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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
STARNET FINANCIAL, INC.
(Name of Small Business Issuer in its charter)
DELAWARE 75-2168244
(State of incorporation) (IRS Employer Identification No.)
17000 PRESTON ROAD, SUITE 350, DALLAS, TEXAS 75248
(Address of principal executive offices) (Zip Code)
(972) 665-0009
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act: NONE.
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of class)
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Copies of Communications Sent To:
I. BOBBY MAJUMDER, ESQ.
GARDERE & WYNNE, L.L.P.
3000 THANKSGIVING TOWER
1601 ELM STREET
DALLAS, TEXAS 75201-4761
TELEPHONE: (214) 999-3000
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TABLE OF CONTENTS
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NOTE ABOUT FORWARD-LOOKING STATEMENTS.............................................................................1
Risk Factors......................................................................................................2
Item 1 - Description of Business...............................................................................10
The Company...........................................................................................10
Our Strategy..........................................................................................11
Our History...........................................................................................14
Our Operating Structure...............................................................................14
U.S. Residential Mortgage Industry Overview...........................................................18
Services and Products.................................................................................21
Sales and Marketing...................................................................................21
Competition...........................................................................................23
Operations............................................................................................23
Employees and Consultants.............................................................................23
Litigation............................................................................................24
Government Regulations................................................................................24
Item 2 - Management's Discussion and Analysis or Plan of Operation.............................................25
Historical Operations.................................................................................25
Results of Operations.................................................................................26
Our Revenues and Expenses.............................................................................28
Plan Of Operation.....................................................................................28
Production............................................................................................30
Pipeline..............................................................................................32
Liquidity and Capital Resources.......................................................................33
Item 3 - Description of Property...............................................................................34
Item 4 - Security Ownership of Certain Beneficial Owners and Management........................................35
Item 5 - Directors, Executive Officers, Promoters and Control Persons..........................................37
Item 6 - Executive Compensation................................................................................39
Executive Compensation................................................................................39
Employment Contracts..................................................................................41
1999 Stock Option Plan................................................................................42
Committees............................................................................................43
Compensation of Directors.............................................................................43
Compensation Committee Interlocks and Insider Participation...........................................43
Item 7 - Certain Relationships and Related Transactions........................................................44
Item 8 - Legal Proceedings.....................................................................................44
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<TABLE>
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Item 9 - Market for Common Equity and Related Stockholder Matters..............................................45
General...............................................................................................45
Market Price..........................................................................................45
Dividends.............................................................................................45
Item 10 - Recent Sales of Unregistered Securities...............................................................45
Item 11 - Description of Securities.............................................................................47
Common Stock..........................................................................................47
Warrants and Options..................................................................................47
Preferred Stock.......................................................................................48
Delaware Business Combination Statute.................................................................48
Certain Charter Provisions............................................................................48
Transfer Agent and Registrar..........................................................................49
Item 12 - Indemnification of Officers and Directors.............................................................49
Limitations of Liability and Indemnification of Directors and Officers................................49
Item 13 - Financial Statements..................................................................................50
Item 14 - Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure...................................................................50
Item 15 - Financial Statements and Exhibits.....................................................................51
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NOTE ABOUT FORWARD-LOOKING STATEMENTS
StarNet Financial, Inc. ("StarNet") is including the following cautionary
statement to make applicable, to the extent possible, the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The
following cautionary statement also is made for the purpose of taking advantage
of any defenses that may exist under other laws, including common law.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, expectations, future events or performance and underlying
assumptions and other statements which are other than statements of historical
facts. This document contains forward-looking statements which can be identified
by the use of words such as "intend," "anticipate," "believe," "estimate,"
"project," or "expect" or other similar statements. These forward-looking
statements involve risks and uncertainties which could cause actual results or
outcomes to differ materially from those expressed in the forward-looking
statements. StarNet's expectations, beliefs and projections are expressed in
good faith and are believed by StarNet to have a reasonable basis, including
without limitation, management's examination of historical operating trends,
data contained in StarNet's records and data available from third parties but
there can be no assurance that management's expectations, beliefs or projections
will occur or be achieved or accomplished. In addition to other factors and
matters discussed elsewhere, that following are important factors that, in the
view of StarNet, could cause actual results to differ materially from those
discussed in the forward-looking statements:
o StarNet has only recently begun operations and is presently incurring
losses;
o The results of StarNet's operations will be affected by various
factors and subject to certain risks inherent in mortgage lending,
many of which are beyond the control of StarNet, including general
economic conditions and interest rate levels;
o Mortgage lending is a highly competitive business, and StarNet's
results will be dependent upon the success of its marketing efforts
and its ability to attract and retain key personnel;
o The substantial growth projected by StarNet, if achieved, must be
efficiently and effectively managed;
o Because StarNet's ability to fund mortgage loans depends on the
availability of financing sources, its revenues and business would be
negatively affected if its current financing sources were canceled or
not renewed; and
o StarNet must remain current with rapidly changing technologies.
StarNet does not undertake to update publicly any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future. We believe that our forward-looking statements are
within the safe harbor provided by the Reform Act. When considering these
statements, you should keep in mind the risk factors described below and other
cautionary statements in this document.
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RISK FACTORS
We have only recently begun operations and are presently incurring losses.
Although, a number of our subsidiaries and divisions have been in operation
for a number of years, we have only operated as a consolidated group for a short
period of time. Consequently, our business profile is that of a
development-stage company. Typical of a development-stage company, our ability
to generate revenue is subject to substantial uncertainty and risk. In addition,
we anticipate that our operating expenses will increase substantially in the
foreseeable future as we open additional regional and net branch offices and
increase our sales and marketing activities. Accordingly, we expect to incur
losses at least through the second quarter of fiscal year 2001 and may continue
to incur losses for some time thereafter. There can be no assurance that we will
begin expanded operations successfully or on a timely basis or that we will be
successful in obtaining market acceptance. There can be no assurance that we
will be able to achieve or sustain operating profitability. Our success may
ultimately depend on management's ability to react expeditiously to exigencies
that have not been taken into account in our business plan.
We have a need for additional financing.
We require substantial capital to pursue our operating strategy. We fund,
and expect to continue to fund, mortgage loans not only with our own cash, but
also primarily with cash obtained through borrowings from nonaffiliated lenders.
Our subsidiary, StarNet Mortgage, currently uses three warehouse lines of credit
with an aggregate borrowing limit of $11,000,000 provided by First State Bank of
Moulton, First State Bank of Calvert and Lott State Bank.(1) Additionally,
StarNet Mortgage maintains a true warehouse line of credit with IMPAC Warehouse
Lending Group of Irvine, California with a borrowing limit of $25,000,000.
Through the practice of managing the flow of loans through shipping and investor
purchase, the credit facilities can be turned up to two times their size. We
fund substantially all of the loans which we originate and purchase through
borrowings under our warehouse lines of credit. These borrowings are in turn
repaid with the proceeds received by selling such loans either through whole
loan sales or bulk sales.
We are currently conducting a private placement of our Common Stock. We
anticipate that the net proceeds of this private offering will permit us not
only to maintain, but to increase the line-of-credit facilities available for
funding mortgage loans. To the extent that we are unable to obtain additional
line-of-credit financing, or even to maintain or replace (at comparable levels)
our existing warehouse lines of credit, we would have to curtail our loan
production activities or sell loans earlier than is optimal, thereby having a
material adverse effect on our results of operations and financial conditions.
Further, we may need additional capital to satisfy future capital requirements.
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(1) Rather than true "warehouse" lines of credit, StarNet Mortgage has
agreements known as "loan purchase agreements" with all of the aforementioned
banks. These agreements require that StarNet Mortgage provide a firm commitment
showing the loan rate locked, price to be purchased at, and the expiration date
of the lock for each loan before funds are released. These commitments assure
that each loan will be purchased out of the line at a guaranteed price within a
given time frame.
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We cannot assure you that we will be able to raise needed capital from other
sources on terms favorable to us, if at all. If we are unable to obtain
sufficient capital in the future, our ability to pursue our business strategy
and result of operations for future periods may be impaired.
Our additional financing requirements could result in dilution to existing
stockholders.
If additional financing is required, it could be obtained through one or
more transactions which effectively dilute the ownership interests of holders of
our Common Stock. Further, there can be no assurance that we will be able to
secure such additional financing. We have the authority to issue additional
shares of Common Stock, as well as additional classes or series of ownership
interests or debt obligations of the Company which may be convertible into any
class or series of ownership interests in the Company. We are authorized to
issue 60,000,000 shares of Common Stock and 3,000,000 shares of preferred stock.
Such securities may be issued without the approval or other consent of the
holders of our Common Stock.
We have substantial indebtedness.
We rely on lines-of-credit to fund our operations. From time-to-time, the
amount of indebtedness under these lines-of-credit is substantial. Our
substantial indebtedness could increase our vulnerability to general economic
and industry conditions, limit our ability to fund future working capital,
capital expenditures and other general corporate requirements, and require us to
dedicate a substantial portion of our cash flow from operations to payments on
our indebtedness, thereby reducing the availability of our cash flow to fund
working capital, capital expenditures and other general corporate purposes. Our
profit margins may also decrease if interest rates on our lines-of-credit
increase.
We have a limited number of offices.
Currently, we have six regional offices established. We intend to establish
three additional regional offices during fiscal year 2001. Because of our small
number of traditional offices, we may be at a competitive disadvantage compared
to other mortgage banking firms that can spread their operating costs across
more offices and originate more loan production and revenue within their much
more extensive branch office networks.
Our future success will be dependent on our ability to attract and retain
key personnel.
Our success depends in large part on the efforts and abilities of our
senior management, including Daniel L. Jackson, our Chief Executive Officer,
Kenneth F. Urbanus, our Chief Operating Officer and President, Michael J.
Gulinson, our Executive Vice President-Finance and Chief Financial Officer,
Edward P. Dayton, our Executive Vice President-Operations and Secretary, Thomas
Deutsch, our Executive Vice President-National Production and Ms. Jennifer
Salsbury, our Executive Vice President-Risk Management/Secondary Marketing. The
loss of one or more of these individuals could adversely affect our business. We
currently have employment agreements with Ms. Salsbury and Messrs. Urbanus,
Gulinson, Dayton and Deutsch and are negotiating an employment agreement with
Mr. Jackson. We do not carry key-man insurance on any of our executive officers.
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We further believe that our future success also depends significantly upon
our ability to attract, train, retain and motivate highly skilled mortgage
bankers, as well as technical, sales and management employees and consultants.
We cannot assure you that we will be able to retain our current key personnel or
attract and retain qualified personnel, which would materially and adversely
affect our business and operating results.
The substantial growth projected by us, if achieved, must be efficiently
and effectively managed.
Our growth has placed, and will likely continue to place, a significant
strain on our managerial, operational and financial resources. We need to:
o improve our financial and management controls, reporting systems and
procedures;
o expand, train and manage our work force for marketing, sales and support
and website development and design; and
o manage multiple relationships with various customers and other third
parties.
We face risks in connection with any potential acquisition that could have
a material adverse impact on our growth or our operations.
From time to time, we may consider selective strategic acquisitions of
mortgage lenders and other mortgage banking-related companies. There is
substantial competition for acquisition opportunities in the mortgage industry.
This competition could result in an increase in the price of, and a decrease in
the number of, attractive acquisition candidates. As a result, we may not be
able to successfully acquire attractive candidates on terms we deem acceptable.
In addition, we cannot assure you that we will be able to obtain the requisite
financing on terms we deem acceptable. Pursuing acquisitions also involves a
number of special risks, including adverse short-term effects on our results of
operations, dilution resulting from issuances of our Common Stock, diversion of
management's time, strain on our financial and administrative infrastructure,
difficulties in integrating acquired businesses and personnel, loss of personnel
and unanticipated legal liabilities. We cannot guarantee you that we will be
able to overcome these acquisition risks or that they will not adversely affect
our growth and results of operations.
The loss of key purchasers of our loans or a reduction in prices paid could
adversely affect our financial condition.
We sell substantially all of the mortgages that we originate to
institutional buyers. Generally, we sell the servicing rights to our loans at
the time we sell those loans. During fiscal year 2000, we sold our loans to
twenty different investors, some of which compete with us directly for retail
originations. If these financial institutions or other significant purchasers of
our loans cease to buy our loans or servicing rights and equivalent purchasers
cannot be found on a timely basis, then our business and results of operations
could be materially adversely affected. Our results of operations could also be
affected if these financial institutions or other purchasers lower the price
they pay to us or adversely change the material terms of their loan purchases
from us.
The prices at which we sell our loans vary over time. A number of factors
determines the price we receive for our loans. These factors include:
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o the number of institutions that are willing to buy our loans;
o the amount of comparable loans available for sale;
o the levels of prepayments of, or defaults on, loans;
o the types and volume of loans we sell;
o the level and volatility of interest rates; and
o the quality of our loans.
The prices at which we can sell our mortgage servicing rights vary over time and
may be materially adversely affected by a number of factors, including the
general supply of and demand for mortgage servicing rights and changes in
interest rates. Servicing rights for a particular loan category that was
originated at higher interest rates tend to have a lower value than those
originated with comparatively lower interest rates due to the greater likelihood
that loans with higher interest rates will be prepaid more quickly.
Our hedging strategy may not protect us from interest rate risk and may
lead to losses.
Although we generally sell our loans within 30 days after funding, there
may be unexpected delays that could increase our interest rate exposure. While
we use hedging and other strategies to minimize our exposure to interest rate
risks, no hedging or other strategy can completely protect us. In addition, the
nature and timing of hedging transactions may influence the effectiveness of
these strategies. Poorly designed strategies or improperly executed transactions
could actually increase our risk and losses. In addition, hedging strategies
involve transaction and other costs. We cannot assure you that our hedging
strategy and the hedges that we make will adequately offset the risks of
interest rate volatility or that our hedges will not result in losses.
We rely on others for consulting services.
We may enter into agreements with contractors, which may include firms
providing website design, software design, information systems and marketing
services. We have verbally entered certain of these agreements, but only one of
the agreements was committed to writing. The verbal agreements are terminable at
will, and the written agreement terminated on April 30, 2000. When and if
terminated, there is no assurance that the verbal agreements could be replaced
on the same or similar financial terms.
To expand our Internet business, we intend to expend significant funds
currently without assurance of increased future earnings or profitability.
We anticipate expending significant funds to implement our growth strategy.
There may be a significant delay between the timing of these expenditures and
any increase in earnings, which may depress our earnings. Our future plans are
subject to both known and unknown risks and uncertainties that may cause our
actual results in future periods to be materially adversely different than our
prior performance. As a result, we cannot guarantee that our future revenues
will increase or that we will continue to be profitable.
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Our Internet success will depend, in part, on the development and
maintenance of the Internet's infrastructure and consumer acceptance of the
Internet as a distribution channel for mortgages. Internet-based mortgage
lending is relatively new, and we cannot assure you that consumers will increase
their use of the Internet for obtaining mortgage loans. In order to increase our
loan volume on the Internet, we depend on building and maintaining relationships
with operators of Internet mortgage websites, attracting consumers with our loan
terms and service, and controlling our costs. However, our ability to
significantly increase the number of loans we originate over the Internet and to
continue to originate loans profitably over the Internet remains uncertain.
To expand our Internet business, we must safeguard our customers' financial
data and our computer systems against Internet intruders and hackers.
Our online loan origination and processing activities will be adversely
affected if we are unable to satisfactorily safeguard the security and privacy
of our customers' financial data. A significant barrier to the future growth of
e-commerce and online communication is the concern over the security of
confidential information transmitted over the Internet. We use Netscape
Communicator v.4.5 rather than earlier Netscape versions or other browsers to
avoid certain security problems, such as root certification authority
recognition. We believe that we have taken adequate measures to ensure the
privacy and confidentiality of our customers' financial information.
Nevertheless, continuing consumer confidence in and usage of the Internet for
mortgage loan origination and processing could be adversely affected by evidence
of the inability of a mortgage loan originator to assure the privacy and
confidentiality of customers' financial information.
Our computer systems may be subject to break-in by hackers accessing our
computer systems through the our Internet website. We currently use the Intruder
Alert software package for Internet website security. Intruder Alert will notify
us of any attempted break-in to our computer network, stop the intruder, and
then build a visual map showing the intruder's Internet Service Provider thus
allowing us to locate and report the intruder to the authorities.
The results of our operations will be affected by various factors and will
be subject to certain risks inherent in the mortgage lending industry, many
of which are beyond our control, including general economic conditions and
interest rate levels.
Our business may be adversely affected by periods of economic slowdown or
recession which may be accompanied by decreased demand for consumer credit and
declining real estate values. Any material decline in real estate values reduces
the ability of borrowers to use home equity to support borrowings and increases
the loan-to-value ratios of loans previously made by us, thereby weakening
collateral coverage and increasing the possibility of a loss in the event of
default. Further, delinquencies, foreclosures, and losses generally increase
during economic slowdowns or recessions.
