulation D promulgated under the Securities Act. Such
Purchaser acknowledges that the Common Stock being issued and sold has not been
registered under the Securities Act (or similar state laws), no federal or state
agency has made any finding or determination relating to the Common Stock and
such Common Stock is being issued and sold under exemptions from registration
provided in the Securities Act and under applicable state securities laws and,
therefore, cannot be sold unless subsequently registered under the Securities
Act or applicable state securities laws or an exemption from such registration
is available and must be held indefinitely. Accordingly, such Purchaser
represents and warrants that it is able to bear the economic risk of any
investment in the Common Stock for an indefinite period of time.
SECTION 6.4. POTENTIAL FOR LOSS; INFORMATION. Such Purchaser
recognizes that the purchase of the Common Stock entails significant risks, such
Purchaser recognizes and comprehends such risks, has weighed the risks against
the benefit of owning the Common Stock and has the economic ability to bear the
complete loss of the Purchaser's investment in the Company. Such Purchaser
represents that it has performed such investigation of the affairs of the
Company and the Parent as it has deemed necessary, has obtained the advice of
its legal advisors, and had the opportunity to ask questions and receive answers
concerning the Common Stock and to obtain whatever information concerning the
Parent and the Company as has been requested by the Purchaser in order to make
its investment decision. Each Purchaser believes that an investment in the
Common Stock is suitable for it based upon its individual investment objectives
and financial needs and each Purchaser has adequate means of providing for its
individual current financial needs and has no need for liquidity of its
investment with respect to the Common Stock.
SECTION 6.5. BROKERS. Such Purchaser has not engaged any broker or
finder who is entitled to any fee or commission from the Parent or the Company
in connection with this Agreement, the Related Agreements or the transactions
contemplated hereby or thereby.
-16-
<PAGE>
SECTION 6.6. WILBLAIRCO ASSOCIATES. Wilblairco Associates represents
that it is a general partnership duly organized, validly existing and in good
standing under the laws of Illinois and has the requisite legal power to
execute, deliver and perform its obligations under this Agreement, the Related
Agreements and the agreements contemplated hereby and thereby.
SECTION 6.7. AT HOME CORPORATION. At Home Corporation represents that
it is a corporation duly organized, validly existing and in good standing under
the laws of Delaware and has the requisite legal power to execute, deliver and
perform its obligations under this Agreement, the Related Agreements and the
agreements contemplated hereby and thereby.
SECTION 7. COVENANTS OF THE COMPANY.
SECTION 7.1. FINANCIAL INFORMATION AND REPORTS. So long as each
Purchaser beneficially owns Common Stock originally issued under this Agreement,
the Company will furnish the following information without charge to each
Purchaser and its permitted successor and assign:
(a) within 30 days after the end of each month of each
fiscal year of the Company, on a consolidated basis, the Company's balance
sheet as of the end of such month and statements of operations and cash
flows of the Company for such month (and quarter if applicable), and for the
current fiscal year to date, prepared substantially in accordance with
generally accepted accounting principles applied on a consistent basis, and
certified by the principal financial officer of the Company, subject to
usual year end audit adjustments but without all of the footnotes required
by generally accepted accounting principles;
(b) within 90 days after the last day of each fiscal year
of the Company, on a consolidated basis, a balance sheet as of the end of
such fiscal year and statements of operations and cash flows of the Company
for such fiscal year prepared in accordance with generally accepted
accounting principles applied on a consistent basis, and setting forth in
each case in comparative form the figures for the previous fiscal year, and
accompanied by (i) an opinion containing no exceptions or qualifications of
an independent accounting firm of recognized national standing and (ii) a
copy of such firm's annual management letter to the Company, if any;
(c) prior to the commencement of each fiscal year, an
annual business plan, including a budget and detailed financial projections
and cash flow projections for the forthcoming year for the Company and its
Subsidiaries (if any) during each month during such period, all in
reasonable detail together with underlying assumptions, and including a
detailed operating plan for the year;
(d) promptly upon receipt thereof, copies of all
management reports and all other reports, if any, submitted to the Company
by independent public accountants in connection with any annual or interim
audit of the books of the Company and its Subsidiaries made by such
accountants;
-17-
<PAGE>
(e) a copy of each financial statement, report and return
that the Company or any Subsidiary shall file with the Securities and
Exchange Commission or any stock exchange, or with any other governmental
department, bureau, commission or agency, or with any industry trade
association; and
(f) promptly after the occurrence thereof, notice of any
event which has had, or, in the Company's reasonable judgment, could have, a
material adverse impact on the assets, business, financial, condition,
affairs or operations of the Company, and of the institution or threat of
any material litigation or investigation.
SECTION 7.2. INSURANCE. The Company agrees to maintain or cause to be
maintained, with financially sound and reputable insurers, insurance with
respect to its properties and business and the properties and business of its
Subsidiaries, against loss or damage of the kinds and amounts then known to the
Company to be customarily insured against by corporations of similar size
engaged in the same or similar businesses, and at the request of any Purchaser
shall furnish such Purchaser with evidence of the same.
SECTION 7.3. PAYMENT OF TAXES. The Company agrees to deposit, and
agrees to cause each Subsidiary to deposit, all taxes due to any governmental
unit with respect to compensation paid to any employee of the Company or any
Subsidiary on or before the due date therefor. The Company agrees to pay or
cause to be paid, and agrees to cause each Subsidiary to pay or cause to be
paid, all taxes, assessments and other governmental charges levied upon any of
its or their respective properties or assets, or in respect of its or their
respective franchises, businesses, income or profits before the same become
delinquent, except that (unless and until foreclosure, sale or other similar
proceedings shall have been commenced) no such charge need be paid if being
contested in good faith and by appropriate proceedings promptly initiated and
diligently conducted if (a) such reserve or other appropriate provision, if any,
as shall be required by sound accounting practice shall have been made therefor
and (b) no material property or assets are in imminent danger of forfeiture.
SECTION 7.4. COMPLIANCE WITH LAWS, ETC. The Company agrees to comply,
and agrees to cause each Subsidiary to comply, in all material respects, with
all material laws, rules, regulations, judgments, orders and decrees of any
governmental or regulatory authority applicable to it and its respective assets
and properties, and with all contracts and agreements to which it is a party or
shall become a party, and to perform all obligations which it has or shall
incur. The Company shall make all required securities filings under federal and
applicable state securities laws in connection with the issuance and sale of the
Common Stock.
SECTION 7.5. PRESERVATION OF CORPORATE EXISTENCE AND PROPERTY. The
Company agrees to use its best efforts to preserve, protect and maintain, and to
cause each Subsidiary to preserve, protect and maintain, (a) its corporate
existence, (b) its rights, franchises and privileges, and (c) all its properties
necessary or useful in the proper conduct of its business in good working order
and condition, with the exception of (i) ordinary wear and tear and (ii)
casualty losses covered by insurance, allowing for reasonable deductibles,
provided, however, that nothing contained herein shall preclude the Company from
entering into an agreement for the sale or merger of the
-18-
<PAGE>
Company which has been approved by the stockholders of the Company in accordance
with the By-laws, Restated Charter and the Stockholders' Agreement.
SECTION 7.6. NOTICE OF MATERIAL ADVERSE CHANGE. The Company agrees to
notify each Purchaser promptly in writing after (a) any change in the business
or affairs of the Company which the Company reasonably determines shall
constitute a material adverse change in the Company's business or affairs, or
(b) any breach of any of its covenants, representations or warranties set forth
in this Agreement.
SECTION 7.7. EXPENSES. The Company agrees to bear all of its own
expenses in connection herewith, and shall also pay the reasonable legal fees
of, and out-of-pocket expenses incurred by, Chapman and Cutler, counsel to
Wilblairco Associates, one of the Purchasers, in connection with the
transactions contemplated by this Agreement. In addition, the Company shall pay
the reasonable legal fees of, plus out-of-pocket expenses incurred by, counsel
to the Purchasers in connection with any amendments hereto, and any waivers or
consents delivered pursuant hereto. The Company shall also pay the reasonable
legal fees and disbursements of counsel to the Company in connection with the
closing of the transactions contemplated by this Agreement, any amendments
hereto, and any waivers or consents delivered pursuant hereto.
SECTION 7.8. RELATED PARTY TRANSACTIONS. Any arrangement between the
Company or any Subsidiary and the Parent or any subsidiary of the Parent, for
the provision of goods or services will be on terms and conditions substantially
similar to those available from a third party for the provision of comparable
goods and services and, with respect to products purchased from the Parent or
any subsidiary of the Parent, at prices no less favorable than the lowest price
of the Parent (or such subsidiary) to a third party.
SECTION 7.9. INTELLECTUAL PROPERTY. The Company shall, and shall cause
each Subsidiary to, possess and maintain all material Intellectual Property
necessary to the conduct of their respective businesses and own all right, title
and interest in and to, or have a valid license for, all material Intellectual
Property used by the Company and each Subsidiary in the conduct of their
respective businesses. Neither the Company nor any Subsidiary shall take any
action, or fail to take any action, which would result in the invalidity, abuse,
misuse or unenforceability of such Intellectual Property or which would infringe
upon any rights of other Persons which, in either case, would reasonably be
expected to have a Material Adverse Effect on the Company.
SECTION 7.10. PUBLIC DISCLOSURES. The Company shall not, nor shall it
permit any Subsidiary to, disclose any Purchaser's name or identity as an
investor in the Company in any press release or other public announcement or in
any document or material filed with any governmental entity, without the prior
written consent of such Purchaser, unless such disclosure is required by
applicable law or governmental regulations or by order of a court of competent
jurisdiction, in which case prior to making such disclosure the Company shall
give written notice to such Purchaser describing in reasonable detail the
proposed content of such disclosure and shall permit the Purchaser to review and
comment upon the form and substance of such disclosure.
-19-
<PAGE>
SECTION 7.11. TERMINATION OF COVENANTS. The obligations of the Company
pursuant to this Article VII shall terminate upon the earlier of the
consummation of the Company's first Qualified Public Offering or such date as
less than fifty percent (50%) of the Common Stock originally issued under this
Agreement is owned by a Purchaser or their respective permitted successor and
assigns.
SECTION 8. MISCELLANEOUS.
SECTION 8.1. BROKER'S INDEMNIFICATION. Each party will hold the other
parties free and harmless from any claim, demand, liability for, or expense in
connection with, any broker's or finder's fees or commissions from any person
acting on behalf of such party in connection with this Agreement or the
transactions contemplated hereby.
SECTION 8.2. STAMP TAX AND DELIVERY COSTS. The Company will pay all
stamp and other taxes, if any, which may be payable in respect of the sale of
securities hereunder to each Purchaser and the issuance of such securities to
each Purchaser or its nominee, and will save each Purchaser harmless against any
loss or liability resulting from nonpayment or delay in payment of any such tax.
The Company will also pay all reasonable costs of delivery to each Purchaser, or
its nominee, of the securities issuable to such Purchaser hereunder.
SECTION 8.3. AMENDMENT AND WAIVER. (a) Any term, covenant, agreement
or condition contained in this Agreement may be amended with, and only with, the
consent of the Company, the Parent and the Purchasers or their permitted
successors and assigns. Compliance by the Company with any such term, covenant,
agreement or condition may be waived (either generally or in a particular
instance and either retroactively or prospectively), by written instruments
signed by the Purchasers or their permitted successors and assigns.
(b) This Agreement shall not be altered, amended or supplemented except
by written agreement in accordance with Section 8.3(a) above. Any waiver of any
term, covenant, agreement or condition contained in this Agreement shall not be
deemed a waiver of any other term, covenant, agreement or condition, and any
waiver of any default in any such term, covenant, agreement or condition shall
not be deemed a waiver of any later default thereof or of any default of any
other term, covenant, agreement or condition.
SECTION 8.4. REPLACEMENT CERTIFICATES. (a) The Company will issue a
new certificate evidencing Common Stock in place of any such certificate alleged
to have been lost, stolen, destroyed or mutilated, upon (i) receipt by the
Company, except as otherwise provided in Section 8.4(b), of indemnity
satisfactory to it, in the case of a lost, stolen or destroyed certificate, (ii)
surrender and cancellation of such certificate if mutilated, and reimbursement
to the Company of all reasonable expenses incidental thereto.
(b) If a Purchaser or any Affiliate of a Purchaser is the beneficial
owner of a lost, stolen or destroyed certificate, then an affidavit of an
officer of the beneficial owner, if a corporation, setting forth the fact of
loss, theft or destruction, and the Purchaser's or Affiliate's beneficial
ownership of the certificate at the time of such loss, theft or destruction,
shall be accepted as satisfactory evidence thereof, and no indemnity shall be
required as a condition to execution and
-20-
<PAGE>
delivery of a new certificate other than the written agreement of the Purchaser
or such Affiliate, as the case may be, to indemnify the Company and its
directors, officer and agents.
(c) Any certificate made and delivered in accordance with the
provisions of this Section 8.4 shall be dated as of the date of the certificate
in lieu of which such new certificate is made and delivered.
SECTION 8.5. REPRESENTATIONS AND WARRANTIES TO SURVIVE CLOSING. All
representations, warranties and covenants contained herein or made in writing by
the Company or the Parent or a Purchaser in connection herewith shall survive
the execution and delivery of this Agreement and the issuance and sale of the
Common Stock hereunder for a period of three years from the Closing.
SECTION 8.6. SEVERABILITY. The invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity, legality or
enforceability of the remainder hereof, it being intended that all rights and
obligations of the parties hereunder shall be enforceable to the fullest extent
permitted by law and the remainder of this Agreement shall be interpreted so as
to reasonably effect the intent of the parties.
SECTION 8.7. SUCCESSORS AND ASSIGNS. All representations, warranties,
covenants and agreements of the parties contained in this Agreement or made in
writing in connection herewith, shall, except as otherwise provided herein, be
binding upon and inure to the benefit of the parties' respective permitted
successors and assigns. In addition, and whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of the
Purchasers are also for the benefit of, and enforceable by, any subsequent
holders of securities purchased hereunder except any subsequent holder who
acquires any such security after such security has been sold to the public
pursuant to an effective registration statement under the Securities Act or in a
sale through a broker or market maker effected pursuant to Rule 144 of the
Securities and Exchange Commission.
SECTION 8.8. NOTICES. All communications in connection with this
Agreement shall be in writing, and shall be deemed properly given if hand
delivered or sent by telecopier (PROVIDED that such communication is confirmed
by voice and same-day deposit in the United States mail first class postage
prepaid) or overnight courier with adequate evidence of delivery or sent by
registered or certified mail, postage prepaid and return receipt requested and,
if to a Purchaser or its nominee, addressed to such Purchaser at the address for
notices set forth below such Purchaser's name in Exhibit A, and if to any
holders of securities other than a Purchaser or its nominee, addressed to such
holders at their addresses as shown on the books of the Company or its transfer
agent, and if to the Company, to the Company's offices at:
4750 Hempstead Station Drive
Dayton, Ohio 45429
Attention: President
-21-
<PAGE>
or such other addresses or persons as the recipient shall have designated to the
sender by a written notice given in accordance with this Section 8.8. Any notice
called for hereunder shall be deemed given when received.
SECTION 8.9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal (and not choice of law rules) laws of
the State of Delaware.
SECTION 8.10. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall together constitute one and the same Agreement.
SECTION 8.11. HEADING. The headings herein are solely for the
convenience of the parties and shall not serve to modify or interpret the text
of the sections at the beginning of which they appear.
SECTION 8.12. CONSTRUCTION AND REPRESENTATION. The parties understand
and acknowledge that they have each been represented by (or have had the
opportunity to be represented by) counsel in connection with the preparation,
execution and delivery of this Agreement and the Related Agreements. This
Agreement shall not be construed against any party for having drafted it. The
parties further understand and acknowledge that Chapman and Cutler has served as
counsel only to Wilblairco Associates in connection with this Agreement. Any
other Purchaser has been advised to obtain independent counsel if they so
desire.
SECTION 8.13. UNDERSTANDING AMONG THE PURCHASERS. The determination of
each Purchaser to purchase the Common Stock pursuant to this Agreement has been
made by such Purchaser independent of any other Purchaser and independent of any
statements or opinions as to the advisability of such purchase or as to the
properties, business, prospects or condition (financial or otherwise) of the
Company which may have been made or given by any other Purchaser or by any agent
or employee of any other Purchaser.
SECTION 8.14. CONFIDENTIALITY. (a) The parties recognize that, in
connection with the performance of this Agreement, each of them may disclose to
the other its Confidential Information. The party receiving any Confidential
Information agrees to maintain the confidential status of such Confidential
Information and not to use any such Confidential Information for any purpose
other than the purpose for which it was originally disclosed to the receiving
party (i.e., the purpose of disclosure by the Company to the Purchasers is
solely to permit the Purchasers to make an investment decision); and not to
disclose any of such Confidential Information to any third party;
(b) The parties acknowledge and agree that each may disclose
Confidential Information: (a) as required by applicable law or regulation,
PROVIDED that each party will use its best efforts to obtain confidential
treatment or a protective order of any Confidential Information so disclosed;
(b) to their respective parents and each of their respective directors,
officers, employees, partners, attorneys, accountants and other advisors, who
are under an obligation of confidentiality, on a "need to know" basis; or (c) in
connection with disputes or litigation between the parties involving such
Confidential Information; and each party will use its best
-22-
<PAGE>
efforts to limit disclosure to that purpose and to ensure maximum application of
all appropriate judicial safeguards (such as placing documents under seal). The
parties may each make press releases about the existence and contents of the
Agreement (except with respect to specific financial terms) with the prior
approval of the other of the contents of the press release, which approval shall
not be unreasonably withheld, conditioned or delayed. If the party from whom
approval is sought does not respond to a request to publish such press release
within five (5) business days of submission for approval, such press release
shall be deemed approved.
(c) Upon termination of this Agreement or upon the written request of a
party, each party shall promptly return to the other all Confidential
Information of the other party, including all of the physical embodiments
thereof in its possession, including all copies thereof, and shall cease using
the same, except to the extent their use is licensed or otherwise permitted
under this Agreement. Each party shall certify to the other party in writing
compliance with this Section upon the return of such materials.
SECTION 8.15. RELATIONSHIP OF PARTIES. Neither party shall be deemed an
employee, agent, partner or joint venturer of the other (regardless of how the
relationship is explained to the public by one or more of the parties). Neither
party shall make any commitment, by contract or otherwise, binding upon the
other, nor represent that it has any authority to do so.
SECTION 8.16. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties relating to the purchase of the Common Stock and,
except for the Related Agreements, supersedes all prior and contemporaneous
agreements, representations and understandings among the several parties,
whether written or oral.
-23-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be executed on the day first above written.
THE COMPANY: ZENGINE, INC.
By /s/ Joseph M. Savarino
-------------------------------
Title: President
PARENT: MIAMI COMPUTER SUPPLY CORPORATION
By /s/ Ira H. Stanley
-------------------------------
Title: Vice President and CFO
PURCHASERS: WILBLAIRCO ASSOCIATES
By /s/ Mark Brady
-------------------------------
Title: Principal
AT HOME CORPORATION
By /s/ David Pine
-------------------------------
Title: General Counsel
-24-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
A Named Purchasers
B By-laws of Company
C Registration Rights Agreement
D Restated Charter
E Stockholders' Agreement
F Opinion of Elias, Matz, Tiernan & Herrick, L.L.P.
G Excite Contract
H Exceptions to Representations and Warranties:
- Schedule 5.3 - Repurchase Obligations
- Schedule 5.5 - Unaudited Financial Statements
- Schedule 5.6 - Undisclosed Liabilities
- Schedule 5.9 - Liens
- Schedule 5.11 - IP List
- Schedule 5.12 - Changes and Events
I Stock Ownership Chart
J Put Agreement
</TABLE>
-2-
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
NUMBER OF SHARES INVESTMENT
PURCHASER OF COMMON STOCK AMOUNT
<S> <C> <C>
Wilblairco Associates 133,333 $2,000,000
c/o Mark G. Brady
222 West Adams Street
Chicago, IL 60606
At Home Corporation 133,333 $2,000,000
450 Broadway
Redwood City, CA 94063
</TABLE>
-25-
<PAGE>
EXHIBIT I
STOCK OWNERSHIP CHART
Joseph Savarino 100,000 shares
Lalit Dhadphale 100,000 shares
Chris Feaver 100,000 shares
<PAGE>
Exhibit 10.7
ZENGINE, INC.
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement dated as of September 30, 1999 (this
"AGREEMENT"), among ZENGINE, INC., a Delaware corporation (the "COMPANY"), and
the Persons executing a counterpart of this Agreement listed as Investors and
Founders on the signature pages of this Agreement.
PRELIMINARY STATEMENT
The Company desires to grant the registration rights set forth herein.
In consideration of the mutual representations and agreements set forth in this
Agreement, the Company and the Holders agree as follows.
AGREEMENT
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
"AFFILIATE" means any entity controlling, controlled by or under
common control with a designated Person. For the purposes of this definition,
"control" shall have the meaning specified as of the date of this Agreement for
that word in Rule 405 promulgated by the Commission under the Securities Act.
"AT HOME" means At Home Corporation, a Delaware corporation.
"BOARD" means the Board of Directors of the Company.
"COMMISSION" means the Securities and Exchange Commission, and any
successor thereto.
"COMMON STOCK" means the Company's Common Stock, no par value per
share.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FOUNDERS" means the persons listed as Founders on the signature pages
to this Agreement.
"HOLDERS" means (a) the Investors and the Founders, and (b) any
subsequent legal or beneficial owner of Registrable Securities who has become a
party to this Agreement in accordance with the terms hereof.
"INVESTORS" means At Home and Wilblairco.
<PAGE>
"PERSON" means an individual, partnership, corporation, business
trust, limited liability company, joint stock company, trust, unincorporated
association, joint venture, or other similar entity.
"QUALIFIED PUBLIC OFFERING" means the first sale to the public of
Common Stock pursuant to an effective registration statement under the
Securities Act under which (a) the aggregate price to the public of the Common
Stock actually sold to the public in such first sale, less the amount of
underwriters' and brokers' commissions and expense allowances paid by the
Company in connection with the original sale of such Common Stock, is $25.0
million or more, and (b) results in the Common Stock being listed on the New
York Stock Exchange, the American Stock Exchange or the Nasdaq Stock Market
(formerly known as the NASDAQ National Market).
"REGISTRABLE SECURITIES" means (a) any shares of Common Stock acquired
by the Investors pursuant to that certain Stock Purchase Agreement of even date
herewith by and among the Company, Miami Computer Supply Corporation and the
Investors (the "INVESTORS' COMMON STOCK"); (b) any shares of Common Stock owned
by a Founder on the date hereof or acquired by a Founder upon exercise of an
option to purchase Common Stock outstanding on the date hereof (the "FOUNDERS'
COMMON STOCK") (the Investors' Common Stock and the Founders' Common Stock are
sometimes collectively referred to herein as the "HOLDERS' COMMON STOCK"); (c)
any shares of Common Stock which were issued as, or were issued directly or
indirectly upon the conversion of other securities issued as, a dividend or
other distribution with respect to, or in replacement of, the Holders' Common
Stock; and (d) any shares of Common Stock then issuable directly or indirectly
upon the conversion or exercise of other securities issued as a dividend or
other distribution with respect to, or in replacement of, the Holders' Common
Stock; PROVIDED, HOWEVER, that outstanding shares of Common Stock shall no
longer be Registrable Securities when they shall have been (y) effectively
registered under the Securities Act and sold by the holder thereof in accordance
with such registration, or (z) sold to the public pursuant to Rule 144.
"RULE 144" means Rule 144 promulgated by the Commission under the
Securities Act, as such rule may be amended from time to time, or any successor
rule thereto.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"WILBLAIRCO" means Wilblairco Associates, an Illinois general
partnership.
SECTION 2. DEMAND REGISTRATIONS.
SECTION 2.1. At any time after 180 days after a Qualified Public Offering
or such shorter period after a Qualified Public Offering as to which the Company
may consent, which consent shall not be unreasonably withheld, by a written
notice to the Company, the Holder or Holders of Registrable Securities may from
time to time request that the Company register any Registrable Securities as
specified in the notice, under the Securities Act and under other relevant
securities laws, for disposition in accordance with methods stated in the notice
(a "DEMAND REGISTRATION").
-2-
<PAGE>
SECTION 2.2. When the Company receives a registration notice under Section
2.1, it shall, within 10 days of receipt of such notice, deliver a copy of the
registration notice to each Holder who is not a party to the registration
notice, each of whom may then specify, by notice to the Company within 10 days
of receipt of such notice, a number of Registrable Securities held by it which
it wishes to include in any registration pursuant to the registration notice
under Section 2.1.
SECTION 2.3. When the Company receives a registration notice under Section
2.1, it shall use its best efforts to effect the registration under the
Securities Act and applicable state securities laws of the Registrable
Securities specified in the registration notice under Section 2.1 and subsequent
notices under Section 2.2, all to the extent required to permit disposition by
such Holders in accordance with the intended methods of disposition described in
the registration notice.
SECTION 3. INCIDENTAL REGISTRATION.
The Company shall give at least thirty (30) days' advance written
notice to each Holder of the Company's intention to register any of its Common
Stock under the Securities Act. Each Holder may then specify, by notice to the
Company within 10 days of receipt of such notice, a number of shares of
Registrable Securities held by it which it wishes to include in the Company's
proposed registration (the "INCIDENTAL REGISTRATION"). Subject to the
limitations of Section 8, the Company will use its best efforts to effect the
registration under the Securities Act and applicable state securities laws of
Registrable Securities specified by Holders under this Section 3.
SECTION 4. LIMITATIONS ON REGISTRATION RIGHTS.
Notwithstanding any contrary provision of this Agreement:
(a) The Company shall not be required to effect a registration
pursuant to Section 2 unless the number of securities proposed to be
included in such registration (including any Registrable Securities to
be included pursuant to Section 2.2), have a proposed sale price
(which may be based upon the then current market price) equal to at
least $15.0 million.
(b) The Company shall not be required to effect more than three
(3) registrations pursuant to Section 2 (PROVIDED, HOWEVER, that a
demand for registration shall not count as a registration permitted
pursuant to Section 2 under this clause (a) if either (y) the
registration statement filed with respect to such registration is not
declared effective by the Commission, or (z) the Holders requesting
registration of Registrable Securities under Sections 2.1 and 2.2 do
not register and sell at least 75% of the Registrable Securities they
have requested be included in such registration for reasons other than
their voluntary decision not to do so).
-3-
<PAGE>
(c) The Company shall not be required to effect more than one
(1) Demand Registration in any six (6) month period.
(d) Section 3 shall not apply to a registration effected solely
to implement an employee benefit plan or a registration on Form S-4
(or any successor form) or to any other form or type of registration
which does not permit inclusion of the Registrable Securities pursuant
to Commission rule or practice.
(e) The Company may delay the filing of a registration statement
relating to a Demand Registration if (i) the Company has filed, or has
taken substantial steps toward filing, a registration statement
relating to the sale of any of the Company's securities (the "COMPANY
SECURITIES") in an underwritten offering and the managing underwriter
of such offering is of the opinion that the filing of a registration
statement with respect to a Demand Registration would adversely affect
the offering by the Company of the Company Securities, or (ii) the
Board of Directors of the Company determines in good faith, by
resolution, that the filing of a registration statement, if not so
deferred, would adversely affect a then-proposed or pending Company
financing, acquisition, merger or other corporate transaction;
PROVIDED that such delay may not exceed 40 days and such right may not
be exercised by the Company more than once in any 180 day period.
SECTION 5. REGISTRATION PROCEDURES.
SECTION 5.1. Subject to Section 4, whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any Registrable Securities under the Securities Act, the Company will, as
expeditiously as possible:
(a) in the case of a registration required under Section 2, and
subject to Section 12 below, engage the underwriters designated by the Company
(and approved pursuant to Section 12 by the Investors giving notice under
Section 2);
(b) in connection with a request pursuant to Section 2, prepare and
file with the Commission within sixty (60) days after receipt of a request to
file a registration statement, on any form for which the Company then qualifies
or which counsel for the Company shall deem appropriate and which form shall be
available for the sale of the Registrable Securities in accordance with the
intended method of distribution thereof, and in connection with any registration
statement filed for Registrable Securities hereunder, use is best efforts to
cause such registration statement to become effective. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under this Agreement, the Company will give the Holders of
Registrable Securities on whose behalf such Registrable Securities are to be so
registered and their underwriter, if any, and their respective counsel and
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto. Without limiting
the foregoing, each registration statement, prospectus, amendment, supplement or
any other document filed with respect to a registration under this
-4-
<PAGE>
Agreement shall be subject to the timely review and reasonable approval by the
Holders registering Registrable Securities in such registration and by their
counsel;
(c) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than one hundred twenty (120) days or such shorter period
which will terminate when all Registrable Securities covered by such
registration statement have been sold (but not before the expiration of the
ninety (90) day or shorter, as applicable, period referred to in Section 4(3) of
the Securities Act and Rule 174 or other comparable provisions thereunder, if
applicable), and comply with the provisions of the Securities Act applicable to
it with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement or supplement to the prospectus;
(d) furnish to each Holder participating in the offering and the
managing underwriter or underwriters without charge, at least one signed copy of
the registration statement (including amendments) and any post-effective
amendment thereto and such reasonable number of conformed copies thereof and
such reasonable number of copies of the prospectus (including any preliminary
prospectus) and any amendments or supplements thereto, and any documents
incorporated by reference therein, as such Holder of Registrable Securities or
managing underwriter may request in order to facilitate the disposition of the
Registrable Securities being sold by such Holder (it being understood that the
Company consents to the use of the prospectus and any amendment or supplement
thereto by each Holder of Registrable Securities covered by the registration
statement and the managing underwriter or underwriters (or any other underwriter
or dealer who is required to deliver the prospectus), if any, in connection with
the offering and sale of the Registrable Securities covered by the prospectus or
any amendment or supplement thereto);
(e) notify any Holder on whose behalf Registrable Securities are
being registered under this Agreement of any stop order issued or threatened by
the Commission and take all reasonable actions required to prevent the entry of
such stop order or to remove it if entered and make every reasonable effort to
obtain the withdrawal of any order suspending the effectiveness of the
registration statement at the earliest possible moment;
(f) enter into a written agreement with the managing underwriter or
underwriters selected in the manner herein provided in such form and containing
such representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions and as may be negotiated by the Company and the
managing underwriter or underwriters, including, without limitation, provisions
relating to indemnification and contribution. The Holders on whose behalf
Registrable Securities are to be distributed by such underwriters shall be
parties to any such underwriting agreement, and the representations and
warranties by, and the other agreements on the part of, the Company
-5-
<PAGE>
to and for the benefit of such underwriters shall also be made to and for the
benefit of such Holders of Registrable Securities;
(g) if requested by the managing underwriter or underwriters or any
Holder of Registrable Securities covered by the registration statement, promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters or such Holder
reasonably requests to be included therein, including, without limitation, with
respect to the number of Registrable Securities being sold by such Holder to
such underwriter or underwriters, the purchase price being paid therefor by such
underwriter or underwriters and with respect to any other terms of the offering
of the Registrable Securities to be sold in such offering; and make all required
filings of such prospectus supplement or post-effective amendment as soon as
reasonably possible after being notified of the matters to be incorporated in
such prospectus supplement or post-effective amendment;
(h) on or prior to the date on which the registration statement is
declared effective, use its best efforts to register or qualify, and cooperate
with the Holders of Registrable Securities included in such registration
statement, the underwriter or underwriters, if any, and their counsel in
connection with the registration or qualification of, the Registrable Securities
covered by the registration statement for offer and sale under the securities or
blue sky laws of each state and other jurisdiction of the United States as any
such Holder or underwriter reasonably requests in writing, to use its best
efforts to keep each such registration or qualification effective, including
through new filings, or amendments or renewals, during the period such
registration statement is required to be kept effective pursuant to Section 5(c)
above, and to do any and all reasonable acts or things necessary or advisable to
permit the disposition in all such jurisdictions of the Registrable Securities
covered by the applicable registration statement; PROVIDED, HOWEVER, that the
Company will not be required (i) to qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify, (ii) to
subject itself to taxation in such jurisdiction or (iii) to consent to general
service of process in any such jurisdiction;
(i) use its best efforts to cause the Registrable Securities included
in such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller or
sellers or the underwriter or underwriters, if any, thereof to consummate the
disposition of such Registrable Securities;
(j) cooperate with the Holders of Registrable Securities covered by
the registration statement and the managing underwriter or underwriters, if any,
to facilitate the timely preparation and delivery of certificates (not bearing
any restrictive legends) representing securities to be sold under the
registration statement, and to allow such securities to be in such denominations
and registered in such names as the managing underwriter or underwriters, if
any, or such Holders may request;
-6-
<PAGE>
(k) promptly notify each Holder on whose behalf Registrable
Securities have been registered pursuant to this Agreement, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement (as then in effect) contains an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and, as
promptly as practicable thereafter, prepare and file with the Commission and
furnish a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading;
(l) use its best efforts to cause all such Registrable Securities
included in such registration statement to be listed by the date of the first
sale of Registrable Securities pursuant to such registration statement on the
national securities exchange or interdealer quotation system where such class of
securities is then being traded;
(m) subject to the execution of a confidentiality agreement
reasonably satisfactory to the Company, upon reasonable advance notice, make
available at the Company's offices for inspection, during normal business hours,
by any Holder on whose behalf Registrable Securities are being registered under
this Agreement, any underwriter participating in any disposition pursuant to
such registration statement, and any attorney, accountant, or other agent
retained by any such Holder or underwriter (collectively, the "INSPECTORS"), all
financial and other records, pertinent corporate documents, and properties of
the Company and its subsidiaries (collectively, the "RECORDS") as shall be
reasonably necessary to permit them to perform a reasonable investigation of the
Company and cause the Company's officers, directors, employees counsel, and
public accountants to supply all information reasonably requested by any such
Inspector in connection with such registration statement;
(n) furnish, at the request of any Holder of Registrable Securities
sold in such offering, on any date that any Registrable Security is delivered to
the underwriters for sale pursuant to such registration or, if there is no
underwriter, on the effective date of the registration statement: (i) an opinion
dated such date from counsel representing the Company for the purposes of such
registration, addressed to the underwriters and to such Holder, stating that,
based solely on a communication received from the Commission, to the actual
knowledge of such counsel such registration statement has become effective under
the Securities Act and that (A) based solely on a communication received from
the Commission, to the actual knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the Securities
Act, (B) the registration statement, the related prospectus, and each amendment
or supplement thereto, comply as to form in all material respects with the
requirements of the Securities Act and the applicable rules and regulations of
the Commission thereunder (except that such counsel need express no opinion as
to financial statements and other financial and statistical data and schedules
and information provided by the Holders and the underwriters in writing
-7-
<PAGE>
for inclusion in the registration statement or prospectus contained therein),
(C) the opinion covers such other items with respect to the registration as are
customarily covered in opinions of issuer's counsel delivered to underwriters in
connection with underwritten public offerings of securities and (D) a separate
letter from such counsel that states that such counsel has no reason to believe
that the registration statement, prospectus or any amendment or supplement
thereto, as of their respective effective or issue dates and as of the date of
the letter (except as to the financial statements, and other financial and
statistical data and schedules included therein, and as to the information
provided by the Holders and the underwriters in writing for inclusion therein,
as to which counsel need express no view), contained or contains an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (ii) a letter
dated such date from the independent accountants retained by the Company,
addressed to the underwriters and such Holder, stating that they are independent
public accountants within the meaning of the Securities Act and that, in the
opinion of such accountants, the financial statements of the Company included in
the registration statement or the prospectus, or any amendment thereof or
supplement thereto, comply as to form in all material respects with then
applicable accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information with
respect to events subsequent to the date of such financial statements) with
respect to the registration (including with respect to such registration
statement and the prospectus included therein) in respect of which such letter
is being given as are customarily covered in accountant's letters delivered to
underwriters in connection with an underwritten public offering of securities;
(o) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, to make generally available an earnings
statement covering a period of twelve (12) months, beginning within three (3)
months after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder (or other comparable provisions);
(p) keep all Holders of Registrable Securities reasonably advised as
to the initiation of proceedings for such registration and qualification and as
to the completion thereof, and will advise any such Holder, upon request, of the
progress of such proceedings; and
(q) in connection with any registration of Registrable Securities
under this Agreement, the Company will provide a transfer agent and registrar
for the Registrable Securities not later than the effective date of such
registration statement.