Any sustained period of such increased delinquencies, foreclosures or
losses could adversely affect the pricing of our loan sales. While we believe
the underwriting criteria and collection methods we utilize enable us to
mitigate the higher risks, we cannot assure you that such criteria or methods
will afford adequate protection against such risk.
Fluctuations in interest rates and increases and decreases of the prime
rate may directly impact the mortgage market and our ability to attract "A" or
"B/C" or other classes of mortgage loans. If interest
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rates should rise, the number of applications for new mortgages may decrease.
The "A" mortgage market is primarily composed of borrowers who are
interest-rate-driven or for purchasing homes; that is, "A" mortgage borrowers
refinance current mortgages for ones with lower interest rates and otherwise
more favorable terms. As interest rates increase, such refinancing diminishes
purchase activities and the number of loan applications in the "A" market
decrease. The "B/C" market is primarily comprised of borrowers who are
payment-driven with a use of the mortgage loan as a source of equity. Often a
goal of the "B/C" borrower is to leverage available equity for immediate use,
and despite increases in interest rates, the "B/C" borrower focuses primarily on
the amount of the monthly payment. Thus, the decrease in loan applications in
the "B/C" market which may occur when interest rates increase, is typically not
as significant as in the "A" mortgage market. However, since we intend to
continue to concentrate our loan origination efforts in the "A" mortgage market,
there can be no assurance that in the event that interest rates rise, that such
a rise will not have a negative impact on our financial position by causing
fewer "A" mortgages to be processed.
We retain some risk on loans that we sell.
Although we sell substantially all loans which we originate and purchase
on a nonrecourse basis, we retain some risk on substantially all loans sold.
During the period of time that loans are held pending sale, we are subject to
the various business risks associated with the lending business, including the
risk of borrower default, the risk of foreclosure and the risk that a rapid
increase in interest rates would result in a decline in the value of loans to
potential purchasers.
In the ordinary course of our business, we may be subject to claims made
against us by borrowers and private investors arising from, among other things,
losses that are claimed to have been incurred as a result of alleged breaches of
fiduciary obligations, misrepresentations, errors and omissions of our
employees, officers and agents (including our appraisers), incomplete
documentation and failures to comply with various laws and regulations
applicable to our business. We believe that there are no such claims currently
asserted. However, any such claims asserted in the future may result in legal
expenses or liabilities which could have a material adverse effect on our
results of operations and financial condition.
We are at any one time potentially subject to past portfolio liabilities,
particularly from our conforming loan business. We may receive demands for
repurchase from various investors. Though we will attempt to have such
individual requests rescinded or cured, there can be no assurance that
individual defects will be cured. Regardless, we do not believe that this risk
would seriously impair our ability to operate successfully.
We face intense and increasing competition in the mortgage lending industry
that could adversely impact our market share and our revenues.
As a marketer of mortgage loans, we face intense competition, primarily
from traditional mortgage lenders, such as commercial banks, savings and loan
associations, credit unions, thrift institutions, and finance companies, as well
as from Internet-based lending companies and other lenders on the Internet.
Furthermore, entry barriers in the mortgage industry are relatively low and
increased competition is likely. As we seek to expand our business, we will face
a greater number of competitors, many of whom will be well-established in the
markets we seek to penetrate.
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Competition can take many forms, including convenience in obtaining a loan,
customer service, marketing and distribution channels, and interest rates.
Furthermore, we depend largely on real estate brokers, visitors to our Internet
website, independent mortgage brokers, financial institutions and other mortgage
bankers for our originations and purchases of new loans. Many of our competitors
are substantially larger, have better name recognition and have more capital and
other resources than us. Our competitors also use the Internet to obtain
originations and purchases of new loans and also seek to establish relationships
with our independent mortgage brokers, financial institutions, and other
mortgage bankers, none of whom is obligated by contract or otherwise to continue
to do business with us.
Competition may also be affected by fluctuations in interest rates and
general economic conditions. During periods of rising interest rates,
competitors which have "locked-in" low borrowing costs may have a competitive
advantage. During periods of declining interest rates, competitors may solicit
our customers to refinance their loans. During economic slowdowns or recessions,
our borrowers may have new financial difficulties and may be receptive to offers
by our competitors.
Competition may also lower the rates we are able to charge borrowers,
thereby potentially lowering the amount of premium income on future loan sales
and sales of servicing rights. Increased competition also may reduce the volume
of our loan originations and loan sales. We cannot assure you that we will be
able to compete successfully in this evolving market.
Mortgage banking is a highly regulated industry at both the federal and
state levels of government. We must become compliant and maintain our
compliance with a myriad of federal and state laws and regulations.
Our business is subject to extensive regulation, supervision and licensing
by federal, state and local governmental authorities and is subject to various
laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of our operations. We are subject to the rules and
regulations of, and examinations by, the United States Department of Housing and
Urban Development ("HUD") and state regulatory authorities with respect to
originating, processing, underwriting and selling loans. These rules and
regulations, among other things, impose licensing obligations on us, establish
eligibility criteria for mortgage loans, prohibit discrimination, provide for
inspections and appraisals of properties, require credit reports on loan
applications, regulate assessment, collection, foreclosure and claims handling,
investment and interest payments on escrow balances and payment features,
mandate certain disclosures and notices to borrowers and, in some cases, fix
maximum interest rates, fees and mortgage loan amounts. Failure to comply with
these requirements can lead to demands for indemnifications or mortgage loan
repurchases, certain rights of rescission for mortgage loans, class action
lawsuits and administrative enforcement actions.
Our operations on the Internet are not currently subject to direct
regulation by any government agency in the United States beyond mortgage-related
regulations and regulations applicable to businesses generally. A number of
legislative and regulatory proposals currently under consideration by federal,
state and local governmental organizations may lead to laws or regulations
concerning various aspects of business on the Internet, including:
o user privacy;
o taxation;
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o content;
o access charges;
o liability for third-party activities; and
o jurisdiction.
The adoption of new laws or the application of existing laws may decrease the
use of the Internet, increase our costs or otherwise adversely affect our
business.
The United States Congress and other governmental officials have also
occasionally suggested the elimination of the home mortgage interest deduction
for federal income tax purposes, either in part or entirely, based on borrower
income levels, type of loan or principal amount of loan. The competitive
advantages of tax-deductible interest, when compared with other sources of
financing, could be eliminated or seriously impaired by such government action.
Regulatory and legal requirements are subject to change. If such
requirements change and become more restrictive, it would be more difficult and
expensive for us to comply and could affect the way we conduct our business,
which could adversely impact our results of operations. Although we believe we
are currently in material compliance with the laws, rules and regulations to
which we are subject, we cannot assure you that we are, or will be, in full
compliance with applicable laws, rules and regulations. If we cannot comply with
those laws or regulations, or if new laws limit or eliminate some of the
benefits of purchasing a mortgage, our business and results of operations may be
materially adversely affected.
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ITEM 1 - DESCRIPTION OF BUSINESS
THE COMPANY
StarNet Financial, Inc. ("StarNet" or the "Company") is engaged in the
business of originating, purchasing and selling mortgage loans secured primarily
by single-family and condominium residences through traditional distribution
channels and over the Internet. The Company:
o originates mortgage loans through our "net branches" located across
the United States;
o conducts wholesale loan originations and processing operations using a
nationwide network of independent mortgage loan brokers; and
o conducts direct consumer mortgage loan origination over the Internet.
Our loan origination activities include (i) offering a variety of
residential mortgage loans, (ii) attracting suitable loan applicants, (iii)
reviewing borrower credit and mortgaged property title, appraised value and
insurance ("underwriting"), (iv) issuing conditional loan commitments, and (v)
funding qualified loans at closing. Upon origination, we pool and sell both our
conforming loans (generally loans to borrowers with perfect or good credit) and
our non-conforming loans (generally loans to borrowers with below average or
delinquent credit) to institutional investors. We also sell individual loans to
such investors.
We are licensed, or are exempt from licensing requirements, to originate,
purchase closed loans, underwrite, and fund or sell residential mortgage loans
in 29 states in the United States. We sell loans primarily to Impac Mortgage
Holdings, Homeside Lending, Inc., Cendant Mortgage, Chase Manhattan Mortgage,
IndyMac, Interfirst Mortgage, Household Finance, Ohio Saving Bank and numerous
other mortgage companies and investors. In addition, we participate in the
following Texas bond programs: Denton County Finance Corporation Single Family
Mortgage Revenue Bonds, Garland Housing Finance Corporation Single Family
Mortgage Revenue Bonds, Collin County Housing Finance Corporation Single Family
Mortgage Revenue Bonds, Grand Prairie Housing Finance Corporation Single Family
Mortgage Revenue Bonds, and Tarrant County Housing Finance Corporation Single
Family Mortgage Revenue Refunding Bonds.
As a mortgage lender, we generate revenues by origination and subsequently
selling loans. These revenues consist of loan processing fees, net gain on sale,
and net interest income. Loan processing fees include application,
documentation, commitment, and processing fees paid by borrowers. Net gain on
sale consists of the difference in price paid by the borrower and the price paid
by the purchaser (or permanent investor), which includes the value of the rights
to service loans. Net interest income consists of the difference between
interest received by us for the time we hold a loan and interest paid by us
under our credit facilities. Our profit on sales of loans depends on the price
we are able to sell our loans into the secondary market. Currently, when we
receive a rate lock on a loan, we sell that loan immediately under a best
efforts contract and then deliver it into a bulk or flow contract. We receive
additional fees when we close a loan. These fees range from a processing fee to
a warehousing fee and can equal up to one-half of one percent of the loan
amount. In addition, when we sell loans into the secondary market, we are able
to make additional marketing gains because of interest rate movements in the
market from the time we lock the rate with our investors under a best efforts
contract.
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Our expenses largely consist of:
o salaries, commissions and benefits paid to employees;
o occupancy and equipment costs;
o Internet and other technology-related expenses, including licensing
and participation fees and advertising costs; and
o data processing and communication costs.
Many of these expenses are variable rather than fixed. Commissions paid to loan
originators vary depending on their originations, and other salaries and
benefits fluctuate from quarter to quarter based on our assessment of the
appropriate level of personnel (other than loan originators), which generally
correlates to current and anticipated loan origination volume.
OUR STRATEGY
Growth Strategy
The total value of our loan originations for the first nine months of
fiscal year 2000 was $374,000,000. Our goal is to continue to expand our
wholesale and retail mortgage banking business primarily through our traditional
originating channels and through our Internet-based origination channel. To
achieve this goal, we are concentrating on the following growth strategies:
o Expand our traditional business into new regions. We intend to extend
our business model and expand our traditional lending activities into
new geographic regions. During the past fiscal year, we opened new
regional loan offices in Houston and Denver. We intend to open three
additional offices over the next 12 months in the eastern and central
United States and possibly other areas. In connection with our
geographic expansion, we plan to advertise in related local and
regional print media to create name recognition and create awareness
of our products and services.
o Hire additional sales-oriented loan originators. We intend to hire
additional loan originators and production personnel in our existing
markets. In the future, the majority of our business will be generated
through these personnel. We also intend to expand into geographic
areas with experienced loan originators and production personnel who
have already established a client base.
o Expand through selective strategic acquisitions. At various times, we
expect to consider acquiring mortgage lenders that share our business
philosophy regarding progressive marketing, innovative use of
technology and sound underwriting. In order to increase core sales, we
may also consider acquiring other mortgage banking-related companies
to enhance our product and service offerings. In evaluating
acquisition candidates, we will consider factors such as the impact of
the acquisition on our earnings, our ability to support and retain
production personnel and our ability to enhance and expand the
acquired business. We believe our broad and competitive
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product line and the technical and other back-up support we offer make
us an attractive partner for potential acquisition candidates.
o Enhance and expand our Internet business. We believe the Internet will
be an increasingly important medium to provide mortgage products and
services. We intend to increase our Internet mortgage origination
volume by opening additional Internet call centers, by expanding our
business into the remaining states in which we are not yet licensed or
otherwise qualified and by establishing relationships with additional
websites so as to increase the number of sources that refer customers
to us. We also intend to develop further enhancements to our website
to allow prospective borrowers to apply for a mortgage loan, lock in
an interest rate and receive a commitment in one online session.
Further, we anticipate that our customers will be able to log onto our
secure website at any time, and through the use of a unique, personal
password, monitor the progress of their loan application. We intend to
start an intensive marketing campaign in selected markets to promote
our own StarNetMortgage.com website and create name recognition. We
also intend to enter into contracts to provide private label Internet
origination services to thrifts and smaller banks.
o Form joint ventures with homebuilders and realtors. We currently
market mortgage loans through joint ventures with realtors and
corporate affinity lending. We intend to also market loans through
joint ventures with homebuilders, which we believe, in turn, will
enhance the Company's revenues.
o Enter the correspondent mortgage banking business. We intend to enter
into the correspondent mortgage banking business, where we will buy
loans from well-managed mortgage bankers who have sufficient capital
resources and then pool and sell these loans into the secondary
market. By becoming a conduit for mortgage bankers to sell their
loans, we anticipate that we will strengthen our relationships with
these brokers and expand our other business.
o Total mortgage lending solution. We intend to offer title insurance,
abstract services, home equity lines of credit and credit-life
insurance products to our mortgage customers. We believe we can
enhance the revenues we earn through the cross-selling of these and
other products and services and leverage our origination network
without significant additional capital investments.
Operating Strategy
We believe that, by taking advantage of the following competitive
advantages in both our traditional and Internet-based origination channels, we
will be able to continue to expand our mortgage banking business:
o Lending to home buyers. We concentrate on making loans to home buyers
rather than to home owners who are refinancing their mortgages. We
believe this makes our business less susceptible to interest rate
increases, because in a rising interest rate environment home purchase
mortgage volume tends to be more stable than mortgage refinancing
volume, which tends to decrease significantly.
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o Range of products available. We believe we have one of the broadest
and best-priced product offerings in the industry. Offering a variety
of well-priced loan products enables us to best serve the largest
number of mortgage customers, each of whom may find different loan
characteristics desirable. Our products are listed in the
"Business--Services and Products" section of this registration
statement.
o Use of advanced technology. In a continuous effort to increase
efficiency, we have dedicated ourselves to maintaining
state-of-the-art information systems. We are in the process of
installing an "enterprise" computer system. This system controls most
aspects of our operations, from the processing of a loan application
through the closing of the loan and our sale of the loan to
institutional investors. The system also performs checks and balances
on many aspects of our operations, and it supports our marketing
efforts. We believe this integrated approach reduces our marginal
origination cost per loan. We intend to continually look for new ways
to improve efficiencies through automation.
o Use of comprehensive and user-friendly website. In September 1999, we
introduced a new, technologically advanced version of our
StarNetMortgage.com website that was designed to provide customers
with 24-hour access to our interest rates and product terms and the
ability to lock in an interest rate, to file a pre-approval request or
application, to check the status of their pending application and to
obtain their credit report. Our website also provides mortgage
customers with an array of "tools" that assist them in determining how
much financing they can afford, what kind of mortgage best suits their
needs and otherwise provides answers to frequently asked questions. We
intend to introduce a number of enhancements to our website that will
enable our customers, in one continuous online session, to apply for a
loan, receive a loan commitment if approved and lock in an interest
rate.
o Loan products specifically underwritten for sale to investors. Our
underwriting process is designed to ensure that each loan we originate
can be sold to a third-party investor by conforming the loan to the
underwriting and credit standards of that investor. Whenever possible,
we use "artificial intelligence" underwriting systems, including
Fannie Mae's Desktop Underwriter(R), to ensure consistency with our
investors' predetermined standards. These systems interface with our
"enterprise" computer system. In addition, we have a series of
internal and external quality control procedures in place to ensure
compliance with our underwriting standards.
o Involved sales strategy. Our loan originators are primarily
compensated through sales commissions, which encourages them to be
responsive to our customers. In addition, we foster a consultative
sales strategy that emphasizes pro-active and frequent customer
assistance. Our loan originators actively guide customers through the
loan application process, not merely providing information requested
by the customer, but keeping customers informed about rate changes and
market conditions.
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OUR HISTORY
In March 1987, we were incorporated in Delaware under the name of "Sarkis
Capital, Inc." On May 13, 1999, we entered into an exchange agreement with
LoanNet, Inc., a Texas corporation ("LoanNet") and the shareholders of LoanNet,
whereby we agreed to acquire LoanNet and its subsidiary, The GM Group, Inc., a
Texas corporation (d/b/a StarNet Retail, sometimes referred to herein as "GM"),
from the LoanNet shareholders in exchange for shares of our Common Stock (the
"Exchange Agreement"). Pursuant to the Exchange Agreement, we issued 9,000,000
shares of our Common Stock in exchange for all of the outstanding shares of
LoanNet. The closing of the Exchange Agreement took place on May 28, 1999. As
part of the reorganization, we changed our name to "StarNet Financial, Inc." in
June 1999. The transaction was accounted for as a recapitalization.
Effective as of October 1, 1999, we purchased substantially all of the
assets of Occidental Mortgage Company, which was engaged in the business of
originating mortgage loans. In connection with the asset purchase, we delivered
to Occidental (i) a five-year promissory note in the original principal amount
of $365,000 and (ii) a five-year option to purchase up to 300,000 shares of
Common Stock at a price of $1.00 per share. Additionally, for a period of four
months beginning October 15, 1999, we agreed to pay Occidental an amount equal
to one percent (1%) of the aggregate mortgage loans closed by us which are
attributable to mortgage loans that Occidental had in process immediately prior
to closing.
Also effective as of October 1, 1999, we acquired all of the outstanding
capital stock of Residential Lenders, Inc., which is engaged in the business of
originating mortgage loans. In connection with the acquisition, we issued
250,000 shares of Common Stock; made an initial cash payment of $175,000, less
certain disbursements; and paid an additional $200,000 to the shareholders of
RLI.
Effective as of December 31, 1999, we sold all of the capital stock of GM.
We did, however, retain certain operations, personnel and relationships of GM.
We conduct our business through three wholly owned subsidiaries and two
distinct operating divisions. StarNet Mortgage, Inc., StarNet TRAkkER, Inc. and
Residential Lenders, Inc. are our wholly owned subsidiaries. Occidental Mortgage
Company and StarNet Retail are operated as divisions.
For the purposes of the "Business" section, references to "StarNet", the
"Company", "we", "our" and "us" include StarNet Mortgage, StarNet Retail,
StarNet TRAkkER, RLI and Occidental, unless otherwise indicated. Our principal
executive office is located at 17000 Preston Road, Suite 350, Dallas, Texas
75248, and our telephone number is (972) 665-0009.
OUR OPERATING STRUCTURE
A description of our five business units follows:
StarNet Mortgage, Inc. ("StarNet Mortgage")
StarNet Mortgage is our residential loan origination subsidiary comprised
of "net branch" offices presently being established across the United States.
The net branch concept has been described by industry analysts as one of the
most mutually-attractive relationships between a mortgage banking
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company and its originators in the marketplace today. Unlike traditional retail
office operations where expansion into a new market by the mortgage company
requires finding, leasing and furnishing an office, recruiting and hiring
originators and support personnel, and implementing start-up marketing programs,
the net branch approach places the burden of overhead on the branch rather than
the company. This enables a mortgage company to grow at an accelerated rate
without a proportionate increase in its operating expenses.
Our net branch program offers one of the most comprehensive packages of
benefits, products, and services to experienced mortgage professionals in the
marketplace, including affiliation with a national corporate identity, full
lender status as a mortgage banker, exemption from certain regulatory licensing,
fee disclosure and net worth requirements, access to a comprehensive and
competitive product line, FHA and VA direct endorsement underwriting, sub-prime
underwriting, improved processing efficiency through Internet-based automation
systems, established investor relationships, marketing programs, staff training,
production and recruitment incentives, accounting, bookkeeping and payroll
services, and group benefits like health insurance.
Our net branches cover their own overhead expenses, maintain their own
profit-and-loss statements, and retain branch profits after expenses. StarNet
Mortgage receives certain processing and document preparation fees on a "per
loan" basis from the branch to cover its own net branch servicing expenses,
while branch loan origination contributes to our production volume growth and
profitability.
Since the completion of the StarNet Mortgage program for its net branch
operations, we have successfully recruited 23 new originators. StarNet
Mortgage's management currently projects that number to grow to 250 by May 2001.
Geographical market coverage by our net branch offices is expected to coincide
with our defined expansion and state licensing timetable. Qualification criteria
and hiring standards for prospective net branch representatives have been
established by StarNet Mortgage's management, and adherence is closely monitored
by an executive oversight committee.
While StarNet Mortgage recognizes its ultimate market to be mortgage
consumers across the country, it also realizes that its primary avenue to these
consumers is through its net branch originators. Accordingly, its initial
marketing efforts are targeted at prospective originators already established
and successful in their respective markets. Individuals or groups fitting this
prospect profile include experienced mortgage bankers and loan officers or
originators with other mortgage companies or financial institutions.
StarNet Mortgage also has a working relationship with a network of over
3,400 mortgage brokers in 31 states. Over 1,700 of these brokers presently
operate within the 16 states constituting our initial geographic marketplace.
Those brokers are in the following states:
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<TABLE>
<S> <C> <C> <C>
Alabama 1 Michigan 1
Arizona 48 Minnesota 5
Arkansas 6 Missouri 3
California 1816 Montana 1
Colorado 273 Nevada 73
Connecticut 1 New Mexico 57
Florida 172 North Carolina 43
Georgia 43 Ohio 57
Hawaii 172 Oklahoma 20
Idaho 7 Oregon 36
Illinois 1 Pennsylvania 1
Indiana 2 South Carolina 1
Kansas 3 Texas 472
Louisiana 3 Utah 15
Maryland 1 Washington 72
</TABLE>
We anticipate wholesale production during the fiscal year 2001 to exceed $1
billion in loans and to continue to grow at an accelerated rate as we commence
activity in other states.
StarNet Retail
StarNet Retail is our residential loan origination division under which the
retail operations and homebuilder group programs are conducted or will be
conducted. StarNet Retail is a fully-approved FHA loan underwriter offering a
comprehensive menu of conventional as well as government-insured mortgage
products to its clients.
StarNet Retail is developing an active retail division that will generate
monthly production from residential real estate agencies and homebuilders. Due
to the nature of the business conducted by StarNet Retail, the period of time
between loan approval or commitment and closing is extended by the time required
for home construction. This creates a significant pipeline of business at any
given point in time for us.
StarNet Retail also intends to develop joint venture agreements with
homebuilders. It is intended that the majority of the loans that will result
from these joint ventures will be FHA government-insured which then will be sold
to investors immediately following closing. StarNet Retail's management
anticipates pursuing such homebuilder programs in those markets that coincide
with our corporate geographical expansion.
StarNet TRAkkER, Inc. ("StarNet TRAkkER")
StarNet TRAkkER is our subsidiary that was formed to engage in the
underwriting and funding of sub-prime residential mortgage loans through a
proprietary software/database system known as TRAkkER. Management has decided
not to develop this line of business and the agreement providing us with a 51%
ownership interest in, and rights to, the TRAkkER system has been rescinded and
unwound, and we no longer have a strategic alliance with TRAkkER Corporation,
the system's creator. As a result, this subsidiary currently has no operations.
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Residential Lenders, Inc.
RLI is our retail originator in our Eastern Region and our Internet
originating division. RLI receives approximately 1,500 hits per week on their
website. From these hits, RLI will contact the customer and turn that lead into
a new loan. RLI also advertises extensively on the Internet. RLI has recently
entered into the wholesale arena. This wholly owned subsidiary has hired staff
to originate mortgage loans throughout the Eastern region of the United States.
With our acquisition of RLI in October 1999, we began originating mortgage
loans through the Internet. From October through December, we received 76 loan
applications for a total principal amount of approximately $8.8 million.
Forrester Research estimates that approximately $91.2 billion, or 9.6%, of all
mortgage loans will be originated online by the year 2003, compared to $18.7
billion, or less than 1.5%, in 1998. In addition, Killen & Associates predicts
online mortgage originations will account for approximately 30% of total
mortgage originations by 2005. Our goal is to become one of the nation's leading
Internet mortgage originators.
The Internet has become a substantial medium for both communication and
electronic commerce. International Data Corporation ("IDC") estimates the number
of Internet users worldwide will increase from 115 million in 1998 to
approximately 400 million in 2002. In addition, IDC expects that the number of
U.S. households using the Internet for online banking will grow from less than
6.6 million in 1998 to more than 32 million in 2003, showing the growth in
reliance on the Internet for financial services. Consumers have become
proficient in using the Internet for finding, evaluating and purchasing a wide
variety of products and services.
Because of its flexibility, the Internet provides companies with additional
ways to reach consumers with the most current information about their products
and services. This information can be updated instantaneously to provide new
features and presentations, or to adjust prices and terms according to market
changes. In addition, the Internet provides a cost-efficient means of conducting
a document-intensive business such as mortgage banking. Consumers can apply
online, have access to their file, update information instantly, and check the
status of their loans 24 hours a day, seven days a week.
To market and sell loans on the Internet, we intend to work with many of
the leading websites in our industry, including Microsoft HomeAdvisor, E-Loan,
GetSmart, LendingTree and Consumer Financial Network. We believe a large number
of Internet mortgage shoppers will be introduced to lenders on these and other
future websites. We believe our inclusion in these websites gives us a strategic
advantage because they are developing their business processes and software in
conjunction with their existing participating lenders and, in some cases,
limiting access by additional lenders.
Occidental Mortgage Company
Occidental is our division which originates mortgage loans from 23 states
and through three areas of origination: wholesale, retail and Internet
originations.
Prior to our acquisition of the assets of Occidental, Occidental had been
in existence for 32 years, originating primarily FHA loans from its retail loan
representatives. This division originates the majority of its loans from the
wholesale arena, focusing on non-conforming loans. Occidental has been
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the largest seller of loans to Impac Mortgage Holdings, a real estate investment
trust, for the past four years.
Occidental operates three offices in Irvine and San Ramon, California, and
Denver, Colorado, serving 23 states. It has centralized underwriting and funding
out of the Irvine location, thus making the San Ramon and Denver locations
production offices only. In addition, all of our secondary marketing is handled
out of the Irvine location.
General Overview
Each of our subsidiaries and divisions will also offer integrated,
interactive, easy-to-use websites providing complete mortgage transaction
fulfillment. Currently, most mortgage lending websites act primarily as referral
sites to prospective borrowers. These types of sites do not offer transaction
fulfillment for the consumer and therefore do not control the entire mortgage
process.
Utilizing our StarNetMortgage.com website, borrowers can choose the
subsidiary or division in their geographic area and will be able to efficiently
search, analyze and compare various mortgage products from a number of lenders
and apply for, qualify for, and obtain the loan most compatible with their
individual financial characteristics and borrowing requirements. They will also
be able to track online the status of their mortgage applications from
submission through closing and to monitor their loans on an ongoing basis after
closing, enabling them to optimize any potential refinance decisions in the
future.
We intend to continue to streamline and refine our online origination and
processing procedures, enabling borrowers to directly benefit from the cost,
speed, and convenience efficiencies made possible by improved techniques and
technologies.
Our management recognizes that successful online origination requires a
comprehensive web marketing plan designed to attract attention, generate traffic
and ultimately reach prospective borrowers. As part of that plan, we are
negotiating a strategic alliance with a major Internet service provider in order
to enhance our visibility and exposure.
U.S. RESIDENTIAL MORTGAGE INDUSTRY OVERVIEW
Traditional United States Mortgage Market
The Mortgage Bankers Association estimates that the United States' mortgage
market totaled over $4.3 trillion of loans outstanding and that mortgage
originations were $1.2 trillion in 1999. The mortgage industry is divided
broadly into four major segments today:
o mortgage origination -- sourcing, verifying and documenting of
mortgage loans, typically done by mortgage brokers and single-source
lenders;
o mortgage funding -- underwriting, funding and selling closed loans to
mortgage loan purchasers;
o securitization -- aggregating loans for sale into the secondary
market; and
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o servicing -- ongoing billing, collection and foreclosure/collateral
management.
Over the past two decades, the mortgage industry has evolved. Until the
late 1970's, the mortgage market was primarily a captive banking market where
retail banks and savings and loan institutions originated loans through their
branches, underwrote and closed loans internally, funded loans from their own
customer deposits and then serviced the loans themselves. This internal chain of
production was broken by the emergence of the pure mortgage bank that could buy
mortgages from mortgage brokers and sell to government sponsored mortgage
investors, such as Fannie Mae and Freddie Mac, and the development of a large,
liquid secondary funding and trading market for mortgage debt. This efficient
new market for mortgage funding made it viable for the first time to uncouple
from the large retail banks both the front-end functions of mortgage origination
and mortgage funding and the back-end function of servicing mortgages.
This transformation has created both a large, concentrated and efficient
secondary mortgage market and a large, fragmented and inefficient mortgage
origination and banking market. There are over 20,000 mortgage brokerage
operations in the United States, according to the National Association of
Mortgage Brokers. However, there is no multi-lender originator that operates
nationally and enjoys a widely recognized consumer brand. In 1998, no mortgage
originator had over 7% market share in terms of the total number of originated
mortgages in the United States. While increased competition at all levels of the
industry has resulted in tremendous innovation in the mortgage choices available
to consumers, the level of complexity associated with these loans has also
increased. In addition, the underwriting and lending processes remain paper and
time intensive with little visibility into the process for consumers. As a
result of the cumbersome underwriting and lending process, we believe that the
traditional mortgage lending process causes many consumers to feel:
o uncertain that their single-source lenders and brokers are providing
unbiased advice and recommending the most suitable mortgage products;
o skeptical that interest rates and closing costs initially quoted will
ultimately be available;
o intimidated by the number and variety of mortgage products available;
o pressured to commit to a particular product before they have
researched and compared products to their satisfaction;
o frustrated with the amount and types of fees that they are required to
pay in connection with the obtainment of a mortgage; and
o overwhelmed by the substantial time and effort that it takes to get a
mortgage loan.
Furthermore, many borrowers receive little ongoing assistance in managing
their debt after the loan is closed. Many direct lenders who also engage in
mortgage servicing are not committed to proactive monitoring of their customers'
loans because they risk losing servicing fees if customers refinance with other
lenders. Multi-lender brokers have the incentive to pursue refinancing
opportunities
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but typically lack the technological capability to proactively monitor the
market changes of thousands of loan products on a continuous basis.
Market Opportunity for Online Mortgage Origination
Now with the emergence of the Internet as a viable means of conducting
electronic commerce, the mortgage banking industry has made great efforts to
utilize this non-traditional distribution channel to increase the amount of
originated mortgages. According to Forrester Research, the market for online
mortgage originations is expected to grow from an estimated $18.7 billion in
1999 to over $91.2 billion in 2003, representing an increase in the percentage
of the existing mortgage market conducted over the Internet from 1.5% in 1999 to
9.6% in 2003. Further, Killen & Associates predicts online originations will
account for approximately 30% of total mortgage originations by 2005. Mortgage
origination is well suited to an Internet-based distribution model for a number
of reasons, including:
o mortgages are information products that need no physical delivery or
warehousing;
o complex mortgage products can be made more understandable through the
use of graphical and dynamic real-time presentations, including
explanations of terminology and easy access to detailed supporting
information;
o borrower data can be efficiently captured through an Internet website,
allowing real-time automated underwriting and streamlined overall
mortgage application processing; and
o costly local offices or brokers and the expensive fee structure
associated with the traditional mortgage distribution model are no
longer required.
Many companies have attempted to capitalize on this large market
opportunity. Existing mortgage banks have created Internet websites to sell
their loans directly online as an alternative method to the traditional mortgage
origination process. These existing mortgage banks, however, do not offer the
consumer a multi-lender selection or comparisons of mortgage products and may
also be reluctant to reduce their fees for Internet customers due to their fear
of merely diverting customers from their traditional distribution channels.
A number of Internet websites currently exist that serve as multi-lender
distribution channels for mortgage banks. These Internet websites act as
referral sites and offer links to various mortgage banks. While many of these
referral websites offer a variety of mortgage lenders, they do not offer
complete transaction fulfillment for the consumer and therefore do not control
the entire mortgage process. Furthermore, because these referral sites do not
eliminate the necessity for the services of commissioned loan agents, they do
not provide substantial cost savings to the consumer.
We believe that in addition to traditional distribution channels (such as
regional offices and brokers), there exists a significant market opportunity for
a centralized, nationally-accessible and simple-to-use online service with a
broad selection of products, a compelling value proposition based upon saving
borrowers money, time and effort, and an open, integrated service that provides
complete transaction fulfillment. Our online service differs from those of our
competitors in that we offer a
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variety of products and allow the customer to complete the mortgage application
process online instead of merely being a referral service where customers can
only compare interest rates and costs of various lenders or are limited to the
products of a single lender.
SERVICES AND PRODUCTS
We provide a broad range of mortgage lending services, which include
conventional, governmental, jumbo (large loan amounts) and non-conforming home
mortgage loans. The majority of our loans are made to owners of single-family
and condominium residences who use the loan proceeds to purchase new homes or
(to a lesser extent) refinance existing home mortgages. We provide funds and
close loans to approved mortgage brokers and correspondent lenders who originate
the mortgage for the consumer. We solicit these brokers for business, competing
with other lenders.