Each Holder of Registrable Securities as to which registration is being
effected pursuant hereto shall use its best efforts to cooperate with the
Company, and the Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing. Each Holder of Registrable
Securities agrees by
-8-
<PAGE>
acquisition of such Registrable Securities that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 5(k)
hereof, such Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 5(k) hereof, and, if so directed by
the Company, such Holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Holder's possession
(which shall not be circulated), of the prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event the
Company shall give any such notice, the period mentioned in Section 5(c) hereof
shall be extended by the number of days during the period from and including the
date of the giving of such notice pursuant to Section 5(k) hereof to and
including the date when each seller of Registrable Securities covered by such
registration statement shall have received the copies of the supplemented or
amended prospectus contemplated by Section 5(k) hereof.
If any Demand or Incidental Registration is to be underwritten, then
the Holders shall be parties to the underwriting agreement between the Company
and such underwriters who may, at their option, require that the Holders provide
usual and customary representations and warranties solely with respect to such
Holder to and for the benefit of such underwriters. No Holder may participate in
any underwritten Demand or Incidental Registration unless such Holder (i) agrees
to sell its Holders' Common Stock on the basis provided in any underwriting
arrangement, and (ii) completes and executes all questionnaires, powers of
attorney, indemnities regarding written information supplied by the Holders for
inclusion in the prospectus, securities escrow agreements, underwriting
agreements and other documents reasonably required under the terms of such
underwriting, to the satisfaction of the managing underwriter or underwriters.
All representations and warranties made by the Holders in the underwriting
agreement to and for the benefit of the underwriters shall also be made to and
for the benefit of the Company.
Each Holder participating in a Demand or Incidental Registration shall
promptly notify the Company and any managing underwriter, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which any information
previously provided by such Holder in writing for inclusion in the prospectus
included in such registration statement is no longer true and correct in all
material respects. In such event, such Holder will provide the Company with such
information as may be necessary to permit the Company to amend or supplement the
prospectus so as not to include an untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein (solely as
they may relate to the Holder or its intended method of distribution) not
misleading, in light of the circumstances under which they were made.
SECTION 6. EXPENSES.
The Company shall pay all reasonable expenses incurred in effecting all
registrations of Registrable Securities pursuant to this Agreement, including,
without limitation, all registration and filing fees (including NASD filing
fees), listing fees, printing expenses, fees and disbursements of counsel and
accountants for the Company, underwriting expenses other than discounts and
commissions, the reasonable fees and expenses of not more than one firm of
-9-
<PAGE>
attorneys as counsel to the Investors and expenses of any audits incident to or
required by any such registration and expenses of complying with the securities
or blue sky laws of any jurisdictions pursuant to Section 5 of this Agreement.
SECTION 7. INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. The Company hereby agrees to indemnify
and to save and hold harmless each Holder of Registrable Securities, the
officers, directors and partners and partners of partners of any Holder, and
each Person, if any, who controls such Holder (within the meaning of the
Securities Act or the Exchange Act) from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable attorneys fees and
expenses and reasonable costs of investigation) to which the Holder or any such
other Person may be subject, under the Securities Act or otherwise, arising out
of or based on any untrue or alleged untrue statement of a material fact
contained in any registration statement or prospectus relating to the
Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus or the qualification of the Registrable Securities under
any state securities laws, or arising out of or based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or arising out of or
based upon any violation or alleged violation by the Company of the Securities
Act, the Exchange Act or any other federal or state securities laws, rules or
regulations applicable to the Company and relating to action or inaction by the
Company in connection with any such registration or qualification, except
insofar as the same arise out of reliance upon any untrue statement furnished in
writing to the Company by such Holder (or, if it is an underwritten offering, an
underwriter selected by such Holders), expressly for use therein; PROVIDED that
the Company shall not be required to indemnify any Holder of Registrable
Securities for damages caused by such Holder's continuing to use a prospectus
with respect to which such Holder has received a notice pursuant to Section 5(k)
hereof or if the Holder has given notice to the Company pursuant to the last
paragraph of Section 5. In connection with an underwritten offering, the Company
will, pursuant to a separate agreement to be negotiated between the Company and
such underwriters, agree to indemnify the underwriters thereof, their officers,
directors and partners and partners of partners, and each Person who controls
(within the meaning of the Securities Act or the Exchange Act) such underwriters
(collectively, "SECURITIES PROFESSIONALS"). In addition to its other obligations
under this Section 7(a), the Company agrees that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged statement
or omission, described in this Section 7(a), it will reimburse the indemnified
parties on a monthly basis for all reasonable and documented legal and other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of their
obligation to reimburse the indemnified parties for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction, PROVIDED that in the event such payments are
later held to have been improper by a court of competent jurisdiction such
indemnified person shall repay such amounts to the Company on demand. This
indemnity agreement will be in addition to any liability which the Company and
the Parent may otherwise have.
-10-
<PAGE>
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. In connection
with any registration statement in which a Holder of Registrable Securities is
participating, each such Holder will furnish to the Company in writing such
information with respect to such Holder as the Company reasonably requests for
use in connection with any such registration statement or prospectus and agrees
to indemnify, severally and not jointly, the Company, each of the Company's
directors and officers, and each Person, if any, who controls the Company
(within the meaning of the Securities Act or the Exchange Act) against any
losses, claims, damages, liabilities, and expenses (including reasonable and
documented attorneys' fees and expenses and reasonable costs of investigation)
arising out of or based on any untrue statement of a material fact or any
omission of a material fact required to be stated in the registration statement
or prospectus or any amendment thereof or supplement thereto or necessary to
make the statements therein not misleading, to the extent, but only to the
extent, that such untrue statement or omission is made in reliance upon and in
conformity with information with respect to such Holder furnished in writing to
the Company by such Holder specifically for use in such registration statement
or prospectus or amendment thereof or supplement thereto; PROVIDED, HOWEVER,
that the liability of any such Holder under this Section 7 (including, without
limitation, Section 7(d) below) shall in no event exceed the net proceeds of the
sale of Registrable Securities being sold pursuant to said registration
statement or prospectus by such Holder; and PROVIDED, FURTHER that no such
Holder shall be required to indemnify the Company for damages caused by any
Person (other than such Holder), including the Company, continuing to use a
prospectus (prior to its amendment or supplementation) after the Company has
received a notice by such Holder of any such untrue statement or omission
contained in such prospectus. In addition to its other obligations under this
Section 7(b), each Holder agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding arising out of
or based upon any statement or omission, or any alleged statement or omission,
described in this Section 7(b), it will reimburse the indemnified party on a
monthly basis for all reasonable and documented legal and other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Holder's
obligation to reimburse the indemnified party for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction, PROVIDED that in the event such payments are
later held to have been improper by a court of competent jurisdiction such
indemnified person shall repay such amounts to the Holder providing such
indemnification on demand. This indemnity agreement will be in addition to any
liability which the Holders may otherwise have.
(c) CONDUCT OF INDEMNIFICATION PROCEEDING. If any action, suit,
investigation or proceeding (including any governmental investigation) is
brought or asserted against an indemnified party in respect of which
indemnity may be sought hereunder, the indemnifying party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory
to such indemnified party, to represent such indemnified party in connection
with investigating, defending or preparing to defend any such action, suit,
investigation or proceeding, and shall pay all reasonable and documented
expenses in connection therewith. Such indemnified party shall have the right
to employ separate counsel in any such action and either direct its own
defense or participate in the indemnified party's defense thereof, but the
reasonable and documented fees and expenses of such counsel shall be at the
expense of such indemnified
-11-
<PAGE>
party, unless (i) the indemnifying party has agreed to pay such fees and
expenses or (ii) the named parties to any such action, suit, investigation or
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party, and such indemnified party shall have
reasonably concluded that there may be one or more legal defenses available
to such indemnified party which are different from or additional to those
available to the indemnifying party or (iii) the indemnifying party shall not
have provided counsel to take charge of such defense, then in any of such
events referred to in clause (i), (ii) or (iii), if such indemnified party
notifies the indemnifying party in writing that it elects to employ separate
counsel at the expense of the indemnifying party, the indemnifying party
shall not have the right to assume the defense of such action or proceeding
on behalf of such indemnified party, it being understood, however, that the
indemnifying party shall not, in connection with any one such action, suit,
investigation or proceeding or separate but substantially similar or related
actions, suits, investigations or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for
the fees and expenses of more than one separate firm of attorneys (together
with appropriate local counsel) at any time for the indemnified parties and,
if such indemnified parties are Holders, such firm shall be designated in
writing by a majority of the Holders. The indemnifying party shall not be
liable for any settlement of any such action, suit, investigation or
proceeding effected without its written consent (but such consent shall not
be unreasonably withheld), but if any action, suit, investigation or
proceeding is settled with the indemnifying party's consent, or if there be a
final judgment for the plaintiff in any such action, suit, investigation or
proceeding, the indemnifying party agrees to indemnify and hold harmless the
indemnifying party and such other Person from and against any loss or
liability (to the extent stated above) by reason of such settlement or
judgment. The indemnifying party will not consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of
a release from all liability in respect of such action, claim or litigation.
(d) CONTRIBUTION. If the indemnification provided for in this Section 7
is unavailable to an indemnified party under this Section 7 in respect of any
losses, claims, damages, liabilities, expenses or judgments referred to herein,
then each such indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities, expenses and judgments
in such proportion as is appropriate to reflect the relative fault of the
Company and of each such Holder in connection with such statements or omissions,
as well as any other relevant equitable considerations. The relative fault of
the Company and of each such Holder shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or such Holder and the party's relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and such Holders agree that it would not
be just and equitable if contribution pursuant to this Section 7(d) were
determined by pro rata allocation (even if such Holders were treated as one
entity for such purposes) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities, expenses or judgments
referred to above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with
-12-
<PAGE>
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7(d), no Holder shall be required to contribute any
amount in excess of the amount by which the total price at which the Registrable
Securities of such Holder were offered to the public exceeds the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
SECTION 8. MARKETING RESTRICTIONS.
SECTION 8.1. PRIORITY ON DEMAND REGISTRATIONS PURSUANT TO SECTION 2. With
respect to a Demand Registration pursuant to Section 2 hereof, if in the opinion
of the managing underwriter or underwriters of a proposed offering the number of
Registrable Securities requested to be included in such offering exceeds the
number which can be sold in such offering or is reasonably likely to materially
and adversely affect the success or offering price of such offering, the shares
shall be included in such offering in the following priority (subject to Section
8.3 below): (i) first, shares of the Holders pro rata on the basis of the number
of shares requested to be included by each; (ii) next, shares requested to be
included by the Company; and (iii) next, any other shares of Common Stock
requested to be included by any other Person.
SECTION 8.2. PRIORITY ON INCIDENTAL REGISTRATIONS PURSUANT TO SECTION 3.
With respect to an Incidental Registration pursuant to Section 3 hereof, if in
the opinion of the managing underwriter or underwriters of such offering the
number of Registrable Securities which the Holders intend to include in such
offering exceeds the number which can be sold in such offering or is reasonably
likely to materially and adversely affect the success or offering price of such
offering, the shares shall be included in such offering in the following
priority (subject to Section 8.3 below): (i) first, shares requested to be
included by the Company; (ii) shares of the Holders pro rata on the basis of the
shares requested to be included by each; and (iii) next, shares of the holders
of any other registration rights granted by the Company in writing, pro rata in
accordance with the number of such securities each such holder has requested to
be included in such registration.
SECTION 8.3. ADDITIONAL REGISTRATION RIGHTS. The Company shall not grant to
any Person at any time after the date hereof the right to request the Company to
effect the registration or qualification or filing for exemption under the
Securities Act or any state securities laws of any securities of the Company
unless the agreement or agreements providing for such rights specifically
provide that the holders of such rights ("THIRD PARTY RIGHTS") may not
participate in any registration requested pursuant to a demand registration
pursuant to Section 2 unless the underwriters of the distribution confirm that
the inclusion of the securities proposed to be included pursuant to said Third
Party Rights will not materially adversely effect the offering pursuant to such
registration; PROVIDED, HOWEVER, that the Company may grant such Third Party
Rights to a Person who has purchased securities of the Company with an aggregate
cash purchase price of at least $2.0 million prior to the Company's first
Qualified Public Offering which rights may allow participation in a Demand
Registration pursuant to Section 2 as though
-13-
<PAGE>
such person was a Holder. The Company has not granted any registration rights to
any person prior to the date hereof.
SECTION 9. LOCKUP AGREEMENT.
Each Holder agrees in connection with any registration of any of the
Company's equity securities in a firm commitment underwritten offering that,
upon the request of the Company or the underwriters managing such offering of
the Company's securities, he or it will not sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any securities of
the Company (other than the securities included in the registration) without the
prior written consent of such underwriters, for such period of time (not to
exceed 180 days if the registration relates to the Company's Qualified Public
Offering and second public offering and 90 days for any other offering) from the
effective date of such registration as the Company or the underwriters may
specify. In connection with any registration pursuant to Section 2 which is a
firm commitment underwritten offering, the Company agrees that it will enter
into an agreement with the Holders and the underwriters restricting the
Company's ability to effect sales of its equity securities, PROVIDED such
agreement is in customary form and for a reasonable period of time from the
effective date of such registration. The Company further agrees that it shall
not proceed with any registration of the Company's securities unless and until
each of the officers and directors of the Company have agreed to the same
restrictions which the Holders have agreed to pursuant to the first sentence of
this Section 9.
SECTION 10. COMPLIANCE WITH RULE 144.
In the event that the Company (a) registers a class of securities under
Section 12 of the Exchange Act, (b) issues an offering circular meeting the
requirements of Regulation A under the Securities Act or (c) commences to file
reports under Section 13 or 15(d) of the Exchange Act, then at the request of
any Holder who proposes to sell securities in compliance with Rule 144, the
Company shall, to the extent necessary to enable such Holder to comply with such
Rule, (y) promptly furnish to such Holder a written statement of compliance with
the filing requirements of the Commission as set forth in Rule 144 and (z) make
available to the public, and such Holders such information as will enable the
Holders to make sales pursuant to Rule 144.
SECTION 11. ASSIGNABILITY OF REGISTRATION RIGHTS.
The rights set forth in this Agreement shall not be assignable by a
Holder without the prior consent of the Company, which will not be unreasonably
withheld.
SECTION 12. DESIGNATION OF UNDERWRITER.
In the case of any registration effected pursuant to this Agreement,
the managing underwriters shall be selected by the Board and shall be reasonably
acceptable to the Investors participating in any such offering.
-14-
<PAGE>
SECTION 13. MISCELLANEOUS.
SECTION 13.1. AMENDMENT. This Agreement may be amended to effect any
amendment to or waiver under this Agreement, by a written agreement signed by
all of the following:
(a) the Company,
(b) the Investors, and
(c) in the case of any amendment that adversely affects any
right of the Founders, the Founders holding more than 50% of the
Registrable Securities then held by the Founders.
SECTION 13.2. SEVERABILITY. In the event that any court or any governmental
authority or agency declares all or any part of any Section of this Agreement to
be unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate any other Section of this Agreement, and in the event that only a
portion of any Section is so declared to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate the balance of such
Section.
SECTION 13.3. SUCCESSORS. All representations, warranties, covenants and
agreements of the parties contained in this Agreement or made in writing in
connection herewith, shall, except as otherwise provided herein, be binding upon
and inure to the benefit of their respective successors.
SECTION 13.4. NOTICES. All communications in connection with this Agreement
shall be in writing and shall be deemed properly given if hand delivered or sent
by telecopier (PROVIDED that such communication is confirmed by same-day deposit
in the United States mail) or overnight courier with adequate evidence of
delivery or sent by registered or certified mail, return receipt requested, and,
if to a Holder, addressed to such Holder's address as shown on the books of the
Company or its transfer agent, and if to the Company, at its offices at:
Company:
4750 Hempstead Station Drive
Dayton, Ohio 45429
Attention: President
or such other addresses or Persons as the recipient shall have designated to the
sender by a written notice given in accordance with this Section. Any notice
called for hereunder shall be deemed given when received.
SECTION 13.5. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements between Delaware residents entered into and to be performed entirely
within Delaware.
-15-
<PAGE>
SECTION 13.6. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same Agreement.
SECTION 13.7. HEADINGS. The headings used herein are solely for the
convenience of the parties and shall not control or affect the meaning or
construction of any provisions hereof.
SECTION 13.8. ENTIRE AGREEMENT. This Agreement and the other documents and
agreements executed by the parties hereto on this date or referred to herein or
therein together constitute the entire agreement and understanding of the
parties hereto in respect of the subject matter referred to herein and therein,
and there are no restrictions, promises, representations, warranties, covenants,
or undertakings with respect to the subject matter hereof, other than those
expressly set forth or referred to herein or therein.
-16-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be executed on the day first above written.
<TABLE>
<CAPTION>
The Company: ZENGINE, INC.
<S> <C>
By /s/ JOSEPH M. SAVARINO
----------------------------------
Joseph M. Savarino
Investors: WILBLAIRCO ASSOCIATES
By /s/ MARK BRADY
----------------------------------
Mark Brady
AT HOME CORPORATION
By /s/ DAVID PINE
----------------------------------
David Pine
General Counsel
Founders: MIAMI COMPUTER SUPPLY CORPORATION
By /s/ IRA H. STANLEY
----------------------------------
Ira H. Stanley
/s/ JOSEPH M. SAVARINO
----------------------------------
Joseph M. Savarino
/s/ LALIT DHADPHALE
----------------------------------
Lalit Dhadphale
/s/ CHRISTOPHER FEAVER
----------------------------------
Chris Feaver
</TABLE>
-17-
<PAGE>
Exhibit 10.8
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT is made and entered into as of the 30th day
of September, 1999, by and among Zengine, Inc., a Delaware corporation (the
"COMPANY"), Miami Computer Supply Corporation, an Ohio corporation (the
"PARENT"), each of the Persons listed on Schedule A hereto (collectively, the
"INVESTORS"), and each of the Persons who may from time to time be awarded stock
options and will execute a supplemental signature page to this Agreement as a
condition to such award and be listed on Schedule B hereto, as amended from time
to time (the "OPTION HOLDERS").
WHEREAS, the Parent, the Investors and the Option Holders are
collectively referred to as the "STOCKHOLDERS" and individually as a
"STOCKHOLDER."
WHEREAS, the Stockholders are the holders of all of the issued and
outstanding shares of common stock of the Company, no par value per share (the
"COMMON SHARES").
WHEREAS, pursuant to that certain Stock Purchase Agreement, dated as of
September 30, 1999 (the "STOCK PURCHASE AGREEMENT"), the Company will sell
133,333 Common Shares to each of the Investors.
WHEREAS, the Company and the Stockholders desire to enter into this
Agreement for the purposes of, among others, specifying and limiting the manner
and terms upon and by which the Common Shares shall or may be transferred in
certain circumstances.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties to this Agreement hereby agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
respective meanings, whether used in the singular or the plural:
"ADDITIONAL SHARES" has the meaning set forth in Section 5 hereof.
"AFFILIATE" means, with respect to any person, any entity controlling,
controlled by or under common control with such designated person. For the
purposes of this definition "CONTROL" shall have the meaning specified as of the
date of this Agreement for that word in Rule 405 promulgated by the Securities
and Exchange Commission under the Securities Act.
"BOARD OF DIRECTORS" means the board of directors of the Company.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which banks are authorized by applicable Federal law to close.
"COMMON SHARES" has the meaning set forth in the recitals.
<PAGE>
"COMPANY" means Zengine, Inc., a Delaware corporation.
"COMPELLED HOLDERS" has the meaning set forth in Section 4 hereof.
"COMPELLED SALE" has the meaning set forth in Section 4 hereof.
"COMPELLED SALE NOTICE" has the meaning set forth in Section 4 hereof.
"COMPELLING HOLDERS" has the meaning set forth in Section 4 hereof.
"CONTROL TRANSFER" means one or a series of related transactions as a
result of which (i) any Third Party, or group of Third Parties acting in
concert, acquires, directly or indirectly, a majority of the Company's Common
Shares (on a Fully-Diluted Basis), (ii) the Company consolidates with or merges
into or with, or effects any plan of share exchange with, any Person and after
giving effect to such consolidation, merger or plan of share exchange any Third
Party or group of Third Parties acting in concert owns, directly or indirectly,
a majority of the shares of common stock of the Person (on a Fully-Diluted
Basis) surviving such consolidation, merger or share exchange or (iii) all or
substantially all of the assets of the Company are sold, leased, exchanged or
otherwise transferred as an entirety to any Third Party or group of Third
Parties acting in concert.
"COVERED SECURITIES" means, without duplication, (A) the Common Shares
purchased or otherwise acquired by the Stockholders which as of a date of
determination are outstanding, (B) the Underlying Shares (or the instrument
pursuant to which such Underlying Shares are issuable, including, without
limitation, any stock options) which as of such date are outstanding (or, in the
case of such instrument, may at such time be exercised), and (C) any equity
securities referred to in clauses (A) and (B) above issued or issuable directly
or indirectly with respect to the Common Shares, which as of such date are
outstanding, by way of share dividend or share split or in connection with a
combination of shares, recapitalization, merger, consolidation, plan of share
exchange or other reorganization. For purposes of this Agreement, a Person will
be deemed to be a holder or owner of Covered Securities, whenever such Person
has the right, other than pursuant to the terms of this Agreement, to acquire
such Covered Securities (by conversion, exercise of warrant or option or
otherwise, but disregarding any legal restrictions (other than imposed pursuant
to this Agreement) upon the exercise of such right), whether or not such right
has been exercised.
"DULY ENDORSED" means duly endorsed in blank by the Person or Persons
in whose name a share certificate is registered or accompanied by a duly
executed share assignment separate from the certificate.
"FAIR MARKET VALUE" per Common Share means, as of any date, the fair
market value per Common Share as of the end of the immediately preceding
calendar quarter, calculated on a Fully-Diluted Basis and determined as follows:
(i) in the event the Common Shares are publicly traded, then the closing price
on the last trading day of the immediately preceding calendar quarter; (ii) in
the event the Common Shares are not publicly traded, then the Fair Market Value
shall be determined in good faith by the Board of Directors.
-2-
<PAGE>
"FULLY-DILUTED BASIS" means all outstanding Common Shares and all
Underlying Shares.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INVESTORS" has the meaning set forth in the recitals.
"MAXIMUM COMPELLED SALE" has the meaning set forth in Section 4 hereof.
"PERSON" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association or organization, joint venture, government or department or agency
thereof, or other entity of whatever nature.
"PUBLIC SALE" means any sale of securities pursuant to a registered
public offering under the Securities Act or any public distribution of
securities pursuant to Rule 144 effected through a broker or dealer.
"PURCHASE NOTICE" has the meaning set forth in Section 2.2 hereof.
"QUALIFIED PUBLIC OFFERING" means the first sale to the public of
Common Shares pursuant to an effective registration statement under the
Securities Act under which (a) the aggregate price to the public of the Common
Shares actually sold to the public in such first sale, less the amount of
underwriters' and brokers' commissions and expense allowances paid by the
Company in connection with the original sale of such Common Stock, is
$25,000,000 or more, and (b) results in the Common Shares being listed on the
New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Stock Market.
"REQUIRED PERCENTAGE" means more than 40%.
"RULE 144" means Rule 144 promulgated by the Securities and Exchange
Commission under the Securities Act as such rule may be amended from time to
time, or any similar rule then in force.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time.
"SECURITIES AND EXCHANGE COMMISSION" means the Securities and Exchange
Commission and any federal governmental body or agency succeeding to the
functions thereof.
"STOCK PURCHASE AGREEMENT" has the meaning set forth in the recitals.
"STOCKHOLDER" has the meaning set forth in the recitals.
"STOCKHOLDER TRANSFER NOTICE" has the meaning set forth in Section 2.2
hereof.
"TAG ALONG ACCEPTANCE" has the meaning set forth in Section 3(b)
hereof.
-3-
<PAGE>
"TAG-ALONG NOTICE" has the meaning set forth in Section 3(a) hereof.
"TAG-ALONG NOTICE PERIOD" has the meaning set forth in Section 3(b)
hereof.
"TAG-ALONG OFFER" has the meaning set forth in Section 3(a) hereof.
"TAG-ALONG OFFEREE" has the meaning set forth in Section 3(a) hereof.
"TAG-ALONG OFFEREE SECURITIES" has the meaning set forth in Section
3(c) hereof.
"TAG-ALONG OFFEROR" has the meaning set forth in Section 3(a) hereof.
"TAG-ALONG SECURITIES" has the meaning set forth in Section 3(a)
hereof.
"THIRD PARTY" means a Person who was not (i) a party to this Agreement,
(ii) a transferee of a transferor who was, or whose predecessor in interest was,
a party to this Agreement, (iii) an Affiliate of the Company or any Stockholder
or (iv) an employee of the Company on the date such person became a Stockholder.
"TRANSFER" means any sale, assignment, pledge, hypothecation or other
transfer.
"UNDERLYING SHARES" means all Common Shares issuable upon exercise of
any then outstanding options (including any stock options), warrants,
convertible or exchangeable securities or other similar instruments or rights;
PROVIDED, that the Common Shares so issuable shall only be included in
"Underlying Shares" to the extent any such option, conversion or exchange is
fully exercisable, convertible or exchangeable with respect to such Common
Shares at the time the determination of the number of "Underlying Shares" is
made.
SECTION 2. TRANSFER RESTRICTIONS.
SECTION 2.1. NOTICE OF PROPOSED TRANSFER. If, prior to any transfer or sale
of any Common Shares, the holder desiring to effect such transfer or sale shall
deliver a written notice to the Company describing briefly the manner of such
transfer or sale (and certifying as to whether the proposed transferee is a
citizen of the United States) and a written opinion of counsel for such holder
(PROVIDED that such counsel, and the form and substance of such opinion, are
reasonably satisfactory to the Company) to the effect that such transfer or sale
may be effected without the registration of such securities under the Securities
Act, the Company shall thereupon permit or cause its transfer agent (if any) to
permit such transfer or sale to be effected.
SECTION 2.2. COMPANY RIGHT OF FIRST REFUSAL. Notwithstanding any provision
to the contrary in this Agreement, no Stockholder shall sell, assign, convey,
deliver or otherwise transfer any of its Common Shares without prior notice to
the Company and the expiration of the time period set forth in this Section 2.2.
In such notice ("STOCKHOLDER TRANSFER NOTICE"), the Stockholder desiring to sell
its Common Shares shall provide: (i) the number of shares to be sold; (ii) the
name, address, business or occupation of the proposed acquiror and whether, in
the judgement of the Stockholder, the proposed acquiror competes with the
business of the
-4-
<PAGE>
Company; (iii) information with respect to the offered price and terms of the
proposed sale of the shares; and (iv) the proposed closing date of such sale.
Within five (5) Business Days after receipt of the Stockholder Transfer Notice,
the Company shall notify (the "PURCHASE NOTICE") the Stockholder who desires to
sell its Common Shares as to whether the Company will buy such shares on the
same terms and at the same price as offered by the proposed acquiror. If the
Purchase Notice is not so received by the Stockholder within the time period set
forth above, it may thereafter consummate the sale of such shares. If the
Purchaser Notice is so received, the Stockholder shall be obligated to sell such
shares to the Company and the closing of such sale of the Stockholder's Common
Shares shall occur on a date mutually agreed upon by the parties, but not later
than ten (10) Business Days after the delivery of the Purchase Notice.
SECTION 2.3. TERMINATION OF RESTRICTIONS. (a) Notwithstanding the foregoing
provisions of this Section 2, the restrictions imposed by this Section 2 upon
the transferability of Common Shares shall terminate as to any particular Common
Share when (i) such security shall have been effectively registered under the
Securities Act and sold by the holder thereof in accordance with such
registration, or (ii) prior to such transfer a written opinion to the effect
that such restrictions are no longer required or necessary under any federal or
state securities law or regulation shall have been received by the Company from
counsel for the holder thereof (PROVIDED that such counsel, and the form and
substance of such opinion, are reasonably satisfactory to the Company) or
counsel for the Company, or (iii) such security shall have been sold without
registration under the Securities Act in compliance with Rule 144, or (iv) the
Company is reasonably satisfied that the holder of such security shall, in
accordance with the terms of subsection (k) of Rule 144, be entitled to sell
such security pursuant to such subsection, or (v) a letter or an order shall
have been issued to the holder thereof or the Company by the staff of the
Securities and Exchange Commission or such Commission stating that no
enforcement action shall be recommended by such staff or taken by such
Commission, as the case may be, if such security is transferred without
registration under the Securities Act in accordance with the conditions set
forth in such letter or order and such letter or order specifies that no
subsequent restrictions on transfer are required.
(b) Whenever the restrictions imposed by this Section 2 shall terminate,
as hereinabove provided, the holder of any Common Share then outstanding as to
which such restrictions shall have terminated, shall be entitled to receive from
the Company, without expense to such holder, one or more new certificates for
Common Shares not bearing the restrictive legends set forth in this Section 2.
SECTION 2.4. IMPROPER TRANSFER. Any attempt to Transfer any Covered
Securities which is not in accordance with this Agreement shall be null and void
AB INITIO, and the Company shall not give any effect to such attempted Transfer
in the share records of the Company.
SECTION 3. TAG ALONG RIGHTS.
(a) If a Stockholder or group of Stockholders (the "TAG-ALONG OFFEROR")
determines to Transfer a number of Covered Securities equal to or greater than
the Required Percentage of Covered Securities of the Company on a Fully-Diluted
Basis (the "TAG-ALONG SECURITIES"), including a Control Transfer pursuant to
which the Compelling Holders exercise their rights to
-5-
<PAGE>
require the Compelled Holders to sell Covered Securities pursuant to Section 4,
the Tag-Along Offeror shall provide written notice (the "TAG-ALONG NOTICE"), to
the other Stockholders (each a "TAG-ALONG OFFEREE") in the manner set forth in
this Section 3. The Tag-Along Notice shall identify the proposed transferee or
transferees, the Tag-Along Securities (including an identification of the class
or classes of Covered Securities), the Tag-Along Offeree's rights pursuant to
this Section 3 (the "TAG-ALONG OFFER"), the estimated expenses associated with
the sale, a description of the price and the principal terms and conditions of
the Tag-Along Offer and, in the case of a Tag-Along Offer in which the
consideration payable for Tag-Along Securities consists in part or in whole of
consideration other than cash, a description of the non-cash component of the
consideration, together with the Tag-Along Offeror's reasonable estimate of the
fair market value of such non-cash component.
(b) The Tag-Along Offerees shall have the right and option, exercisable as
set forth below, to accept the Tag-Along Offer for up to such number of Covered
Securities in respect to which the Tag-Along Offer is made, as determined in
accordance with the provisions of this Section 3. Subject to the last sentence
of Section 3(d) hereof, the terms of any sale of such Covered Securities by a
Tag-Along Offeree pursuant to the exercise of its option under this Section 3
shall be the same terms as those for the sale of Covered Securities by the
Tag-Along Offeror as set forth in the Tag-Along Notice; PROVIDED, that any
general indemnity given by the sellers, applicable to liabilities not specific
to a particular seller, to the purchasers in connection with such sale shall be
apportioned among all the sellers according to the consideration to be received
by each seller, PROVIDED, that the maximum indemnity or liability of each seller
shall be limited to the amount of proceeds received by it from such sale. If a
Tag-Along Offeree desires to exercise such option, he shall provide the
Tag-Along Offeror with written irrevocable notice (the "TAG-ALONG ACCEPTANCE"),
specifying, subject to Section 3(c) hereof, the number of Tag-Along Securities
as to which he or it is accepting the Tag-Along Offer within ten (10) Business
Days after the date on which the Tag-Along Notice is given (the "TAG-ALONG
NOTICE PERIOD"). If any Tag-Along Offerees so accept (in whole or in part) the
Tag-Along Offer, the Tag-Along Offerees shall each, upon the earlier of (i)
three (3) Business Days prior to the consummation of the sale or other
disposition of the Tag-Along Securities pursuant to the Tag-Along Offer or (ii)
ten (10) Business Days following the expiration of the Tag-Along Notice Period,
deliver to the Company, to be held by the Company for sale or return upon the
terms of this Section 3, the certificate or certificates representing the
Covered Securities to be sold or otherwise disposed of pursuant to such Offer by
such Tag-Along Offerees, Duly Endorsed, together with a limited power of
attorney authorizing the Tag-Along Offeror to sell or otherwise dispose of such
Covered Securities pursuant to the terms of the Tag-Along Offer.
(c) The Tag-Along Offeree shall have the right to sell, pursuant to the
Tag-Along Offer, the number of Covered Securities (the "TAG ALONG OFFEREE
SECURITIES") equal to the greater of: (i) the number specified in such Person's
Tag-Along Acceptance, or (ii) the number of Covered Securities equal to the
product of (x) the total number or principal amount of Covered Securities
(including Underlying Shares) held by such Tag-Along Offeree, times (y) a
fraction, the numerator of which shall be the total number or principal amount
of Covered Securities (including Underlying Shares) to be sold by the Tag-Along
Offeror pursuant to such Tag-Along Offer, and the denominator of which shall be
the total number or principal amount of the then outstanding Covered Securities
(including Underlying Shares) held by such Tag-Along Offeror.
-6-
<PAGE>
(d) Promptly after the consummation of the sale or other disposition of
the Tag-Along Securities pursuant to the Tag-Along Offer, the Tag-Along Offeror
shall notify the Tag-Along Offeree thereof and shall remit to the Tag-Along
Offeree the total sales price of the Tag-Along Offeree Securities sold or
otherwise disposed of pursuant thereto (after deduction of the proportionate
share of the expenses associated with such sale, based on the number or amount
of the Tag-Along Offeree Securities in relation to the total number or amount of
Covered Securities being sold pursuant to the Tag-Along Offer).
(e) If at the termination of the Tag-Along Notice Period any Tag-Along
Offeree shall not have accepted the Tag-Along Offer, such Tag-Along Offeree will
be deemed to have waived any and all of its rights under this Section 3 with
respect to the sale or other disposition of any Covered Securities pursuant to
such Tag-Along Offer as described in the Tag-Along Notice. The Tag-Along Offeror
shall have 120 days (or such longer period not exceeding 180 days as may be
necessary to comply with any applicable provisions of the HSR Act) in which to
sell the Tag-Along Securities and Tag-Along Offeree Securities not otherwise
excluded pursuant to the previous sentence, at a price not higher than that
contained in the Tag-Along Notice to the Tag-Along Offeror and on terms not
materially more favorable to the Tag-Along Offeror than were contained in the
Tag-Along Notice. If, at the end of such 120 day period (or such longer period,
as aforesaid) the Tag-Along Offeror has not completed the sale of all the
Tag-Along Securities, the Tag-Along Offeror shall return to the Tag-Along
Offeree all certificates representing the Covered Securities which the Tag-Along
Offeree delivered for sale or other disposition pursuant to this Section 3 and
this Section 3 shall again apply to offers and sales of Tag-Along Securities.
(f) Notwithstanding anything contained in this Section 3, there shall be
no liability on the part of the Tag-Along Offeror to any Person if the sale of
Tag-Along Securities pursuant to this Section 3 is not consummated for whatever
reason. The Tag-Along Offeror shall have full and absolute discretion to effect
or not to effect a sale of Covered Securities pursuant to this Section 3.
SECTION 4. RIGHTS TO COMPEL SALE.
(a) If any Stockholders holding at least the Required Percentage of Common
Shares of the Company on a Fully-Diluted Basis (the "COMPELLING HOLDERS")
propose to make a Control Transfer (whether pursuant to a share sale, plan of
share exchange, merger, consolidation, or sale, lease, exchange or transfer of
all or substantially all of the assets of the Company) (the "COMPELLED SALE"),
then the Compelling Holders shall have the right, exercisable as set forth
below, to require each of the other Stockholders (the "COMPELLED HOLDERS") to
sell the number of Covered Securities (including Underlying Shares) then held by
them calculated as follows:
(i) The number or principal amount of Covered Securities which the
Compelling Stockholders may require each Compelled Holder to sell shall be
determined by the Compelling Stockholders, but shall be no greater than the
product of (A) the total number of Covered Securities (including Underlying
Shares) held by such Compelled Holders times (B) a fraction, the numerator
of which shall be the total number or principal amount of Covered
Securities (including Underlying Shares) proposed to be
-7-
<PAGE>
sold by such Compelling Holders, and the denominator of which shall be the
total number of the then outstanding Covered Securities then held by such
Compelling Holders (such product, the "MAXIMUM COMPELLED SALE"); PROVIDED,
that if the number of Covered Securities that a Compelled Holder is
required to sell pursuant to this Section 4 is less than the Maximum
Compelled Sale, any such Compelled Holder shall retain Tag-Along Rights
pursuant to Section 3 as to the number of Covered Securities equal to the
difference between the Maximum Compelled Sale and the number of Covered
Securities required to be sold by such Compelled Holder, and may give
notice to exercise such Tag-Along Rights within five Business Days after
receiving notice of the Compelled Sale and of the fact that the amount of
his Compelled Securities are less than the Maximum Compelled Sale.
(ii) Subject to the last sentence of Section 4(b)(iii) hereof, the
consideration to be received by the Compelled Holders for Covered
Securities sold pursuant to this Section 4 shall be the same consideration
per security to be received by the Compelling Holders, and the terms and
conditions of such sale by the Compelled Holders shall be the same as those
upon which the Compelling Holders sell their Covered Securities; PROVIDED,
that any general indemnity given by the sellers, applicable to liabilities
not specific to a particular seller, to the purchasers in connection with
such sale shall be apportioned among all the sellers according to the
consideration received by each seller; PROVIDED, that the maximum indemnity
or liability of each Compelled Holder shall be limited to the amount of
proceeds received by it from such sale.
(b) The Compelling Holders shall provide written notice (the "COMPELLED
SALE NOTICE") of such Compelled Sale to the other Stockholders as follows:
(i) The Compelled Sale Notice shall contain written notice of the
exercise of the Compelling Holders' rights pursuant to Section 4(a) hereof,
setting forth the consideration per share to be paid by the purchaser in
such Control Transfer (and in the event the consideration consists in part
or in whole of consideration other than cash, a description of the non-cash
component of the consideration, together with the Compelling Stockholders'
reasonable estimate of the Fair Market Value of such non-cash component),
the other terms and conditions of the Compelled Sale, and the number of
Covered Securities with respect to which such Compelling Holders are
exercising their rights under this Section 4. Within fifteen (15) Business
Days following the date of the Compelled Sale Notice, each Compelled Holder
shall deliver to the Company (as agent for such Compelled Holders), to be
held for sale or return upon the terms of this Section 4, the certificate
or certificates representing Covered Securities held by such Compelled
Holder, Duly Endorsed, together with a limited power-of-attorney
authorizing the Compelling Holders or any one of them to sell or otherwise
dispose of the Covered Securities to be sold pursuant to such Compelled
Sale. In the event that a Compelled Holder should fail to deliver such
certificate or certificates as aforesaid, the Company shall cause the books
and records of the Company to show that such Covered Securities are bound
by the provisions of this Section 4(b) and that such Covered Securities
shall be Transferred only to the purchaser in such Control Transfer upon
surrender for Transfer by the Compelled Holder thereof.
-8-
<PAGE>
(ii) If, within 120 days (or such longer period not exceeding 180 days
as may be necessary to comply with any applicable provisions of the HSR
Act) after the Compelling Holders give the Compelled Sale Notice, they have
not completed the sale of all the Covered Securities to be sold in such
Compelled Sale, such Compelling Holders shall return to each of the
Compelled Holders all certificates representing securities that such
Compelled Holder delivered for sale pursuant hereto.
(iii) Promptly after the consummation of the sale of Covered
Securities of the Compelling Holders and Compelled Holders pursuant to this
Section 4, the Compelling Holders shall give notice thereof to the
Compelled Holders, shall remit to the Compelled Holders the total sales
price of the Covered Securities of the Compelled Holders sold pursuant
thereto (after deduction of the Compelled Holders' proportionate share of
the expenses associated with such sale, based on the number or amount of
Covered Securities sold by the Compelled Holders in relation to the total
number or amount of Covered Securities being sold pursuant to this Section
4).
SECTION 5. PREEMPTIVE RIGHTS.
During the term of this Agreement, each of the Investors shall have the
right to purchase equity securities from the Company in order to maintain its
proportionate ownership interest in the Company in the event that the Company
proposes to issue any Common Shares or other classes of equity securities
("ADDITIONAL SHARES"); PROVIDED, HOWEVER, that said right shall not apply to the
issuance of equity securities in connection with a Qualified Public Offering.
The Company shall not issue Additional Shares without first complying with the
procedure set forth below:
(a) Each Investor shall have the right to purchase its
proportionate number of Additional Securities, or such other number of
any Additional Shares which the Company may, from time to time, propose
to sell and issue at the same price per share as proposed to be sold by
the Company so that after such sale each Investor still owns its
proportional number of Covered Securities on a Fully Diluted Basis. For
purposes of this Section 5, each Investor's "proportionate number"
means 6.25%.
(b) In the event the Company proposes to undertake an
issuance of Additional Shares, it will give each Investor written
notice of its intention to do so prior to the date of any issuance,
describing the Additional Shares and the price and terms upon which the
Company proposes to issue the same, and setting forth the number of
Shares which each Investor is entitled to purchase, the aggregate
purchase price therefor and the proposed purchasers thereof. Each
Investor will have ten (10) Business Days from the date of receipt of
such notice to agree to purchase up to his proportionate number of such
Additional Shares, for the price and upon the terms specified in the
notice by giving written notice to the Company and stating therein the
quantity of Additional Shares to be purchased.
(c) In the event an Investor fails to exercise such
pre-emptive right within said ten (10) Business Day period the Company
will have ninety (90) days thereafter to sell
-9-
<PAGE>
(or enter into a binding and unconditional agreement pursuant to which the
sale of Additional Shares covered thereby will be and is consummated within
ninety (90) days from the date of said agreement) the Additional Shares as
to which such Investor's right was not exercised, at a price and upon such
other terms no more favorable to the purchasers thereof than those
specified in the Company's notice to the Investors. In the event the
Company has not sold such Additional Shares within said ninety (90) day
period (or sold and issued Additional Shares in accordance with the
foregoing within ninety (90) days from the date of said agreement), the
Company will not thereafter issue or sell any Additional Shares without
first offering such Additional Shares to such Investor in the manner
provided in this Section 5.
SECTION 6. LEGEND.
Each certificate evidencing Covered Securities and each certificate
issued in exchange for or upon the transfer of any Covered Securities (if such
securities remain Covered Securities upon such transfer) will be stamped or
otherwise imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS AGREEMENT DATED AS OF SEPTEMBER 30, 1999, BY AND
AMONG ZENGINE, INC. AND THE STOCKHOLDERS THEREOF, AS THE SAME MAY
BE AMENDED FROM TIME TO TIME, PURSUANT TO THE TERMS OF WHICH THE
TRANSFER OF SUCH SECURITIES IS RESTRICTED. SUCH AGREEMENT ALSO
PROVIDES FOR VARIOUS OTHER LIMITATIONS AND OBLIGATIONS, AND ALL
OF THE TERMS THEREOF ARE INCORPORATED BY REFERENCE HEREIN. A COPY
OF SUCH STOCKHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE
BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST.
The legend set forth in this Section 6 shall be removed from the
certificates evidencing any Covered Securities (i) which cease to be Covered
Securities or (ii) in connection with a termination of this Agreement.
SECTION 7. TRANSFER OR ISSUANCE.
(a) Prior to transferring any Covered Securities (other than in a Public
Sale or a Control Transfer) to any Person, the transferring Stockholder will
cause the prospective transferee to execute and deliver counterparts of this
Agreement to the Company and to the Investors.
(b) Prior to the issuance of any Common Shares or any right with respect
thereto to any Person who is not a party to this Agreement, the Company will
cause such Person to execute and deliver counterparts of this Agreement to the
Company and to the Investors.
-10-
<PAGE>
SECTION 8. REPRESENTATION AND WARRANTY OF STOCKHOLDERS.
Each of the Stockholders hereby represents and warrants (a) that it is
not a party to any contract or agreement (other than subscription agreements or
agreements with its Affiliates), including any voting trust or other voting
arrangement, whereby any of the Covered Securities or any interest therein held
by such party on the date hereof is to be offered, sold, assigned, pledged,
hypothecated, or otherwise transferred (as used in this Section 8 only, a
"TRANSFER"), and (b) that no such party has any present intention so to transfer
any Covered Securities or any interest therein to any Person.
SECTION 9. NON-CONTRAVENTION AGREEMENT AND TERM.
SECTION 9.1. CONTRADICTORY CHARTER TERMS. During the term of this agreement
as provided in Section 9.2 hereof, each of the Stockholders agree not to vote
for the approval of any amendment to the certificate of incorporation or By-laws
of the Company which would be contradictory to or hinder or delay the effect of
the provisions of this Agreement.
SECTION 9.2. TERM. The agreements provided for in this Agreement will
expire upon the earlier of: (a) the third anniversary date of this Agreement, or
(b) the consummation of a Qualified Public Offering.
SECTION 10. MISCELLANEOUS.
SECTION 10.1. AMENDMENT AND WAIVER. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement will be
effective against the Company or the Stockholders, unless such modification,
amendment or waiver is approved in writing by the Company if it is to be
effective against the Company, or by the holders of the 51% of the Covered
Securities if it is to be effective against the Stockholders; PROVIDED, that (i)
an amendment, modification or waiver which adversely affects some holders of a
class of the Company's securities, as such, without affecting similarly all
holders of that class of securities, may not be made without the consent of all
such Stockholders who are adversely affected; (ii) no approval shall be required
in the case of any specific class of Stockholders whose rights would not be
affected by such amendment, modification or waiver and (iii) no amendment or
modification or waiver of Sections 2, 3, 4, 5, 7, 9, or 10.1, including the
defined terms used therein, shall be valid without the approval in writing of
each of the Investors. The failure of any party to enforce any of the provisions
of this Agreement will in no way be construed as a waiver of such provisions and
will not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms. Notwithstanding the
foregoing, the Company may amend this Agreement from time to time without the
consent of the Stockholders to remove Stockholders that cease to own Common
Shares or stock options and to add new Stockholders who acquire Common Shares or
stock options upon compliance with Section 7 hereof.
SECTION 10.2. SEVERABILTY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision
-11-
<PAGE>
of this Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision, but this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision had never been contained herein
and the remainder of this Agreement shall be interpreted so as to best
reasonably effect the intent of the parties hereto.
SECTION 10.3. ENTIRE AGREEMENT. Except as otherwise expressly set forth
herein and without limiting the terms and provisions of the Stock Purchase
Agreement, this document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
SECTION 10.4. SUCCESSORS AND ASSIGNS. (i) This Agreement will bind and
inure to the benefit of and be enforceable by the Company and its successors and
assigns and the Stockholders, any subsequent holders of Covered Securities and
the respective heirs, administrators, executors, representatives, successors and
permitted assigns of each of them, so long as they hold Covered Securities.
(ii) By subscribing to this Agreement each Person that becomes a holder of
Covered Securities hereby agrees, as of the date such Person becomes a holder of
Covered Securities, to be bound by all of the terms and provisions hereof, which
provisions shall be binding upon the heirs, executors, administrators,
successors and permitted assigns of such Person.
SECTION 10.5. COUNTERPARTS. This Agreement may be executed in separate
counterparts each of which will be an original and all of which taken together
will constitute one and the same agreement.
SECTION 10.6. REMEDIES. The Stockholders will be entitled to enforce their
rights under this Agreement specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights existing in their favor. The parties
hereto agree and acknowledge that money damages will not be an adequate remedy
for any breach of the provisions of this Agreement and that any Stockholder may
in its sole discretion apply to a court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief in order to
enforce or prevent any violation of the provisions of this Agreement.
SECTION 10.7. NOTICES. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed effective and given upon actual delivery if
presented personally, one Business Day after the date sent if sent by prepaid
telegram, overnight courier services (specifying one-day delivery), telex or by
facsimile transmission, or five Business Days if mailed by certified or
registered mail, return receipt requested and postage prepaid, which shall be
addressed to the following addresses:
-12-
<PAGE>
If to the Company:
4750 Hempstead Station Drive
Dayton, Ohio 45429
Attention: President
Telephone: 937-291-8282
Facsimile: 937-291-8250
with a copy to:
Elias Matz, Tiernan & Herrick LLP
734 15th Street N.W., 12th Floor
Washington, DC 20005
Attention: Jeffrey A. Koeppel
Telephone: 202-347-0300
Facsimile: 202-547-2172
If to the Investors:
To the addresses listed on Exhibit A
with a copy to:
Chapman and Cutler
111 West Monroe Street
Chicago, IL 60603
Attention: Jonathan A. Koff
Telephone: (312) 845-2978
Facsimile: (312) 701-2361
and
Fenwick & West
____________________________
____________________________
Attention: John Platz
Telephone: (650) 858-7244
Facsimile: (650) 494-1417
If to any other Stockholders, the address set forth under such Stockholder's
name on the stock ledger of the Company, or such other address or to the
attention of such other person as the recipient party shall have specified by
prior written notice to the sending party.
-13-
<PAGE>
SECTION 10.8. GOVERNING LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by and construed
in accordance with the domestic laws of the State of Delaware, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Delaware.
SECTION 10.9. DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement on the day and year first above written.
THE COMPANY: STOCKHOLDERS:
ZENGINE, INC. WILBLAIRCO ASSOCIATES
By: /s/ JOSEPH M. SAVARINO By: /s/ MARK BRADY
----------------------------- ----------------------------
Name: Joseph M. Savarino Name: Mark Brady
Title: President Title: Partner
AT HOME CORPORATION
By:
------------------------------
Name:
Title:
MIAMI COMPUTER SUPPLY CORPORATION
By: /s/ IRA H. STANLEY
------------------------------
Name: Ira H. Stanley
Title: Vice President and CFO
/s/ JOSEPH M. SAVARINO
------------------------------
Joseph Savarino
/s/ LALIT DHADPHALE
------------------------------
Lalit Dhadphale
/s/ CHRISTOPHER FEAVER
------------------------------
Chris Feaver
-15-
<PAGE>
SCHEDULE A
INVESTORS
Wilblairco Associates
c/o Mark G. Brady
222 West Adams Street
Chicago, IL 60606
At Home Corporation
450 Broadway
Redwood City, CA 94063
<PAGE>
SCHEDULE B
OPTION HOLDERS
MICHAEL E. PEPPEL - 100,000 OPTIONS
<PAGE>
E-COMMERCE SERVICES AGREEMENT
BY AND AMONG
MIAMI COMPUTER SUPPLY CORPORATION
AND
ZENGINE, INC.
DATED AS OF: OCTOBER 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
RECITALS ........................................................................
1. DEFINITIONS ............................................................
2. WEBSITE DEVELOPMENT ....................................................
2.1 Specifications ................................................
2.2 Delivery and Acceptance of Deliverables .......................
2.3 Maintenance of the MCSC Website ...............................
2.4 Payment .......................................................
2.5 Exclusive Right to Provide Services ...........................
2.6 Fraud Monitoring ..............................................
2.7 Audit .........................................................
2.8 Protection of Confidential Information ........................
2.9 Present and Future Business Activities ........................
2.10 Licenses ......................................................
2.11 Ownership .....................................................
3. REPRESENTATIONS AND WARRANTIES .........................................
3.1 Authority .....................................................
3.2 Content .......................................................
3.3 Litigation.....................................................
4. EXCLUSION OF WARRANTIES; LIMITATION OF
LIABILITIES .................................................
4.1 Exclusion of Warranties .......................................
4.2 No Additional Warranties ......................................
4.3 Limitation of Liability for Certain Matters ...................
4.4 Absence of Liability for Certain Matters ......................
4.5 Scope .........................................................
4.6 Indemnification ...............................................
5. TERM AND TERMINATION ...................................................
5.1 Term ..........................................................
5.2 Termination ...................................................
5.3 Termination Disfavored ........................................
5.4 Effect of Termination .........................................
5.5 Additional Remedies on Termination ............................
</TABLE>
<PAGE>
Table of Contents (Cont'd)
<TABLE>
<CAPTION>
PAGE
<S> <C>
6. DISPUTE RESOLUTION ....................................................
6.1 General Dispute Principles ...................................
6.2 Arbitration of Other Disputes ................................
7. MISCELLANEOUS .........................................................
7.1 Survival .....................................................
7.2 Return of Confidential Information ...........................
7.3 Non-Exclusivity of Remedy ....................................
7.4 Injunctive Relief ............................................
7.5 Changes Over Time ............................................
7.6 Assignment ...................................................
7.7 Relationship of the Parties ..................................
7.8 Force Majeure ................................................
7.9 Governing Law ................................................
7.10 Entire Agreement; Amendment ..................................
7.11 Notices, etc. ................................................
7.12 Delays or Omissions ..........................................
7.13 Publicity ....................................................
7.14 Expenses .....................................................
7.15 Counterparts .................................................
7.16 Severability .................................................
7.17 Titles and Subtitles .........................................
Signatures.............................................................
</TABLE>
<PAGE>
SCHEDULES
Schedule A - MCSC Websites
Schedule 2.1 - Project Representatives of MCSC and Zengine
<PAGE>
E-COMMERCE SERVICES AGREEMENT
THIS E-COMMERCE SERVICES AGREEMENT, dated as of October 1, 1999, is by
and between Zengine, Inc., a Delaware corporation ("Zengine") with its principal
place of business located at 6100 Stewart Avenue, Fremont, California 94538 and
Miami Computer Supply Corporation, an Ohio corporation ("MCSC") with its
principal place of business located at 4750 Hempstead Station Drive, Dayton,
Ohio 45429.
RECITALS
Zengine's proprietary and scaleable technology and infrastructure
enables a high speed, personalized e-commerce experience on the Internet,
permitting its clients to "self brand" their e-commerce storefronts and maintain
their customers within their Websites;
MCSC is a reseller of computer supplies and accessories and a reseller
and integrator of audio-visual products throughout the United States, Canada and
in certain foreign countries;
MCSC operates various dedicated Websites to sell its products to
Customers and desires to engage Zengine to create, enhance and maintain virtual
e-commerce stores on these and other Websites;
Zengine desires to provide to MCSC certain Website design, development,
hosting, maintenance and support services as set forth in this Agreement in
accordance with the terms and conditions hereof;
In consideration of the mutual promises and covenants set forth below,
the parties hereto agree as follows:
1. DEFINITIONS. Capitalized terms used herein and not otherwise
defined in this Agreement shall have the following meanings,
respectively:
1.1 "AAA" has the meaning set forth in Section 6.2(a).
1.2 "AAA Rules" has the meaning set forth in Section 6.2(a).
1.3 "Affiliate" or "Affiliated with" means any Person that
controls, is controlled by or is under common control with such Party. For
purposes of this Agreement, "control" shall mean the possession, directly or
indirectly, of a majority of the voting power of such Person or the ability
to materially influence the management or policies of such Person.
<PAGE>
E-Commerce Services Agreement
Page 2 2/27/00
1.4 "Bad Debt" means actual bad debt due to fraud, charge-backs
and any other action which results in the non-payment of an account
receivable by a Customer or by a bank card processing bank.
1.5 "Business Day" is any day banks are open for business in the
State of Ohio. (So, for example, if an event were to occur on Independence
Day, July 4, which was a Wednesday, the event will occur on the next business
day, or July 5, which would be a Thursday).
1.6 "Commencement Date" has the meaning set forth in Section 5.1.
1.7 "Confidential Information" means any information of a Party
disclosed to another Party in the course of this Agreement which is
identified as, or should be reasonably understood to be, confidential to the
disclosing party, including but not limited to, quantities, pricing,
know-how, trade secrets, Innovations, Data, technical processes and formulas,
source and object codes, product designs, sales, cost and other unpublished
financial information, product and business plans, projections, marketing
data and this Agreement and all exhibits and schedules hereto. "Confidential
Information" shall not include information which: (i) is known or becomes
known to the recipient directly or indirectly from a Third Party source other
than one having an obligation of confidentiality to the disclosing party;
(ii) is or becomes publicly available or otherwise ceases to be secret or
confidential, except through a breach of this Agreement by the recipient;
(iii) is or was independently developed by the recipient without use or
reference to the disclosing party's Confidential Information, as shown by
evidence in the recipient's possession; or (iv) is known by the recipient
prior to disclosure thereof by the disclosing party (as established
documentary evidence).
1.8 "Content" means information, text, graphics, diagrams,
images, graphical user interfaces, figures, tables, sounds, video, names,
trademarks, service marks, trade dress, materials, features, products,
services, advertisements, promotions, Links, pointers, technology and
software.
1.9 "cookie" has the meaning set forth in Section 2.3(b).
1.10 "CSR" means an MCSC customer service representative as
described in Section 2.3(d).
1.11 "Customer" means any User of the MCSC Websites that orders
Product from the MCSC Websites.
1.12 "Data" means all information captured by the MCSC Websites
concerning the Users and Customers and their purchasing behavior.
1.13 "Deliverables" has the meaning set forth in Section 2.1.
<PAGE>
E-Commerce Services Agreement
Page 3 2/27/00
1.14 "Demand for Arbitration" has the meaning set forth in Section
6.2(a).
1.15 "e-commerce" means any purchase, sale or other transaction
over the Internet.
1.16 "Effective Date" means October 1, 1999.
1.17 "e-mail" has the meaning set forth in Section 2.3(b).
1.18 "ERP" has the meaning set forth in Section 2.1(a).
1.19 "Errors" means any failure of the MCSC Websites to conform
to the specifications formulated as set forth in Section 2.1 hereof.
Notwithstanding the foregoing, any nonconformity resulting from the action or
inaction, alteration or misuse by MCSC Customers, Users or any Third Party
shall not be an Error.
1.20 "Force Majeure" has the meaning set forth in Section 7.9.
1.21 "Freight" means the amount charged by a Third Party shipper
to transport Products ordered from the MCSC Websites to Customers.
1.22 "FTP" means file transfer protocol.
1.23 "GAAP" means generally accepted accounting principles.
1.24 "Homepage" means the first (and central) Webpage on a Website.
1.25 "HTML" means hypertext mark up language, a computer code used
on the Internet.
1.26 "Initial Term" has the meaning set forth in Section 5.1.
1.27 "Innovations" means all copyrightable works, products,
discoveries, developments, designs, innovations, improvements, inventions,
formulas, processes, techniques, know-how, compilations, Content and Data
(whether or not patentable, and whether or not at a commercial stage, or
protectable or registrable under copyright or similar statutes) authored,
compiled, fixed in a tangible medium of expression, made, conceived, or
reduced to practice.
1.28 "Intellectual Property Rights" means all intellectual
property rights arising under statutory or common law, whether or not
perfected, including, without limitation, all (i) United States and foreign
patents, patent applications, and other patent rights, including, without
limitation, all provisional divisions, continuations, renewals, reissues,
reexaminations and
<PAGE>
E-Commerce Services Agreement
Page 4 2/27/00
extensions of any of the foregoing, (ii) rights associated with works of
authorship including copyrights, copyright applications, copyright
registrations, and moral rights, (iii) Confidential Information, (iv) any right
analogous to those set forth in this definition, and (v) any other proprietary
rights relating to intangible property.
1.29 "Internet" means the principal international computer
network interconnecting computers and other networks through Internet
protocol pursuant to which Webpages and Websites can be accessed.
1.30 "Link" means a URL hidden behind a formatting option that may
take the form of a colored item of text (such as a URL description), button,
logo or image, and which allows a User to automatically move to or between
Webpages, Websites or within a World Wide Web document.
1.31 "MCSC" means Miami Computer Supply Corporation, an Ohio
corporation, which is a Party to this Agreement.
1.32 "MCSC Brand Features" means MCSC's trademarks, trade names,
service marks, service names, trade dress, and distinct brand elements that
appear in the MCSC Website.
1.33 "MCSC Content" has the meaning set forth in Section 2.13(b).
1.34 "MCSC Software" means all computer software programs owned by
or developed by or on behalf of MCSC prior to or as of the Commencement Date
and during the Term hereof relating to the operation of MCSC's business or to
the MCSC Website which is not developed or licensed by Zengine, and all
Upgrades thereto. MCSC Software expressly excludes any Third Party Software.
1.35 "MCSC Network" has the meaning set forth in Section 2.1(a).
1.36 "MCSC Properties" means the properties, ventures and services
marketed worldwide under the MCSC Brand Features via the MCSC Website at or
within the MCSC domain ("www.mcsinet.com").
1.37 "MCSC Website" means the Websites created and maintained for
certain MCSC Customers which permits such Customers to purchase Products from
MCSC and is designed to have the look and feel of the Customer's own Website.
Each MCSC Website is set forth on SCHEDULE A, attached hereto and made a part
hereof, which Schedule shall be amended each calendar quarter.
1.38 "Party" means either Zengine or MCSC, as the context
requires, and "Parties" means Zengine and MCSC.
<PAGE>
E-Commerce Services Agreement
Page 5 2/27/00
1.39 "Person" means any individual, proprietorship, partnership,
corporation, limited liability company, joint venture, association, business
trust, trust, group of entities or person acting in concert to achieve a
particular goal, or governmental authority or court.
1.40 "Product" means any product or service sold through the MCSC
Websites.
1.41 "Prohibited Content" means all information reasonably
determined by Zengine, in its sole discretion, to be: (i) obscene,
pornographic, or otherwise socially objectionable; (ii) false, misleading or
libelous; (iii) in violation of any international, federal, state or local
law, statute, regulation or rule; or (iv) infringing upon or in violation of
any copyright, patent, service mark, trademark, trade dress or any other
intellectual property or proprietary right of any Third Party.
1.42 "Renewal Term" has the meaning set forth in Section 5.1.
1.43 "Service" means the provision by Zengine of the services to
MCSC as set forth in Section 2 hereof.
1.44 "SKUs" has the meaning set forth in Section 2.3(a).
1.45 "Term" has the meaning set forth in Section 5.1.