We provide a variety of products to our approved mortgage broker customers
related to home loans. In general, we offer mortgage brokers products for their
clients who have credit from "A" (perfect and good credit) to "D" (below average
and delinquent) and who desire conventional loans, government loans, conforming
loans, and non-conforming loans. All mortgage products are secured by the real
property used as collateral for the mortgage.
Mortgage brokers submit loan packages to our representatives for review and
approval. After the mortgage loan is closed, we package the loans into groups
and sell the loans to mortgage lending conduits. We determine to whom we will
sell the loans based on the conduits' price and service at the time the interest
rate is locked and a commitment is delivered to the customer. We do not retain
the rights to service either the mortgage loans we close or the loans we
purchase from approved correspondent lenders. We anticipate that we will enter
into a sub-servicing agreement with a FNMA-approved servicer at the time we
obtain FNMA approval. We do not anticipate permanently servicing our loan
originations for the remainder of fiscal year 2001.
SALES AND MARKETING
Pricing and Yield Management. We use the latest technology included in the
"Telerate Plus" financial markets package produced by Bridge Information
Systems, Inc. Telerate Plus uses Bridge's market service to provide real-time
mortgage prices and yields, as well as instrumentalized data for analysis and
charting. It also provides us with up-to-the-minute news and economic statistics
regarding the mortgage markets. Athena (part of the Telerate Plus software
package) provides charting capabilities, enabling us to have flexibility in
trading our mortgage loans. Athena assists in mapping out the strategy in the
fixed-income and derivative markets. With the flexibility and customization
power of Athena, our risk manager can chart the open-high-low-close data from
any source, with up-to-the-minute data updates.
Mortgage providers hedge their risk by selling loans. In accordance with
this practice, we cover our interest rate risk initially by selling the
mortgages into the immediate cash market. When a loan is quoted firm to the
customer, the loan will be sold "optional" delivery, which gives us the
opportunity to search the market for a buyer willing to pay a better price for
the loan before it is sold. When the loan is closed, the interest rate risk will
be covered in either the cash-forward markets or with derivatives on the futures
market. If a loan is not delivered, a non-delivery pair-off fee is assessed.
However, when selling
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to FNMA, delivery is mandatory once the sale of a loan is approved; our
opportunity to shop for a better price is not available.
Distribution. We currently originate approximately 90% of our mortgage
loans through traditional distribution channels such as independent mortgage
brokers. We believe that such percentage is comparable to major mortgage banking
firms' percentage of originations through traditional distribution channels.
Independent mortgage brokers generally receive commissions based on originating
fee and premium price.
We have established relationships with a network of over 3,000 mortgage
brokers across the country and intend to maintain strong working relationships
with them and anticipate we will also pay competitive commissions. We also plan
to offer these mortgage brokers significant opportunities to participate in the
development of specific corporate strategies and procedures through their
attendance at meetings with our senior executives.
The remaining 10% of our current mortgage loans originate through the
Internet. On April 15, 2000 we acquired several exclusive advertising agreements
with cyberXpo.com, Inc., a Texas-based company that operates various mobile
Internet access venues, or "cyberCenters," in seven states. Such advertising
agreements provide us with the exclusive right to display mortgage lending and
real estate advertising at any cyberCenter that is operating in a mall, airport
or in a previously agreed upon retail location. Since we began cyberCenter
advertising on April 28, 2000, we have already noticed an increase in our
Internet mortgage loan origination rate and we anticipate that this rate will
continue to increase in the future. Additionally, we anticipate that by
continuing to utilize the Internet to originate mortgages we will, in time, be
able to decrease the amount of commissions paid to independent mortgage brokers.
We also anticipate that our future Internet originations will be
facilitated through Internet call centers. We currently have one Internet call
center in Orlando, Florida and anticipate opening more call centers in the next
12 months. When a customer is introduced to us over the Internet, we will
communicate with that customer online or through our Internet call center. Our
call center employs representatives who are trained to work with customers in a
consultative manner. Our consultative sales approach stresses proactive and
frequent contact with customers. For example, our representatives provide
customers with written analysis, comparing the costs of different loan products,
showing closing costs and amortization schedules. The representatives are
trained to call customers frequently, to provide them with updated information
about interest rates and to answer frequently-asked questions. The objective of
our call center representatives is to build a relationship with potential
customers, and gain the confidence and business of those customers.
Homebuilder Relationships and Net Branches. We anticipate expanding
mortgage loan originations by developing relationships with homebuilders and
using our net branches across the country. We intend to have sales agents visit
homebuilders on a regular basis to develop business, to solicit their input and
to answer their questions. We expect that the sales managers will be supported
by a help desk, staffed full time by employees trained to meet homebuilders' and
their customers' needs. Our senior executives plan to call upon these customers
to ensure that we understand and respond to their mortgage loan requirements.
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Marketing. We currently market our services through trade shows,
advertising and promotions in newspapers, magazines, billboards, radio,
television and the Internet and through direct contact with mortgage brokers. We
also plan to market our services through direct contact with homebuilders, as
well as to maintain a nationwide toll-free telephone number for loan
applications and to assign sales representatives to each city where we operate.
COMPETITION
We compete against savings and loan associations, thrifts, commercial
banks, consumer finance companies and other mortgage bankers in the origination
of single-family and condominium residential mortgage loans. Even though some of
the competition is large and operates on a national basis, we believe that no
single firm controls more than 7% of the single-family and condominium
residential mortgage market. Furthermore, we believe that mortgage bankers, in
general, control more than 85% of all single-family mortgages issued by the FHA
or guaranteed by the VA. Statistics show that by 1995 mortgage bankers were
closing 54% of all residential loans. We compete on the basis of quality of
services along with the use of technology and the relationships established by
our sales and operations staff.
OPERATIONS
Our operations are headquartered in Dallas, Texas. Occidental operates out
of offices located in San Ramon and Irvine, California, and Denver, Colorado.
RLI operates from offices located in Orlando, Florida. We also operate mortgage
origination offices in Houston, Texas. This centralization of operations allows
us to participate in the "bulk sale" loan process and results in expanded
revenue opportunities over typical single loan sales and creates greater
economies of scale in the operations delivery of closed loans.
EMPLOYEES AND CONSULTANTS
As of the date of this registration statement, we had 153 full-time
employees in the following departments:
<TABLE>
<S> <C>
Sales 78
Administration 25
Operations 46
Secondary Marketing 3
Appraisal 1
</TABLE>
Consultants. We have used, and intend to continue using, outside consulting
firms to assist us in planning our operations and implementing our business
plan. Among the consultants we have engaged are Odyssey Communications,
Crossroad Communications, John Duff & Associates, LoanNet Consulting, and S.W.
Pelco, all of which assisted us in the preparation of our business plan.
Labor Relations. None of our employees are represented by a labor union. We
believe we have and will continue to have a good relationship with our
employees. Management meets with employees
23
<PAGE> 27
on a routine basis to discuss our objectives, as well as more specific labor
issues such as scheduling, compensation and work rules.
LITIGATION
On January 3, 2000, an action was brought against us for breach of contract
and fraud by Joni Baquerizo, James Cunningham, Sam W. Pitts, Jr., and Jay
Robinson, each of whom is a former employee (the "Plaintiffs"). The Plaintiffs
allege that we owe them unpaid wages, unpaid bonuses and stock options. We
believe that the Plaintiffs' claims are without merit and intend to vigorously
defend ourselves in this litigation.
From time to time, we are a defendant, or are threatened to be made a
defendant, in lawsuits encountered in the ordinary course of our business, the
resolution of which should not have a material adverse effect on our financial
position. Except as disclosed above, we are not currently aware of any
litigation currently pending or threatened to which we are subject to or to
which we may be a party.
GOVERNMENT REGULATIONS
Our business is subject to extensive regulation, supervision and licensing
by federal, state and local governmental authorities and is subject to various
laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of our operations. We are subject to the rules and
regulations of, and examinations by, HUD and state regulatory authorities with
respect to originating, processing, underwriting and selling loans. These rules
and regulations, among other things, impose licensing obligations on us,
establish eligibility criteria for mortgage loans, prohibit discrimination,
provide for inspections and appraisals of properties, require credit reports on
loan applications, regulate assessment, collection, foreclosure and claims
handling, investment and interest payments on escrow balances and payment
features, mandate certain disclosures and notices to borrowers and, in some
cases, fix maximum interest rates, fees and mortgage loan amounts. Failure to
comply with these requirements can lead to demands for indemnifications or
mortgage loan repurchases, certain rights of rescission for mortgage loans,
class action lawsuits and administrative enforcement actions.
Further, federal and state regulations continue to affect the mortgage loan
industry relative to fee disclosure obligations, broker licensure requirements
and approval/renewal criteria for government-insured loan underwriting.
Mortgage broker fee disclosure requirements, originally mandated under the
Real Estate Settlement Procedures Act and expanded under the Housing Community
Development Act of 1992, were clarified in HUD Statements of Policy in 1996. As
a result of these clarifications, mortgage loan brokers are obligated to
disclose virtually all income received in mortgage transactions from any sources
whatsoever, direct or indirect, to prospective borrowers. Originators or
mortgage bankers funding their own loans are not subject to this same degree of
disclosure.
Legislation requiring the licensure of mortgage loan brokers has been
adopted in 45 states in the United States, with the remainder of the states
expected to follow suit in the near future. In addition to requiring background
investigations and continuing educational requirements, many states have
established specific criteria designed to demonstrate financial soundness on the
part of the individual mortgage loan broker.
24
<PAGE> 28
Mortgage loan companies seeking approval and/or renewal of the ability to
underwrite readily-marketable FHA/VA government insured loans continue to face
expanded and stricter requirements by HUD relative to minimum net worth
standards and prior mortgage loan origination volume. We plan on maintaining
excess capital to the minimum net worth required by HUD at all times.
We believe that we are in compliance in all material respects with
applicable federal, state and local laws and regulations.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
HISTORICAL OPERATIONS
Sarkis Capital, Inc.
Prior to May 1999, we were known as Sarkis Capital, Inc. ("Sarkis"), an
inactive publicly held corporation pursuing a business combination with a
privately held company believed to have growth and profit potential,
irrespective of the industry in which the privately held company was operating.
With the acquisition of LoanNet, Occidental and RLI, we have embarked on a plan
to become a significant competitor in the mortgage banking industry. Subsequent
to the acquisition, we raised approximately $3.6 million in capital through a
private placement of our Common Stock which closed on September 30, 1999. As
such, our prior results are not indicative of our future prospects.
25
<PAGE> 29
RESULTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)(1):
<TABLE>
<CAPTION>
PRO PRO FORMA
FORMA ---------
STARNET OCCIDENTAL RLI GM ADJUSTMENT COMBINED
------- ---------- --- -- ---------- --------
NINE MONTHS ENDED
DECEMBER 31, 1999
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 1,507,999 $ 4,826,043 $ 621,497 $ (949,128) $ (362,000) $ 5,644,411
Cost of goods sold $ 194,026 $ 367,656 $ 70,384 $ (168,181) $ -0- $ 463,885
Gross profit $ 1,313,973 $ 4,458,387 $ 551,113 $ (780,947) $ (362,000) $ 5,180,526
Selling, general and
administrative expense $ 3,231,395 $ 4,886,627 $ 580,659 $ (903,189) $ -0- $ 7,795,492
Depreciation &
amortization $ 64,019 $ 31,567 $ 17,021 $ (29,960) $ 63,261 $ 145,908
Net (loss) from
operations $(1,981,441) $ (459,807) $ (46,567) $ 152,202 $ (425,261) $(2,760,874)
Net loss as a percentage
of revenues 131% 10% 7% 16% -- 49%
</TABLE>
- -------------------------
(1) The financial information provided above gives effect to the
acquisitions of Occidental and RLI and GM disposition as if they were
effective as of April 1, 1999.
26
<PAGE> 30
Consolidated Balance Sheet of StarNet Financial, Inc.
December 31, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Cash ....................................... $ 951,455
Mortgage loans held for sale ............... 24,475,459
Note payable ............................... 472,000
Accounts receivable ........................ 212,750
Property and equipment, net ................ 672,000
Covenants not to compete ................... 80,417
Value of Internet brand .................... 47,500
Goodwill, net .............................. 1,544,250
------------
TOTAL ASSETS .......................... 28,455,830
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Advances under warehouse lines of
credit .................................. $ 24,260,650
Accounts payable ........................... 895,989
Accrued expenses ........................... 165,358
Funds held on account for others ........... 81,407
Notes payable .............................. 642,034
Estimated future purchase price payable .... 367,695
------------
TOTAL LIABILITIES ..................... 26,413,134
Stockholders' Equity:
Preferred stock, par value $0.01 per share;
authorized, 1,000,000 shares; issued and
outstanding, -0- shares ................. --
Common Stock, par value $0.01 per share;
authorized, 20,000,000 shares; issued and
outstanding, 14,901,473 shares .......... $ 149,015
Additional paid-in capital ................. 4,213,850
Subscription receivable on common stock .... (49,000)
Retained earnings .......................... (2,271,169)
TOTAL STOCKHOLDERS' EQUITY ............ 2,042,697
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY .................. 28,455,830
============
</TABLE>
27
<PAGE> 31
OUR REVENUES AND EXPENSES
As a mortgage lender, we generate revenues through the origination and
subsequent sale of funded loans. These revenues are made up of loan processing
fees, net gain on sale, and net interest income. Loan processing fees include
application, documentation, commitment, and processing fees paid by borrowers.
New gain on sale consists of the difference in price paid by the borrower and
the price paid by the permanent investor, which includes the value of the rights
to service loans. Net interest income consists of the difference between
interest received by us for the time we hold a loan and interest paid by us
under our credit facilities.
Our expenses largely consist of:
o salaries and benefits paid to employees;
o occupancy and equipment costs;
o Internet and other technology-related expenses, including licensing and
participation fees and advertising costs; and
o data processing and communication costs.
A substantial portion of these expenses are variable in nature. Commissions paid
to loan originators are 100% variable, while other salaries and benefits
fluctuate from quarter to quarter based on our assessment of the appropriate
levels of non-loan originator staffing, which correlates to the current level of
loan origination volume and our estimates of future loan origination volume.
Seasonality affects the mortgage industry as loan originators are typically
at their lowest levels during the first and fourth quarters of the calendar year
due to a reduced level of home buying activity during the winter months. Loan
originations generally increase during the warmer months beginning in March and
continuing through October. As a result, we expect higher earnings in our first
and second quarters and lower earnings in the third and fourth quarters of our
fiscal year.
Interest rate and economic cycles also affect the mortgage industry, as
loan originations typically fall in rising interest rate environments. During
these periods, refinancing originations decrease, as higher interest rates
provide reduced economic incentives for borrowers to refinance their existing
mortgages. Due to stable and decreasing interest rate environments over recent
years, our current performance may not be indicative of results in rising
interest rate environments.
PLAN OF OPERATION
We are engaged in the business of originating, purchasing and selling
mortgage loans secured primarily by single-family residences through traditional
channels of distribution and over the Internet. It is the intent of our
management to create a mortgage lending operation which is highly diversified in
the following ways:
o Product lines. We offer or intend to offer conforming conventional, Federal
Housing Administration ("FHA") and Veterans Administration ("VA")
mortgages, "sub-prime" mortgages
28
<PAGE> 32
(generally loans to borrowers with below average or delinquent credit) and
"non-conforming" mortgages (which allow for more limited documentation of
borrowers' credit).
o Geography. We have employees in California, Florida, Texas, North Carolina,
Colorado and Nevada. We are presently qualified to do business in 29 states
and are licensed to conduct mortgage banking operations in seven of those
states as required. We expect to be qualified and licensed as required in
the remainder of the United States within the next three to six months. We
also expect to open three new regional offices by the end of fiscal year
2001.
o Channels of distribution. We are originating and/or purchasing mortgage
loans by traditional retail loan officers, broker-correspondents, "net
branch" employees, and the Internet.
Our history to date reflects the implementation of this strategy. The
initial operations consisted of the establishment of a lending office in Dallas,
Texas, which included "wholesale" and "net branch" capability. Such operations
have the ability to operate nationwide.
Effective as of October 1, 1999, we acquired Residential Lenders, Inc., a
Florida-based retail loan operation specializing in conforming lending. RLI has
operated an Internet website for approximately three years from which it derives
a substantial volume of its business. This acquisition, therefore helps us to
continue our diversification both as to geography and distribution channel.
Effective as of October 1, 1999, we also acquired the assets and operations
of Occidental Mortgage Company, a California-based retail and wholesale loan
operation specializing in sub-prime and non-conforming lending. Occidental also
has limited capability to service loans (i.e. collect customer payments, hold
tax and insurance escrows and pay the same when due). Management believes that
this acquisition serves geographic and product line diversification.