1.46 "Third Party" means, with respect to a Party, any Person that
is not the Party or an Affiliate of the Party.
1.47 "Third Party Software" means software that is owned by a
Third Party or that is licensed from Third Party.
1.48 "Total Revenues" means the retail price of the Product sold
through the MCSC Website to a Customer, less any sales or other similar tax
applicable to such sale, less Freight, less the actual retail price of any
returned Product, but with no deduction for Bad Debt.
1.49 "Upgrade" means one or more updates, enhancements, upgrades,
corrections, debugging patches, new versions, new releases and any other
modification made to software or documentation (if any).
1.50 "URL" means Universal Resource Locator, which provides a
unique Internet protocol address for accessing a Webpage.
1.51 "User" means any Person who accesses the MCSC Websites on the
Internet.
<PAGE>
E-Commerce Services Agreement
Page 6 2/27/00
1.52 "Virus" means any computer code, algorithm or programming
routine that attempts, intends to or actually causes damage to, detrimentally
interferes with, or surreptitiously intercepts or expropriates any system,
data or information.
1.53 "Webpage" means a page or view on an Internet World Wide
Website or which is delivered to Users via e-mail, desktop "channels" or
Internet "push" technologies which displays Content in the form of text,
graphics, visual images and/or sound and/or HTML (or other) code for the
purpose of providing access to Content, products and/or services.
1.54 "Website" means the primary local language electronic
location on the Internet's World Wide Web accessible to MCSC's dedicated
Website Customers at a specific URL which may contain text, graphics, visual
images and/or sound.
1.55 "Work Product" has the meaning set forth in Section 2.12(b).
1.56 "Zengine" means Zengine, Inc., a Delaware corporation, a
party to this Agreement.
1.57 "Zengine Brand Features" means Zengine trademarks, trade
names, service marks, service names, trade dress and distinct brand elements.
1.58 "Zengine Content" has the meaning set forth in
Section 2.13(b).
1.59 "Zengine Group" has the meaning set forth in Section 4.6.
1.60 "Zengine Software" means all computer software programs owned
by or developed by or on behalf of Zengine prior to or as of the Commencement
Date and during the Term hereof relating to the Services, including but not
limited to all KORE technology, and all Upgrades thereto. Zengine Software
expressly excludes any Third Party Software.
2. WEBSITE DEVELOPMENT
2.1 SPECIFICATIONS. (a) From time to time after the Effective Date
for new MCSC Customers, the representatives of MCSC and the representatives
of Zengine set forth on SCHEDULE 2.1 shall meet and shall mutually agree on
the functional specifications, Content and the overall "look and feel" of the
MCSC dedicated Website for such new Customer and shall mutually agree on a
timetable for the production and delivery of discrete portions of the MCSC
dedicated Website for such new Customer ("Deliverables"). The Deliverables
may include, without limitation, the delivery by MCSC of the source and
object codes of J.D. Edwards' enterprise resource planning ("ERP") software
and other MCSC Software required by Zengine to perform the Service, the
catalog of current inventory maintained by MCSC, other MCSC Content, Customer
descriptions and logos, certain designs for the aesthetic and functional
<PAGE>
E-Commerce Services Agreement
Page 7 2/27/00
characteristics of the MCSC Website and the HTML and other computer files and
code that will implement certain portions of the MCSC Website to be created
by Zengine for MCSC as agreed in the timetable. The Parties agree that
Zengine's obligation with respect to the Deliverables and the launch of the
MCSC dedicated Website for such Customer is highly dependent on the
cooperation, assistance and on the provision by MCSC of information to and
access by Zengine to MCSC's computer code and files, materials, products and
physical facilities, including access to MCSC's internal computer
network(s) or system(s) (including any MCSC Software residing thereon) (the
"MCSC Network"). Accordingly, Zengine shall not be responsible or liable for
any delays caused by MCSC's failure to provide in a timely manner such
assistance, information or access, and all timetables and Deliverable
deadlines shall be adjusted accordingly. If a Party proposes a change in a
Deliverable or in the time such Deliverable is deliverable, the other Party
will reasonably and in good faith consider and discuss the proposed change
and amend the proposed timetable (and the proposed launch date, if
reasonably required).
(b) If MCSC desires to modify any of the MCSC Websites after the Hard
Launch Date (except for inventory updates as set forth in Section 2.3(a) below),
MCSC shall describe the additional services or deliverables to Zengine in
writing. Within five (5) Business Days after receipt of such modification
request, Zengine shall provide to MCSC a proposed timetable to affect the
requested modification. Promptly after MCSC's approval of the proposed
timetable, the said modification will become part of this Agreement.
2.2 DELIVERY AND ACCEPTANCE OF DELIVERABLES. Zengine will use
its commercially reasonable best efforts to deliver to MCSC one or more
Deliverables within the timeframe set forth in the timetable when Zengine
believes that Zengine has appropriately completed a Deliverable. Delivery
shall be made in the format agreed by the Parties as set forth in Section
2.1. MCSC will accept or reject the Deliverable within five (5) Business Days
after delivery. Failure to give notice of acceptance or rejection within that
period will constitute acceptance. If MCSC rejects the Deliverable, Zengine
will promptly make appropriate changes or corrections and when Zengine
believes that it has made the necessary or requested changes, it will again
deliver the Deliverable to MCSC and these acceptance/rejection/change
provisions shall be reapplied until the Deliverable is accepted by MCSC. MCSC
hereby acknowledges and agrees that Zengine shall be solely responsible for
the method and manner in which Zengine develops the MCSC Websites. MCSC shall
be solely responsible for the capacity, accuracy and completeness of MCSC's
Content and Zengine shall have no duty to review such Content or to confirm
its legality, accuracy or completeness. Notwithstanding the foregoing, MCSC
hereby acknowledges and agrees that Zengine shall have no duty to, but may
refuse, without liability, to include in the MCSC Website any MCSC Content
that Zengine reasonably determines, in its sole discretion, to be or to
include Prohibited Content.
2.3 MAINTENANCE OF THE MCSC WEBSITES. (a) Zengine will use its
commercially reasonable efforts to assist MCSC in maintaining the operation of,
and access to, the MCSC Websites by the MCSC Customers continuously on a twenty
four (24) hour per day, three
<PAGE>
E-Commerce Services Agreement
Page 8 2/27/00
hundred sixty five (365) days per year basis. MCSC may, from time to time, shut
down the MCSC Websites during off-peak hours in order to permit Zengine and/or
MCSC to perform maintenance or install Upgrades. Zengine shall not be liable for
any such shutdown nor for any shutdown required as a result of actions or
inactions of MCSC, unauthorized intrusions or the planting of a Virus or other
destructive element into the MCSC Website by "hackers" or other Third Parties,
the failure of the Website resulting from actions or inactions of Third Party
service providers or suppliers, or resulting from failure of public network
components, electrical systems or Force Majeure. Zengine shall use its
commercially reasonable efforts to complete such maintenance and Upgrades as
soon as practicable.
(b) Zengine shall use its commercially reasonable efforts to
maintain the MCSC Websites so that they continue to conform to the features and
functions of the specifications set forth in Section 2.1. Zengine will use its
commercially reasonable efforts to assist MCSC in maintaining the functional
scalability of the MCSC Website based on current and projected (as agreed by the
Parties) User Webpage views and Customer orders. MCSC shall be responsible for
providing to Zengine all updated Content, including pricing and inventory
management information, provided that MCSC shall not provide to Zengine any
Prohibited Content. Based on the Content provided by MCSC, Zengine shall assist
MCSC in managing, renewing, modifing, deleting and editing the Content on the
MCSC Websites. Zengine will assist MCSC to correct all Errors as soon as
practicable after it learns of such Errors or after it receives notice of Errors
from MCSC.
(c) In the event that any Virus or destructive element is
found in or furnished with any Content or MCSC's Brand Features (or otherwise)
or is introduced into the MCSC Website by a Third Party, Zengine will, upon
learning of such Virus or destructive element, use its commercially reasonable
efforts to segregate and eliminate such Virus or destructive element as soon as
possible. The Parties hereto agree to immediately notify each other of such a
potential or known Virus or destructive element. All remediation undertaken by
Zengine resulting from the Virus or destructive element shall be at the expense
of Zengine.
2.4 PAYMENT. MCSC shall pay to Zengine ten percent (10%) of the
Total Revenues received by MCSC for sales of Products on the MCSC Websites,
payable in arrears on or before the fifteenth (15th) day of each month. All
payments required to be made hereunder and shall be by wire transfer to
Firstar Bank, Cincinnati, Ohio, ABA No. 042000013, account number 821604048,
account name "Zengine, Inc." in United States funds. All payments not made
when due shall bear interest at the rate of 1.5% per month until paid in
full. MCSC and Zengine have also entered into a Distribution Services
Agreement pursuant to which Zengine has agreed to pay MCSC for certain
services. The Parties may "net" the amounts owed by MCSC to Zengine pursuant
to this Agreement against the amounts owed by Zengine to MCSC under the
Distribution Services Agreement on a monthly basis and the Party owed funds
at such time shall pay the other Party the net amount owed.
<PAGE>
E-Commerce Services Agreement
Page 9 2/27/00
2.5 EXCLUSIVE RIGHT TO PROVIDE SERVICES. Zengine shall be the
sole and exclusive provider of the Service during the Term and MCSC shall not
sell any Product over the Internet except through the MCSC Websites,
provided, however, that MCSC may provide private-label product fulfillment
for other Websites. No other services similar to the Services (or any part
hereof), whether provided by MCSC or by any other Third Party will appear in
any of the MCSC Properties.
2.6 FRAUD MONITORING. Subject to applicable law and regulation,
Zengine shall provide to MCSC a prompt report of any fraudulent order of
which it has knowledge, including the date, screen name or e-mail address and
amount associated with such order, promptly following Zengine's obtaining
knowledge in the normal course of Zengine's operations that the order is
believed in good faith to be fraudulent.
2.7 AUDIT. The Parties shall each have the right, at their own
expense, to direct an independent certified public accountant to inspect and
audit the books and records of the other relating to the sale of Products to
Customers from the MCSC Websites; provided, however, that (i) any such
inspection and audit shall be conducted after at least fifteen (15) days'
prior written notice to the Party to be audited; during regular business
hours of the Party to be audited; and in such a manner as not to interfere
with the normal business activities of the Party to be audited; and (ii) in
no event shall audits be made hereunder more frequently than twice each
calendar year. If a financial dispute arises as a result of such audit, then
the Parties shall engage in alternate dispute resolution as set forth in
Section 6.
2.8 PROTECTION OF CONFIDENTIAL INFORMATION. (a) The Parties
recognize that, in connection with the performance of this Agreement, each of
them may disclose to the other its Confidential Information. The Party
receiving any Confidential Information agrees, during the Term and after the
expiration or termination of this Agreement, to maintain the confidential
status of such Confidential Information and not to use any such Confidential
Information for any purpose other than the purpose for which it was
originally disclosed to the receiving Party, and not to disclose any of such
Confidential Information to any Third Party.
(b) The Parties acknowledge and agree that each may disclose
Confidential Information: (i) as required by applicable law or regulation,
provided that each Party will use commercially reasonable efforts to obtain
confidential treatment or a protective order of any Confidential Information so
disclosed at the prior request and expense of the disclosing Party; (ii) to
their respective parents and each of their respective directors, officers,
employees, attorneys, accountants and other advisors, who are under an
obligation of confidentiality, on a "need-to-know" basis; (iii) to investors who
are under an obligation of confidentiality, on a "need-to-know" basis; or (iv)
in connection with disputes or litigation between the Parties involving such
Confidential Information; and each Party will use commercially reasonable
efforts to limit disclosure to that purpose and to ensure maximum application of
all appropriate judicial safeguards (such as placing documents under seal).
Zengine and MCSC may each make
<PAGE>
E-Commerce Services Agreement
Page 10 2/27/00
press releases about the existence and contents of the Agreement (except with
respect to specific financial terms) as set forth in Section 7.14 herein.
(c) The foregoing obligations of confidentiality shall apply
to directors, officers, employees and representatives of the Parties and any
other Person to whom the Parties have delivered copies of, or permitted access
to, such Confidential Information in connection with the performance of this
Agreement, and each Party shall advise each of the above of the obligations set
forth in this Section 2.8.
(d) Any Confidential Information of a Third Party disclosed to
either Party shall be treated by such Party in accordance with the terms under
which such Third Party Confidential Information was disclosed; provided, that
the Party disclosing such Third Party Confidential Information shall first
notify the other Party that such information constitutes Third Party
Confidential Information and the terms applicable to such Third Party
Confidential Information; and provided further, that either Party may decline,
in its sole discretion, to accept all or any portion of such Third Party
Confidential Information.
2.9 PRESENT AND FUTURE BUSINESS ACTIVITIES. This Agreement
shall not limit either Party's present and future business activities of any
nature, including business activities which could be competitive with the
other Party, except to the extent such activities would involve a breach of
(a) the confidentiality restrictions contained in Section 2.8, or (b) any
other express provision of this Agreement. Subject to the prior sentence,
nothing herein shall prevent Zengine from performing substantially similar
services for any Third Party during or after the Term of this Agreement.
Nothing in this Agreement will be construed as a representation or agreement
that the recipient of Confidential Information will not develop or has not
developed for its products, services, concepts, systems or techniques the
products, services, concepts, systems or techniques contemplated by or
embodied in such Confidential Information, provided that such recipient does
not violate any of its obligations under Section 2.10 in connection with such
development.
2.10 LICENSES. (a) MCSC hereby grants to Zengine a perpetual,
royalty-free, exclusive, world-wide license (i) to copy and incorporate all
or part of the MCSC Software, in object or source code, in the MCSC Website
(or in software utilized by Zengine to operate or support the MCSC Website),
(ii) to market and distribute, license or sublicense, without restriction,
the MCSC Website containing and including the MCSC Software and any and all
modifications, enhancements, and/or alterations thereto, (iii) to develop
applications incorporating the MCSC Software for use in connection with
providing the Services, (iv) to use the Data in order to facilitate the
performance by Zengine of this Agreement and otherwise for the performance of
services for Third Parties or its own account, provided that Zengine does not
violate MCSC's privacy policy, (v) to use the MCSC Brand Features in
connection with the promotion, marketing and rendering of the Services set
forth herein, and (vi) to utilize the MCSC name, logo and a description of
this Agreement in any capital raising document of Zengine,
<PAGE>
E-Commerce Services Agreement
Page 11 2/27/00
provided that the text of the description of this Agreement be provided to MCSC
for its review and comment reasonably prior to its use. MCSC will have the right
to approve the use of the MCSC Brand Features in advance, which approval shall
not be unreasonably withheld, delayed or conditioned. MCSC will be deemed to
have approved such use if MCSC approves the Deliverables as set forth in Section
2.2 or if Zengine does not receive notice of disapproval within five (5)
Business Days after MCSC receives a request for approval. Such use must
reference the MCSC Brand Features as being owned by MCSC. Nothing in this
Agreement grants Zengine ownership or any rights in or to use (except to fairly
describe the Services provided herein in any advertising that Zengine might
utilize in the future) the MCSC Brand Features, except in accordance with this
license, and any such use is for and inures to the benefit of MCSC. The rights
granted to Zengine in this license will terminate upon any termination or
expiration of this Agreement. Upon such termination or expiration, Zengine will
no longer make any use of any MCSC Brand Features. MCSC will have the exclusive
right to own, use, hold, apply for registration for, and register the MCSC Brand
Features during the term of, and after the expiration or termination of, this
Agreement. Zengine shall, when requested by MCSC, cooperate with and assist MCSC
in connection with any such filings, the expenses of preparing and prosecuting
any such application to be borne solely by MCSC. Zengine will neither take nor
authorize any activity inconsistent with MCSC's exclusive rights in the MCSC
Brand Features.
(b) Zengine hereby grants to MCSC an exclusive, royalty-free,
world-wide license, terminable upon the termination or expiration of this
Agreement, to display on the Internet the MCSC Website in the form prepared by
Zengine in accordance with this Agreement ("Work Product"). The Work Product
shall only be used for Webpages of MCSC and shall not be used for or by any
other Person. MCSC shall not allow any Person to copy, modify or create
derivative works of the programming code or other code relating to the MCSC
Website that is not HTML. MCSC shall not, and MCSC shall take appropriate
measures to ensure that none of its Affiliates shall reverse engineer or
decompile any of the Work Product or reverse engineer, disassemble, decompile or
copy the Zengine Software. In consideration of this license, MCSC agrees that
any copies, modifications and derivative works of the Work Product shall retain
all copyright and other proprietary notices of the appropriate Parties as set
forth in Section 2.11. MCSC shall not obtain any right to use any Zengine Brand
Feature and no license is being granted with respect thereto.
2.11 OWNERSHIP. (a) The Parties acknowledge that the MCSC Websites
to be delivered to MCSC by Zengine hereunder will be a compilation of various
components, which may include, without limitation, content, graphics,
diagrams, images, graphical user interfaces, text, figures, tables, sounds,
video, names, trademarks, service marks and trade dress that will be
selected, coordinated and arranged by Zengine for MCSC, in accordance with
the specifications set forth in Section 2.1 above. Except as set forth in
Section 2.11(b) and (c), Zengine hereby agrees to assign to MCSC the
copyright for each of such compilations.
<PAGE>
E-Commerce Services Agreement
Page 12 2/27/00
(b) The Parties also acknowledge that the MCSC Website will
include content, graphics, diagrams, images, graphical user interfaces, text,
figures, tables, sounds, video, names, trademarks, service marks and trade dress
created by or licensed to Zengine (the "Zengine Content") and content, graphics,
diagrams, images, graphical user interfaces, text, figures, tables, sounds,
video, names, trademarks, service marks and trade dress created by or licensed
to MCSC ("MCSC Content"). Zengine retains all right, title and interest in and
to the Zengine Content, except for the license granted under Section 2.10(b),
and MCSC retains all right, title and interest to MCSC Content and Data, except
for the license granted under Section 2.11(a) hereof.
(c) The Parties also acknowledge that the MCSC Website may
include the Zengine Software, computer programs, algorithms, or applets that
were created or licensed by Zengine. Zengine retains all right, title and
interest to Zengine Software and those computer programs, algorithms, or
applets.
(d) MCSC expressly agrees that any assignments to MCSC
hereunder do not extend to any Zengine Content or Zengine Software or to any
Third Party Content or Third Party Software.
(e) In the event any Third Party software is supplied by
Zengine to MCSC, MCSC agrees to be bound by and comply with all the terms and
conditions provided by the original manufacturer or vendor of such software,
including, but not limited to, any license or other agreement and any
warranties, disclaimers and limitations of liability set forth therein. MCSC
agrees and understand that any rights and claims it may have in connection with
any Third Party software are with the original manufacturer or vendor of such
software and not with Zengine, who shall "pass through" any warranties provided
by the original manufacturer or vendor to the fullest extent possible under
applicable law.
3. REPRESENTATIONS AND WARRANTIES.
3.1 AUTHORITY. Each Party represents and warrants to the other
Party that:
(a) Each Party is a corporation duly organized, validly
existing and in good standing under the laws of the State of its incorporation.
(b) Each Party has the full corporate right, power and
authority to enter into this Agreement and to perform the acts required of it
hereunder; and the execution of this Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder, do not and
will not violate any agreement to which such Party is a party or by which it is
otherwise bound; the execution and delivery of this Agreement has been approved
by all necessary corporate action; and when executed and delivered by such
Party, this Agreement will
<PAGE>
E-Commerce Services Agreement
Page 13 2/27/00
constitute the legal, valid and binding obligation of such Party, enforceable
against such Party in accordance with its terms.
(c) Each Party acknowledges that the other Party makes no
representations, warranties or agreements related to the subject matter hereof
that are not expressly provided for in this Agreement.
3.2 CONTENT. MCSC represents and warrants to Zengine that:
(a) MCSC has the full right and authority to utilize and to grant to Zengine
the rights, licenses and interests as so granted herein and to the MCSC Brand
Features, MCSC Software, MCSC Network and other properties or assets of MCSC
as set forth herein; (b) the MCSC Content shall not contain Prohibited
Content; (c) neither the MCSC Content or other materials appearing on the
MCSC Website, nor MCSC's exploitation thereof by means of the MCSC Website,
will violate or infringe upon the copyright, patent, literary, privacy,
publicity, trademark, service mark, trade dress, trade secret or any other
personal, moral, or property right of any Person or constitute a libel or
defamation of any Person; (d) MCSC is and will continue to be the sole owner
of all right, title and interest, including, without limitation, all rights
under copyright, in and to the MCSC Content and each element thereof, except
for elements of the Content that are: (i) validly licensed to MCSC for use as
contemplated herein, or (ii) in the public domain; (e) MCSC will comply in
all material respects with all applicable federal, state and local laws,
ordinances, rules and regulations and all rules and regulations of any union
or guild having jurisdiction; (f) the MCSC Content and all other materials
furnished by MCSC to Zengine hereunder will be, at all times, free from
Viruses and destructive elements; (g) the MCSC Content will be factually
accurate and neither the MCSC Content nor the products or services offered by
means of the MCSC Website will cause any loss, injury, damage or death to any
User or Customer; and (h) all MCSC Software and the MCSC Network is, as of
the date hereof, and will be, able to handle without error or malfunction all
material dates and date processing and will be able to process and manipulate
dates and transactions involving dates in 1999 and beyond.
3.3 LITIGATION. MCSC represents and warrants to Zengine that
there are no claims, actions, suits, proceedings, grievances, arbitrations,
investigations or inquiries pending or, to the best knowledge of MCSC,
threatened, at law or in equity or before or by any federal, state, local,
foreign or other governmental department, commission, board, arbitrator(s),
agency, instrumentality or authority by or against MCSC which: (i) restrains
or prohibits or which may restrain or prohibit, or otherwise affect, the
consummation of the transactions contemplated hereby; (ii) affect or which
may affect MCSC with respect to the transactions proposed by this Agreement;
or (iii) materially affect or might materially affect the business,
operations, condition (financial or otherwise), liabilities, assets or
earnings of MCSC, nor is there any valid basis for any such claim, action,
suit, proceeding, inquiry or investigation. Neither MCSC nor any of its
property or assets is subject to any judgment, arbitration award, order or
decree. There are no petitions pending by, against or on behalf of MCSC under
any applicable bankruptcy or insolvency laws.
<PAGE>
E-Commerce Services Agreement
Page 14 2/27/00
4. EXCLUSION OF WARRANTIES; LIMITATION OF LIABILITIES.
4.1 EXCLUSION OF WARRANTIES. EXCEPT AS SPECIFICALLY SET FORTH
HEREIN, NEITHER ZENGINE NOR ANY OF ITS SUPPLIERS AND LICENSORS MAKES ANY
REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT
TO THE ZENGINE SOFTWARE, THE MCSC WEBSITE, OR THE SERVICES TO BE PROVIDED OR
THE FUNCTIONALITY, PERFORMANCE OR RESULTS OF USE THEREOF. WITHOUT LIMITING
THE FOREGOING, EXCEPT AS SPECIFICALLY SET FORTH HEREIN, NEITHER ZENGINE NOR
ANY OF ITS SUPPLIERS AND LICENSORS, WARRANTS THAT THE ZENGINE SOFTWARE, THE
MCSC WEBSITE, OR THE SERVICES TO BE PROVIDED OR THE OPERATION THEREOF ARE OR
WILL BE ACCURATE, ERROR-FREE OR UNINTERRUPTED OR MEETS OR WILL MEET MCSC's
REQUIREMENTS. WITHOUT LIMITATION OF THE FOREGOING, ZENGINE, ITS SUPPLIERS AND
LICENSORS DO NOT WARRANT THE ACCURACY OF ANY SALES TAX DATA OR TAX
CALCULATIONS THAT MAY BE PROVIDED OR PERFORMED BY THE ZENGINE SOFTWARE OR THE
SERVICES. NEITHER ZENGINE NOR ANY OF ITS SUPPLIERS AND LICENSORS GIVE ANY
IMPLIED WARRANTY, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF
MERCHANTABILITY, OF FITNESS FOR ANY PARTICULAR PURPOSE OR ARISING BY USAGE OF
TRADE, COURSE OF DEALING OR COURSE OF PERFORMANCE.
4.2 NO ADDITIONAL WARRANTIES. No oral or written information or
advice given by Zengine or its employees, contractors or agents will create a
warranty or in any way increase the scope of any warranty. Without limiting
the generality of the foregoing, Zengine specifically disclaims any warranty
regarding the profitability of the MCSC Website.
4.3 LIMITATION OF LIABILITY FOR CERTAIN MATTERS. Zengine's entire
liability and MCSC's exclusive remedy for any damages caused by any software or
Service defect or failure, not excluded under Section 4.4 below will be limited
to proven direct damages in an amount not to exceed the lesser of (A) the fees
and charges actually paid to Zengine hereunder for no more than six (6) months
prior to the date on which the claim arose; or (B) $50,000.00 in the aggregate
for all such claims.
4.4 ABSENCE OF LIABILITY FOR CERTAIN MATTERS. EXCEPT AS MAY
OTHERWISE BE EXPRESSLY SET FORTH HEREIN, MCSC WILL HAVE NO CLAIM AGAINST
ZENGINE FOR INTERRUPTED COMMUNICATIONS, LOST DATA, RE-RUN TIME, INACCURATE
INPUT, WORK DELAYS OR LOST REVENUES OR PROFITS RESULTING FROM THE USE OF THE
ZENGINE SOFTWARE AND/OR THE SERVICES. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH
HEREIN, IN NO EVENT WILL ZENGINE HAVE ANY LIABILITY OR RESPONSIBILITY FOR ANY
SPECIAL, INDIRECT, INCIDENTAL,
<PAGE>
E-Commerce Services Agreement
Page 15 2/27/00
CONSEQUENTIAL OR EXEMPLARY DAMAGES, OR FOR INTERRUPTED COMMUNICATIONS, LOST DATA
OR LOST REVENUES OR PROFITS, ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREBY, THE ZENGINE SOFTWARE OR THE
CONTENT OR THE USE OF THE ZENGINE SOFTWARE OR THE SERVICES BY MCSC. WITHOUT
LIMITATION OF THE GENERALITY OF THE FOREGOING, EXCEPT AS MAY OTHERWISE BE
EXPRESSLY SET FORTH HEREIN, ZENGINE WILL NOT BE LIABLE FOR ANY CLAIM
ATTRIBUTABLE TO ERRORS, OMISSIONS OR OTHER INACCURACIES OF ANY SERVICE DATABASE
OR ANY INFORMATION CONTAINED IN ANY SERVICE DATABASE. ZENGINE WILL NOT BE LIABLE
TO MCSC FOR ANY DAMAGES CAUSED BY ACTS OR EVENTS BEYOND ITS REASONABLE CONTROL,
INCLUDING, WITHOUT LIMITATION, ACTS OF GOD, EARTHQUAKES, FIRES, FLOODS, WARS,
CIVIL DISTURBANCES, SABOTAGE, ACCIDENTS, LABOR DISPUTES, GOVERNMENTAL ACTIONS,
AND FAILURES OR DELAYS OF TRANSPORTATION AND/OR ELECTRONIC, TELEPHONIC OR
INTERNET TRANSMISSION.
4.5 SCOPE. For purposes of the provisions of this Section 4 and
of Section 5, each reference to "Zengine" will be deemed to include Zengine,
its parents, subsidiaries and/or Affiliates and the employees, officers,
directors, shareholders, licensors, agents, interconnection service providers
and suppliers and the successors and assigns of each of them, and "Damages"
will be deemed to refer collectively to any and all injury, damage, loss or
expense. The limitations of liability referred to or set forth in this
Section 4 will apply: (a) regardless of the form of action, whether in
contract, tort, strict liability or otherwise; and (b) whether or not damages
were foreseeable, and even if Zengine has been advised of or knew of the
possibility of such damages.
4.6 INDEMNIFICATION. MCSC will at all times indemnify and hold
harmless Zengine and its Affiliates and their respective directors, officers,
employees, agents and representatives and their heirs, representatives,
successors and assigns (the "Zengine Group") from and against any and all
Third Party claims, damages, liabilities, costs and expenses including,
without limitation, reasonable attorneys' fees and expenses, arising out of
or relating to: (a) the MCSC Content or the MCSC Software, including, without
limitation, any alleged infringement on the part of the MCSC Content or the
MCSC Software of any copyright, patent, literary, privacy, publicity,
trademark, service mark, trade dress or any other personal, moral, contract,
or property right of any Person, or any other alleged inaccuracy, omission,
or deficiency with any of the MCSC Content or the MCSC Software; (b) the
products or services offered by means of the MCSC Website (including, without
limitation, claims of negligence, strict liability, misrepresentation or
defects/deficiencies with such products or services); and (c) MCSC's failure
or alleged failure to comply with the terms of this Agreement (including,
without limitation, the publication of Prohibited Content). The Zengine Group
will give MCSC written notice of any claim, action or demand for which
indemnity is claimed. The Zengine Group will have the right,
<PAGE>
E-Commerce Services Agreement
Page 16 2/27/00
but not the obligation, to control the defense and/or settlement of any claim in
which it is named as a party. MCSC will have the right to participate in any
defense of a claim by the Zengine Group with counsel of MCSC's choice
(reasonably acceptable to the Zengine Group) at MCSC's own expense. If the
Zengine Group directs MCSC to control the defense and/or settlement of any such
claim, then MCSC's counsel will be subject to the reasonable prior approval of
the Zengine Group, which consent will not be unreasonably withheld, conditioned,
or delayed. If the Zengine Group elects to control the defense and/or settlement
of any such claim, then the Zengine Group will obtain MCSC's consent (which
consent will not be unreasonably withheld, conditioned or delayed) before
entering into any settlement which adversely affects MCSC in any material
respect, except that this restriction will not apply to the Zengine Group if
MCSC has failed to fulfill MCSC's indemnification obligations to date under this
Agreement.
5. TERM AND TERMINATION
5.1 TERM. Unless earlier terminated as set forth herein, the
initial term of this Agreement shall begin on the date hereof (the
"Commencement Date") and expire on the second (2nd) anniversary of the
Commencement Date (the "Initial Term"). This Agreement may be renewed at the
option of either MCSC or Zengine for an additional two (2) year term (a
"Renewal Term," and with the Initial Term, the "Term") after the Initial
Term, and the renewing party shall provide to the other party written notice
of such renewal on or prior to the sixtieth (60th) day prior to the last day
of the Initial Term. Failure to provide such renewal notice shall result in
the automatic termination of this Agreement effective as of the day after the
last day of the Initial Term, unless the Parties otherwise agree.
5.2 TERMINATION. This Agreement may be terminated as follows:
(a) by the mutual written consent of the Parties; or
(b) by either MCSC or Zengine upon a breach of any provision
of this Agreement, which breach remains uncured for thirty (30) days after
written notice thereof to such other Party, and as a result of which breach the
non-breaching Party will be unable to substantially realize the benefits that it
would have realized from this Agreement absent such breach; or
(c) by either MCSC or Zengine if the other Party:
(i) makes an assignment for the benefit of creditors;
(ii) admits in writing its inability to pay its debts
as they become due;
(iii) distributes to its creditors any composition,
extension or similar kind of agreement which purpose is to reach an out of court
settlement with its creditors;
<PAGE>
E-Commerce Services Agreement
Page 17 2/27/00
(iv) causes or consents to the appointment of a
receiver, trustee, liquidator or similar officer for all or any material portion
of its property;
(v) files in any court, pursuant to any statute of
the United States or any State, any petition in any bankruptcy, reorganization,
composition, extension, arrangement or insolvency proceeding;
(vi) shall be dissolved or fails to maintain its
corporate existence;
(vii) has its ability to conduct business suspended
or terminated;
(viii) becomes insolvent;
(ix) makes or consents to a notice of intended bulk
transfer of its assets;
(x) convenes a meeting of creditors to restructure
its debts;
(xi) takes any corporate or other action for the
purpose of effectuating any of the foregoing;
(xii) has a petition filed against it in any court,
pursuant to any statute of the United States or any State, any bankruptcy,
reorganization, composition, extension, arrangement or insolvency proceeding,
and such court either:
(A) enters an order for relief;
(B) approves the petition;
(C) assumes jurisdiction of the subject matter,
or
(D) fails to dismiss such proceeding within
forty-five (45) days after the institution thereof; or
(xiii) has any proceeding commenced against it or a
receiver, trustee, liquidator or similar officer appointed to administer and/or
liquidate all or any portion of its property and such appointment is not vacated
or set aside within forty-five (45) days after the appointment of such receiver,
trustee, liquidator or similar officer.
5.3 TERMINATION DISFAVORED. It is the intention of the Parties
that this Agreement not be terminated except in the limited circumstances set
forth above and that any breach by any
<PAGE>
E-Commerce Services Agreement
Page 18 2/27/00
Party of its obligations under this Agreement shall be redressed by the dispute
resolution mechanisms set forth in this Agreement and other appropriate remedies
at equity or law.