In September 1999, we established a wholesale loan office in Houston,
Texas, staffed with personnel knowledgeable and experienced in sub-prime and
non-conforming loans as well as conforming conventional, FHA and VA loans.
In December 1999, we established a wholesale loan office in Denver,
Colorado, staffed with personnel knowledgeable and experienced in non-conforming
loans. We believe that we will be able to service the Rocky Mountain area with
centralized underwriting and closing from our Western Regional office in Irvine,
California.
Effective as of December 31, 1999, we sold all of the capital stock of GM.
We did, however, retain certain operations, personnel and relationships of GM.
We continually evaluate prospective acquisitions. However, having
experienced rapid growth, we intend to focus during the near term on the further
development of the infrastructure (in terms of management, systems, equipment,
policies and procedures) necessary to cohesively integrate our operations and
optimize their effectiveness in fulfilling our strategic objectives.
29
<PAGE> 33
PRODUCTION
The total of new applications for the nine months ended December 31, 1999
was $373,679,719. Our Dallas operations accounted for $64,096,012 of the total
new applications for the nine months ended December 31, 1999. Our Houston
operations accounted for $14,255,322 of the total new applications for the nine
months ended December 31, 1999. The Eastern Region accounted for $10,209,367 of
the total new applications for the nine months ended December 31, 1999. The
Western Region accounted for $285,119,018 of the total new applications for the
nine months ended December 31, 1999.
STARNET MORTGAGE
NINE MONTHS ENDED 12/31/99 - NEW APPLICATIONS
<TABLE>
<CAPTION>
nine months ENDING
12/31/99
<S> <C>
StarNet - Dallas 64,096,012
StarNet - Houston 14,255,322
RLI - Eastern Region 10,209,367
OMC - Western Region 285,119,018
-----------
TOTAL: 373,679,719
</TABLE>
[PIE CHART]
30
<PAGE> 34
The total of closings for the nine months ended December 31, 1999 was
$130,088,224. Our Dallas operations accounted for $30,497,092 of the total
closings for the nine months ended December 31, 1999. Our Houston operations
accounted for $7,425,369 of the total closings for the nine months ended
December 31, 1999. The Eastern Region accounted for $8,578,571 of the total
closings for the nine months ended December 31, 1999. The Western Region
accounted for $83,587,192 of the total closings for the nine months ended
December 31, 1999.
STARNET MORTGAGE
NINE MONTHS ENDED 12/31/99 - CLOSINGS
<TABLE>
<CAPTION>
QUARTER ENDING
12/31/99
<S> <C>
StarNet - Dallas 30,497,092
StarNet - Houston 7,425,369
RLI - Eastern Region 8,578,571
OMC - Western Region 83,587,192
----------
TOTAL: 130,088,224
</TABLE>
[PIE CHART]
31
<PAGE> 35
PIPELINE
The loan pipeline (the "Pipeline") is the volume of loans in our combined
system that have met all of our preliminary criteria subject to completion of
underwriting documentation. As of December 31, 1999, the Pipeline had a total of
$189,115,000 in mortgage loans available. The Pipeline consists of approximately
$100,000,000 of non-conforming loans ("A"), $25,000,000 in sub-prime loans
("B/C"), $30,000,000 in government-insured loans (FHA/VA), and the balance is in
various conforming product. As of December 31, 1999, the total approximate
Pipeline by region was as follows:
<TABLE>
<S> <C>
Western Region $130,262,000
Central Region $ 49,373,000
Eastern Region $ 9,480,000
</TABLE>
The loans generated by us can be sold on an individual basis ("flow") or
sold in package form ("bulk"). We can form one package or several packages
during a month, depending on the best execution (i.e., highest price). Loans
sold on a flow can be sold rapidly. Loans sold in bulk generally require more
time to assemble, often 15 to 30 days from the date of our funding.
STARNET MORTGAGE
PIPELINE - COMPARISON
<TABLE>
<CAPTION>
NOVEMBER DECEMBER
<S> <C> <C>
StarNet - Dallas 41,472,626 43,513,384
StarNet - Houston 5,478,577 5,860,000
RLI - Eastern Region 10,619,382 9,480,000
OMC - Western Region 135,151,646 130,262,000
----------- -----------
TOTAL: 192,732,231 189,115,384
</TABLE>
[PIE CHART]
32
<PAGE> 36
[PIE CHART]
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had a cash position of $951,455. Throughout the
2000 fiscal year, we have experienced negative cash flows from operations.
During the quarter ended December 31, 1999, average monthly negative cash flows
from operational related activities (net income adjusted for depreciation and
amortization) were approximately $254,000. Rising interest rates leading to a
decline in loan production place additional pressures on liquidity.
During the fourth quarter of the 2000 fiscal year and continuing forward,
we have been conducting a private placement of our common stock. Through April
30, 2000, approximately $1,500,000 in cash has been raised. Additional capital
will need to be raised for us to continue our business as contemplated in our
business plan.
The discussion above addresses working capital requirements. In addition to
working capital, we fund our "Mortgage Loans Held for Sale" through advances
under warehouse lines of credit. Our subsidiary, StarNet Mortgage, currently
uses three lines of credit (implemented by means of "loan purchase agreements")
with an aggregate limit of $11,000,000 provided by First State Bank of Moulton,
First State Bank of Calvert and Lott State Bank. Additionally, StarNet Mortgage
maintains a true warehouse line of credit with IMPAC Warehouse Lending Group of
Irvine, California. At December 31, 1999 we were not in compliance with a
covenant in this loan agreement regarding maintenance of a specified level of
tangible net worth. We believe we will be in compliance with this covenant at
March 31, 2000 based on our assessment of the expected results of the private
placement discussed above.
We have a critical need for additional working capital to execute our
business strategy. We anticipate using the net proceeds of the private placement
discussed above to open additional regional offices, hire additional personnel
and maintain net worth requirements for federal agency approvals and credit
facilitation. In the event that we are unable to obtain additional capital, we
will forego further expansion of our net branch and regional office network,
reduce the number of employees and overhead expenses, curtail our loan
production activities and/or sell loans earlier than is optimal and concentrate
our efforts on our existing operations.
33
<PAGE> 37
We believe that the lines of credit, funds generated from operations and
the net proceeds of the private placement will be sufficient to finance our
current and anticipated operations for at least the next 12 months. Our
long-term capital requirements beyond this 12-month period will depend on
numerous factors, including the following:
o the rate of market acceptance of our products and services;
o the ability to expand our customer base; and
o the level of expenditures for sales and marketing and other factors.
To the extent that the lines of credit, the net proceeds of the private
placement and our revenues are insufficient to fund the activities in the short
or long term, we would need to raise additional funds by incurring debt or
through public or private offerings of our stock. We are, however, actively
negotiating with other providers of mortgage warehouse lending facilities for
increased limits and more favorable terms.
ITEM 3 - DESCRIPTION OF PROPERTY
FACILITIES
Our current headquarters in Dallas, Texas consists of approximately 5,455
square feet of leased office space, with the lease expiring on June 14, 2000.
The monthly rental amount for all Dallas facilities is $22,519.00 The Company
maintains the following facilities:
<TABLE>
<CAPTION>
SQUARE LEASE EXPIRATION MONTHLY RENTAL AMOUNTS
LOCATION FOOTAGE
<S> <C> <C> <C>
Irvine, CA 14,392 square feet 04/30/01 $26,969.40
San Ramon, CA 3,027 square feet 06/15/01 $ 1,054.00
Orlando, FL 2,400 square feet 01/15/04 $ 4,031.49
Dallas, TX (Preston Rd.) 5,455 square feet 06/14/00 $ 9,092.00
Dallas, TX (Preston Rd.) 3,990 square feet 12/31/00 $ 4,782.00
Dallas, TX 6,682 square feet 1/31/00 $ 8,645.00
Houston, TX 2,749 square feet 08/14/01 $ 2,978.25
Denver, CO 500 square feet month to month $ 950.00
Springfield, MO 3,309 square feet 12/01/04 $ 2,757.50
</TABLE>
We believe that these facilities will be adequate for our current and proposed
operations.
In the opinion of the Company's management, the Company's properties are
adequately covered by insurance.
34
<PAGE> 38
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 31, 2000 the number and
percentage of outstanding shares of Common Stock beneficially owned by each of
the following persons:
o Persons who beneficially own more than 5% of the outstanding shares of
our Common Stock;
o Each of our executive officers;
o Each of our directors; and
o All of our officers and directors as a group.
Except as otherwise noted, the persons named in this table, based upon
information provided by these persons, have sole voting and investment power
with respect to all shares of Common Stock owned by them.
<TABLE>
<CAPTION>
Number of
Shares
Beneficially % Beneficially
Name of Beneficial Owner Owned(1),(2) Owned
------------------------ -------------- --------------
<S> <C> <C>
Daniel L. Jackson(3)
17000 Preston Road, Suite 250 3,269,864 21.1%
Dallas, Texas 75248
Oslin Nation Trust(4)
8150 North Central Highway, Suite 1700 3,219,864 20.8%
Dallas, Texas 75206
Rea Capital Corporation(5)
4751 West Park Boulevard, Suite 106-422 2,534,800 16.4%
Plano, Texas 75903
Sarkis J. Kechejian(6)
421 East Airport Freeway 2,002,403 12.9%
Irving, Texas 75062
Bradley M. Pence 100,110 *
Edward P. Rea -- --
Kenneth F. Urbanus 45,000 *
Michael J. Gulinson -- --
Edward P. Dayton 12,500 *
Tom Deutsch -- --
Jennifer Salsbury -- --
All directors and executive officers as a group
(8 persons)(7) 5,962,274 38.2%
</TABLE>
- -------------------------
* Less than 1%.
(1) The rules of the SEC provide that, for the purposes hereof, a person is
considered the "beneficial owner" of shares with respect to which the
person, directly or indirectly, has or shares the voting or investment
power, irrespective of his
35
<PAGE> 39
economic interest in the shares. Unless otherwise noted, each person
identified possesses sole voting and investment power over the shares
listed, subject to community property laws.
(2) Based on 15,326,473 shares outstanding on March 31, 2000. Shares of Common
Stock subject to warrants that are exercisable within 60 days of March 31,
2000, are deemed beneficially owned by the person holding such warrant for
the purposes of calculating the percentage of ownership of such person but
are not treated as outstanding for the purpose of computing the percentage
of any other person. All common shares held by the officers and directors
listed above are "restricted securities" and as such are subject to
limitations on resale. The shares held by the officers and directors may be
sold pursuant to Rule 144 under certain circumstances, subject to certain
lock-up agreements.
(3) Includes 3,219,864 shares held by the Oslin Nation Trust, for which Mr.
Jackson serves as trustee.
(4) Includes 150,000 shares of Common Stock issuable upon the exercise of a
warrant.
(5) Includes 150,000 shares of Common Stock issuable upon the exercise of a
warrant.
(6) Includes 385,000 held by the Sarkis J. Kechejian Trust, for which Mr.
Kechejian serves as trustee. Includes 200,000 shares held by the Kechejian
Trust, which is revocable by Mr. Kechejian. Includes 150,000 shares of
Common Stock issuable upon the exercise of a warrant.
(7) Includes 150,000 shares of Common Stock issuable upon the exercise of a
warrant and 2,534,800 shares of Common Stock (which also includes 150,000
shares of Common Stock issuable upon the exercise of a warrant) owned by
Rea Capital Corporation. Mr. Edward P. Rea's wife owns all of the issued
and outstanding shares of capital stock of Rea Brothers, Ltd. which owns
all of the issued and outstanding shares of capital stock of Rea Capital
Corporation. Mr. Rea disclaims beneficial ownership of the shares owned by
his wife, Rea Brothers, Ltd. and Rea Capital Corporation.
36
<PAGE> 40
ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The executive officers and directors of the Company and their ages as of
the date of this Registration Statement are as follows:
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
Daniel L. Jackson 50 Chairman of the Board and Chief
Executive Officer
Kenneth F. Urbanus 47 President, Chief Operating Officer and
Director
Michael J. Gulinson 52 Executive Vice President-Finance and
Chief Financial Officer
Edward P. Dayton 57 Executive Vice President-Operations
and Secretary
Thomas Deutsch 50 Executive Vice President-National
Production
Jennifer Salsbury 49 Executive Vice President-Risk
Management/Secondary Marketing
Bradley M. Pence 33 Director
Edward P. Rea 58 Director
</TABLE>
- ---------------------
Mr. Daniel L. Jackson has been a director and Chief Executive Officer of
the Company since May 1999. Mr. Jackson has 25 years experience providing
accounting, taxation, and advisory services to various industries and
government. Since 1987, he has been engaged as a Certified Public Accountant,
Certified Management Consultant and Certified Fraud Examiner with Jackson &
Rhodes P.C.
Mr. Kenneth F. Urbanus has been President, Chief Operating Officer and a
director of the Company since October 1999. From 1996 until assuming his duties
at StarNet, he was President, Chief Executive Officer and Senior Vice
President-Production of Occidental Mortgage Company in Irvine, California. From
1992 to 1994, he was a Vice President of CenFed Bank, FSB, where he managed the
government lending department as well as the retail and wholesale lending
activities in Orange and San Diego Counties, California.
Mr. Michael J. Gulinson has been Executive Vice President-Finance and Chief
Financial Officer of the Company since November 1999. From 1986 until assuming
his duties at StarNet, he was Executive Vice President, Chief Financial Officer
and Secretary of Corinthian Mortgage Corporation in Overland Park, Kansas.
37
<PAGE> 41
Mr. Edward Dayton has been Executive Vice President-Operations of the
Company since August 1999. From 1990 until assuming his duties at StarNet, he
was Regional Division Manager-Wholesale Lending of Stratford Mortgage in Dallas,
Texas.
Mr. Thomas Deutsch has been Executive Vice President-National Production of
the Company since October 1999. From 1996 until assuming his duties at StarNet,
he was Senior Vice President and Director of Wholesale Lending of Occidental
Mortgage Company. From 1987 to 1996, he was Senior Vice President of Imperial
Credit Industries, where he managed the wholesale division.
Ms. Jennifer Salsbury has been Executive Vice President-Risk
Management/Secondary Marketing of the Company since October 1999. From 1996
until assuming her duties at StarNet, she was Senior Vice President of
Occidental Mortgage Company, where she handled risk management. From 1991 to
1996, she was Senior Vice President-Secondary Marketing of Rancho Mortgage
Corporation, where she was responsible for risk management, quality control, and
corporate training.
Mr. Bradley M. Pence has been a director of the Company since May 1999. Mr.
Pence is not employed by the Company. Since 1994, he has been Vice President of
Churchill Capital Company, L.L.C. of Dallas, Texas, where he is an expert in
originating, underwriting and placing large commercial property transactions.
Mr. Edward P. Rea has been a director of the Company since May 1999. Mr.
Rea is not employed by the Company. Since 1998, he has been an independent
business consultant. From 1994 until 1998, he was President and co-founder of
The Crafters' Marketplace, Ltd. in Ontario, Canada, where he created and
directed a retail chain of 26 craft outlet stores throughout Canada with annual
sales in excess of $35,000,000.
38
<PAGE> 42
ITEM 6 - EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table contains information concerning the annual compensation
and long-term compensation payable to named executive officers during the period
for the fiscal year ended March 31, 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------------------------- ------------ ----------
FISCAL OTHER
YEAR ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL ENDED COMPENSA- UNDERLYING COMPEN-
POSITION MARCH 31, SALARY ($) BONUS ($) TION ($) OPTIONS (#) SATION ($)
------------------ --------- ---------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Daniel L. Jackson
Chief Executive Officer 2000 -- -- -- 200,000 --
Kenneth F. Urbanus
President and Chief
Operating Officer 2000 240,000 -- -- 200,000 --
Michael J. Gulinson
Executive Vice President
and Chief Financial Officer 2000 130,000 -- -- 50,000 --
Edward P. Dayton
Executive Vice President- 2000 75,000 (1) -- 50,000 --
Operations
Thomas Deutsch
Executive Vice President-
National Production 2000 108,000 (2) -- 50,000 --
Jennifer Salsbury
Executive Vice President-
Risk Management /
Secondary Marketing 2000 144,000 (3) -- 50,000 --
</TABLE>
(1) Mr. Dayton's bonus consists of two basis points on all closed loans.
(2) Mr. Deutsch's incentive bonus consists of two basis points of funded loans
for the first $10,000,000 during a month and four basis points of funded
loans over $10,000,000 during a month.
(3) Ms. Salsbury's monthly incentive bonus consists of one and a half basis
points on the net gain on loans that are sold each month.
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<PAGE> 43
The following table provides information with respect to the executive
officers included in the Summary Compensation Table who received option grants
during the period for the fiscal year ended March 31, 2000.
INCENTIVE STOCK OPTIONS
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
[INDIVIDUAL GRANTS]
----------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE
---- ----------- ----------- --------- ----
<S> <C> <C> <C> <C>
Daniel L. Jackson(1) 200,000 25.6% $ 1.00 10/14/2009
Kenneth F. Urbanus(2) 200,000 25.6% $ 1.00 10/14/2009
Michael J. Gulinson(3) 50,000 6.4% $ 3.375 10/31/2009
Edward P. Dayton(4) 50,000 6.4% $ 1.00 10/14/2009
Thomas Deutsch(5) 50,000 6.4% $ 1.00 10/14/2009
Jennifer Salsbury(5) 50,000 6.4% $ 1.00 10/14/2009
</TABLE>
- ----------------------------
(1) Mr. Jackson's options are incentive options, were granted on October 15,
1999, and vest in 50% increments over two years.
(2) Mr. Urbanus's options are incentive options, were granted on October 15,
1999, and vest in 20% increments over five years.
(3) Mr. Gulinson's options are incentive options, were granted on November 1,
1999, and become completely vested as of October 31, 2000.
(4) Mr. Dayton's options are incentive options, were granted on October 15,
1999, and become completely vested as of October 31, 2000.
(5) Mr. Deutsch and Ms. Salisbury's options are incentive options, were granted
on October 15, 1999, and vest in 20% increments over five years.
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<PAGE> 44
The following table provides information on the stock options that the
executive officers included in the Summary Compensation Table held at March 31,
2000:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
-----------------------------------------------------------------
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT FISCAL YEAR-END FISCAL YEAR-END
(#) ($)*
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
---- ------------------------------- --------------------
<S> <C> <C>
Daniel L. Jackson 200,000 $400,000
Kenneth F. Urbanus 200,000 $400,000
Michael J. Gulinson 50,000 --
Edward P. Dayton 50,000 $100,000
Thomas Deutsch 50,000 $100,000
Jennifer Salsbury 50,000 $100,000
</TABLE>
- ----------------------------
* Based on the closing price of the Common Stock on The NASD
Over-the-Counter Bulletin Board on March 31, 2000 of $3.00 per share.
EMPLOYMENT CONTRACTS
As of October 15, 1999, we entered into an employment agreement with
Kenneth F. Urbanus, our President and Chief Operating Officer (the "Urbanus
Agreement"). The Urbanus Agreement provides for an annual base salary of
$240,000, a transportation allowance of $1,000 per month, participation in any
savings and retirement plan and welfare benefit plans adopted by the Company,
and other standard provisions.
As of November 1, 1999, we entered into an employment agreement with
Michael J. Gulinson, our Executive Vice President-Finance and Chief Financial
Officer (the "Gulinson Agreement"). The Gulinson Agreement provides for an
annual base salary of $130,000, a transportation allowance of $500 per month,
participation in any savings and retirement plan and welfare benefit plans
adopted by the Company, and other standard provisions.
As of October 1, 1999, we entered into an employment agreement with Edward
P. Dayton, our Executive Vice President-Operations (the "Dayton Agreement"). The
Dayton Agreement provides for an annual base salary of $75,000, an incentive
bonus equal to two basis points on all funded loans, a transportation allowance
of $500 per month, participation in any savings and retirement plan and welfare
benefit plans adopted by the Company, and other standard provisions.
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<PAGE> 45
As of October 1, 1999, we entered into an employment agreement with Thomas
Deutsch, our Executive Vice President-National Production (the "Deutsch
Agreement"). The Deutsch Agreement provides for an annual base salary of
$108,000, an incentive bonus equal to two basis points of funded loans for the
first $10,000,000 during a month and four basis points of funded loans over
$10,000,000 during a month, a transportation allowance of $750 per month,
participation in any savings and retirement plan and welfare benefit plans
adopted by the Company, and other standard provisions.
As of October 1, 1999, we entered into an employment agreement with
Jennifer Salsbury, our Executive Vice President-Risk Management/Secondary
Marketing (the "Salsbury Agreement"). The Salsbury Agreement provides for an
annual base salary of $144,000, a monthly incentive bonus equal to one and a
half basis points on the net gain on loans that are sold each month, a
transportation allowance of $500 per month, participation in any savings and
retirement plan and welfare benefit plans adopted by the Company, and other
standard provisions.
1999 STOCK OPTION PLAN
In October 1999, our board of directors adopted, and in December 1999 our
shareholders approved, our 1999 Stock Option Plan (the "Option Plan"), under
which both incentive stock options and nonqualified stock options may be granted
to our key employees, non-employee directors, and independent contractors and
consultants. The Option Plan will terminate on October 3, 2009, and no options
may be granted under the Option Plan thereafter. The term of an option granted
under the Option Plan may not exceed ten years from the date of grant of that
option. The options granted under the Option Plan are generally for the maximum
ten-year period. Approximately 150 of our employees may participate in the
Option Plan; though options have been granted to only 11 key employees to date.
The compensation committee administers and interprets the Option Plan. In
that capacity, the compensation committee has complete discretion, within the
limits set forth in the Option Plan, to determine the terms of the options
granted, including the term of, the number of shares subject to, the exercise
price of, and the form of consideration payable upon exercise of each such
option. However, the Option Plan requires the exercise price of each incentive
stock option be at least the fair market value of our Common Stock at the time
of the option grant. Additionally, no incentive stock option may be granted
under the Option Plan to anyone who owns more than 10% of our outstanding Common
Stock unless the exercise price is at least 110% of the fair market value of our
Common Stock at the date of grant and the option is not exercisable for more
than five years after it is granted. The board of directors or the compensation
committee may amend, alter or discontinue the Option Plan without the
stockholders' approval, except that the board of directors or the compensation
committee do not have the power or authority to materially increase the number
of securities that may be issued under the Option Plan or to materially modify
the requirements of eligibility for participation in the Option Plan.
As of March 31, 2000, options to purchase 780,000 shares of Common Stock
had been granted, and options to purchase 50,000 shares of Common Stock had been
exercised, pursuant to the Option Plan. The market value as of March 31, 2000 of
all shares of Common Stock subject to outstanding options was $2,007,500 (based
upon the closing bid price of the Common Stock of $2.75 as reported on the
Bulletin Board on such date).
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<PAGE> 46
COMMITTEES
We maintain a Compensation Committee, consisting of three board members,
and an Audit Committee consisting of three board members. The Compensation
Committee is responsible for review and making recommendations to our board of
directors on all matters relating to compensation and benefits provided to
executive management. The members of the Compensation Committee are Messrs.
Pence, Rea and Urbanus. The Compensation Committee has the exclusive authority
to administer our 1999 Stock Option Plan. The Audit Committee assists our board
of directors in exercising its fiduciary responsibilities for oversight of audit
and related matters, including corporate accounting, reporting and control
practices. It is responsible for recommending to our board of directors the
independent auditors for the following fiscal year. The Audit Committee meets
periodically with our management, financial personnel and the independent
auditors to review internal accounting controls and auditing and financial
reporting matters. The members of the Audit Committee are Messrs. Jackson, Pence
and Rea.
COMPENSATION OF DIRECTORS
We do not currently pay any remuneration to our non-employee directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Other than Mr. Urbanus, none of the members of the compensation committee
is currently or has been, at any time since our incorporation, an officer or
employee of ours. No member of the compensation committee serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of our board of directors or
compensation committee.
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<PAGE> 47
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 1, 1999, we entered into a consulting agreement with LoanNet
Consulting, which expired on April 30, 2000. Daniel L. Jackson is the sole
director and President of LoanNet Consulting and the Chairman of the Board of
Directors, Chief Executive Officer and a stockholder of the Company. The
consulting agreement was for one year and was not renewed upon completion of its
term. The agreement provided for a monthly payment of $14,000. LoanNet
Consulting advised our management on issues concerning strategic planning,
acquisitions, and raising of capital.
ITEM 8 - LEGAL PROCEEDINGS
On January 3, 2000, an action was brought against us for breach of contract
and fraud by Joni Baquerizo, James Cunningham, Sam W. Pitts, Jr., and Jay
Robinson, each of whom is a former employee (the "Plaintiffs"). The Plaintiffs
allege that we owe them unpaid wages, unpaid bonuses and stock options. We
believe that the Plaintiffs' claims are without merit and intend to vigorously
defend ourselves in this litigation.
From time to time, we are a defendant, or are threatened to be made a
defendant, in lawsuits encountered in the ordinary course of our business, the
resolution of which should not have a material adverse effect on our financial
position. Except as disclosed above, we are not currently aware of any
litigation currently pending or threatened to which we are subject to or to
which we may be a party.
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<PAGE> 48
ITEM 9 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
GENERAL
On October 19, 1999 our Common Stock commenced trading on the NASD
Over-the-Counter Bulletin Board (the "Bulletin Board") under the symbol "SNFN".
There was no material market for our Common Stock prior to October 19, 1999. The
table below sets forth the high and low bid prices of our Common Stock for the
periods indicated, as reported by the Bulletin Board.
These quotations reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Price Range of
Common Stock
--------------
High Low
---- ---
<S> <C> <C>
FISCAL YEAR ENDING MARCH 31, 2000:
Third Quarter ........... $10.25 $ 2.50
Fourth Quarter .......... 6.50 2.00
</TABLE>
On March 31, 2000, the closing bid price for a share of our Common Stock,
as reported on the Bulletin Board, was $2.75. As of March 31, 2000, there were
approximately 500 stockholders of record of our Common Stock.
MARKET PRICE
When the trading price of our Common Stock is below $5.00 per share, our
Common Stock is considered to be a "penny stock" which is subject to rules
promulgated by the SEC (Rules 15g-1 through 15g-9) under the Securities Exchange
Act of 1934 (the "Exchange Act"). These rules impose significant requirements on
brokers under these circumstances, including: (a) delivering to customers the
SEC's standardized risk disclosure document; (b) providing to customers current
bids and offers; (c) disclosing to customers the broker-dealers and sales
representative compensation; and (d) providing to customers monthly account
statements.
DIVIDENDS
We have not paid any dividends on our Common Stock to date and we do not
expect to do so in the foreseeable future. We intend to apply our earnings, if
any, in expanding our operations and related activities.
ITEM 10 - RECENT SALES OF UNREGISTERED SECURITIES
StarNet (formerly known as Sarkis Capital, Inc.("Sarkis")) was incorporated
in March 1987, in Delaware. On May 13, 1999, Sarkis entered into an exchange
agreement with LoanNet, Inc., a Texas corporation ("LoanNet") and the
shareholders of LoanNet (the "LoanNet Shareholders"), whereby Sarkis
45
<PAGE> 49
agreed to acquire LoanNet, and its subsidiary, The GM Group, Inc., a Texas
corporation (sometimes referred to herein as "GM") from the LoanNet shareholders
in exchange for shares of Sarkis common stock (the "Exchange Agreement").
Pursuant to the Exchange Agreement, Sarkis issued 9,000,000 shares of its common
stock in exchange for all of the outstanding shares of LoanNet. The closing of
the Exchange Agreement took place on May 28, 1999. As part of the
reorganization, Sarkis changed its name to "StarNet Financial, Inc." in June
1999. As a result of this transaction, the LoanNet Shareholders owned
approximately 83% of the then issued and outstanding shares of Sarkis common
stock and LoanNet became the wholly-owned subsidiary of the Company. A Sarkis
shareholder was also issued a warrants to purchase 200,000 shares of our Common
Stock at an exercise price of $1.00 per share. This warrant to purchase 200,000
shares of Common Stock was exercised in September 1999. The transaction was
exempt from registration and prospectus delivery requirements pursuant to
Section 4(2) of the Securities Act.
On September 30, 1999, we closed a private placement of 3,626,473 shares of
our Common Stock at a price of $1.00 per share. There were seventy-three (73)
purchasers, of which all but thirty (30) were accredited investors. In
connection with this private placement, we prepared and delivered a private
placement memorandum covering the offering (the "Memorandum"). This Memorandum
was prepared in compliance with Rule 506 of Regulation D promulgated under the
Securities Act. The transaction was exempt from registration and prospectus
delivery requirements pursuant to Section 4(2) of the Securities Act.
Effective as of October 1, 1999, we issued a five (5)-year option to
Occidental Mortgage Corporation to purchase up to 300,000 shares of our Common
Stock at a strike price of $1.00 per share. The transaction was exempt from
registration and prospectus delivery requirements pursuant to Section 4(2) of
the Securities Act.
Effective as of October 1, 1999, we issued 250,000 shares of our restricted
Common Stock to three shareholders of Residential Lenders, Inc. ("RLI") in
connection with our acquisition of RLI. We delivered the Memorandum to the
shareholders of RLI. This transaction was exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(2)
thereof.
Effective as of January 1, 2000, we issued warrants to purchase 450,000
shares of Common Stock to three stockholders at an exercise price of $1.00 per
share. These warrants expire on December 31, 2002. The transaction was exempt
from registration and prospectus delivery requirements pursuant to Section 4(2)
of the Securities Act.
Effective as of April 28, 2000, we issued (i) 57,557 shares of our Common
Stock and (ii) a two year warrant to purchase up to 12,500 shares of our Common
Stock to Wall Street Mortgage Corporation, a Texas corporation (f/k/a Wall
Street Mortgage of Dallas, Inc.) ("Wall Street"), in connection with our
acquisition of certain assets of Wall Street. This transaction was exempt from
the registration and prospectus delivery requirements of the Securities Act
under Section 4(2) thereof.
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<PAGE> 50
ITEM 11 - DESCRIPTION OF SECURITIES
Under our Certificate, our authorized capital stock consists of 63,000,000
shares, which includes 60,000,000 shares of Common Stock, and 3,000,000 shares
of preferred stock, $0.01 par value per share. As of the date of this
Registration Statement, we had outstanding 15,384,030 shares of Common Stock.
Currently, there are approximately 506 holders of record of our Common Stock. We
have reserved for issuance 750,000 shares of Common Stock for issuance upon
exercise of outstanding warrants and 5,000,000 shares of Common Stock for
issuance pursuant to the exercise of stock options which may be granted to key
employees and non-employee directors of the Company and independent contractors
and consultants to the Company.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share of
Common Stock standing in such holder's name on our records with respect to all
matters required by law to be submitted to a vote of our shareholders. The
holders of Common Stock have the sole right to vote, except as otherwise
provided by law or by our Certificate, including provisions governing any
preferred stock. The Common Stock does not have any cumulative voting,
preemptive, subscription or conversion rights. Election of directors and other
general shareholder action requires the affirmative vote of a majority of the
shares of Common Stock represented at a meeting in which a quorum is
represented. The outstanding shares of Common Stock are, and the shares of
Common Stock offered hereby will be, upon payment therefor as contemplated
herein, validly issued, fully paid and non-assessable.
Subject to the rights of any then outstanding shares of preferred stock, if
any, holders of Common Stock are entitled to receive when, as and if declared by
the board of directors, out of funds legally available therefor, dividends
payable in cash, stock or otherwise. Upon any liquidation, dissolution or
winding up, whether voluntary or involuntary, and after the holders of the
preferred stock shall have been paid in full the amounts to which they are
entitled (if any), or a sum sufficient for such payment in full shall have been
set aside, our remaining net assets will be distributed pro rata to the holders
of the Common Stock, to the exclusion of the holders of preferred stock.
WARRANTS AND OPTIONS
We have outstanding warrants to purchase up to 762,500 shares of Common
Stock. All but 12,500 of the warrants are immediately exercisable at $1.00 per
share. The remaining 12,500 warrants are immediately exercisable at $4.625 per
share. Warrants to purchase up to 300,000 shares of our Common Stock expire
October 14, 2004. Warrants to purchase up to 12,500 shares of our Common Stock
expire February 28, 2002. The remaining warrants to purchase up to 450,000
shares of our Common Stock expire December 31, 2002. We have outstanding options
to purchase 730,000 shares of Common Stock. Options to purchase 680,000 shares
of our Common Stock expire October 14, 2009. Options to purchase 50,000 shares
of our Common Stock expire October 31, 2009. As of March 31, 2000, options to
purchase 50,000 shares of our Common Stock granted under the Option Plan had
been exercised.
47
<PAGE> 51
PREFERRED STOCK
The board of directors is authorized, without action by the holders of the
Common Stock, to provide for the issuance of our preferred stock and to fix the
designations, powers, preferences and rights of the shares of the preferred
stock and the qualifications, limitations, or restrictions thereof. This
includes, among other things, voting rights, conversion privileges, dividend
rates, redemption rights, sinking fund provisions and liquidation rights. The
issuance of our preferred stock could adversely affect the voting power of the
holders of the Common Stock and could have the effect of discouraging or making
more difficult any attempt by a person or group to attain control of the
Company. We have no present plans to issue any preferred stock.