5.4 EFFECT OF TERMINATION. In the event of any termination of
this Agreement (the date of such termination is referred to as the
"Termination Date"):
(a) All licenses granted to the Parties shall terminate on the
Termination Date;
(b) All payments due and owing to Zengine pursuant to Section
2.6 shall be paid to Zengine within five (5) Business Days after the Termination
Date; and
(c) Zengine shall process all Customer orders up to and
including the Termination Date, which processing will include payment processing
to MCSC.
5.5 ADDITIONAL REMEDIES ON TERMINATION. To the extent not
inconsistent with the foregoing, in the event of any termination of this
Agreement, the Party entitled to terminate shall be entitled to any and all
legal and equitable remedies to which it may be entitled under applicable law.
6. DISPUTE RESOLUTION
6.1 GENERAL DISPUTE PRINCIPLES.
(a) Subject to Section 7.4, all disputes between or among the
Parties under this Agreement shall be settled, if possible, through good faith
negotiations between the relevant Parties. In the event such disputes cannot be
so resolved, such disputes shall be resolved as provided in Section 6.2.
(b) If any Party is subject to a claim, demand, action or
proceeding by a Third Party and is permitted by law or arbitral rules to join
another Party to such proceeding, this Section 6 shall not prevent such joinder.
This Section 6 shall also not prevent any Party from pursuing any legal action
against a Third Party.
6.2 ARBITRATION OF OTHER DISPUTES.
(a) The Parties shall submit any other controversy or claim
arising out of, relating to or in connection with this Agreement, or the breach
hereof or thereof ("Demand for Arbitration"), to arbitration administered by the
American Arbitration Association ("AAA") in accordance with its Commercial
Arbitration Rules then in effect (collectively, "AAA Rules") and judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
<PAGE>
E-Commerce Services Agreement
Page 19 2/27/00
(b) The place of arbitration shall be Dayton, Ohio.
(c) The Parties shall attempt, by agreement, to nominate a
sole arbitrator for confirmation by the AAA. If the Parties fail to so nominate
a sole arbitrator within thirty (30) days from the date when the Demand for
Arbitration has been communicated by the initiating Party, the arbitrator shall
be appointed by the AAA in accordance with the AAA Rules. For purposes of this
Section, the "commencement of the arbitration proceeding" shall be deemed to be
the date upon which the Demand for Arbitration has been delivered to the Parties
in accordance with this Section 6.2. A hearing on the matter in dispute shall
commence within thirty (30) days following selection of the arbitrator, and the
decision of the arbitrator shall be rendered no later than sixty (60) days after
commencement of such hearing.
(d) If a Demand for Arbitration includes any issue,
controversy or claim relating to or allegedly relating to any patent matter
including, but without limitation, any issue relating to the existence,
validity, infringement, duration or enforceability of any patent, then the
arbitrator with respect to such patent-related controversy or claim (and only
such controversy or claim) shall have the following credentials: Such arbitrator
shall be (i) an attorney registered to practice before the U.S. Patent and
Trademark Office, (ii) whose current area of practice is primarily relating to
patent matters (or, if such person is retired, whose practice was primarily so
related), and (iii) who has been practicing in such area for at least the last
ten (10) years, and (iv) who has acted as an arbitrator or mediator of a
patent-related dispute on at least two (2) prior occasions during the preceding
ten (10) years.
(e) An award rendered in connection with an arbitration
pursuant to this Section shall be final and binding upon the Parties, and the
Parties agree and consent that the arbitral award shall be conclusive proof of
the validity of the determinations of the arbitrator set forth in the award and
any judgment upon such an award may be entered and enforced in any court of
competent jurisdiction.
(f) The Parties agree that the award of the arbitral tribunal
will be the sole and exclusive remedy between them regarding any and all claims
and counterclaims between them with respect to the subject matter of the
arbitrated dispute. The Parties hereby waive all IN PERSONAM jurisdictional
defenses in connection with any arbitration hereunder or the enforcement of an
order or award rendered pursuant thereto (assuming that the terms and conditions
of this arbitration clause have been complied with).
(g) The arbitrator shall issue a written explanation of the
reasons for the award and a full statement of the facts as found and the rules
of law applied in reaching his decision to both Parties. The arbitrator shall
apportion to each Party all costs (including attorneys' and witness fees, if
any) incurred in conducting the arbitration in accordance with what the
arbitrator deems just and equitable under the circumstances. Any provisional
remedy which would be available to a court of law shall be available from the
arbitrator pending arbitration of the
<PAGE>
E-Commerce Services Agreement
Page 202 2/27/00
dispute. Any Party may make an application to the arbitrator seeking injunctive
or other interim relief, and the arbitrator may take whatever interim measures
he deems necessary in respect of the subject matter of the dispute, including
measures to maintain the status quo until such time as the arbitration award is
rendered or the controversy is otherwise resolved. The arbitrator shall only
have the authority to award any remedy or relief (except EX PARTE relief) that a
Court of Common Pleas of the State of Ohio could order or grant, including,
without limitation, specific performance of any obligation created under this
Agreement, the issuance of an injunction, or the imposition of sanctions for
abuse or frustration of the arbitration process, but specifically excluding
punitive damages.
(h) Any Party may file an application in any proper court for
a provisional remedy in connection with an arbitrable controversy, but only upon
the ground that the award to which the application may be entitled may be
rendered ineffectual without provisional relief. The Parties may also commence
legal action in lieu of any arbitration under this Section 6.2 in connection
with any Third Party litigation proceedings.
(i) For purposes of any suit, action or legal proceeding
permitted under this Section 6, each Party (a) hereby irrevocably submits itself
to and consents to the non-exclusive jurisdiction of the courts of the State of
Ohio or, if it has or can require jurisdiction, United States District Court for
the Southern District (Western Division) of Ohio for the purposes of any suit,
action or legal proceeding in connection with this Agreement including to
enforce an arbitral resolution, settlement, order or award made pursuant to this
Agreement (including pursuant to the U.S. Arbitration Act or otherwise), and (b)
the extent permitted by applicable law, hereby waives, and agrees not to assert,
by way of motion, as a defense, or otherwise, in any such suit, action or legal
proceeding pending in such event, any claim that it is not personally subject to
the jurisdiction of such court, that the suit, action or legal proceeding is
brought in an inconvenient forum or that the venue of the suit, action or legal
proceeding is improper. Each Party hereby agrees to the entry of an order to
enforce any resolution, settlement, order or award made pursuant to this Section
by the courts of the State of Ohio or, if it has or can require jurisdiction,
the United States District Court for the Southern District (Western Division) of
Ohio and in connection therewith hereby waives, and agrees not to assert by way
of motion, as a defense, or otherwise, any claim that such resolution,
settlement, order or award is inconsistent with or vocative of the laws or
public policy of the laws of the State of Ohio or any other jurisdiction.
7. MISCELLANEOUS
7.1 SURVIVAL. Any expiration or termination of this Agreement
shall not relieve any Party from any obligations hereunder which have accrued
on or before the effective date of such expiration or termination, nor affect
the provisions set forth in Sections 2.4, 2.8, 2.9, 3, 4, 5, 6, this Section
7.1 and 7.10 all of which are intended by the Parties to survive such
expiration or termination. Termination of this Agreement upon any Party's
default, or the expiration of this Agreement will not affect: (a) the rights
of any Party with respect to any breach of this
<PAGE>
E-Commerce Services Agreement
Page 21 2/27/00
Agreement; or (b) the obligations of any Party already accrued prior to the
effective date of expiration or termination; or (c) those obligations of the
Parties that, by their terms, survive termination or expiration of this
Agreement.
7.2 RETURN OF CONFIDENTIAL INFORMATION. Upon expiration or
termination of this Agreement, each Party shall promptly return to the other
all Confidential Information of the other Party, including all of the
physical embodiments thereof in its possession. including all copies thereof,
and shall cease using the same, except to the extent their use is licensed or
otherwise permitted under this Agreement. Each Party shall certify to the
other party in writing compliance with this Section upon the return of such
materials.
7.3 NON-EXCLUSIVITY OF REMEDY. The right of any Party to
terminate this Agreement under Section 5.2 is not an exclusive remedy, and
any Party shall be entitled, if the circumstances warrant and except as
otherwise expressly provided herein, alternatively or cumulatively, to
damages for material breach of this Agreement, to an order requiring
performance of the obligations of this Agreement or to any other legally
available remedy, subject in all cases to Section 6.
7.4 INJUNCTIVE RELIEF. Notwithstanding Section 6, the Parties
agree that any material breach of the exclusivity or confidentiality
provisions of this Agreement, or the infringement of any Party's Intellectual
Property Rights will cause irreparable injury and that injunctive relief in a
court of competent jurisdiction will be appropriate to prevent an initial
breach or enjoin a continuing breach in addition to any other relief to which
the aggrieved party may be entitled.
7.5 CHANGES OVER TIME. The Parties acknowledge that, because of
the rapid pace of technological change and evolution in the industries
associated with the Internet, many of the underlying facts and circumstances
(including assumptions regarding the facts and circumstances) that were the
basis for the allocation of various rights and obligations pursuant to this
Agreement are likely to change over time. In drafting this Agreement, the
Parties have addressed relevant facts and issues as they exist with current
technologies and today's business models; however, the Parties also intend
for this Agreement to remain in force throughout the Term as such
technologies and business models change over time, with appropriate
modifications to reflect such equitable adjustments as are required to
maintain a substantially comparable allocation of rights and obligations in
light of changed circumstances. The Parties do not intend for this Agreement
to be effectively nullified or abrogated because of changed circumstances,
but rather intend that the intent and purpose of this Agreement be preserved
as circumstances change. To such end, the Parties agree that certain
provisions regarding the Parties' respective rights and obligations under
this Agreement, while drafted to address current circumstances, are also
intended to reflect general principles to be implemented by the Parties in a
pragmatic and meaningful way as such circumstances change. Notwithstanding
the foregoing, the provisions of this Section 7.5 shall not apply to those
rights and/or obligations that should not be affected by changes in
technology and/or business models.
<PAGE>
E-Commerce Services Agreement
Page 22 2/27/00
7.6 ASSIGNMENT. No Party may assign its rights or obligations
under this Agreement, by operation of law or otherwise, without the express
written consent of the others. Each Party agrees to provide no less than
three (3) Business Days' prior notification of any assignment under this
Agreement. Any attempted assignment except as expressly allowed by this
Section is null and void. Subject to the foregoing, this Agreement will
benefit and bind the permitted successors and assigns of the Parties.
7.7 RELATIONSHIP OF THE PARTIES. Each Party is an independent
contractor of the other, and neither shall be deemed an employee, agent,
partner or joint venturer of the other (regardless of how the relationship is
explained to the public by one or more of the Parties). Except with the prior
written consent of the other Party, no Party shall make any commitment, by
contract or otherwise, binding upon the other nor represent that it has any
authority to do so.
7.8 FORCE MAJEURE. No Party shall be responsible or liable to
any other Party for nonperformance or delay in performance of any terms or
conditions of this Agreement due to act of God, act of governments, war,
riot, terrorism, earthquake, fire, flood, sabotage, accidents, labor
disputes, failures or delays of transportation and/or electronic, telephonic
or Internet transmission or other cause beyond the reasonable control of the
non-performing or delayed Party. However, nonperformance or delay in excess
of ninety (90) consecutive days shall constitute a breach of this Agreement
and cause for termination of this Agreement by the non-breaching Party
pursuant to Section 5.1.
7.9 GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Ohio without regard to choice of law provisions thereof.
7.10 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the
Schedules attached hereto constitute the full and entire agreement between
the Parties with respect to the subject matter hereof and thereof, and
supersede all prior oral and written agreements and understandings between
the Parties. Except as expressly provided in this Agreement, neither this
Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Party against
whom enforcement of any such amendment, waiver, discharge or termination is
sought.
7.11 NOTICES, ETC. All notices and other communications
hereunder shall be deemed given if given in writing and delivered by hand,
prepaid express or courier delivery service or by facsimile transmission
(confirmed electronically or by voice) or mailed by registered or certified
mail (return receipt requested), postage fees prepaid, to the Party to
receive the same at the respective addresses set forth below (or at such
other address as may from time to time be designated by such Party in
accordance with this Section 7.11):
<PAGE>
E-Commerce Services Agreement
Page 23 2/27/00
If to MCSC:
Miami Computer Supply Corporation
4750 Hempstead Station Drive
Dayton, Ohio 45429
Telephone: (937) 291-8282
Facsimile: (937) 291-8298
Attn: Michael E. Peppel, President and Chief Executive Officer
If to Zengine:
Zengine, Inc.
6100 Stewart Avenue
Fremont, California 94538
Telephone: (510) 651-6400
Facsimile: (510) 651-3200
Attn: Joseph M. Savarino, President
With copies to:
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W., Suite 1200
Washington, D.C. 20005
Telephone: (202) 347-0300
Facsimile: (202) 347-2172
Attn: Jeffrey A. Koeppel, Esq.
All such notices and communications hereunder shall for all purposes of
this Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or
seventy-two (72) hours after the same has been deposited in a regularly
maintained receptacle for the deposit of United States mail, addressed and
postage prepaid as aforesaid.
7.12 DELAYS OR OMISSIONS. Except as expressly provided in this
Agreement, no delay or omission to exercise any right, power or remedy
accruing to a Party, upon any breach or default of the other Party under this
Agreement, shall impair any such right, power or remedy of such Party nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring.
Any waiver, permit, consent or approval of any kind or
<PAGE>
E-Commerce Services Agreement
Page 24 2/27/00
character on the part of a Party of any breach or default under this Agreement,
or any waiver on the part of such Party of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be cumulative and
not alternative.
7.13 PUBLICITY. No Party (nor such Party's Affiliates) shall
issue any press release disclosing the terms of, or relating to, this
Agreement without the prior written consent of the other Parties; provided,
however, that no Party or its Affiliates shall be prevented from complying
with any duty of disclosure it may have pursuant to applicable laws or
regulation. Such disclosing Party shall use its best efforts to consult with
the other Party regarding the issuance of any such press release, or with
regard to any public statement disclosing the terms of this Agreement and
shall use its best efforts to obtain confidential treatment for any
Confidential Information where such press release or other public statement
is required to be made by applicable law or regulation.
7.14 EXPENSES. Each of the Parties shall bear all legal,
accounting and other transaction expenses incurred by it in connection with
the negotiation, execution, delivery and performance of this Agreement.
7.15 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be enforceable against the Parties
actually executing such counterparts, and all of which together shall
constitute one instrument.
7.16 SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by an arbitrator or a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement shall
continue in full force and effect without said provision; provided that such
remainder shall be interpreted by the Parties so as best to reasonably affect
the intent of the Parties and to maintain the economic benefit of this
Agreement to all Parties.
7.17 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing
or interpreting this Agreement.
<PAGE>
E-Commerce Services Agreement
Page 25 2/27/00
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first set forth above on the date set forth below.
MIAMI COMPUTER SUPPLY CORPORATION
By: /s/ MICHAEL E. PEPPEL
--------------------------------------------
Name: MICHAEL E. PEPPEL
--------------------------------------------
Title: CHIEF EXECUTIVE OFFICER
-------------------------------------------
Dated: February 29, 2000
ZENGINE, INC.
By: /s/ JOSEPH SAVARINO
--------------------------------------------
Name: JOSEPH SAVARINO
-------------------------------------------
Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER
------------------------------------------
Dated: February 29, 2000
<PAGE>
E-Commerce Services Agreement
Page 26 2/27/00
SCHEDULE 2.1
-----------------
The project representatives of MCSC are:
1. Ira H. Stanley
2. Luis Silva
3. David Spangler
The project representatives of Zengine are:
1. Joseph Savarino
2. Lalit Dhadphale
3. Chris Lunt
<PAGE>
E-Commerce Services Agreement
Page 27 2/27/00
SCHEDULE A
MCSC WEBSITE CUSTOMERS
[LIST TO BE PROVIDED]
<PAGE>
Exhibit 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
this 1st day of March, 1999 by and between BUYSUPPLY.COM CORPORATION, a Delaware
corporation (the "Company"), and JOSEPH M. SAVARINO (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company;
NOW, THEREFORE, upon the terms and conditions hereinafter set forth, it
is hereby agreed between the parties as follows:
I. DUTIES
A. Upon the terms and subject to the conditions of this Agreement, the
Company hereby employs the Executive as President of the Company (which is a
wholly owned subsidiary of Miami Computer Supply Corporation, an Ohio
corporation ("MCSC")), commencing on the date abovewritten and ending on March
1, 2002 (the "Employment Term"), and the Executive hereby accepts said
employment. The Agreement may be renewed at the option of the Company for
additional periods of one year each (a "Renewal Term") by the giving of written
notice to the Executive at least ninety (90) days prior to the expiration of the
Employment Term or a Renewal Term, as the case may be; provided, that the
Executive shall have the option to decline such renewal by providing written
notice thereof to the Company no later than sixty (60) days after receipt of any
such renewal notice from the Company.
B. The Executive's areas of responsibility shall be commensurate with
his position as President and co-founder and as directed by the Board of
Directors and may include all aspects of the Company's business, including, but
not limited to, supervising and overseeing day-to-day operations, sales,
financial reporting, strategic planning, acquisitions, long range planning, cash
flow projections and any other duties specified by the Board of Directors. The
Executive shall, from time to time and as requested, report to the Board of
Directors with respect to his activities. The Executive agrees to exercise his
duties and responsibilities hereunder in good faith, with diligence, and in
accordance with sound business practice.
C. The Executive shall devote his full business time and efforts and
all reasonable energy and skill to the business of the Company and shall use his
best efforts to promote the interest of the
<PAGE>
Joseph M. Savarino
Employment Agreement
Page 2
Company. The Executive's services shall be rendered with due regard for the
prompt, efficient and economical operation of the business of the Company.
II. BASE SALARY AND BENEFITS
A. The Executive shall be paid a base salary (the "Base Salary") of
$90,000.00 per year, payable at least monthly when all other employees of the
Company are customarily paid.
B. The Executive will be able to take up to five (5) weeks paid
vacation per year.
C. During the Employment Term and any Renewal Term, the Executive will
be entitled to participate in and receive the benefits of any pension or other
retirement benefit plan, profit sharing, stock option, employee stock ownership,
or other plans, benefits and privileges given to employees and executives of the
Company. The Company shall not make any changes in such plans, benefits or
privileges which would adversely affect the Executive's vested rights or
benefits thereunder, unless such change occurs pursuant to a program applicable
to all executive officers of the Company at equivalent base salary levels and
does not result in a proportionately greater adverse change in the rights of or
benefits to the Executive as compared with any such other executive. Nothing
paid to the Executive under any plan or arrangement presently in effect or made
available in the future shall be deemed to be in lieu of the Base Salary payable
to the Executive pursuant to Section II.A hereof. Nothing contained herein shall
prohibit the Board of Directors of the Company, in its sole discretion, from
increasing the compensation payable to the Executive pursuant to this Agreement
and/or making available to the Executive other benefits in addition to those to
which the Executive is entitled hereunder.
D. In addition to the foregoing, the Executive shall, at all times
during the Employment Term and any Renewal Term, be eligible to participate in
and to be covered by all plans, if any, effective generally with respect to
executives of the Company with respect to life insurance, accident insurance,
health insurance, hospitalization, disability, and other benefits of whatsoever
kind or description, to the extent the Executive is eligible under the terms of
such plans, on the same basis as other executives of the Company and without
restriction or limitation by reason of this Agreement. The Executive shall be
entitled to all of the fringe benefits and perquisites of office of whatsoever
kind or description made available generally to other executives of the Company,
including, but not limited to, customary paid holidays, without restriction or
limitation by reason of any specific benefit provided for in this Agreement.
E. The Company shall pay or reimburse the Executive for all reasonable
out-of-pocket expenses incurred or paid by him in connection with the
performance of his duties, travel, entertainment and other business expenses
incurred by him in the performance of his duties under
<PAGE>
Joseph M. Savarino
Employment Agreement
Page 3
this Agreement and as are customary for the Executive's role in the Company,
upon presentation of expense statements, receipts or vouchers or such other
supporting information as the Company may reasonably require.
III. TERMS AND CONDITIONS OF EMPLOYMENT
A. Unless earlier terminated pursuant to terms hereof, the term of
employment hereunder shall end on the earliest to occur of:
1. The later of the Employment Term or any Renewal Term;
2. The death or retirement of the Executive;
3. On ten (10) days' written notice of termination from
the Company to the Executive, which notice may be given only on or after there
shall have elapsed a consecutive period of more than 90 days (or for shorter
periods aggregating more than 90 days during any consecutive twelve-month
period) during which the Executive was physically or mentally incapacitated (as
reasonably determined by the Board of Directors based on objective medical
evidence obtained consistent with the Americans with Disabilities Act) and
unable to perform his duties hereunder; or
4. The resignation of the Executive.
B. In addition to the events described in the foregoing Section III.A,
the Company shall be entitled to terminate this Agreement for "cause" upon
written notice to the Executive, the cause to be specified in the notice. For
purposes of this Agreement, "cause" shall be determined by the affirmative vote
of a majority of the Board of Directors of the Company (excluding the Executive,
if a member of the Board) and shall mean (i) Executive's incompetence in the
performance of his duties under this Agreement, (ii) Executive's personal
dishonesty adversely affecting the Company, (iii) the Executive's refusal to
perform, or the substantial neglect of, or an intentional failure to perform, a
material portion of the Executive's duties required hereunder, which actions or
inactions are not reasonably cured within ten (10) days after receipt of written
notice from the Company with respect thereto, (iv) the Executive's willful
misconduct adversely affecting the Company or the Executive's material
negligence, (v) breach of a fiduciary duty to the Company involving personal
gain, (vi) sexual harassment by the Executive of any Company employee, officer,
director, representative, agent, customer or vendor, (vii) assault by the
Executive of any Company employee, officer, director, representative, agent,
customer or vendor, (viii) any material breach by the Executive of this
Agreement not reasonably cured with ten (10) days after receipt of written
notice thereof, (ix) if the Executive has been convicted of a felony or a crime
involving moral turpitude,
<PAGE>
Joseph M. Savarino
Employment Agreement
Page 4
theft, fraud or embezzlement, (x) the intentional or reckless conversion of
Company funds, or the destruction of Company assets by the Executive.
C. The Executive shall have the right to terminate this Agreement for
good reason upon reasonable notice to the Company, the good reason to be
specified in the notice.
1. For purposes of this Agreement, "good reason" shall
mean the failure of the Company to provide material resources which are
necessary to the fulfillment of the Executive's responsibilities hereunder, and
which failure(s) is not reasonably cured within ten (10) days after receipt of
written notice thereof from the Executive; or
2. The express direction to the Executive by the Board of
Directors to perform any action or inaction which, in the reasonable opinion of
the Executive and, upon written advice of his counsel, is illegal or is both
materially beyond the scope of the duties required of the Executive under this
Agreement and not commensurate with his position as President of the Company; or
3. The threatened or actual insolvency or receivership of
the Company or MCSC; or
4. The material failure of the Company to perform its
obligations to the Executive as set forth in this Agreement.
D. Except as hereinafter provided with respect to Sections III.C.1.,
2., and 4., termination in accordance with any of the foregoing provisions of
Sections III.A, B or C above shall be effective on the date applicable to the
particular termination section referred to above (the "Termination Date"), and
from and after such date, this Agreement shall be of no further force and
effect; provided, however, that no such termination shall affect: (i) a Party's
rights to seek damages or other relief in respect of a breach by the other Party
of his or its obligations under this Agreement, (ii) the Company's rights or the
Executive's obligations under Section IV herein, or (iii) the Executive's rights
or the Company's obligations as set forth under Sections IV and IX, below. In
the event, the Executive terminates this Agreement pursuant to Sections
III.C.1., 2., and 4., above, the Executive shall be entitled to receive
compensation in the form of severance pay equal to the lesser of (i) $14,795, if
such termination occurs more than sixty (60) days prior to the end of the
Initial Term or any Renewal Term of this Agreement, or (ii) $247.00 per day for
each day prior to the end of the Initial Term or any Renewal Term, if such
termination occurs less than sixty (60) days prior to the end of the Initial
Term or any Renewal Term.
IV. NON-COMPETITION
<PAGE>
Joseph M. Savarino
Employment Agreement
Page 5
A. 1. The Company has disclosed to the Executive its confidential
business plans, marketing strategies, advertising copy, funding sources,
wholesale and retail customer lists, equipment sources, financial projections
and results and other confidential information concerning the Company in the
course of the Executive's occupation as President and co-founder of the Company.
This information and similar information yet to be developed by the Executive is
generally unknown to the public and gives the Company a competitive advantage
over those who do not have access to this information. The Company has taken and
will take care to preserve this information and protect it from becoming
generally known. The Company has revealed this information to the Executive on
the condition that he keep it confidential and will require confidentiality from
the Executive and all other persons with access to the information in the
future. The information described above, therefore, constitutes valuable trade
secrets of the Company and is referred to below as "Proprietary Information."
2. In the course of performing his duties under this Agreement, the
Executive will both help develop and be privy to Proprietary Information. All
Proprietary Information used or generated during the course of the Executive's
employment with the Company will be the property of the Company, except for such
information that was developed by the Executive and was published or otherwise
disseminated prior to the date hereof and specifically listed and described on
an attachment hereto. The Executive acknowledges and agrees that all works of
authorship, including, without limitation, program codes or documentation,
produced by him in the course of performing services for the Company, are works
for hire and the property of the Company. The Executive further assigns to the
Company his entire right, title and interest in any invention, technique,
process, devise, discovery, improvement or know-how, patentable or not,
hereafter made or conceived solely or jointly by him while working for the
Company, which relates in any manner to the actual or anticipated business or
research or development of the Company or MCSC, or is suggested by or results
from any task assigned to him or work performed by him for or on behalf of the
Company or MCSC, or for which MCSC or Company equipment, supplies, facilities,
information or materials are used. Any such invention, technique, process,
device, discovery, improvement or know-how shall be promptly disclosed to the
Company and the Executive shall specifically assign the title thereto to the
Company and do anything else reasonably necessary to enable the Company to
obtain proprietary rights in the United States or foreign countries. The
Executive shall deliver to the Company all documents and other tangibles
containing Proprietary Information upon termination of his employment with the
Company pursuant to Section III hereof or otherwise within three days after the
Company so requests.
3. The Company has and shall retain all exclusive rights in the
Proprietary Information. During the term of this Agreement and any extension
hereof and for a period of seven (7) years following termination of this
Agreement, the Executive shall not (a) remove Proprietary Information from
Company or MCSC premises; (b) use Proprietary Information for his own benefit or
for the
<PAGE>
Joseph M. Savarino
Employment Agreement
Page 6
benefit of any third party; and (c) disclose Proprietary Information to any
third party (except with respect to response to judicial or administrative
process, and such disclosure shall occur only after written notification of the
Company immediately after receipt of such process and cooperation with the
Company, if so requested, to assist in obtaining confidential treatment of, or a
protective order for, the Proprietary Information), or make any commercial or
academic use of the Proprietary Information without the express written consent
of the Company, which consent may be withheld for any or no reason in the
Company's sole discretion.
4. These restrictions on the use and disclosure of Proprietary
Information shall survive the expiration or termination of this Agreement for a
period of seven (7) years thereafter, regardless of the grounds or lack of
grounds therefor. The parties recognize and agree that, in the event of a
threatened or actual breach of this Section IV.A, the Company's remedy at law
will be inadequate to fully compensate the Company for its losses. Therefore,
the Company may enforce its rights hereunder by equitable remedies, including,
without limited the generality of the foregoing, injunctive relief and specific
performance.
5. These restrictions on the use and disclosure of Proprietary
Information shall not apply to any information that is or becomes generally
disclosed to the public otherwise than by the Executive's breach of this
Agreement.
B. 1. During the term of this Agreement and for twelve months
thereafter ending on the first anniversary of the Termination Date (the
"Non-compete Term"), the Executive hereby covenants and agrees that the
Executive (and any person or entity controlled by, under common control with or
controlling the Executive) will not sell or distribute, directly or indirectly,
or be associated as an officer, director or greater than 5% shareholder,
employee, consultant, agent or representative to or with any Person that sells
or distributes computer supplies or projection presentation products in an area
within a seventy-five (75) mile radius of any existing office of the Company or
MCSC. For purposes of the Section IV.B.1, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any Person shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the activities, affairs,
management or policies of such Person, whether through personal relationship,
the ownership of voting securities or by contract or otherwise.
2. The Executive agrees that in the event that the Executive commits a
breach or threatens to commit a breach of any of the provisions of this Section
IV.B, the Company shall have the right and remedy to have the provisions of this
Section IV.B specifically enforced by any court having jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach will cause
immediate irreparable injury to the Company and that money damages will not
provide an adequate remedy at law for any such breach or threatened breach. Such
right and remedy shall be
<PAGE>
Joseph M. Savarino
Employment Agreement
Page 7
in addition to, and not in lieu of, any other rights and remedies available to
the Company at law or in equity.
3. If any of the provisions of or covenants contained in this Section
IV.B are hereafter construed to be invalid or unenforceable in any jurisdiction,
the same shall not affect the remainder of the provisions or the enforceability
thereof in any other jurisdiction, which shall be given full effect, without
regard to the invalid portions or the unenforceability in such other
jurisdiction because of the duration or geographic scope thereof, the parties
agree that the court making such determination shall have the power to reduce
the duration and/or geographic scope of such provision or covenants and, in its
reduced form, said provision or covenant shall be enforceable; provided,
however, that the determination of such court shall not affect the
enforceability of this Section IV.B in any other jurisdiction.
C. 1. The Executive hereby acknowledges and recognizes the highly
competitive nature of the business of the Company and, accordingly, agrees that,
during the Employment Term and any Renewal Term and in consideration of the
receipt of any payment pursuant to this Agreement, for a period beginning on the
Termination Date and ending upon the expiration of the Non-compete Term, unless
otherwise agreed to in writing by the Company, the Executive shall not, either
directly or indirectly, in any manner or capacity, whether as principal, agent,
partner, officer, director, employee, joint venturer, salesman, or corporate
shareholder or otherwise for the benefit of any Person (as defined below), (i)
solicit the rendering of services to any Person of any kind whatsoever who is
then or has been a Customer, Supplier, Employee, Salesperson, Agent or
Representative of the Company in any manner which interferes or might interfere
with the relationship of the Company with such Person, or in an effort to obtain
such Person as a Customer, Supplier, Employee, Salesperson, Agent or
Representative of any business in competition with the Company, or (ii) during
the period beginning on the Termination Date and ending upon the expiration of
the Non-compete Term, solicit for employment or assist any Person in the
solicitation for employment of any Employee of the Company.
(a) "Person" means any individual, trust, partnership, corporation,
limited liability company, association, or other legal entity.
(b) "Customer" means any Person with whom the Company is currently
engaged to provide goods or services, has been engaged to provide goods or
services within one (1) year prior to the Termination Date, or actively
marketed, discussed a project with, negotiated with, provided a bid to or
otherwise communicated with in an effort to obtain an engagement to provide
goods or services sold by the Company within one (1) year prior to the
Termination Date.
<PAGE>
Joseph M. Savarino
Employment Agreement
Page 8
(c) "Supplier," "Employee," "Salesperson," "Agent" or "Representative"
each means any Person who is then serving, or has served, the Company in such
capacity at any time within one (1) year prior to the Termination Date.
2. It is expressly understood and agreed that although the Executive
and the Company consider the restrictions contained in Section IV.C of this
Agreement reasonable for the purpose of preserving for the Company its
goodwill and other proprietary rights, if a final judicial determination is
made by a court having jurisdiction that the time or territory or any other
restriction contained in Section IV.C of this Agreement is an unreasonable or
otherwise unenforceable restriction against the Executive, the provisions of
Section IV.C of this Agreement shall not be rendered void but shall be deemed
amended to apply as to such maximum time and territory and to such other
extent as such court may judicially determine or indicate to be reasonable.
V. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement as to the subject
matter hereof and there are no terms other than those contained herein. This
Agreement shall be interpreted in order to achieve the purposes for which it was
entered into. The section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. No variation hereof or amendment hereto shall be deemed to be
valid unless in writing a signed by the parties hereto. No waiver by either
party of any provision or condition of this Agreement by him or it to be
performed shall be deemed to be a waiver of similar or dissimilar provisions or
conditions at the same or any prior or subsequent time. This Agreement is not
assignable by the Executive, but may be assigned by the Company to any affiliate
of the Company or by operation of law.
VI. BINDING EFFECT
The Company and the Executive represent and warrant that they are able
to enter into this Agreement and that such ability is not limited or restricted
by any agreements or understandings entered into by the Company or the Executive
with other persons or other companies. This Agreement shall inure to the benefit
of and be binding upon the Company, its successors and assigns, and the
Executive, his heirs, executors, administrators and legal representatives. The
obligations of the Company hereunder are unsecured and the Executive represents
a general creditor of the Company for compensation which may be due and owing.
Nothing contained herein shall create or require the Company to create a trust
of any kind to fund any benefits which may be payable hereunder, and to the
extent that the Executive acquires a right to receive benefits from the Company
hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.
<PAGE>
Joseph M. Savarino
Employment Agreement
Page 9
VII. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of California. All disputes between the parties, except
disputes under Section IV, shall be resolved by alternative dispute resolution
("ADR") in the jurisdiction wherein the Executive is domiciled.
VIII. ALTERNATIVE DISPUTE RESOLUTION
The parties agree that it is in their best interests to resolve all
disputes or controversies (except for violations of Section IV) arising out of
this Agreement in a cost effective and timely manner. Therefore, any controversy
of claim arising out of this Agreement or the breach thereof, or the
interpretation thereof (except, in each case, with respect to Section IV), shall
be settled by binding arbitration in accordance with the Rules of the American
Arbitration Association applicable to employer disputes; and judgment upon the
award rendered in such arbitration shall be final and may be entered in any
court having jurisdiction thereof. Notice of the demand for arbitration shall be
filed in writing with the other party to this Agreement and with the American
Arbitration Association. In no event shall the demand for arbitration be made
after the date when institution of legal or equitable proceedings based on such
claims, dispute or other matter in question would be barred by the applicable
statute of limitation. This agreement to arbitrate shall be specifically
enforceable under the prevailing arbitration law. Any Party desiring to initiate
arbitration procedures hereunder shall serve written notice on the other Party.
The parties agree that an arbitrator shall be selected pursuant to these
provisions within thirty (30) days of the service of the notice of arbitration.
In the event of any arbitration pursuant to these provisions, the parties shall
retain the rights of all discovery provided pursuant to the California Code of
Civil Procedure and the Rules promulgated thereunder, except that all time
periods contained in said Code of Civil Procedure and its related Rules shall be
shortened by fifty percent (50%) for purposes of arbitration proceedings
hereunder. Any arbitration initiated pursuant to these provisions shall be on an
expedited basis and the dispute shall be heard within one hundred twenty (120)
days following the serving of the notice of arbitration and a written decision
shall be rendered within sixty (60) days thereafter. These procedures supplement
the American Arbitration Association's procedures and, if there is a conflict,
these provisions shall control. All rights, causes of action, remedies and
defenses available under California law and equity are available to the parties
hereto and shall be applicable as though in a court of law. Each party shall be
responsible for its own costs and fees of any such arbitration.
IX. INDEMNIFICATION; WITHHOLDING; MCSC'S ASSURANCES
A. 1. The Company shall indemnify the Executive against all judgments,
payments in settlement (whether or not approved by a court), fines, penalties
and other costs and expenses (including attorneys fees and costs) imposed upon
or incurred by the Executive in connection with
<PAGE>
Joseph M. Savarino
Employment Agreement
Page 10
or resulting from any action, suit, proceeding, stockholder's derivative action,
investigation or claim, civil, criminal, administrative or other proceeding, or
any appeal relating thereto, which is brought or threatened by any Person or
government authority (an "Action") and in which the Executive is made a party or
is otherwise involved by reason of his being or having been a director, officer,
employee or agent of the Company, MCSC or any Person affiliated with either of
the foregoing, or by reason of any action or omission or alleged action or
omission by the Executive in any such capacity.
2. The Executive shall be entitled to such indemnification if
either (i) the Executive is wholly successful, on the merits or otherwise, in
defending such Action, or (ii) in the judgment of a court of competent
jurisdiction or, in the absence of such determination, in the judgment of a
majority of a quorum of the Board of Directors of the Company (which quorum
shall not include any director who is a party to or is otherwise involved in
such action), or, in the absence of such a disinterested quorum, in the opinion
of independent legal counsel that the Executive acted in good faith in what he
reasonably believed to be in the best interest of the Company, and in addition,
in any criminal action had no reasonable cause to believe that his action was
unlawful.
3. The foregoing rights of indemnification shall be in
addition to any rights which the Executive may otherwise be entitled pursuant to
any agreement, vote of shareholders, at law, in equity or otherwise.
4. In any case in which it reasonably appears that the
Executive will be entitled to indemnification hereunder, such amounts as shall
be determined by a majority of a disinterested quorum of the Board, in the
reasonable exercise of its discretion, shall be advanced to the Executive to
cover the costs and expenses incurred by him in connection with the action,
suit, proceeding, investigation or claim prior to the final disposition thereof.
In such case, the Executive shall undertake in writing to repay such amounts if
it is ultimately determined that he is not entitled to indemnification.
B. All payments required to be made by the Company hereunder to the
Executive shall be subject to the withholding of such amounts, if any, relating
to tax and other payroll deductions as the Company may reasonably determine
should be withheld pursuant to any applicable law or regulation.
C. The Company has received assurances from MCSC that, for a period of
five years from the date of incorporation of the Company, MCSC shall not
operate, or invest in, any person or entity which sells computer supplies over
the Internet to the single office, home office ("SOHO") market.
<PAGE>
Joseph M. Savarino
Employment Agreement
Page 11
IN WITNESS WHEREOF, the Company and the Executive have set their hands
on the date above written.
ATTEST:
By: /s/ Joseph M. Savarino
------------------------
Joseph M. Savarino
"Executive"
ATTEST: BUYSUPPLY.COM CORPORATION
By: /s/ Michael E. Peppel
------------------------
Name: Michael E. Peppel
Title: Vice President
"Company"
<PAGE>
Exhibit 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
this 15th day of March, 1999 by and between BUYSUPPLY.COM CORPORATION, a
Delaware corporation (the "Company"), and Lalit Dhadphale (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company;
NOW, THEREFORE, upon the terms and conditions hereinafter set forth, it
is hereby agreed between the parties as follows:
I. DUTIES
A. Upon the terms and subject to the conditions of this Agreement,
the Company hereby employs the Executive as Vice President-Product
Development of the Company (which is a wholly owned subsidiary of Miami
Computer Supply Corporation, an Ohio corporation ("MCSC")), commencing on the
date above-written and ending on March 15, 2002 (the "Employment Term"), and
the Executive hereby accepts said employment. The Agreement may be renewed at
the option of the Company for additional periods of one year each (a "Renewal
Term") by the giving of written notice to the Executive at least ninety (90)
days prior to the expiration of the Employment Term or a Renewal Term, as the
case may be; provided, that the Executive shall have the option to decline
such renewal by providing written notice thereof to the Company no later than
sixty (60) days after receipt of any such renewal notice from the Company.
B. The Executive's areas of responsibility shall be commensurate
with his position as Vice President-Product Development and co-founder and as
directed by the President and/or the Board of Directors and shall include,
but not be limited to, supervising product development, overseeing quality
control of productions, production placement and advertising and any other
duties specified by the Board of Directors. The Executive shall, from time to
time and as requested, report to the Board of Directors with respect to his
activities. The Executive agrees to exercise his duties and responsibilities
hereunder in good faith, with diligence, and in accordance with sound
business practice.
C. The Executive shall devote his full business time and efforts
and all reasonable energy and skill to the business of the Company and shall
use his best efforts to promote the interest of the Company. The Executive's
services shall be rendered with due regard for the prompt, efficient and
economical operation of the business of the Company.
<PAGE>
Lalit Dhadphale
Employment Agreement
Page 2
II. BASE SALARY AND BENEFITS
A. The Executive shall be paid a base salary (the "Base Salary")
of $90,000.00 per year, payable at least monthly when all other employees of
the Company are customarily paid.
B. The Executive will be able to take up to five (5) weeks paid
vacation per year.
C. During the Employment Term and any Renewal Term, the Executive
will be entitled to participate in and receive the benefits of any pension or
other retirement benefit plan, profit sharing, stock option, employee stock
ownership, or other plans, benefits and privileges given to employees and
executives of the Company. The Company shall not make any changes in such
plans, benefits or privileges which would adversely affect the Executive's
vested rights or benefits thereunder, unless such change occurs pursuant to a
program applicable to all executive officers of the Company at equivalent
base salary levels and does not result in a proportionately greater adverse
change in the rights of or benefits to the Executive as compared with any
such other executive. Nothing paid to the Executive under any plan or
arrangement presently in effect or made available in the future shall be
deemed to be in lieu of the Base Salary payable to the Executive pursuant to
Section II.A hereof. Nothing contained herein shall prohibit the Board of
Directors of the Company, in its sole discretion, from increasing the
compensation payable to the Executive pursuant to this Agreement and/or
making available to the Executive other benefits in addition to those to
which the Executive is entitled hereunder.
D. In addition to the foregoing, the Executive shall, at all times
during the Employment Term and any Renewal Term, be eligible to participate
in and to be covered by all plans, if any, effective generally with respect
to executives of the Company with respect to life insurance, accident
insurance, health insurance, hospitalization, disability, and other benefits
of whatsoever kind or description, to the extent the Executive is eligible
under the terms of such plans, on the same basis as other executives of the
Company and without restriction or limitation by reason of this Agreement.
The Executive shall be entitled to all of the fringe benefits and perquisites
of office of whatsoever kind or description made available generally to other
executives of the Company, including, but not limited to, customary paid
holidays, without restriction or limitation by reason of any specific benefit
provided for in this Agreement.
E. The Company shall pay or reimburse the Executive for all
reasonable out-of-pocket expenses incurred or paid by him in connection with
the performance of his duties, travel, entertainment and other business
expenses incurred by him in the performance of his duties under this
Agreement and as are customary for the Executive's role in the Company, upon
presentation of expense statements, receipts or vouchers or such other
supporting information as the Company may reasonably require.
<PAGE>
Lalit Dhadphale
Employment Agreement
Page 3
III. TERMS AND CONDITIONS OF EMPLOYMENT
A. Unless earlier terminated pursuant to terms hereof, the term of
employment hereunder shall end on the earliest to occur of:
1. The later of the Employment Term or any Renewal Term;
2. The death or retirement of the Executive;
3. On ten (10) days' written notice of termination from the
Company to the Executive, which notice may be given only on or after there
shall have elapsed a consecutive period of more than 90 days (or for shorter
periods aggregating more than 90 days during any consecutive twelve-month
period) during which the Executive was physically or mentally incapacitated
(as reasonably determined by the Board of Directors based on objective
medical evidence obtained consistent with the Americans with Disabilities
Act) and unable to perform his duties hereunder; or
4. The resignation of the Executive.
B. In addition to the events described in the foregoing Section
III.A, the Company shall be entitled to terminate this Agreement for "cause"
upon written notice to the Executive, the cause to be specified in the
notice. For purposes of this Agreement, "cause" shall be determined by the
affirmative vote of a majority of the Board of Directors of the Company
(excluding the Executive, if a member of the Board) and shall mean (i) the
Executive's incompetence in the performance of his duties under this
Agreement, (ii) the Executive's personal dishonesty adversely affecting the
Company, (iii) the Executive's refusal to perform, or the substantial neglect
of, or an intentional failure to perform, a material portion of the
Executive's duties required hereunder, which actions or inactions are not
reasonably cured within ten (10) days after receipt of written notice from
the Company with respect thereto, (iv) the Executive's willful misconduct
adversely affecting the Company or the Executive's material negligence, (v)
breach of a fiduciary duty to the Company involving personal gain, (vi)
sexual harassment by the Executive of any Company employee, officer,
director, representative, agent, customer or vendor, (vii) assault by the
Executive of any Company employee, officer, director, representative, agent,
customer or vendor, (viii) any material breach by the Executive of this
Agreement not reasonably cured with ten (10) days after receipt of written
notice thereof, (ix) if the Executive has been convicted of a felony or a
crime involving moral turpitude, theft, fraud or embezzlement, (x) the
intentional or reckless conversion of Company funds, or the destruction of
Company assets by the Executive.
C. The Executive shall have the right to terminate this Agreement
for good reason upon reasonable notice to the Company, the good reason to be
specified in the notice.
<PAGE>
Lalit Dhadphale
Employment Agreement
Page 4
1. For purposes of this Agreement, "good reason" shall mean
the failure of the Company to provide material resources which are necessary
to the fulfillment of the Executive's responsibilities hereunder, and which
failure(s) is not reasonably cured within ten (10) days after receipt of
written notice thereof from the Executive; or
2. The express direction to the Executive by the Board of
Directors to perform any action or inaction which, in the reasonable opinion
of the Executive and, upon written advice of his counsel, is illegal or is
both materially beyond the scope of the duties required of the Executive
under this Agreement and not commensurate with his position as Vice
President-Product Development of the Company; or
3. The threatened or actual insolvency or receivership of the
Company or MCSC; or
4. The material failure of the Company to perform its
obligations to the Executive as set forth in this Agreement.
D. Except as hereinafter provided with respect to Sections
III.C.1., 2., and 4., termination in accordance with any of the foregoing
provisions of Sections III.A, B or C above shall be effective on the date
applicable to the particular termination section referred to above (the
"Termination Date"), and from and after such date, this Agreement shall be of
no further force and effect; provided, however, that no such termination
shall affect: (i) a Party's rights to seek damages or other relief in respect
of a breach by the other Party of his or its obligations under this
Agreement, (ii) the Company's rights or the Executive's obligations under
Section IV herein, or (iii) the Executive's rights or the Company's
obligations as set forth under Sections IV and IX, below. In the event, the
Executive terminates this Agreement pursuant to Sections III.C.1., 2., and
4., above, the Executive shall be entitled to receive compensation in the
form of severance pay equal to the lesser of (i) $14,795, if such termination
occurs more than sixty (60) days prior to the end of the Initial Term or any
Renewal Term of this Agreement, or (ii) $247.00 per day for each day prior to
the end of the Initial Term or any Renewal Term, if such termination occurs
less than sixty (60) days prior to the end of the Initial Term or any Renewal
Term.
IV. NON-COMPETITION
A. 1. The Company has disclosed to the Executive its
confidential business plans, marketing strategies, advertising copy, funding
sources, wholesale and retail customer lists, equipment sources, financial
projections and results and other confidential information concerning the
Company in the course of the Executive's occupation as Vice President-Product
Development and co-founder of the Company. This information and similar
information yet to be developed by
<PAGE>
Lalit Dhadphale
Employment Agreement
Page 5
the Executive is generally unknown to the public and gives the Company a
competitive advantage over those who do not have access to this information.
The Company has taken and will take care to preserve this information and
protect it from becoming generally known. The Company has revealed this
information to the Executive on the condition that he keep it confidential
and will require confidentiality from the Executive and all other persons
with access to the information in the future. The information described
above, therefore, constitutes valuable trade secrets of the Company and is
referred to below as "Proprietary Information."
2. In the course of performing his duties under this
Agreement, the Executive will both help develop and be privy to Proprietary
Information. All Proprietary Information used or generated during the course
of the Executive's employment with the Company will be the property of the
Company, except for such information that was developed by the Executive and
was published or otherwise disseminated prior to the date hereof and
specifically listed and described on an attachment hereto. The Executive
acknowledges and agrees that all works of authorship, including, without
limitation, program codes or documentation, produced by him in the course of
performing services for the Company, are works for hire and the property of
the Company. The Executive further assigns to the Company his entire right,
title and interest in any invention, technique, process, devise, discovery,
improvement or know-how, patentable or not, hereafter made or conceived
solely or jointly by him while working for the Company, which relates in any
manner to the actual or anticipated business or research or development of
the Company or MCSC, or is suggested by or results from any task assigned to
him or work performed by him for or on behalf of the Company or MCSC, or for
which MCSC or Company equipment, supplies, facilities, information or
materials are used. Any such invention, technique, process, device,
discovery, improvement or know-how shall be promptly disclosed to the Company
and the Executive shall specifically assign the title thereto to the Company
and do anything else reasonably necessary to enable the Company to obtain
proprietary rights in the United States or foreign countries. The Executive
shall deliver to the Company all documents and other tangibles containing
Proprietary Information upon termination of his employment with the Company
pursuant to Section III hereof or otherwise within three days after the
Company so requests.
3. The Company has and shall retain all exclusive rights in
the Proprietary Information. During the term of this Agreement and any
extension hereof and for a period of seven (7) years following termination of
this Agreement, the Executive shall not (a) remove Proprietary Information
from Company or MCSC premises; (b) use Proprietary Information for his own
benefit or for the benefit of any third party; and (c) disclose Proprietary
Information to any third party (except with respect to response to judicial
or administrative process, and such disclosure shall occur only after written
notification of the Company immediately after receipt of such process and
cooperation with the Company, if so requested, to assist in obtaining
confidential treatment of, or a protective order for, the Proprietary
Information), or make any commercial or academic use of the
<PAGE>
Lalit Dhadphale
Employment Agreement
Page 6
Proprietary Information without the express written consent of the Company,
which consent may be withheld for any or no reason in the Company's sole
discretion.
4. These restrictions on the use and disclosure of
Proprietary Information shall survive the expiration or termination of this
Agreement for a period of seven (7) years thereafter, regardless of the
grounds or lack of grounds therefor. The parties recognize and agree that, in
the event of a threatened or actual breach of this Section IV.A, the
Company's remedy at law will be inadequate to fully compensate the Company
for its losses. Therefore, the Company may enforce its rights hereunder by
equitable remedies, including, without limited the generality of the
foregoing, injunctive relief and specific performance.
5. These restrictions on the use and disclosure of
Proprietary Information shall not apply to any information that is or becomes
generally disclosed to the public otherwise than by the Executive's breach of
this Agreement.
B. 1. During the term of this Agreement and for twelve months
thereafter ending on the first anniversary of the Termination Date (the
"Non-compete Term"), the Executive hereby covenants and agrees that the
Executive (and any person or entity controlled by, under common control with
or controlling the Executive) will not sell or distribute, directly or
indirectly, or be associated as an officer, director or greater than 5%
shareholder, employee, consultant, agent or representative to or with any
Person that sells or distributes computer supplies or projection presentation
products in an area within a seventy-five (75) mile radius of any existing
office of the Company or MCSC. For purposes of the Section IV.B.1, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any Person shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the activities, affairs, management or policies of such Person,
whether through personal relationship, the ownership of voting securities or
by contract or otherwise.
2. The Executive agrees that in the event that the Executive
commits a breach or threatens to commit a breach of any of the provisions of
this Section IV.B, the Company shall have the right and remedy to have the
provisions of this Section IV.B specifically enforced by any court having
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause immediate irreparable injury to the Company and
that money damages will not provide an adequate remedy at law for any such
breach or threatened breach. Such right and remedy shall be in addition to,
and not in lieu of, any other rights and remedies available to the Company at
law or in equity.
3. If any of the provisions of or covenants contained in this
Section IV.B are hereafter construed to be invalid or unenforceable in any
jurisdiction, the same shall not affect the
<PAGE>
Lalit Dhadphale
Employment Agreement
Page 7
remainder of the provisions or the enforceability thereof in any other
jurisdiction, which shall be given full effect, without regard to the invalid
portions or the unenforceability in such other jurisdiction because of the
duration or geographic scope thereof, the parties agree that the court making
such determination shall have the power to reduce the duration and/or geographic
scope of such provision or covenants and, in its reduced form, said provision or
covenant shall be enforceable; provided, however, that the determination of such
court shall not affect the enforceability of this Section IV.B in any other
jurisdiction.
C. 1. The Executive hereby acknowledges and recognizes the
highly competitive nature of the business of the Company and, accordingly,
agrees that, during the Employment Term and any Renewal Term and in
consideration of the receipt of any payment pursuant to this Agreement, for a
period beginning on the Termination Date and ending upon the expiration of
the Non-compete Term, unless otherwise agreed to in writing by the Company,
the Executive shall not, either directly or indirectly, in any manner or
capacity, whether as principal, agent, partner, officer, director, employee,
joint venturer, salesman, or corporate shareholder or otherwise for the
benefit of any Person (as defined below), (i) solicit the rendering of
services to any Person of any kind whatsoever who is then or has been a
Customer, Supplier, Employee, Salesperson, Agent or Representative of the
Company in any manner which interferes or might interfere with the
relationship of the Company with such Person, or in an effort to obtain such
Person as a Customer, Supplier, Employee, Salesperson, Agent or
Representative of any business in competition with the Company, or (ii)
during the period beginning on the Termination Date and ending upon the
expiration of the Non-compete Term, solicit for employment or assist any
Person in the solicitation for employment of any Employee of the Company.
(a) "Person" means any individual, trust, partnership,
corporation, limited liability company, association, or other legal entity.
(b) "Customer" means any Person with whom the Company is
currently engaged to provide goods or services, has been engaged to provide
goods or services within one (1) year prior to the Termination Date, or
actively marketed, discussed a project with, negotiated with, provided a bid
to or otherwise communicated with in an effort to obtain an engagement to
provide goods or services sold by the Company within one (1) year prior to
the Termination Date.
(c) "Supplier," "Employee," "Salesperson," "Agent" or
"Representative" each means any Person who is then serving, or has served,
the Company in such capacity at any time within one (1) year prior to the
Termination Date.
2. It is expressly understood and agreed that although the
Executive and the Company consider the restrictions contained in Section IV.C
of this Agreement reasonable for the
<PAGE>
Lalit Dhadphale
Employment Agreement
Page 8
purpose of preserving for the Company its goodwill and other proprietary rights,
if a final judicial determination is made by a court having jurisdiction that
the time or territory or any other restriction contained in Section IV.C of this
Agreement is an unreasonable or otherwise unenforceable restriction against the
Executive, the provisions of Section IV.C of this Agreement shall not be
rendered void but shall be deemed amended to apply as to such maximum time and
territory and to such other extent as such court may judicially determine or
indicate to be reasonable.
V. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement as to the subject
matter hereof and there are no terms other than those contained herein. This
Agreement shall be interpreted in order to achieve the purposes for which it was
entered into. The section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. No variation hereof or amendment hereto shall be deemed to be
valid unless in writing a signed by the parties hereto. No waiver by either
party of any provision or condition of this Agreement by him or it to be
performed shall be deemed to be a waiver of similar or dissimilar provisions or
conditions at the same or any prior or subsequent time. This Agreement is not
assignable by the Executive, but may be assigned by the Company to any affiliate
of the Company or by operation of law.
VI. BINDING EFFECT
The Company and the Executive represent and warrant that they are able
to enter into this Agreement and that such ability is not limited or restricted
by any agreements or understandings entered into by the Company or the Executive
with other persons or other companies. This Agreement shall inure to the benefit
of and be binding upon the Company, its successors and assigns, and the
Executive, his heirs, executors, administrators and legal representatives. The
obligations of the Company hereunder are unsecured and the Executive represents
a general creditor of the Company for compensation which may be due and owing.
Nothing contained herein shall create or require the Company to create a trust
of any kind to fund any benefits which may be payable hereunder, and to the
extent that the Executive acquires a right to receive benefits from the Company
hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.
VII. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of California. All disputes between the parties, except
disputes under Section IV, shall be resolved by alternative dispute resolution
("ADR") in the jurisdiction wherein the Executive is domiciled.
<PAGE>
Lalit Dhadphale
Employment Agreement
Page 9
VIII. ALTERNATIVE DISPUTE RESOLUTION
The parties agree that it is in their best interests to resolve all
disputes or controversies (except for violations of Section IV) arising out
of this Agreement in a cost effective and timely manner. Therefore, any
controversy of claim arising out of this Agreement or the breach thereof, or
the interpretation thereof (except, in each case, with respect to Section
IV), shall be settled by binding arbitration in accordance with the Rules of
the American Arbitration Association applicable to employer disputes; and
judgment upon the award rendered in such arbitration shall be final and may
be entered in any court having jurisdiction thereof. Notice of the demand for
arbitration shall be filed in writing with the other party to this Agreement
and with the American Arbitration Association. In no event shall the demand
for arbitration be made after the date when institution of legal or equitable
proceedings based on such claims, dispute or other matter in question would
be barred by the applicable statute of limitation. This agreement to
arbitrate shall be specifically enforceable under the prevailing arbitration
law. Any Party desiring to initiate arbitration procedures hereunder shall
serve written notice on the other Party. The parties agree that an arbitrator
shall be selected pursuant to these provisions within thirty (30) days of the
service of the notice of arbitration. In the event of any arbitration
pursuant to these provisions, the parties shall retain the rights of all
discovery provided pursuant to the California Code of Civil Procedure and the
Rules promulgated thereunder, except that all time periods contained in said
Code of Civil Procedure and its related Rules shall be shortened by fifty
percent (50%) for purposes of arbitration proceedings hereunder. Any
arbitration initiated pursuant to these provisions shall be on an expedited
basis and the dispute shall be heard within one hundred twenty (120) days
following the serving of the notice of arbitration and a written decision
shall be rendered within sixty (60) days thereafter. These procedures
supplement the American Arbitration Association's procedures and, if there is
a conflict, these provisions shall control. All rights, causes of action,
remedies and defenses available under California law and equity are available
to the parties hereto and shall be applicable as though in a court of law.
Each party shall be responsible for its own costs and fees of any such
arbitration.
IX. INDEMNIFICATION; WITHHOLDING; MCSC'S ASSURANCES
A. 1. The Company shall indemnify the Executive against all
judgments, payments in settlement (whether or not approved by a court),
fines, penalties and other costs and expenses (including attorneys fees and
costs) imposed upon or incurred by the Executive in connection with or
resulting from any action, suit, proceeding, stockholder's derivative action,
investigation or claim, civil, criminal, administrative or other proceeding,
or any appeal relating thereto, which is brought or threatened by any Person
or government authority (an "Action") and in which the Executive is made a
party or is otherwise involved by reason of his being or having been a
director, officer, employee or agent of the Company, MCSC or any Person
affiliated with either of the foregoing, or
<PAGE>
Lalit Dhadphale
Employment Agreement
Page 10
by reason of any action or omission or alleged action or omission by the
Executive in any such capacity.
2. The Executive shall be entitled to such indemnification if
either (i) the Executive is wholly successful, on the merits or otherwise, in
defending such Action, or (ii) in the judgment of a court of competent
jurisdiction or, in the absence of such determination, in the judgment of a
majority of a quorum of the Board of Directors of the Company (which quorum
shall not include any director who is a party to or is otherwise involved in
such action), or, in the absence of such a disinterested quorum, in the
opinion of independent legal counsel that the Executive acted in good faith
in what he reasonably believed to be in the best interest of the Company, and
in addition, in any criminal action had no reasonable cause to believe that
his action was unlawful.
3. The foregoing rights of indemnification shall be in
addition to any rights which the Executive may otherwise be entitled pursuant
to any agreement, vote of shareholders, at law, in equity or otherwise.
4. In any case in which it reasonably appears that the
Executive will be entitled to indemnification hereunder, such amounts as
shall be determined by a majority of a disinterested quorum of the Board, in
the reasonable exercise of its discretion, shall be advanced to the Executive
to cover the costs and expenses incurred by him in connection with the
action, suit, proceeding, investigation or claim prior to the final
disposition thereof. In such case, the Executive shall undertake in writing
to repay such amounts if it is ultimately determined that he is not entitled
to indemnification.
B. All payments required to be made by the Company hereunder to
the Executive shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as the Company may reasonably
determine should be withheld pursuant to any applicable law or regulation.
C. The Company has received assurances from MCSC that, for a
period of five years from the date of incorporation of the Company, MCSC
shall not operate, or invest in, any person or entity which sells computer
supplies over the Internet to the single office, home office ("SOHO") market.
<PAGE>
Lalit Dhadphale
Employment Agreement
Page 11
X. NOTICES
A. Any notices or other communication required or permitted
hereunder shall be sufficiently given (a) upon the third (3rd) business day
after being deposited in the mail, if sent by registered mail or certified
mail, postage prepaid, addressed, if to the Executive, to him at
__________________________________, and if to the Company, to it c/o MCSC at
4750 Hempstead Station Drive, Dayton, Ohio 45429, Attention: President -
Chief Executive Officer, or (b) upon actual receipt, if sent by facsimile,
overnight courier or personal delivery.
B. For purposes of all notices to be given pursuant to or arising
out of this Agreement, including a demand for ADR, a Party will be presumed
to have received written notice on the date of the actual receipt thereof.
IN WITNESS WHEREOF, the Company and the Executive have set their hands
on the date above written.
ATTEST:
By: /s/ LALIT DHADPHALE
------------------------------
Lalit Dhadphale
"Executive"
ATTEST: BUYSUPPLY.COM CORPORATION
By: /s/ MICHAEL E. PEPPEL
------------------------------
Name: Michael E. Peppel
Title: Vice President
"Company"
<PAGE>
Exhibit 10.12
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
this 8th day of March, 1999 by and between BUYSUPPLY.COM CORPORATION, a Delaware
corporation (the "Company"), and Christopher Feaver (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company;
NOW, THEREFORE, upon the terms and conditions hereinafter set forth, it
is hereby agreed between the parties as follows:
I. DUTIES
A. Upon the terms and subject to the conditions of this Agreement, the
Company hereby employs the Executive as Vice President and Chief Technology
Officer of the Company (which is a wholly owned subsidiary of Miami Computer
Supply Corporation, an Ohio corporation ("MCSC")), commencing on the date
above-written and ending on March 8, 2002 (the "Employment Term"), and the
Executive hereby accepts said employment. The Agreement may be renewed at the
option of the Company for additional periods of one year each (a "Renewal Term")
by the giving of written notice to the Executive at least ninety (90) days prior
to the expiration of the Employment Term or a Renewal Term, as the case may be;
provided, that the Executive shall have the option to decline such renewal by
providing written notice thereof to the Company no later than sixty (60) days
after receipt of any such renewal notice from the Company.
B. The Executive's areas of responsibility shall be commensurate with
his position as Vice President and Chief Technology Officer and co-founder and
as directed by the President and/or the Board of Directors and shall include,
but not be limited to, supervising technological development, engineering
development and production for product releases, system integrations and any
other duties specified by the Board of Directors. The Executive shall, from time
to time and as requested, report to the Board of Directors with respect to his
activities. The Executive agrees to exercise his duties and responsibilities
hereunder in good faith, with diligence, and in accordance with sound business
practice.
C. The Executive shall devote his full business time and efforts and
all reasonable energy and skill to the business of the Company and shall use his
best efforts to promote the interest of the
<PAGE>
Christopher Feaver
Employment Agreement
Page 2
Company. The Executive's services shall be rendered with due regard for the
prompt, efficient and economical operation of the business of the Company.
II. BASE SALARY AND BENEFITS
A. The Executive shall be paid a base salary (the "Base Salary") of
$90,000.00 per year, payable at least monthly when all other employees of the
Company are customarily paid.
B. The Executive will be able to take up to five (5) weeks paid
vacation per year.
C. During the Employment Term and any Renewal Term, the Executive will
be entitled to participate in and receive the benefits of any pension or other
retirement benefit plan, profit sharing, stock option, employee stock ownership,
or other plans, benefits and privileges given to employees and executives of the
Company. The Company shall not make any changes in such plans, benefits or
privileges which would adversely affect the Executive's vested rights or
benefits thereunder, unless such change occurs pursuant to a program applicable
to all executive officers of the Company at equivalent base salary levels and
does not result in a proportionately greater adverse change in the rights of or
benefits to the Executive as compared with any such other executive. Nothing
paid to the Executive under any plan or arrangement presently in effect or made
available in the future shall be deemed to be in lieu of the Base Salary payable
to the Executive pursuant to Section II.A hereof. Nothing contained herein shall
prohibit the Board of Directors of the Company, in its sole discretion, from
increasing the compensation payable to the Executive pursuant to this Agreement
and/or making available to the Executive other benefits in addition to those to
which the Executive is entitled hereunder.
D. In addition to the foregoing, the Executive shall, at all times
during the Employment Term and any Renewal Term, be eligible to participate in
and to be covered by all plans, if any, effective generally with respect to
executives of the Company with respect to life insurance, accident insurance,
health insurance, hospitalization, disability, and other benefits of whatsoever
kind or description, to the extent the Executive is eligible under the terms of
such plans, on the same basis as other executives of the Company and without
restriction or limitation by reason of this Agreement. The Executive shall be
entitled to all of the fringe benefits and perquisites of office of whatsoever
kind or description made available generally to other executives of the Company,
including, but not limited to, customary paid holidays, without restriction or
limitation by reason of any specific benefit provided for in this Agreement.
E. The Company shall pay or reimburse the Executive for all reasonable
out-of-pocket expenses incurred or paid by him in connection with the
performance of his duties, travel,
<PAGE>
Christopher Feaver
Employment Agreement
Page 3
entertainment and other business expenses incurred by him in the performance of
his duties under this Agreement and as are customary for the Executive's role in
the Company, upon presentation of expense statements, receipts or vouchers or
such other supporting information as the Company may reasonably require.