DELAWARE BUSINESS COMBINATION STATUTE
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law (the "DGCL"). In general, this law prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date that the
person became an interested stockholder unless (with certain exceptions) the
business combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. An "interested stockholder"
is, generally defined as a person who, together with affiliates and associates,
owns (or within three years prior, did own) 15% or more of the corporation's
voting stock. This provision of Delaware law may have the effect of delaying,
deferring or preventing a change of control of the Company without further
action by the stockholder.
CERTAIN CHARTER PROVISIONS
General
Certain provisions of our Certificate and By-laws could make more difficult
the acquisition of the Company by means of a tender offer, a proxy contest or
otherwise as well as the removal of incumbent officers and directors. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company to first negotiate with us.
Number of Directors; Removal; Vacancies
The Certificate and the By-laws provide that the number of directors shall
be determined from time to time exclusively by a vote of a majority of our board
of directors then in office; provided, however, that the number of directors
shall not be less than one. The Certificate also provides that our board of
directors shall have the exclusive right to fill vacancies, including vacancies
created by an expansion of the board. The Certificate further provides that
directors may be removed only for cause upon the affirmative vote of at least
80% of all of the shares of our capital stock then entitled to vote in the
election of directors.
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<PAGE> 52
Amendments to By-laws
The Certificate provides that a majority of the board of directors or the
holders of all shares of our capital stock then entitled to vote have the power
to amend or repeal our By-laws.
Amendment of the Certificate of Incorporation
Any proposal to amend, alter, change or repeal any provision of the
Certificate requires approval by the affirmative vote of a majority vote of the
voting power of all of the shares of our capital stock entitled to vote.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C. of Dallas, Texas serves as the
transfer agent and registrar for shares of our Common Stock.
ITEM 12 - INDEMNIFICATION OF OFFICERS AND DIRECTORS
LIMITATIONS OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Mandatory Indemnification of Directors and Officers
Our Restated Certificate of Incorporation provides that to the fullest
extent permitted by Delaware statutory or decisional law, a director of the
Company shall not be liable to us or our stockholders for any act or omission in
such director's capacity as a director. Any repeal or amendment of the
Certificate of Incorporation, or adoption of any other provision of the
Certificate of Incorporation inconsistent with such exculpatory provisions, by
our stockholders shall be prospective only and shall not adversely affect any
limitation on the liability to the Company or our stockholders of a director of
the Company existing at the time of such repeal, amendment or adoption of an
inconsistent provision.
Additionally, the By-laws provide that, we shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action, suit, or proceeding by
or in the right of the Company) (collectively referred to as an "Action"), by
reason of the fact that he is or was a director or officer of the Company,
against expenses (including, without limitation, attorneys' fees), judgments,
fines, and amounts paid in settlement (collectively, "Expenses") actually and
reasonably incurred by him in connection with such Action, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal Action, had no
reasonable cause to believe his conduct was unlawful.
We shall also indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action, suit, or
proceeding by or in the right of the Company to procure a judgment in its favor
by reason of the fact that he is or was a director or officer of the Company
against Expenses actually and reasonably incurred by him in connection with the
defense or settlement of such action, suit, or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company.
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<PAGE> 53
Discretionary Indemnification of Directors and Officers
In addition to the above mandatory indemnification, our By-laws provide
that we may indemnify any person who was or is a party or is threatened to be
made a party to any Action by reason of the fact that he is or was an employee
or agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise (each such person being hereinafter referred
to as a "Corporate Functionary"), against Expenses actually and reasonably
incurred by him in connection with such Action, if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Company and, with respect to any criminal Action, had no reasonable cause to
believe his conduct was unlawful. The termination of any Action by judgment,
order, settlement, or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Company or, with respect to any criminal
Action, that he had reasonable cause to believe that his conduct was unlawful.
An "other enterprise" includes, without limitation, an employee benefit plan,
and a "fine" includes, without limitation, any excise tax imposed with respect
to an employee benefit plan.
We may also indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action, suit, or
proceeding by or in the right of the Company to procure a judgment in its favor
by reason of the fact that he is or was a Corporate Functionary against Expenses
actually and reasonably incurred by him in connection with the defense or
settlement of such action, suit, or proceeding, if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Company.
Notwithstanding the foregoing, no indemnification shall be made in respect
of any claim, issue, or matter as to which a Corporate Functionary shall have
been adjudged to be liable to the Company, unless and only to the extent that
the Court of Chancery or the court in which such action, suit, or proceeding was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such Corporate
Functionary is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
ITEM 13 - FINANCIAL STATEMENTS
See the Financial Statements filed with the Securities and Exchange
Commission as stated in "Item 15 - Financial Statements and Exhibits" herein.
ITEM 14 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company changed its certifying accountant from Jackson & Rhodes P.C. to
Farmer, Fuqua, Hunt & Munselle, P.C. The dismissal of Jackson & Rhodes P.C. was
not the result of any disagreements on any matter involving accounting
principles or practices, financial statement disclosure or auditing scope or
procedure. The engagement of Farmer, Fuqua, Hunt & Munselle, P.C. was approved
by the Company's board of directors.
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<PAGE> 54
ITEM 15 - FINANCIAL STATEMENTS AND EXHIBITS
Each of our financial statements included in the Company's Form 10-QSB for
the quarters ending June 30, 1999, September 30, 1999 and December 31, 1999 have
been prepared without audit by the management of the Company, pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC"). Each of
the interim financial statements have been prepared on the same basis as the
annual financial statements. Certain information and disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such SEC rules and
regulations. In the opinion of the Company's management, the financial
statements include all adjustments necessary to present fairly the financial
position of the Company as of June 30, 1999, September 30, 1999 and December 31,
1999, respectively, and the Company's results of operations and cash flows for
such respective periods. The financial statements included in the Company's Form
10-QSB, File No. 033-13627, were filed with the SEC as follows: Form 10-QSB for
the quarter ending June 30, 1999, August 31, 1999; Form 10-QSB for the quarter
ending September 30, 1999, November 11, 1999; and Form 10-QSB for the quarter
ending December 31, 1999, February 14, 2000.
The following Exhibits are included in this Item:
Exhibit Number Description
3.1 Articles of Incorporation of StarNet Financial, Inc.
incorporated herein by reference from StarNet's Registration
Statement on Form S-1, File No. 33-13627, filed with the
Securities and Exchange Commission on April 28, 1987.
3.2 Restated Certificate of Incorporation of StarNet Financial,
Inc. Under Section 245 of the Delaware General Corporation
Law.
3.3 By-laws of StarNet Financial, Inc. incorporated herein by
reference from StarNet's Registration Statement on Form S-1,
File No. 33-13627, filed with the Securities and Exchange
Commission on April 28, 1987.
3.4 Amended and Restated By-laws of StarNet Financial, Inc.
10.1 Employment Agreement by and between StarNet and Kenneth F.
Urbanus, dated October 15, 1999.
10.2 Employment Agreement by and between StarNet and Michael J.
Gulinson, dated November 1, 1999.
10.3 Employment Agreement by and between StarNet and Edward P.
Dayton, dated October 1, 1999.
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<PAGE> 55
10.4 Employment Agreement by and between StarNet and Thomas
Deutsch, dated October 1, 1999.
10.5 Employment Agreement by and between StarNet and Jennifer
Salsbury, dated October 1, 1999.
10.6 1999 Stock Option Plan
11.1 Statement regarding computation of per share earnings.
16.1 Letter on change in certifying accountant incorporated
herein by reference from StarNet's Current Report on Form
8-K, File No. 33-13627, filed with the Securities and
Exchange Commission on June 8, 1999, and as amended in
StarNet's Current Report on Form 8-K/A, File No. 33-13627,
filed with the Securities and Exchange Commission on
February 1, 2000.
22.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
52
<PAGE> 56
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 19, 2000 STARNET FINANCIAL, INC.
By: /s/ Kenneth F. Urbanus
------------------------------------------
Kenneth F. Urbanus,
President and Chief Operating Officer
==========
<PAGE> 57
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Articles of Incorporation of StarNet Financial, Inc.
incorporated herein by reference from StarNet's Registration
Statement on Form S-1, File No. 33-13627, filed with the
Securities and Exchange Commission on April 28, 1987.
3.2 Restated Certificate of Incorporation of StarNet Financial,
Inc. Under Section 245 of the Delaware General Corporation
Law.
3.3 By-laws of StarNet Financial, Inc. incorporated herein by
reference from StarNet's Registration Statement on Form S-1,
File No. 33-13627, filed with the Securities and Exchange
Commission on April 28, 1987.
3.4 Amended and Restated By-laws of StarNet Financial, Inc.
10.1 Employment Agreement by and between StarNet and Kenneth F.
Urbanus, dated October 15, 1999.
10.2 Employment Agreement by and between StarNet and Michael J.
Gulinson, dated November 1, 1999.
10.3 Employment Agreement by and between StarNet and Edward P.
Dayton, dated October 1, 1999.
10.4 Employment Agreement by and between StarNet and Thomas
Deutsch, dated October 1, 1999.
10.5 Employment Agreement by and between StarNet and Jennifer
Salsbury, dated October 1, 1999.
10.6 1999 Stock Option Plan
11.1 Statement regarding computation of per share earnings.
16.1 Letter on change in certifying accountant incorporated
herein by reference from StarNet's Current Report on Form
8-K, File No. 33-13627, filed with the Securities and
Exchange Commission on June 8, 1999, and as amended in
StarNet's Current Report on Form 8-K/A, File No. 33-13627,
filed with the Securities and Exchange Commission on
February 1, 2000.
22.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF
STARNET FINANCIAL, INC.
UNDER SECTION 245
OF THE
DELAWARE GENERAL CORPORATION LAW
StarNet Financial, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
ARTICLE ONE
The present name of the corporation is StarNet Financial, Inc. The name
under which the corporation was originally incorporated was Sarkis Capital, Inc.
The Certificate of Incorporation of the corporation was originally filed with
the Secretary of State of Delaware on March 18, 1987.
ARTICLE TWO
This Restated Certificate of Incorporation was duly adopted by the
directors and the stockholders of the corporation in accordance with Section 242
and Section 245 of the Delaware General Corporation Law.
ARTICLE THREE
This Restated Certificate of Incorporation restates and integrates
previous provisions and also further amends the corporation's existing
Certificate of Incorporation to increase the number of authorized shares of
common stock, to grant the corporation's board of directors the authority to
create and issue series of preferred stock, to address interested director and
officer transactions, and to provide for the exculpation of directors.
ARTICLE FOUR
The following amendments to the Certificate of Incorporation were
adopted by the corporation as of December 30, 1999:
A. Article 4 of the Certificate of Amendment is hereby amended to
read in its entirety as follows:
"4.
Section 1. Capitalization. The corporation is authorized to issue
sixty-three million (63,000,000) shares of capital stock. Sixty million
(60,000,000) of the authorized shares shall be common stock, $0.01 par value per
share ("Common Stock"), and three million (3,000,000) of the authorized shares
shall be preferred stock, $0.01 par value per share ("Preferred Stock").
-1-
<PAGE> 2
Section 2. Preferred Stock.
A. The Preferred Stock may, from time to time, be divided into and
issued in one or more series, with each series to be so designated as to
distinguish the shares thereof from the shares of all other series. The shares
of each series may have such powers, designations, preferences, relative rights,
qualifications, limitations or restrictions as are stated herein and in one or
more resolutions providing for the issue of such series adopted by the Board of
Directors of the corporation (the "Board") as provided below in this Section 2.
B. To the extent that this Certificate of Incorporation does not fix
and determine the variations in the relative rights and preferences of the
Preferred Stock, both in relation to the Common Stock and as between series of
Preferred Stock, the Board is expressly vested with the authority to divide the
Preferred Stock into one or more series and, within the limitations set forth in
this Certificate of Incorporation, to fix and determine the relative rights and
preferences of the shares of any series so established and, with respect to each
such series, to fix by one or more resolutions providing for the issue of such
series, the following:
(i) The distinctive designation of, and the number of shares of
Preferred Stock which shall constitute, the series, which number may be
increased or decreased (but not below the number of shares thereof then
outstanding) from time to time by action of the Board.
(ii) The dividend rate, if any, on the shares of such series and the
date or dates from which dividends shall commence to accrue or accumulate,
the terms and conditions upon which dividends, if any, on the shares of
such series shall be paid, and whether or in what circumstances such
dividends shall be cumulative.
(iii) The price at and the terms and conditions on which the shares of
such series may be redeemed, including (without limitation) the time during
which shares of the series may be redeemed and the premium, if any, over
and above the par value thereof that the holders of shares of such series
shall be entitled to receive upon the redemption thereof, which premium may
vary at different dates and may also be different with respect to shares
redeemed through the operation of any retirement or sinking fund.
(iv) The liquidation preference, if any, over and above the par value
thereof that the holders of shares of such series shall be entitled to
receive upon the voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the corporation.
(v) Whether or not the shares of such series shall be subject to the
operation of a retirement or sinking fund, and, if so, the extent and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption
-2-
<PAGE> 3
of the shares of such series for retirement or for other corporate
purposes, and the terms and provisions of such retirement or sinking fund.
(vi) The terms and conditions, if any, on which the shares of such
series shall be convertible into, or exchangeable for, shares of any other
class or classes of capital stock of the corporation or any series of any
other class or classes, or of any other series of the same class, including
(without limitation) the price or prices or the rate or rates of conversion
or exchange and the method, if any, of adjusting the same; provided, that
shares of such series may not be convertible into shares of a series or
class that has prior or superior rights and preferences as to dividends or
distribution of assets of the corporation upon voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of the corporation.
(vii) The voting rights, if any, on the shares of such series (in
addition to voting rights provided by law).
(viii) Any or all other preferences and relative, participating,
optional or other special rights, or qualifications, limitations or
restrictions thereof, as shall not be inconsistent with the law or with
this Article 4.
C. All shares of any one series of Preferred Stock shall be identical
with each other in all respects, except that shares of any one series issued at
different times may differ as to the dates from which dividends thereon, if any,
shall commence to accrue or accumulate; and all series shall rank equally and be
identical in all respects, except as permitted by this Section 2.
D. Except as provided in the resolution or resolutions adopted by the
Board providing for the issue of the series of Preferred Stock, no vote or
consent of the holders of outstanding shares of that series shall be required
for the issue by the Board of any other series of Preferred Stock, whether or
not the rights and preferences of any such other series shall be fixed by the
Board as senior to, or on a parity with, the rights and preferences of that
outstanding series.
Section 3. Common Stock.
A. Each share of Common Stock shall entitle the holder thereof to one
vote on each matter submitted to a vote of holders of shares of Common Stock.
B. Subject to the prior rights and preferences of the Preferred Stock
set forth in any resolution or resolutions providing for the issue of a series
of Preferred Stock, and to the extent permitted by the laws of the State of
Delaware, the holders of Common Stock shall be entitled to receive such cash
dividends as may be declared and made payable by the Board.
-3-
<PAGE> 4
C. After payment shall have been made in full to the holders
of any series of Preferred Stock having preferred liquidation rights,
upon any voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the corporation, the remaining assets and
funds of the corporation shall be distributed among the holders of the
Common Stock according to their respective shares.
Section 4. Consideration. Shares of capital stock may be issued by the
corporation from time to time for such consideration as may lawfully be fixed by
the Board.
Section 5. No Cumulative Voting. Cumulative voting for the election of
directors or any other purpose is prohibited.
Section 6. No Preemptive Rights. No stockholder shall, solely by reason
of his holding shares of any class or series of capital stock of the
corporation, have a preemptive or preferential right to purchase or subscribe to
any additional, unissued or treasury shares of any class or series of capital
stock of the corporation, or any notes, debentures, bonds, warrants, rights,
options or other securities of the corporation, whether now or hereafter
authorized, other than such rights, if any, as the Board, in its discretion, may
fix."
B. Article 5 of the Certificate of Incorporation is hereby amended to
read in its entirety as follows:
"5. The Board shall have the power to make, alter or repeal the By-Laws
of the corporation, subject to such restrictions upon the exercise of such power
as may be imposed by the stockholders."
C. Article 7 of the Certificate of Incorporation is hereby amended to
read in its entirety as follows:
"7. No contract or other transaction between the corporation and any
other corporation, firm or other entity or individual shall be affected or
invalidated by the fact that any one or more of the directors or officers of the
corporation is or are interested in or is a director or officer of such other
corporation, a member of such firm, or a partner or member of such other entity;
and any director or officer, individually or jointly, may be a party to or may
be interested in any contract or transaction with the corporation or in which
the corporation is interested."