III. TERMS AND CONDITIONS OF EMPLOYMENT
A. Unless earlier terminated pursuant to terms hereof, the term of
employment hereunder shall end on the earliest to occur of:
1. The later of the Employment Term or any Renewal Term;
2. The death or retirement of the Executive;
3. On ten (10) days' written notice of termination from the
Company to the Executive, which notice may be given only on or after there
shall have elapsed a consecutive period of more than 90 days (or for shorter
periods aggregating more than 90 days during any consecutive twelve-month
period) during which the Executive was physically or mentally incapacitated
(as reasonably determined by the Board of Directors based on objective
medical evidence obtained consistent with the Americans with Disabilities
Act) and unable to perform his duties hereunder; or
4. The resignation of the Executive.
B. In addition to the events described in the foregoing Section III.A,
the Company shall be entitled to terminate this Agreement for "cause" upon
written notice to the Executive, the cause to be specified in the notice. For
purposes of this Agreement, "cause" shall be determined by the affirmative vote
of a majority of the Board of Directors of the Company (excluding the Executive,
if a member of the Board) and shall mean (i) the Executive's incompetence in the
performance of his duties under this Agreement, (ii) the Executive's personal
dishonesty adversely affecting the Company, (iii) the Executive's refusal to
perform, or the substantial neglect of, or an intentional failure to perform, a
material portion of the Executive's duties required hereunder, which actions or
inactions are not reasonably cured within ten (10) days after receipt of written
notice from the Company with respect thereto, (iv) the Executive's willful
misconduct adversely affecting the Company or the Executive's material
negligence, (v) breach of a fiduciary duty to the Company involving personal
gain, (vi) sexual harassment by the Executive of any Company employee, officer,
director, representative, agent, customer or vendor, (vii) assault by the
Executive of any Company employee, officer, director, representative, agent,
customer or vendor, (viii) any material breach by the Executive of this
Agreement not reasonably cured with ten (10) days after receipt of written
<PAGE>
Christopher Feaver
Employment Agreement
Page 4
notice thereof, (ix) if the Executive has been convicted of a felony or a crime
involving moral turpitude, theft, fraud or embezzlement, (x) the intentional or
reckless conversion of Company funds, or the destruction of Company assets by
the Executive.
C. The Executive shall have the right to terminate this Agreement for
good reason upon reasonable notice to the Company, the good reason to be
specified in the notice.
1. For purposes of this Agreement, "good reason" shall mean
the failure of the Company to provide material resources which are necessary to
the fulfillment of the Executive's responsibilities hereunder, and which
failure(s) is not reasonably cured within ten (10) days after receipt of written
notice thereof from the Executive; or
2. The express direction to the Executive by the Board of
Directors to perform any action or inaction which, in the reasonable opinion of
the Executive and, upon written advice of his counsel, is illegal or is both
materially beyond the scope of the duties required of the Executive under this
Agreement and not commensurate with his position as Vice President and Chief
Technology Officer of the Company; or
3. The threatened or actual insolvency or receivership of the
Company or MCSC; or
4. The material failure of the Company to perform its
obligations to the Executive as set forth in this Agreement.
D. Except as hereinafter provided with respect to Sections III.C.1.,
2., and 4., termination in accordance with any of the foregoing provisions of
Sections III.A, B or C above shall be effective on the date applicable to the
particular termination section referred to above (the "Termination Date"), and
from and after such date, this Agreement shall be of no further force and
effect; provided, however, that no such termination shall affect: (i) a Party's
rights to seek damages or other relief in respect of a breach by the other Party
of his or its obligations under this Agreement, (ii) the Company's rights or the
Executive's obligations under Section IV herein, or (iii) the Executive's rights
or the Company's obligations as set forth under Sections IV and IX, below. In
the event, the Executive terminates this Agreement pursuant to Sections
III.C.1., 2., and 4., above, the Executive shall be entitled to receive
compensation in the form of severance pay equal to the lesser of (i) $14,795, if
such termination occurs more than sixty (60) days prior to the end of the
Initial Term or any Renewal Term of this Agreement, or (ii) $247.00 per day for
each day prior to the end of the Initial Term or any Renewal Term, if such
termination occurs less than sixty (60) days prior to the end of the Initial
Term or any Renewal Term.
<PAGE>
Christopher Feaver
Employment Agreement
Page 5
IV. NON-COMPETITION
A. 1. The Company has disclosed to the Executive its confidential
business plans, marketing strategies, advertising copy, funding sources,
wholesale and retail customer lists, equipment sources, financial projections
and results and other confidential information concerning the Company in the
course of the Executive's occupation as Vice President and and co-founder of the
Company. This information and similar information yet to be developed by the
Executive is generally unknown to the public and gives the Company a competitive
advantage over those who do not have access to this information. The Company has
taken and will take care to preserve this information and protect it from
becoming generally known. The Company has revealed this information to the
Executive on the condition that he keep it confidential and will require
confidentiality from the Executive and all other persons with access to the
information in the future. The information described above, therefore,
constitutes valuable trade secrets of the Company and is referred to below as
"Proprietary Information."
2. In the course of performing his duties under this
Agreement, the Executive will both help develop and be privy to Proprietary
Information. All Proprietary Information used or generated during the course of
the Executive's employment with the Company will be the property of the Company,
except for such information that was developed by the Executive and was
published or otherwise disseminated prior to the date hereof and specifically
listed and described on an attachment hereto. The Executive acknowledges and
agrees that all works of authorship, including, without limitation, program
codes or documentation, produced by him in the course of performing services for
the Company, are works for hire and the property of the Company. The Executive
further assigns to the Company his entire right, title and interest in any
invention, technique, process, devise, discovery, improvement or know-how,
patentable or not, hereafter made or conceived solely or jointly by him while
working for the Company, which relates in any manner to the actual or
anticipated business or research or development of the Company or MCSC, or is
suggested by or results from any task assigned to him or work performed by him
for or on behalf of the Company or MCSC, or for which MCSC or Company equipment,
supplies, facilities, information or materials are used. Any such invention,
technique, process, device, discovery, improvement or know-how shall be promptly
disclosed to the Company and the Executive shall specifically assign the title
thereto to the Company and do anything else reasonably necessary to enable the
Company to obtain proprietary rights in the United States or foreign countries.
The Executive shall deliver to the Company all documents and other tangibles
containing Proprietary Information upon termination of his employment with the
Company pursuant to Section III hereof or otherwise within three days after the
Company so requests.
<PAGE>
Christopher Feaver
Employment Agreement
Page 6
3. The Company has and shall retain all exclusive rights in
the Proprietary Information. During the term of this Agreement and any extension
hereof and for a period of seven (7) years following termination of this
Agreement, the Executive shall not (a) remove Proprietary Information from
Company or MCSC premises; (b) use Proprietary Information for his own benefit or
for the benefit of any third party; and (c) disclose Proprietary Information to
any third party (except with respect to response to judicial or administrative
process, and such disclosure shall occur only after written notification of the
Company immediately after receipt of such process and cooperation with the
Company, if so requested, to assist in obtaining confidential treatment of, or a
protective order for, the Proprietary Information), or make any commercial or
academic use of the Proprietary Information without the express written consent
of the Company, which consent may be withheld for any or no reason in the
Company's sole discretion.
4. These restrictions on the use and disclosure of Proprietary
Information shall survive the expiration or termination of this Agreement for a
period of seven (7) years thereafter, regardless of the grounds or lack of
grounds therefor. The parties recognize and agree that, in the event of a
threatened or actual breach of this Section IV.A, the Company's remedy at law
will be inadequate to fully compensate the Company for its losses. Therefore,
the Company may enforce its rights hereunder by equitable remedies, including,
without limited the generality of the foregoing, injunctive relief and specific
performance.
5. These restrictions on the use and disclosure of Proprietary
Information shall not apply to any information that is or becomes generally
disclosed to the public otherwise than by the Executive's breach of this
Agreement.
B. 1. During the term of this Agreement and for twelve months
thereafter ending on the first anniversary of the Termination Date (the
"Non-compete Term"), the Executive hereby covenants and agrees that the
Executive (and any person or entity controlled by, under common control with or
controlling the Executive) will not sell or distribute, directly or indirectly,
or be associated as an officer, director or greater than 5% shareholder,
employee, consultant, agent or representative to or with any Person that sells
or distributes computer supplies or projection presentation products in an area
within a seventy-five (75) mile radius of any existing office of the Company or
MCSC. For purposes of the Section IV.B.1, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any Person shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the activities, affairs,
management or policies of such Person, whether through personal relationship,
the ownership of voting securities or by contract or otherwise.
<PAGE>
Christopher Feaver
Employment Agreement
Page 7
2. The Executive agrees that in the event that the Executive
commits a breach or threatens to commit a breach of any of the provisions of
this Section IV.B, the Company shall have the right and remedy to have the
provisions of this Section IV.B specifically enforced by any court having
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause immediate irreparable injury to the Company and
that money damages will not provide an adequate remedy at law for any such
breach or threatened breach. Such right and remedy shall be in addition to, and
not in lieu of, any other rights and remedies available to the Company at law or
in equity.
3. If any of the provisions of or covenants contained in this
Section IV.B are hereafter construed to be invalid or unenforceable in any
jurisdiction, the same shall not affect the remainder of the provisions or the
enforceability thereof in any other jurisdiction, which shall be given full
effect, without regard to the invalid portions or the unenforceability in such
other jurisdiction because of the duration or geographic scope thereof, the
parties agree that the court making such determination shall have the power to
reduce the duration and/or geographic scope of such provision or covenants and,
in its reduced form, said provision or covenant shall be enforceable; provided,
however, that the determination of such court shall not affect the
enforceability of this Section IV.B in any other jurisdiction.
C. 1. The Executive hereby acknowledges and recognizes the highly
competitive nature of the business of the Company and, accordingly, agrees that,
during the Employment Term and any Renewal Term and in consideration of the
receipt of any payment pursuant to this Agreement, for a period beginning on the
Termination Date and ending upon the expiration of the Non-compete Term, unless
otherwise agreed to in writing by the Company, the Executive shall not, either
directly or indirectly, in any manner or capacity, whether as principal, agent,
partner, officer, director, employee, joint venturer, salesman, or corporate
shareholder or otherwise for the benefit of any Person (as defined below), (i)
solicit the rendering of services to any Person of any kind whatsoever who is
then or has been a Customer, Supplier, Employee, Salesperson, Agent or
Representative of the Company in any manner which interferes or might interfere
with the relationship of the Company with such Person, or in an effort to obtain
such Person as a Customer, Supplier, Employee, Salesperson, Agent or
Representative of any business in competition with the Company, or (ii) during
the period beginning on the Termination Date and ending upon the expiration of
the Non-compete Term, solicit for employment or assist any Person in the
solicitation for employment of any Employee of the Company.
(a) "Person" means any individual, trust,
partnership, corporation, limited liability company, association, or other legal
entity.
<PAGE>
Christopher Feaver
Employment Agreement
Page 8
(b) "Customer" means any Person with whom the
Company is currently engaged to provide goods or services, has been engaged to
provide goods or services within one (1) year prior to the Termination Date, or
actively marketed, discussed a project with, negotiated with, provided a bid to
or otherwise communicated with in an effort to obtain an engagement to provide
goods or services sold by the Company within one (1) year prior to the
Termination Date.
(c) "Supplier," "Employee," "Salesperson,"
"Agent" or "Representative" each means any Person who is then serving, or has
served, the Company in such capacity at any time within one (1) year prior to
the Termination Date.
2. It is expressly understood and agreed that although the
Executive and the Company consider the restrictions contained in Section IV.C of
this Agreement reasonable for the purpose of preserving for the Company its
goodwill and other proprietary rights, if a final judicial determination is made
by a court having jurisdiction that the time or territory or any other
restriction contained in Section IV.C of this Agreement is an unreasonable or
otherwise unenforceable restriction against the Executive, the provisions of
Section IV.C of this Agreement shall not be rendered void but shall be deemed
amended to apply as to such maximum time and territory and to such other extent
as such court may judicially determine or indicate to be reasonable.
V. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement as to the subject
matter hereof and there are no terms other than those contained herein. This
Agreement shall be interpreted in order to achieve the purposes for which it was
entered into. The section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. No variation hereof or amendment hereto shall be deemed to be
valid unless in writing a signed by the parties hereto. No waiver by either
party of any provision or condition of this Agreement by him or it to be
performed shall be deemed to be a waiver of similar or dissimilar provisions or
conditions at the same or any prior or subsequent time. This Agreement is not
assignable by the Executive, but may be assigned by the Company to any affiliate
of the Company or by operation of law.
VI. BINDING EFFECT
The Company and the Executive represent and warrant that they are able
to enter into this Agreement and that such ability is not limited or restricted
by any agreements or understandings entered into by the Company or the Executive
with other persons or other companies. This Agreement shall inure to the benefit
of and be binding upon the Company, its successors and assigns,
<PAGE>
Christopher Feaver
Employment Agreement
Page 9
and the Executive, his heirs, executors, administrators and legal
representatives. The obligations of the Company hereunder are unsecured and the
Executive represents a general creditor of the Company for compensation which
may be due and owing. Nothing contained herein shall create or require the
Company to create a trust of any kind to fund any benefits which may be payable
hereunder, and to the extent that the Executive acquires a right to receive
benefits from the Company hereunder, such right shall be no greater than the
right of any unsecured general creditor of the Company.
VII. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of California. All disputes between the parties, except
disputes under Section IV, shall be resolved by alternative dispute resolution
("ADR") in the jurisdiction wherein the Executive is domiciled.
VIII. ALTERNATIVE DISPUTE RESOLUTION
The parties agree that it is in their best interests to resolve all
disputes or controversies (except for violations of Section IV) arising out of
this Agreement in a cost effective and timely manner. Therefore, any controversy
of claim arising out of this Agreement or the breach thereof, or the
interpretation thereof (except, in each case, with respect to Section IV), shall
be settled by binding arbitration in accordance with the Rules of the American
Arbitration Association applicable to employer disputes; and judgment upon the
award rendered in such arbitration shall be final and may be entered in any
court having jurisdiction thereof. Notice of the demand for arbitration shall be
filed in writing with the other party to this Agreement and with the American
Arbitration Association. In no event shall the demand for arbitration be made
after the date when institution of legal or equitable proceedings based on such
claims, dispute or other matter in question would be barred by the applicable
statute of limitation. This agreement to arbitrate shall be specifically
enforceable under the prevailing arbitration law. Any Party desiring to initiate
arbitration procedures hereunder shall serve written notice on the other Party.
The parties agree that an arbitrator shall be selected pursuant to these
provisions within thirty (30) days of the service of the notice of arbitration.
In the event of any arbitration pursuant to these provisions, the parties shall
retain the rights of all discovery provided pursuant to the California Code of
Civil Procedure and the Rules promulgated thereunder, except that all time
periods contained in said Code of Civil Procedure and its related Rules shall be
shortened by fifty percent (50%) for purposes of arbitration proceedings
hereunder. Any arbitration initiated pursuant to these provisions shall be on an
expedited basis and the dispute shall be heard within one hundred twenty (120)
days following the serving of the notice of arbitration and a written decision
shall be rendered within sixty (60) days thereafter. These procedures supplement
the American Arbitration Association's procedures and, if there is a conflict,
<PAGE>
Christopher Feaver
Employment Agreement
Page 10
these provisions shall control. All rights, causes of action, remedies and
defenses available under California law and equity are available to the parties
hereto and shall be applicable as though in a court of law. Each party shall be
responsible for its own costs and fees of any such arbitration.
IX. INDEMNIFICATION; WITHHOLDING; MCSC'S ASSURANCES
A. 1. The Company shall indemnify the Executive against all
judgments, payments in settlement (whether or not approved by a court), fines,
penalties and other costs and expenses (including attorneys fees and costs)
imposed upon or incurred by the Executive in connection with or resulting from
any action, suit, proceeding, stockholder's derivative action, investigation or
claim, civil, criminal, administrative or other proceeding, or any appeal
relating thereto, which is brought or threatened by any Person or government
authority (an "Action") and in which the Executive is made a party or is
otherwise involved by reason of his being or having been a director, officer,
employee or agent of the Company, MCSC or any Person affiliated with either of
the foregoing, or by reason of any action or omission or alleged action or
omission by the Executive in any such capacity.
2. The Executive shall be entitled to such indemnification if
either (i) the Executive is wholly successful, on the merits or otherwise, in
defending such Action, or (ii) in the judgment of a court of competent
jurisdiction or, in the absence of such determination, in the judgment of a
majority of a quorum of the Board of Directors of the Company (which quorum
shall not include any director who is a party to or is otherwise involved in
such action), or, in the absence of such a disinterested quorum, in the opinion
of independent legal counsel that the Executive acted in good faith in what he
reasonably believed to be in the best interest of the Company, and in addition,
in any criminal action had no reasonable cause to believe that his action was
unlawful.
3. The foregoing rights of indemnification shall be in
addition to any rights which the Executive may otherwise be entitled pursuant to
any agreement, vote of shareholders, at law, in equity or otherwise.
4. In any case in which it reasonably appears that the
Executive will be entitled to indemnification hereunder, such amounts as shall
be determined by a majority of a disinterested quorum of the Board, in the
reasonable exercise of its discretion, shall be advanced to the Executive to
cover the costs and expenses incurred by him in connection with the action,
suit, proceeding, investigation or claim prior to the final disposition thereof.
In such case, the Executive shall undertake in writing to repay such amounts if
it is ultimately determined that he is not entitled to indemnification.
<PAGE>
Christopher Feaver
Employment Agreement
Page 11
B. All payments required to be made by the Company hereunder to the
Executive shall be subject to the withholding of such amounts, if any, relating
to tax and other payroll deductions as the Company may reasonably determine
should be withheld pursuant to any applicable law or regulation.
C. The Company has received assurances from MCSC that, for a period of
five years from the date of incorporation of the Company, MCSC shall not
operate, or invest in, any person or entity which sells computer supplies over
the Internet to the single office, home office ("SOHO") market.
X. NOTICES
A. Any notices or other communication required or permitted hereunder
shall be sufficiently given (a) upon the third (3rd) business day after being
deposited in the mail, if sent by registered mail or certified mail, postage
prepaid, addressed, if to the Executive, to him at
__________________________________, and if to the Company, to it c/o MCSC at
4750 Hempstead Station Drive, Dayton, Ohio 45429, Attention: President - Chief
Executive Officer, or (b) upon actual receipt, if sent by facsimile, overnight
courier or personal delivery.
B. For purposes of all notices to be given pursuant to or arising out
of this Agreement, including a demand for ADR, a Party will be presumed to have
received written notice on the date of the actual receipt thereof.
IN WITNESS WHEREOF, the Company and the Executive have set their hands
on the date above written.
ATTEST:
By: /s/ Christopher Feaver
-----------------------------
Christopher Feaver
"Executive"
ATTEST: BUYSUPPLY.COM CORPORATION
By: /s/ Michael E. Peppel
-----------------------------
Name: Michael E. Peppel
Title: Vice President
"Company"
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form
S-1 of our report dated April 7, 2000 relating to the financial statements of
Zengine, Inc., which appears in such Registration Statement. We also consent
to the references to us under the headings "Experts", "Summary Financial Data"
and "Selected Financial Data" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cincinnati, OH
May 4, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS OF ZENGINE, INC. AT FEBRUARY 29, 2000 AND SEPTEMBER 30, 1999 AND THE
STATEMENTS OF OPERATIONS FOR THE FIVE MONTHS ENDED FEBRUARY 29, 2000 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 5-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-2000 SEP-30-1999
<PERIOD-START> OCT-01-1999 JAN-01-1999
<PERIOD-END> FEB-29-2000 SEP-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 86,122 406
<SECURITIES> 0 0
<RECEIVABLES> 3,394,637 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,941,533 406
<PP&E> 521,777 376,405
<DEPRECIATION> 85,580 21,491
<TOTAL-ASSETS> 4,552,730 355,320
<CURRENT-LIABILITIES> 468,324 92,573
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 4,084,406 262,747
<TOTAL-LIABILITY-AND-EQUITY> 4,552,730 355,320
<SALES> 1,812,954 4,089
<TOTAL-REVENUES> 1,812,954 4,089
<CGS> 224,891 23,511
<TOTAL-COSTS> 2,120,644 914,201
<OTHER-EXPENSES> (68,060) 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (464,521) (933,623)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (464,521) (933,623)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (464,521) (933,623)
<EPS-BASIC> (0.28) (0.59)
<EPS-DILUTED> (0.28) (0.59)
</TABLE>
<PAGE>
EXHIBIT 99.1
[MCSi LOGO]
MCSi SUBSCRIPTION PROGRAM FOR
ZENGINE, INC.
FOR RECORD HOLDERS OF 100 OR MORE SHARES OF MIAMI COMPUTER
SUPPLY CORPORATION COMMON STOCK ON ________ __, 2000
Record holders of fewer than 100 shares of Miami Computer Supply
Corporation (MCSi) common stock on _____ __, 2000 are not eligible to
participate in this program.
THE MCSi SUBSCRIPTION PROGRAM FOR ZENGINE WILL EXPIRE AT 5:00 P.M. NEW
YORK CITY TIME ON THE THIRD BUSINESS DAY AFTER THE OFFERING PRICE HAS BEEN SET.
We urge you to read carefully this document and the enclosed
preliminary prospectus for a complete explanation of the offering and for
information about Zengine.
If you have any questions regarding the MCSi Subscription Program,
please call the MCSi investor relations line at (___)____-_____.
Please do not call Zengine with any questions regarding this program.
Only MCSi's investor relations line or a MCSi representative will be able to
answer your questions.
<PAGE>
[Zengine LOGO]
_______ __, 2000
Dear MCSi Stockholder:
As you may know, we are undertaking an initial public offering of the
common stock of Zengine, Inc. We are permitting Miami Computer Supply
Corporation (MCSi) to use the MCSi Subscription Program so that we may offer you
the opportunity to buy shares of common stock at our initial public offering
price. We will be offering __________ shares of common stock under the program.
Set forth below is a detailed description of how the program will work
in connection with our offering. Please review this description and the attached
prospectus carefully in deciding whether or not you wish to invest.
WHO CAN SUBSCRIBE
ONLY RECORD HOLDERS OF 100 OR MORE SHARES OF MCSi COMMON STOCK AS OF
________ __, 2000 ARE ELIGIBLE TO PURCHASE SHARES OF OUR COMMON STOCK IN THE THE
PROGRAM. Holders of fewer than 100 MCSi shares will not be eligible to
participate in this program.
YOU MAY NOT TRANSFER YOUR SUBSCRIPTION OFFER
The offer to purchase shares in this program may only be transferred by
involuntary operation of law such as death or certain dissolutions.
NUMBER OF SHARES FOR WHICH YOU MAY SUBSCRIBE
To determine how many shares of our common stock you are eligible to
purchase, divide the number of shares of MCSi common stock that you owned of
record as of _________ __, 2000 by __ and round up to the nearest whole number.
For example, if you held between ____ and ____ shares of MCSi common stock as of
this date, you may subscribe for ____ shares of our common stock. You would have
to have had at least ______ shares of MCSi common stock to be eligible to
subscribe for 100 shares of our common stock. You may not subscribe for
fractional shares of our common stock.
MINIMUM SUBSCRIPTION SIZE
The minimum subscription that we will accept for any account is for __
shares of our common stock. THEREFORE, RECORD HOLDERS OF FEWER THAN 100 SHARES
OF MCSI COMMON STOCK AS OF _______ __, 2000 WILL NOT BE ABLE TO PURCHASE OUR
SHARES UNDER THE PROGRAM. THIS LIMIT APPLIES TO EACH OF YOUR ACCOUNTS, NOT THE
AGGREGATE OF ALL YOUR ACCOUNTS. If as of ________ __, 2000 you held 50 shares of
MCSi common stock in one account and another 50 shares in a different account,
we will not consider you to be the owner of 100 shares of MCSI common stock.
Since none of your accounts contained at least 100 shares of MCSi common stock,
you would not be eligible to subscribe.
You are under no obligation to subscribe, but if you subscribe for any
shares it must be for at least ___ shares in each account. For example, if you
held ______ shares of MCSi common stock in a single account as of _______ __,
2000 and you choose to purchase our shares under the program, you may purchase
between __ and __ shares.
1
<PAGE>
SUBSCRIPTION PRICE
The price per share under the program will be the same price that all
investors will pay in our initial public offering. The price per share in the
initial public offering will be determined by negotiations between us and the
underwriters of our offering. The factors that we expect to consider in these
negotiations are described in the attached prospectus under the heading "Plan of
Distribution - Underwritten Public Offering." We currently anticipate that the
offering price will be between $___.00 and $___.00 per share. We will inform you
of the initial public offering price as described below under "How to
Subscribe."
STOCK PURCHASE AGREEMENT WITH MCSi
We intend to enter into a Stock Purchase Agreement with MCSi. This
agreement will provide that if all _________ of the shares offered by us under
the program are not purchased by MCSi stockholders, then MCSi will purchase the
remaining shares at our initial public offering price. MCSi will be able to
transfer all or part of its obligation to purchase these remaining shares to
third parties.
HOW TO SUBSCRIBE
TO PURCHASE SHARES UNDER THE PROGRAM, YOU MUST FOLLOW THE FOLLOWING
PROCEDURES:
- Subscriptions and payments will only be accepted from MCSi
shareholders after the Securities and Exchange Commission
(SEC) has declared our registration statement effective and we
have determined our initial public offering price. Any
subscriptions or payments received before then will be
returned to you. Once a subscription and payment have been
received and accepted, you may not revoke your subscription.
We expect to determine our initial public offering price in
late _______ or early _______2000, but various factors could
hasten or delay us. WE WILL CLOSE THE INITIAL PUBLIC OFFERING
AND STOP ACCEPTING SUBSCRIPTIONS THREE BUSINESS DAYS AFTER WE
DETERMINE THE INITIAL OFFERING PRICE.
- Time will not permit us to notify you directly of our initial
public offering price and closing date. Instead, MCSi will
take the following actions:
- publicize the offering price and the closing date on
its Web site (www.mcsinet.com) and through a press
release;
- through its Web site, provide you with an opportunity
to request e-mail notification (either directly to
you or your designated representative);
- make every effort to notify each broker, bank, trust
company or other nominee that holds shares on behalf
of MCSi stockholders of the offering price and
closing date; and
- make available an investor relations line
(800-___-____) through which you can listen to the
text of the press release or request a faxed copy.
You will have to monitor these media to know when to place
your order and deliver payment.
ALSO, IF YOU DO NOT HOLD YOUR MCSi SHARES DIRECTLY, YOU WILL
NEED TO KEEP IN CLOSE CONTACT WITH YOUR BROKER, BANK, TRUST COMPANY OR
OTHER NOMINEE THAT HOLDS YOUR MCSi SHARES ON YOUR BEHALF SINCE THEY
WILL NEED TO PROCESS THE SUBSCRIPTION FOR OUR SHARES AND PAYMENT ON
YOUR BEHALF.
2
<PAGE>
- - WE WILL STOP ACCEPTING ORDERS UNDER THE PROGRAM AT 5:00 P.M. NEW YORK
CITY TIME ON THE THIRD BUSINESS DAY AFTER WE DETERMINE THE INITIAL
OFFERING PRICE. Subscriptions and payments that have not been received
by Registrar and Transfer Company by this deadline will not be honored.
For example, if we determine the initial public offering price on a
Thursday, Registrar and Transfer Company must receive all orders and
payments by 5:00 p.m. New York City time on the following Tuesday. This
deadline would be extended to the following Wednesday if there was an
intervening holiday on which the Nasdaq Stock Market was closed.
- - To place an order for our shares under this program, you will have to
take the following actions:
- If you hold your MCSi shares in your own name (that is, in
certificate form rather than in a brokerage account)
You must complete and sign the subscription form included with
this prospectus and return it with full payment to Registrar
and Transfer Company. YOUR SUBSCRIPTION FORM AND PAYMENT MUST
BE RECEIVED BY REGISTRAR AND TRANSFER COMPANY BEFORE 5:00 P.M.
NEW YORK CITY TIME ON THE THIRD BUSINESS DAY AFTER WE
DETERMINE THE INITIAL OFFERING PRICE. WE WILL NOT HONOR ANY
SUBSCRIPTION FORM RECEIVED BY REGISTRAR AND TRANSFER COMPANY
AFTER THAT DATE.
We suggest, for your protection, that you deliver your
subscription form and payment to Registrar and Transfer
Company by overnight or express mail courier (or by facsimile
transmission if you intend to wire funds) as follows:
By Hand Delivery:
Registrar and Transfer Company
---------------------
---------------------
---------------------
By Overnight or Express Mail Courier:
Registrar and Transfer Company
---------------------
---------------------
---------------------
By Facsimile Transmission and Wire Transfer:
Registrar and Transfer Company
Facsimile Transmission: (___) ____-______
To confirm fax, call: (____) ___-______
Wire instructions: Wire to: ________________
ABA #: ________________
Attention: ________________
Account: ________________
For: MCSi/Zengine
Reference: FBO [insert your name as it
appears on the front of
your subscription form]
3
<PAGE>
You must pay the subscription price by valid check or money order in
U.S. dollars payable to "Registrar and Transfer Company" or by wire transfer. If
you choose to pay the subscription price by wire transfer, you must fax a copy
of your completed subscription form to the facsimile number provided. We
suggest, for your protection, that you also call the number provided to confirm
that Registrar and Transfer Company received your fax. Until this offering has
closed, your payment will be held in escrow by Registrar and Transfer Company.
Registrar and Transfer Company will mail a copy of the final prospectus
to all direct MCSi shareholders who subscribe for shares in this program.
- - IF YOU HOLD YOUR MCSi SHARES THROUGH A BROKER, BANK, TRUST COMPANY OR
OTHER NOMINEE
We will provide to each broker, bank, trust company, and other nominee
who holds MCSi shares for the account of other persons copies of the
preliminary and final prospectus. Each of those entities will be
responsible for providing you with a copy of the preliminary and final
prospectus. Subscription forms will not be distributed to MCSi
shareholders who hold their shares in a brokerage account since the
subscription offer will be distributed to your account electronically.
After we determine the initial public offering price, you will have to
contact the broker, bank, trust company or other nominee that holds
your MCSi shares if you wish to place an order and arrange for payment.
Registrar and Transfer Company will be unable to directly accept your
subscription and payment. All subscriptions and payments must be
submitted through the broker, bank, trust company or other nominee that
holds your MCSi shares.
WE CAUTION YOU THAT BROKERS AND OTHER NOMINEES WILL REQUIRE SOME TIME
TO PROCESS SUBSCRIPTIONS FROM MCSi STOCKHOLDERS. THEREFORE, THEY MOST
LIKELY WILL STOP ACCEPTING SUBSCRIPTIONS EARLIER THAN THE THIRD
BUSINESS DAY AFTER WE DETERMINE THE INITIAL OFFERING PRICE.
- - MCSi will decide all questions as to the validity, form and eligibility
(including times of receipt, beneficial ownership and compliance with
minimum exercise provisions). MCSi also will determine the acceptance
of subscriptions and the aggregate price. Alternative, conditional or
contingent subscriptions will not be accepted. MCSi reserves the
absolute right to reject any subscriptions not properly submitted. In
addition, MCSi may reject any subscription if the acceptance of the
subscription would be unlawful. MCSi also may waive any irregularities
or conditions in the subscription for our shares, and MCSi's
interpretation of the terms and conditions of the program will be final
and binding.
- - We are not obligated to give you notification of defects in your
subscription. Neither we nor MCSi will consider a subscription to be
made until all defects have been cured or waived. If your subscription
is rejected, your payment of the exercise price will be promptly
returned by Registrar and Transfer Company.
- - Sales under the MCSi Subscription Program will close on the same
business day as the closing of the sale of the other shares offered to
the public. If you purchase your shares through a broker, bank, trust
company or similar nominee, we expect that your purchase will be
reflected in your account with the nominee as soon as practicable after
the expiration of the MCSi Subscription Program. Otherwise, Registrar
and Transfer Company will mail a stock certificate to you as soon as
practicable after the expiration of the MCSi Subscription Program.
CANCELLATION OF INITIAL PUBLIC OFFERING
We may cancel our initial public offering at any time up until the
closing. If the initial public offering is canceled, MCSi will publicize the
cancellation on its Web site and through a press release. The program gives you
no rights to purchase shares of our common stock if we cancel our initial public
offering and any funds previously
4
<PAGE>
submitted by you will be returned promptly. MCSi and/or Zengine also may cancel
or modify, in whole or in part, the MCSi Subscription Program.
FEDERAL TAX CONSEQUENCES
We believe that you will not be considered to have received a taxable
distribution of property as a result of your having the opportunity to
participate in this offering. The Internal Revenue Service is not bound by this
position, and you are encouraged to consult with your tax advisors about the
federal, state and other tax consequences of the program.
RISK FACTORS
Investing in our common stock involves certain risks which are
disclosed beginning on page __ of the enclosed preliminary prospectus.
CERTAIN RESTRICTIONS
In managing the program, we and MCSi will take reasonable steps to
comply with the laws of the different countries in which MCSi stockholders live.
If compliance is too burdensome in one or more countries, MCSi stockholders
residing in those countries will not be offered the opportunity to purchase our
shares under the program.
* * *
IF YOU HAVE ANY QUESTIONS REGARDING THE MCSi SUBSCRIPTION PROGRAM,
PLEASE CALL MCSi'S INVESTOR RELATIONS LINE AT (800) ____- _____.
PLEASE DO NOT CALL ZENGINE WITH ANY QUESTIONS REGARDING THIS PROGRAM.
ONLY MCSi'S INVESTOR RELATIONS LINE OR A MCSi REPRESENTATIVE WILL BE ABLE TO
ANSWER YOUR QUESTIONS.
Sincerely,
Joseph M. Savarino
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5
<PAGE>
Exhibit 99.2
[William Blair & Company letterhead]
, 2000
Dear MCSi Stockholder:
In connection with the Miami Computer Supply Corporation (MCSi)
Subscription Program relating to the Zengine, Inc. public offering, you are
receiving:
- a letter from Zengine explaining the MCSi Subscription Program, and
- a copy of Zengine's preliminary prospectus relating to its public
offering and the MCSi Subscription Program.
Please direct any questions regarding the MCSi Subscription Program to
MCSi's investor relations line at 1-___-___-____ . Please do not call Zengine
with any questions regarding this program. Only MCSi's investor relations line
or representatives of MCSi will be able to answer your questions.
Very truly yours,
William Blair & Company
<PAGE>
EXHIBIT 99.3
[ZENGINE LOGO]
_________ ___, 2000
Dear Broker:
As you may know, we are undertaking an initial public offering of our shares of
common stock. We are permitting Miami Computer Supply Corporation (MCSi) to use
the MCSi Subscription Program to offer MCSi stockholders the opportunity to buy
shares of our common stock at the initial public offering price. The price per
share under this program will be the same price that all investors will pay in
our initial public offering.
The enclosed questions and answers will provide you with the key terms of the
MCSi Subscription Program. THE MCSi SUBSCRIPTION PROGRAM WILL EXPIRE AT 5:00
P.M. NEW YORK CITY TIME ON THE THIRD BUSINESS DAY AFTER THE OFFERING PRICE IS
SET.
If you have any questions regarding the MCSi Subscription Program, please call
MCSi at (___) ___-____. PLEASE DO NOT CALL ZENGINE REGARDING THIS PROGRAM. You
also may find information about this program on MCSi's web site at
www.mcsinet.com.
Preliminary prospectuses for distribution to MCSi stockholders are being
distributed through Corporate Investor Communications, Attention: Processing
Department, 111 Commerce Road, Carlstadt, NJ 07072-2586, telephone number (201)
896-1900. Please call Corporate Investor Communications if you do not receive a
sufficient number of prospectuses for distribution to MCSi stockholders. You
should provide a copy of the preliminary prospectus to each MCSi stockholder on
whose behalf you hold shares who is eligible to participate in this program.
Sincerely,
Joseph M. Savarino
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
MCSi SUBSCRIPTION PROGRAM
FOR ZENGINE, INC.
Q: WHO IS ELIGIBLE TO PARTICIPATE IN THE MCSi SUBSCRIPTION PROGRAM FOR
ZENGINE, INC.?
A: Only record holders of at least 100 shares of MCSi stock on _____ __, 2000.
Q: HOW WAS THE OPPORTUNITY TO PURCHASE IPO SHARES ALLOCATED TO MCSi
STOCKHOLDERS?
A: MCSi stockholders received a subscription offer to purchase __ shares of
Zengine common stock for each __ shares of MCSi owned of record on ______
__, 2000, subject to the minimum purchase requirement.
If a MCSi stockholder owned at least 100 shares of MCSi common stock but
the number of shares was not evenly divisible by __, MCSi will round up the
subscription offer to the next whole number. Depository Trust Clearing
Corporation will notify its participants of the date by which the roundup
requests must be submitted.
The offer to purchase shares under the MCSi Subscription Program is
nontransferable and cannot be combined among multiple accounts. There will
not be an oversubscription privilege under this program.
Q: IS THERE A MINIMUM PURCHASE REQUIREMENT?
A: The minimum subscription that will be accepted is for __ shares of Zengine
common stock. Therefore, holders of fewer than ___ MCSi shares as of _____
__, 2000 will be unable to purchase shares in the MCSi Subscription Program
for Zengine.
Q: HOW WILL I KNOW WHEN THE OFFERING PRICES AND WHAT THE EXPIRATION DATE FOR
THE OFFERING WILL BE?
A: When the offering is declared effective by the Securities and Exchange
Commission (SEC) and the offering price is set, MCSi will
- issue a press release to the wire services
- send you an e-mail alert if you signed up for this on its Web
site at www.mcsinet.com
- post this information on its Web site
- update its investor relations line (___) ___-____ through
which you will be able to listen to the text of the press
release announcing the price and the expiration date or
request a faxed copy of the release
- notify the New York Stock Exchange and request that they
notify all of their members to notify Depository Trust
Clearing Corporation, which will electronically notify all of
its participants
Q: WHEN CAN SUBSCRIPTIONS AND PAYMENT BE SUBMITTED?
A: Subscriptions and payment will only be accepted by the offering agent after
the initial public offering price of the Zengine common stock has been
determined. Registrar and Transfer Company is the offering agent.
Once a subscription and payment have been received and accepted by the
offering agent, the subscription may not be revoked.
1
<PAGE>
THE OFFERING AGENT WILL STOP ACCEPTING SUBSCRIPTIONS AND PAYMENTS AT 5:00
P.M. NEW YORK CITY TIME ON THE THIRD BUSINESS DAY AFTER THE IPO PRICE HAS
BEEN SET.
Depository Trust Clearing Corporation will handle subscriptions on behalf
of its participants. When you subscribe for shares of Zengine through
DTCC's automated subscription system, you will be required to confirm that
you are subscribing only on behalf of holders that meet the minimum per
account purchase requirement of __ shares.
Q: WHEN WILL THE ZENGINE SHARES PURCHASED IN THE MCSi SUBSCRIPTION PROGRAM BE
DISTRIBUTED?
A: The offering agent is expected to distribute the shares to Depository Trust
Clearing Corporation approximately two to three business days following the
expiration of the MCSi Subscription Program.
Q: WHAT ARE THE TAX CONSEQUENCES OF RECEIPT OF THE SUBSCRIPTION OFFER AND ITS
EXERCISE?
A: MCSi shareholders should consult their own tax advisors about the federal,
state and other tax consequences of the program. Nevertheless, we believe
that, as a result of having the opportunity to participate in the MCSi
Subscription Program, MCSi shareholders will be considered to have received
neither a taxable distribution of property nor an adjustment to the basis
in their MCSi shares. If a MCSi shareholder exercises the subscription
offer, we believe the basis in the shares of Zengine acquired upon exercise
will be the public offering price plus any processing fees incurred by the
shareholder in connection with the exercise of the subscription offer. The
Internal Revenue Service is not bound by this position.
2
<PAGE>
Exhibit 99.4
Subscription Number
Shares of Zengine Share Subscription Offer Record Date Shares
Eligible to Subscribe
MCSi SUBSCRIPTION PROGRAM
ZENGINE, INC.
SUBSCRIPTION FORM
The shareholder named above has the right to purchase, pursuant to the
terms and conditions of the Miami Computer Supply Corporation (MCSi)
Subscription Program, the number of fully paid and non-assessable shares of
common stock of Zengine, Inc. indicated above at a subscription price that will
be determined as outlined below. THE MCSi SUBSCRIPTION PROGRAM WILL EXPIRE AT
5:00 P.M. NEW YORK CITY TIME ON THE THIRD BUSINESS DAY AFTER THE INITIAL PUBLIC
OFFERING PRICE IS DETERMINED. As described in the preliminary prospectus
accompanying this Subscription Form, each holder of at least 100 shares of Miami
Computer Supply Corporation common stock may subscribe for ___ shares of Zengine
common stock for every ___ shares of MCSi common stock held as of _______ __,
2000, in any account, rounded upward. THE MINIMUM SUBSCRIPTION THAT WE WILL
ACCEPT IS FOR __ SHARES OF ZENGINE COMMON STOCK PER INDIVIDUAL ACCOUNT.
Therefore, holders with accounts containing fewer than 100 shares of MCSi common
stock as of _______ __, 2000, will not be able to subscribe for shares of
Zengine. The right to participate in this program and purchase shares of Zengine
is nontransferable except involuntarily by operation of law (e.g. death or
certain dissolutions). Should an involuntary transfer occur by operation of law,
please contact Registrar and Transfer Company, the agent for the program, by
telephone at ____-____-_____ for appropriate instructions.
The subscription price per share under the program will be the same price
that all investors will pay in Zengine's initial public offering. The price per
share will be determined by negotiations between Zengine and the underwriters of
the offering. The factors to be considered in these negotiations are described
in the preliminary prospectus accompanying this Subscription Form. Zengine
currently anticipates that its initial public offering price will be determined
in late _______ or early ________ 2000 but various factors could hasten or delay
this determination. Time will not permit Zengine to notify you directly of the
subscription price and the expiration date for this offering, but MCSi will take
the actions described in the accompanying preliminary prospectus to publicize
this information.
No offer to buy securities can be accepted, and no part of the subscription
price can be received, until the initial public offering price has been
determined and the registration statement, of which the preliminary prospectus
accompanying this Subscription Form is a part, has been declared effective. Any
Subscription Forms or payments received before then will be returned to you. All
persons electing to subscribe for shares of Zengine must complete the Election
to Purchase on the reverse side of this Subscription Form and return the
Subscription Form, together with full payment of the subscription price, to
Registrar and Transfer Company at the addresses on the back of this Subscription
Form. MCSi will decide all questions as to the validity, form, eligibility, and
acceptance of subscriptions, and MCSi reserves the absolute right to reject any
subscriptions not properly submitted. MCSi also may reject any subscription if
the acceptance of the subscription would be unlawful. Once the Subscription Form
and payment have been received and accepted, your subscription may not be
revoked by you. THE SUBSCRIPTION FORM AND FULL PAYMENT OF THE SUBSCRIPTION PRICE
MUST BE RECEIVED BY REGISTRAR AND TRANSFER COMPANY NO LATER THAN 5:00 P.M. NEW
YORK CITY TIME ON THE THIRD
1
<PAGE>
BUSINESS DAY AFTER THE INITIAL PUBLIC OFFERING PRICE IS DETERMINED. REGISTRAR
AND TRANSFER COMPANY WILL NOT HONOR ANY SUBSCRIPTIONS RECEIVED AFTER THAT TIME
AND DATE. If you do not wish to subscribe for shares, you do not need to return
this Subscription Form. Before completing and returning this Subscription Form,
you are urged to read carefully the preliminary prospectus mailed to you with
this Subscription Form for a more complete explanation of the offering and for
information about Zengine. If Zengine cancels the initial public offering, you
will have no rights to purchase shares of Zengine and any funds previously
submitted by you will be returned. Zengine and/or MCSi also may cancel or
modify, in whole or in part, the MCSi Subscription Program.
YOU SHOULD NOT RETURN THIS SUBSCRIPTION FORM OR DELIVER ANY PAYMENT UNTIL
AFTER ZENGINE HAS DETERMINED THE INITIAL OFFERING PRICE. ANY SUBSCRIPTION FORMS
OR PAYMENT RECEIVED BEFORE THEN WILL BE RETURNED TO YOU. Once the initial public
offering price has been determined, MCSi will take the actions described in the
preliminary prospectus to publicize the subscription price and the date by which
you must respond to the offer that has been made to you under this program. If
you wish to subscribe for shares at that time, you should complete this
Subscription Form and deliver payment of the subscription price to Registrar and
Transfer Company. REGISTRAR AND TRANSFER COMPANY MUST RECEIVE THE PROPERLY
COMPLETED AND SIGNED SUBSCRIPTION FORM AND FULL PAYMENT OF THE SUBSCRIPTION
PRICE BY 5:00 P.M. NEW YORK CITY TIME ON THE THIRD BUSINESS DAY AFTER ZENGINE
DETERMINES THE INITIAL OFFERING PRICE. REGISTRAR AND TRANSFER COMPANY WILL STOP
ACCEPTING SUBSCRIPTION FORMS AFTER THAT TIME AND DATE. Once the Subscription
Form and payment have been received and accepted, your subscription may not be
revoked by you. We suggest, for your protection, that you deliver the completed
Subscription Form and payment of the subscription price to Registrar and
Transfer Company by overnight or express mail courier, or by facsimile
transmission and wire transfer. The addresses for Registrar and Transfer Company
are as follows:
By Hand Delivery:
Registrar and Transfer Company
Attn: ______________
_______________________
_______________________
By Facsimile Transmission and Wire Transfer:
Registrar and Transfer Company
_______________________
_______________________
Facsimile Transmission: (____) ___-______
To confirm fax, call: (___) ____-______
By Overnight Delivery/Express Mail Courier
Registrar and Transfer Company
Attn: ___________________
Wire to: __________________
ABA # ________________
Attention: ________________
Account: ________________
For: MCSi/Zengine
Reference: FBO[insert your name as it appears on the reverse side of this form]
2
<PAGE>
SUBSCRIPTION FORM -- ELECTION TO PURCHASE
Subject to the terms and conditions of the MCSi Subscription Program
described in the preliminary prospectus, receipt of which is hereby
acknowledged, the undersigned hereby elects to purchase shares of common stock
of Zengine, Inc. as indicated below.
Number of shares purchased(1) (NOTE: __ SHARE MINIMUM REQUIRED
IN EACH ACCOUNT)(2)
Per share subscription price $
Payment submitted (payable to
Registrar and Transfer Company)(3) $
(1) You may only purchase up to the number of shares specified on the reverse
side of this form. If the amount submitted is not sufficient to pay the
subscription price for all shares that are stated to be purchased, or if
the number of shares being purchased is not specified, the number of shares
purchased will be assumed to be the maximum number that could be purchased
upon payment of such amount. Any remaining amount will be returned to the
purchaser.
(2) Any order for less than the minimum purchase requirement will be rejected.
(3) The subscription price must be paid by valid check or money order in U.S.
dollars payable to Registrar and Transfer Company or by wire transfer as
described above. The payment submitted should equal the total shares
purchased multiplied by the per share subscription price. SHARES OF COMMON
STOCK OF ZENGINE WILL BE ISSUED PROMPTLY FOLLOWING THE EXPIRATION OF THE
MCSi SUBSCRIPTION PROGRAM. The shares will be registered in the same manner
set forth on the face of this Subscription Form. If your shares are held in
joint ownership, all joint owners must sign this election to purchase. When
signing as attorney, executor, administrator, trustee or guardian, please
give your full title as such. If signing for a corporation, an authorized
officer must sign and provide title. If signing for a partnership, an
authorized partner must sign and indicate title. Please provide a telephone
number at which you can be reached in the event that we have questions
regarding the information that you have supplied.
Daytime Telephone Number ( )
Evening Telephone Number ( )
(IF JOINTLY OWNED, BOTH MUST SIGN) SIGNATURE(S):
Dated: , 2000
NOTE: The above signature(s) must correspond with the name(s) as written upon
the face of this Subscription Form in every particular without
alteration.
3
<PAGE>
SUBSTITUTE FORM W-9
DEPARTMENT OF THE TREASURY, INTERNAL REVENUE SERVICE -- PAYER'S REQUEST FOR
TAXPAYER IDENTIFICATION NUMBER (TIN) FAILURE TO COMPLETE THIS FORM MAY
SUBJECT YOU TO 31% FEDERAL INCOME TAX WITHHOLDING.
Part 1: PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION NUMBER IN THE SPACE
PROVIDED AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW TIN
Social Security or Employer Identification Number
Part 2: Check the box if you are awaiting a TIN
Part 3: CERTIFICATION -- UNDER PENALTIES OF PERJURY, I CERTIFY THAT (1) the
number shown on this form is my correct taxpayer identification number
(or a TIN has not issued to me but I have mailed or delivered an
application to receive a TIN or intend to do so in the near future),
(2) I am not subject to backup withholding either because I have not
been notified by the Internal Revenue Service (the "IRS") that I am
subject to backup withholding as a result of a failure to report all
interest or dividends or the IRS has notified me that I am no longer
subject to backup withholding, and (3) all other information provided
on this form is true, correct and complete.
Dated: , 2000 SIGNATURE:
You must cross out item (2) above if you have been notified by the IRS that
you are currently subject to backup withholding because of underreporting
interest or dividends on your tax return. However, if after being notified by
the IRS that you were subject to backup withholding, you received another
notification from the IRS that you are no longer subject to backup withholding,
do not cross out item (2).
4
<PAGE>
EXHIBIT 99.5
EXCITE@HOME
450 Broadway Street
Redwood City, CA 94063
tel: 650.556.5000
fax: 650.556.5100
net: www.excitehome.net
MARCH 27, 2000
CONFIDENTIAL
Joseph Savarino
President
Zengine, Inc.
6100 Stewart Avenue
Fremont, CA 94538
Re: Consent
Dear Joe:
EXCITE@HOME, INC. consents to the use of its name and the description
of the transaction with Zengine, Inc. substantially as set forth in the draft
paragraph attached to this letter. This consent represents a limited license
from Excite@Home, Inc. to use the Company's name and logo in any capital raising
document that describes the relationship between our companies substantially as
set forth in the attachment.
Please feel free to contact me if you have any questions.
Name: /s/ ERIC VAN MILTENBURG
----------------------------------------
Eric van Miltenburg
Title: Vice President - Business Development - @Work
<PAGE>
EXHIBIT 99.6
REX
T-RRIFIC VALUE. T-RRIFIC PRICES.
Phone (937) 276-3931 * 2875 Needmore Road * Dayton, Ohio 45414
* Fax (937) 276-2713
MARCH 31, 2000
CONFIDENTIAL
Joseph Savarino
President & CEO
Zengine, Inc.
6100 Stewart Avenue
Fremont, CA 94538
RE: Consent
Dear Joe:
Rex Stores Corporation consents to the use of its name and the description of
the transaction with Zengine, Inc. substantially as set forth in the draft
paragraph attached to this letter. This consent represents a limited license
from Rex Stores Corporation to use the Company's name and logo in any capital
raising document that describes the relationship between our companies
substantially as set forth in the attachment.
Please feel free to contact me if you have any questions.
Sincerely,
/s/ Stuart Rose
Stuart Rose
Chairman of the Board
<PAGE>
EXHIBIT 99.7
MARCH 27, 2000
CONFIDENTIAL
EVERdream
Joseph Savarino
President & CEO
Zengine, Inc.
6100 Stewart Avenue
Fremont, CA 94538
Re: Consent
Dear Joe:
EVERDREAM CORPORATION consents to the use of its name and the
description of the transaction with Zengine, Inc. substantially as set forth in
the daft paragraph attached to this letter. This consent represents a limited
license from Everdream Corporation to use the Company's name and logo in any
capital raising document that describes the relationship between our companies
substantially as set forth in the attachment.
Please fee free to contact me if you have any questions.
Sincerely,
Name: /s/ Tassos Nicolaou
----------------------------------
Tassos Nicolaou
Title: Director, Business Development
<PAGE>
EXHIBIT 99.8
MCSI WEBSITE
[MCSI LOGO AND NAVIGATION BAR]
MCSI SUBSCRIPTION PROGRAM
- - ZENGINE IPO
- - WHAT IS IT?
- - HOW DOES IT WORK?
- - FREQUENTLY ASKED QUESTIONS ABOUT THE MCSI SUBSCRIPTION PROGRAM
ZENGINE IPO
Page last updated May __, 2000
ZENGINE, INC.
<TABLE>
<S> <C>
- - Filed with SEC May 4, 2000
- - Record Date May 15, 2000 (NOTE: to be on record, regular way
purchases of stock must generally be made three business
days prior to the record date.)
- - Ratio ___ shares of Zengine, Inc. for every 100 shares
of MCSi held as of the record date.
- - Minimum Number of Holders of 100 or more MCSi shares in each account
Shares to Participate will be able to participate in the offering.
- - Anticipated Effective Date Late June or Early July, 2000
- - Price Range To be determined
- - Expiration Date To be announced
- - Underwriters William Blair & Company, Friedman, Billings,
Ramsey & Co., Inc., E*OFFERING and Morgan
Keegan & Company, Inc.
- - Preliminary Prospectus Click HERE to review the preliminary prospectus.*
* To view the preliminary prospectus, you
will need Acrobat Reader. This software can
be downloaded from Adobe by CLICKING HERE.
</TABLE>
- ------------------------------------------------------------------------------
-C-2000 Miami Computer Supply Corporation
<PAGE>
[MCSI LOGO AND NAVIGATION BAR]
WHAT IS IT?
WHAT IS THE MCSI SUBSCRIPTION PROGRAM?
The MCSi Subscription Program allows MCSi's shareholders who hold at least 100
shares in a single account on the record date the opportunity to participate
in a portion of the initial public offering of Zengine, Inc., a subsidiary of
MCSi.
HOW DOES IT WORK?
PRE-FILING/FILING
- - Management of MCSi and Zengine decided that Zengine was ready for an
initial public offering.
- - Zengine selected the managing underwriters and filed its registration
statement with the Securities and Exchange Commission (SEC) on May 4,
2000. Following the filing of the registration statement, MCSi issued a
press release announcing the proposed MCSi Subscription Program and the
record date that determined the MCSi shareholders eligible to participate
in the offering. (NOTE: to be on record, regular way purchases of MCSi
stock must generally be made three business days prior to the record date.)
- - Approximately two months after the filing of the registration statement, a
preliminary prospectus will be printed and distributed to the MCSi
shareholders either directly or, for street name shareholders, through the
normal brokerage distribution channels. At the same time, the subscription
offer will be distributed electronically into the brokerage accounts of
street name shareholders and a subscription form will be mailed to direct
shareholders.
- - Approximately two to four weeks after the distribution of the preliminary
prospectus, the registration statement of Zengine will be declared
effective by the SEC and the initial public offering price will be set by
Zengine and its underwriters. Zengine's shares should begin trading the
next business day after pricing.
- - Notice of the effective date and the IPO price will be given to MCSi
shareholders by a press release to the wire services, on MCSi's Website
through our toll free investors relations line and, for those who have
requested it on MCSi's Website, by e-mail alert.
SUBSCRIPTION STAGE
- - Once Zengine sets the IPO price, MCSi shareholders have no more than three
business days to subscribe to the offering. Street name shareholders must
subscribe and submit payment through the broker who holds their MCSi
shares. Direct shareholders must deliver a completed subscription form and
payment to the offering agent noted on the subscription form.
FINAL STAGE
- - Approximately six to seven business days after the IPO price has been set,
the shares of Zengine purchased in the MCSi Subscription Program will be
electronically distributed for
<PAGE>
delivery into street name shareholder accounts and stock certificates will
be mailed to direct MCSi shareholders.
PLEASE NOTE: The number of days outlined above are only estimates based on the
typical process and, therefore, can vary by offering.
FREQUENTLY ASKED QUESTIONS ABOUT THE MCSI SUBSCRIPTION PROGRAM
- - What is the MCSi Subscription Program?
- - How will MCSi allocate this opportunity to purchase Zengine shares to MCSi
shareholders?
- - Will I need to own a minimum number of shares to participate in the MCSi
Subscription Program?
- - When you set a record date for the offering, when will I receive
information?
- - What information will I receive for the Program?
- - If I hold my MCSi shares in a brokerage account, can you send the
prospectus and subscription information directly to me instead of sending
it through my broker?
- - What happens if I move my MCSi shares to a different brokerage account
after the record date for the offering but before I've received the
subscription offer?
- - What if I don't receive any information from my broker?
- - How will I know when the offering prices and what the expiration date for
the offering will be?
- - How much time will I have to make a decision?
- - How do I subscribe for shares under this Program?
- - If I don't wish to purchase the shares offered to me, can I sell or
transfer the subscription offer I receive?
- - What if I'm on vacation or otherwise unavailable when the offering is
priced?
- - Can I buy more shares of Zengine than I've been offered?
- - When will the shares purchased in the MCSi Subscription Program be issued?
- - What are the tax consequences of receipt of the subscription offer and its
exercise?
<PAGE>
Q: WHAT IS THE MCSI SUBSCRIPTION PROGRAM?
A: The MCSi Subscription Program allows MCSi shareholders who own at least
100 shares in a single account on the announced record date the
opportunity to participate in a portion of the initial public offering
(IPO) for the common stock of MCSi's subsidiary, Zengine, Inc.
Q: HOW WILL MCSI ALLOCATE THIS OPPORTUNITY TO PURCHASE ZENGINE SHARES TO
MCSI SHAREHOLDERS?
A: The offering ratio will be based on the number of shares being offered
by Zengine in relation to the number of MCSi shares outstanding at the
time of an offering. Zengine currently intends to offer ___ million
shares and has reserved ____ shares for purchase by MCSi
shareholders. It is currently estimated that MCSi will have ___ million
shares of its Common Stock outstanding on the Zengine record date. This
resulted in an allocation of an offer to purchase shares of Zengine for
each __ MCSi shares owned on the record date.
Q: WILL I NEED TO OWN A MINIMUM NUMBER OF SHARES TO PARTICIPATE IN THE
MCSI SUBSCRIPTION PROGRAM?
A: Only holders of 100 or more shares of MCSi stock in a single account of
the record date for an offering will be eligible to participate. This
minimum applies to each account, not the aggregate of all accounts.
Therefore, if you hold 50 shares of MCSi stock in one account and 50
shares in a different account, you will not be considered to be the
owner of 100 shares of MCSi stock.
Q: WHEN YOU SET A RECORD DATE FOR THE OFFERING, WHEN WILL I RECEIVE
INFORMATION?
A: The record date only determines who will receive an offer to purchase
shares in the Program. No offers will be distributed until a
preliminary prospectus for Zengine is available, which will be
approximately two to four weeks before the offering is expected to go
effective.
Q: WHAT INFORMATION WILL I RECEIVE FOR THE PROGRAM?
A: Approximately three weeks before the offering is expected to price, the
subscription offer will be mailed to you or delivered to your brokerage
account if you hold your MCSi shares in street name. We also will
distribute a preliminary prospectus for Zengine and an offering letter
that further explains the MCSi Subscription Program. These materials
will include:
- an anticipated price range
- the period of time during which we expect the offering to price
- the terms of the offering and
- a description of Zengine and the risks involved in an investment.
<PAGE>
The anticipated price range and expected offering dates will be estimates
and cannot be guaranteed.
After the offering goes effective and the IPO price has been set, we also
will distribute a final prospectus for Zengine.
Q: IF I HOLD MY MCSI SHARES IN A BROKERAGE ACCOUNT, CAN YOU SEND THE
PROSPECTUS AND SUBSCRIPTION INFORMATION DIRECTLY TO ME INSTEAD OF SENDING
IT THROUGH MY BROKER?
A: The existing distribution channels do not permit us to distribute these
materials to you directly. However, you will be able to view a copy of the
prospectus on our Website at www.mcsinet.com once it becomes available.
Q: WHAT HAPPENS IF I MOVE MY MCSI SHARES TO A DIFFERENT BROKERAGE ACCOUNT
AFTER THE RECORD DATE FOR AN OFFERING BUT BEFORE I'VE RECEIVED THE
SUBSCRIPTION OFFER?
A: The offer can only be distributed to the account in which your MCSi shares
were held on the record date for an offering. However, if you transfer your
account to a different brokerage account after the record date for an
offering but before the subscription offer is received, the Depository
Trust Company has a procedure in place through which your broker can
request that the subscription offer be moved to your new account as long as
no actual transfer of beneficial ownership has occurred. Likewise, the
subscription offer can only be distributed to you directly if you are
holding your MCSi shares in certificate form on the record date for an
offering.
Q: WHAT IF I DON'T RECEIVE ANY INFORMATION FROM MY BROKER?
A: You should be sure your broker is familiar with this Program and can
provide you with prompt information. If the subscription offer does not
show up in your brokerage account or you do not receive the preliminary
prospectus and offer letter during the timeframe when we expect to have
these materials available, you should be sure to at least call your broker
for further information at that time.
Q: HOW WILL I KNOW WHEN THE OFFERING PRICES AND WHAT THE EXPIRATION DATE FOR
THE OFFERING WILL BE?
A: When the offering is declared effective by the SEC and the offering price
is set, MCSi will:
- issue a press release to the wire services
- update our automated investor relations line (1-TOLL-FREE #), through
which you will be able to listen to the text of the press release
announcing the price and the expiration date or request a faxed copy
of the release
- post this information on our web page at www.mcsinet.com
- send you an e-mail alert if you signed up for this service on this
website.
You will have to monitor these media to know when to deliver your
subscription and payment.
<PAGE>
Q: HOW MUCH TIME WILL I HAVE TO MAKE A DECISION?
A: We will distribute the preliminary prospectus approximately two to four
weeks before an offering is expected to price. No subscriptions or
payment can be accepted prior to the date the offering is declared
effective and the IPO price is set.
ONCE ZENGINE SETS THE IPO PRICE, MCSI SHAREHOLDERS WILL HAVE NO MORE
THAN THREE BUSINESS DAYS FROM WHEN THE IPO PRICES TO SUBSCRIBE TO THE
OFFERING. SINCE BROKERS WILL REQUIRE SOME TIME TO PROCESS SUBSCRIPTIONS
FROM MCSI SHAREHOLDERS WHO HOLD THEIR SHARES IN STREET NAME, BROKERS
MOST LIKELY WILL STOP ACCEPTING SUBSCRIPTIONS EARLIER THAN THE THIRD
BUSINESS DAY AFTER THE IPO PRICES.
Q: HOW DO I SUBSCRIBE FOR SHARES UNDER THIS PROGRAM?
A: If your MCSi shares are held in a brokerage account, you must deliver
subscription instructions and payment through your broker. Only your
broker will be able to subscribe on your behalf.
If you hold your MCSi shares directly, you must follow the instructions
in the materials you will receive directly from MCSi and submit your
subscription form and payment to the offering agent noted on the
subscription form.
In either case, you will have to monitor one of the sources on which
MCSi will publicize the offering price and expiration date to know when
to deliver your subscription and payment. Time will not permit us to
notify you directly. You will be able to find this information in the
press release, on MCSi's Website through our toll-free investors
relations telephone line and in e-mail alerts if you signed up for this
on MCSi's Website.
ALL SUBSCRIPTIONS AND PAYMENTS MUST BE RECEIVED BY THE REGISTRAR AND
TRANSFER COMPANY, THE OFFERING AGENT, BY 5:00 P.M. NEW YORK CITY TIME
ON THE THIRD BUSINESS DAY AFTER THE IPO PRICE HAS BEEN SET.
Q: IF I DON'T WISH TO PURCHASE THE SHARES OFFERED TO ME, CAN I SELL
OR TRANSFER THE SUBSCRIPTION OFFER I RECEIVE?
A: No. You will not be able to sell or transfer the subscription offer.
Q: WHAT IF I'M ON VACATION OR OTHERWISE UNAVAILABLE WHEN THE IPO IS
PRICED?
A: If you will not be available when the offering is expected to price,
you should leave instructions with someone who will be able to act on
your behalf or contact your broker to determine how to make certain you
will be able to subscribe in a timely manner. The offering agent will
stop accepting subscriptions under the Program at 5:00 p.m. New York
City time on the third business day after the offering has priced.
Q: CAN I BUY MORE SHARES OF ZENGINE THAN I'VE BEEN OFFERED?
A: No. We do not offer an oversubscription privilege under the MCSi
Program. However, you may purchase shares of Zengine in the
aftermarket. Zengine shares will trade on the
<PAGE>
Nasdaq National Market under the symbol "ZNGN" beginning on the day
after the IPO prices.
Q: WHEN WILL THE SHARES PURCHASED IN THE MCSI SUBSCRIPTION PROGRAM BE
ISSUED?
A: Approximately six to seven business days after the IPO price has been
set, the shares of Zengine purchased in the MCSi Subscription Program
will be electronically distributed for delivery into street name
shareholder accounts and stock certificates will be mailed to direct
MCSi shareholders.
Q: WHAT ARE THE TAX CONSEQUENCES OF RECEIPT OF THE SUBSCRIPTION OFFER AND
ITS EXERCISE?
A: MCSi shareholders should consult their own tax advisors about the
federal, state and other tax consequences of the Program. Nevertheless,
we believe that, as a result of having the opportunity to participate
in the MCSi Subscription Program, MCSi shareholders will be considered
to have received neither a taxable distribution of property nor an
adjustment to the basis if their MCSi shares. If an MCSi shareholder
exercises the subscription offer, we believe the basis in the shares of
Zengine acquired upon exercise will be the public offering price plus
any processing fees incurred by the shareholder in connection with the
exercise of the subscription offer. The Internal Revenue Service is not
bound by this position.
BACK TO TOP
- ------------------------------------------------------------------------------
-C-2000 Miami Computer Supply Corporation