D. Article 8 of the Certificate of Incorporation is hereby amended to
read in its entirety as follows:
"8. To the fullest extent permitted by Delaware statutory or decisional
law, as the same exists or may hereafter be amended or interpreted, including
(without limitation) Section 102(b)(7) of the Delaware General Corporation Law
or any successor provision, a director of the corporation shall not be liable to
the corporation or its stockholders for any act or omission in such director's
-4-
<PAGE> 5
capacity as a director. Any repeal or amendment of this Article 8, or adoption
of any other provision of this Certificate of Incorporation inconsistent with
this Article 8, by the stockholders of the corporation shall be prospective only
and shall not adversely affect any limitation on the liability to the
corporation or its stockholders of a director of the corporation existing at the
time of such repeal, amendment or adoption of an inconsistent provision."
ARTICLE FIVE
The Certificate of Incorporation and all amendments thereto are hereby
superseded by the following Restated Certificate of Incorporation:
1. The name of the corporation is StarNet Financial, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center No. 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is THE
CORPORATION TRUST COMPANY.
3. The nature of the business or purposes to be conducted or promoted
is: To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4.
Section 1. Capitalization. The corporation is authorized to issue
sixty-three million (63,000,000) shares of capital stock. Sixty million
(60,000,000) of the authorized shares shall be common stock, $0.01 par value per
share ("Common Stock"), and three million (3,000,000) of the authorized shares
shall be preferred stock, $0.01 par value per share ("Preferred Stock").
Section 2. Preferred Stock.
A. The Preferred Stock may, from time to time, be divided into
and issued in one or more series, with each series to be so designated
as to distinguish the shares thereof from the shares of all other
series. The shares of each series may have such powers, designations,
preferences, relative rights, qualifications, limitations or
restrictions as are stated herein and in one or more resolutions
providing for the issue of such series adopted by the Board of
Directors of the corporation (the "Board") as provided below in this
Section 2.
B. To the extent that this Certificate of Incorporation does
not fix and determine the variations in the relative rights and
preferences of the Preferred Stock, both in relation to the Common
Stock and as between series of Preferred Stock, the Board is expressly
vested with the authority to divide the Preferred Stock into one or
more series and, within the limitations set forth in this Certificate
of Incorporation, to fix and determine the relative rights and
preferences of the shares of any series so established and, with
respect to each such series, to fix by one or more resolutions
providing for the issue of such series, the following:
-5-
<PAGE> 6
(i) The distinctive designation of, and the number of
shares of Preferred Stock which shall constitute, the series,
which number may be increased or decreased (but not below the
number of shares thereof then outstanding) from time to time
by action of the Board.
(ii) The dividend rate, if any, on the shares of such
series and the date or dates from which dividends shall
commence to accrue or accumulate, the terms and conditions
upon which dividends, if any, on the shares of such series
shall be paid, and whether or in what circumstances such
dividends shall be cumulative.
(iii) The price at and the terms and conditions on
which the shares of such series may be redeemed, including
(without limitation) the time during which shares of the
series may be redeemed and the premium, if any, over and above
the par value thereof that the holders of shares of such
series shall be entitled to receive upon the redemption
thereof, which premium may vary at different dates and may
also be different with respect to shares redeemed through the
operation of any retirement or sinking fund.
(iv) The liquidation preference, if any, over and
above the par value thereof that the holders of shares of such
series shall be entitled to receive upon the voluntary or
involuntary liquidation, dissolution or winding-up of the
affairs of the corporation.
(v) Whether or not the shares of such series shall be
subject to the operation of a retirement or sinking fund, and,
if so, the extent 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 for other
corporate purposes, and the terms and provisions of such
retirement or sinking fund.
(vi) The terms and conditions, if any, on which the
shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of
capital stock of the corporation or any series of any other
class or classes, or of any other series of the same class,
including (without limitation) the price or prices or the rate
or rates of conversion or exchange and the method, if any, of
adjusting the same; provided, that shares of such series may
not be convertible into shares of a series or class that has
prior or superior rights and preferences as to dividends or
distribution of assets of the corporation upon voluntary or
involuntary liquidation, dissolution or winding-up of the
affairs of the corporation.
(vii) The voting rights, if any, on the shares of
such series (in addition to voting rights provided by law).
-6-
<PAGE> 7
(viii) Any or all other preferences and relative,
participating, optional or other special rights, or
qualifications, limitations or restrictions thereof, as shall
not be inconsistent with the law or with this Article 4.
C. All shares of any one series of Preferred Stock shall be
identical with each other in all respects, except that shares of any
one series issued at different times may differ as to the dates from
which dividends thereon, if any, shall commence to accrue or
accumulate; and all series shall rank equally and be identical in all
respects, except as permitted by this Section 2.
D. Except as provided in the resolution or resolutions adopted
by the Board providing for the issue of the series of Preferred Stock,
no vote or consent of the holders of outstanding shares of that series
shall be required for the issue by the Board of any other series of
Preferred Stock, whether or not the rights and preferences of any such
other series shall be fixed by the Board as senior to, or on a parity
with, the rights and preferences of that outstanding series.
Section 3. Common Stock.
A. Each share of Common Stock shall entitle the holder thereof
to one vote on each matter submitted to a vote of holders of shares of
Common Stock.
B. Subject to the prior rights and preferences of the
Preferred Stock set forth in any resolution or resolutions providing
for the issue of a series of Preferred Stock, and to the extent
permitted by the laws of the State of Delaware, the holders of Common
Stock shall be entitled to receive such cash dividends as may be
declared and made payable by the Board.
C. After payment shall have been made in full to the holders
of any series of Preferred Stock having preferred liquidation rights,
upon any voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the corporation, the remaining assets and
funds of the corporation shall be distributed among the holders of the
Common Stock according to their respective shares.
Section 4. Consideration. Shares of capital stock may be issued by the
corporation from time to time for such consideration as may lawfully be fixed by
the Board.
Section 5. No Cumulative Voting. Cumulative voting for the election of
directors or any other purpose is prohibited.
Section 6. No Preemptive Rights. No stockholder shall, solely by reason
of his holding shares of any class or series of capital stock of the
corporation, have a preemptive or preferential right to purchase or subscribe to
any additional, unissued or treasury shares of any class or series of
-7-
<PAGE> 8
capital stock of the corporation, or any notes, debentures, bonds, warrants,
rights, options or other securities of the corporation, whether now or hereafter
authorized, other than such rights, if any, as the Board, in its discretion, may
fix.
5. The Board shall have the power to make, alter or repeal the By-Laws
of the corporation, subject to such restrictions upon the exercise of such power
as may be imposed by the stockholders.
6. The corporation is to have perpetual existence.
7. No contract or other transaction between the corporation and any
other corporation, firm or other entity or individual shall be affected or
invalidated by the fact that any one or more of the directors or officers of the
corporation is or are interested in or is a director or officer of such other
corporation, a member of such firm, or a partner or member of such other entity;
and any director or officer, individually or jointly, may be a party to or may
be interested in any contract or transaction with the corporation or in which
the corporation is interested.
8. To the fullest extent permitted by Delaware statutory or decisional
law, as the same exists or may hereafter be amended or interpreted, including
(without limitation) Section 102(b)(7) of the Delaware General Corporation Law
or any successor provision, a director of the corporation shall not be liable to
the corporation or its stockholders for any act or omission in such director's
capacity as a director. Any repeal or amendment of this Article 8, or adoption
of any other provision of this Certificate of Incorporation inconsistent with
this Article 8, by the stockholders of the corporation shall be prospective only
and shall not adversely affect any limitation on the liability to the
corporation or its stockholders of a director of the corporation existing at the
time of such repeal, amendment or adoption of an inconsistent provision.
9. The corporation reserves the right to amend, alter, change or repeal
any provision contained in the Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE SIX
This Restated Certificate of Incorporation shall be effective on February 11,
2000.
IN WITNESS WHEREOF, StarNet Financial, Inc., has caused this Restated
Certificate of Incorporation to be signed by Kenneth F. Urbanus, its President,
as of the 3rd day of January, 2000.
STARNET FINANCIAL, INC.
By: /s/ Kenneth F. Urbanus
----------------------------
Kenneth F. Urbanus, President
-8-
<PAGE> 1
EXHIBIT 3.4
AMENDED
AND
RESTATED
BY-LAWS
OF
STARNET FINANCIAL, INC.
(EFFECTIVE AS OF OCTOBER 29, 1999)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
OFFICES
<S> <C>
SECTION 1. Registered Office.................................................1
SECTION 2. Other Offices.....................................................1
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Time and Place of Meetings........................................1
SECTION 2. Annual Meetings...................................................1
SECTION 3. Notice of Annual Meetings.........................................1
SECTION 4. Special Meetings..................................................1
SECTION 5. Notice of Special Meetings........................................2
SECTION 6. Quorum............................................................2
SECTION 7. Order of Business.................................................2
SECTION 8. New Business; Stockholder Proposals...............................2
SECTION 9. Voting............................................................3
SECTION 10. List of Stockholders..............................................4
SECTION 11. Inspectors of Votes...............................................4
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. Powers............................................................5
SECTION 2. Number of Directors and Qualification. ...........................5
SECTION 3. Term of Office....................................................5
SECTION 4. Resignations......................................................5
SECTION 5. Nominations.......................................................5
SECTION 6. Removal...........................................................7
SECTION 7. Vacancies.........................................................7
SECTION 8. Time and Place of Meetings........................................7
SECTION 9. Annual Meetings...................................................7
SECTION 10. Regular Meetings - Notice.........................................8
SECTION 11. Special Meetings - Notice.........................................8
SECTION 12. Quorum and Manner of Acting.......................................8
SECTION 13. Compensation .....................................................8
SECTION 14. How Constituted and Powers........................................8
SECTION 15. Minutes of Committees.............................................9
SECTION 16. Actions Without a Meeting.........................................9
SECTION 17. Presence at Meetings by Means of Communications Equipment.........9
</TABLE>
<PAGE> 3
<TABLE>
ARTICLE IV
NOTICES
<S> <C>
SECTION 1. Type of Notice...................................................9
SECTION 2. Waiver of Notice.................................................9
SECTION 3. Authorized Notices..............................................10
ARTICLE V
OFFICERS
SECTION 1. Description.....................................................10
SECTION 2. Election; Vacancies.............................................10
SECTION 3. Removal.........................................................10
SECTION 4. Term............................................................10
SECTION 5. Duties of the Chairman of the Board.............................10
SECTION 6. Duties of the President.........................................11
SECTION 7. Duties of Vice President - Finance..............................11
SECTION 8. Duties of Vice Presidents and Assistant Vice Presidents.........11
SECTION 9. Duties of Secretary and Assistant Secretaries...................12
SECTION 10. Duties of Treasurer and Assistant Treasurers....................12
SECTION 11. Duties of Controller and Assistant Controllers..................13
ARTICLE VI
INDEMNIFICATION
SECTION 1. Actions Other than by or in the Right of the Corporation........13
SECTION 2. Actions by or in the Right of the Corporation...................14
SECTION 3. Determination of Right to Indemnification.......................14
SECTION 4. Right to Indemnification........................................15
SECTION 5. Advancement of Expenses.........................................15
SECTION 6. Indemnification upon Application................................15
SECTION 7. Other Rights and Remedies.......................................16
SECTION 8. Insurance.......................................................16
SECTION 9. Mergers.........................................................16
SECTION 10. Savings Provision...............................................17
ARTICLE VII
CERTIFICATES REPRESENTING STOCK
SECTION 1. Right to Certificate............................................17
SECTION 2. Facsimile Signatures............................................17
SECTION 3. New Certificates................................................18
SECTION 4. Transfers.......................................................18
SECTION 5. Record Date.....................................................18
SECTION 6. Registered Stockholders.........................................18
</TABLE>
<PAGE> 4
<TABLE>
ARTICLE VIII
GENERAL PROVISIONS
<S> <C>
SECTION 1. Dividends.......................................................18
SECTION 2. Reserves........................................................19
SECTION 3. Sale, Transfer, etc., of Securities.............................19
SECTION 4. Annual Statement................................................19
SECTION 5. Checks..........................................................19
SECTION 6. Fiscal Year.....................................................19
SECTION 7. Corporate Seal..................................................19
SECTION 8. Certificate of Incorporation....................................19
ARTICLE IX
AMENDMENTS..................................................................19
CERTIFICATION...............................................................21
</TABLE>
<PAGE> 5
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of StarNet
Financial, Inc. (the "Corporation") shall be in the City of Wilmington, County
of New Castle, State of Delaware.
SECTION 2. Other Offices. The Corporation may also have offices at such
other place or places, both within and without the State of Delaware, as the
Board of Directors of the Corporation (the "Board of Directors") may from time
to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Time and Place of Meetings. All meetings of the stockholders
shall be held at such time and place, either within or without the State of
Delaware, as the Board of Directors shall designate and as shall be stated in
the notice of the meeting.
SECTION 2. Annual Meetings. Annual meetings of the stockholders shall
be held on such date and at such time as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting. At the annual
meeting, the stockholders shall elect by written ballot a Board of Directors and
transact such other business as may properly be brought before the meeting.
SECTION 3. Notice of Annual Meetings. Written notice of the annual
meeting, stating the place, date and hour of the meeting, shall be given to each
stockholder of record entitled to vote at such meeting not less than ten or more
than 60 days before the date of the meeting.
SECTION 4. Special Meetings. Special meetings of the stockholders for
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation of the Corporation, may be called at any time by a
majority of the entire membership of the Board of Directors, and shall be called
by the Chairman of the Board, the Chief Executive Officer or the Secretary at
the request in writing of a majority of the entire membership of the Board of
Directors. Such request shall state the purpose or purposes of the proposed
special meeting. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice of the meeting.
SECTION 5. Notice of Special Meetings. Written notice of a special
meeting, stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given to each stockholder of
record entitled to vote at such meeting not less than ten or more than 60 days
before the date of the meeting.
1
<PAGE> 6
SECTION 6. Quorum. The holders of stock having a majority of the voting
power of the stock entitled to be voted thereat, present in person or
represented by proxy, shall constitute a quorum for the transaction of business
at all meetings of the stockholders. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time without notice (other than
announcement at the meeting at which the adjournment is taken of the time and
place of the adjourned meeting) until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted that might have been transacted at the meeting as
originally notified. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
SECTION 7. Order of Business. The order of business at annual meetings
of stockholders and, so far as practicable, at other meetings of stockholders
shall be determined by the Board of Directors, the Chairman of the Board or the
Chief Executive Officer.
SECTION 8. New Business; Stockholder Proposals. At an annual meeting of
stockholders, only such new business shall be conducted, and only such proposals
shall be acted upon, as shall have been properly brought before the annual
meeting. For any new business proposed by the Board of Directors to be properly
brought before the annual meeting, such new business shall be approved by the
Board of Directors and shall be stated in writing and filed with the Secretary
of the Corporation at least five days before the date of the annual meeting, and
all business so approved, stated and filed shall be considered at the annual
meeting. Any stockholder may make any other proposal at the annual meeting, but
unless properly brought before the annual meeting, such proposal shall not be
acted upon at the annual meeting. For a proposal to be properly brought before
an annual meeting by a stockholder, the stockholder must have given proper and
timely written notice thereof in writing to the Secretary of the Corporation as
specified in this Section 8 and the proposal must be a proper subject for
stockholder action under applicable law. To be timely, a stockholder's written
notice must be delivered or mailed to and received at the principal executive
offices of the Corporation not later than the date that corresponds to 120 days
prior to the date the Corporation's proxy statement was first released to
stockholders in connection with the previous year's annual meeting of
stockholders. A stockholder's notice to the Secretary shall set forth, as to
each matter the stockholder proposes to bring before the annual meeting, (a) a
description of the proposal desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business and any other stockholders known by such stockholder to be
supporting such proposal, (c) the class (and, if applicable, series) and number
of shares of the stock that are held of record, beneficially owned and
represented by proxy on the date of such stockholder's notice and on the record
date of the meeting (if such date shall have been made publicly available) by
the stockholder and by any other stockholders known by such stockholder to be
supporting such proposal on such dates, (d) any financial interest of the
stockholder in such proposal, and (e) all other information that would be
required to be filed with the Securities and Exchange Commission if, with
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respect to any such item of business, such stockholder or stockholders were a
participant in a solicitation subject to Section 14 of the Securities Exchange
Act of 1934, as amended.
The Board of Directors may reject any stockholder proposal not
made strictly in accordance with the terms of this Section 8. Alternatively, if
the Board of Directors fails to consider the validity of any stockholder
proposal, the presiding officer of the annual meeting shall, if the facts
warrant, determine and declare at the annual meeting that the stockholder
proposal was not made in strict accordance with the terms of this Section 8, and
if he should so determine, he shall so declare at the annual meeting and any
such business or proposal not properly brought before the annual meeting shall
not be acted upon at the annual meeting. This provision shall not prevent the
consideration and approval or disapproval at the annual 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 meeting
unless stated, filed and received as herein provided.
SECTION 9. Voting. Except as otherwise provided in the certificate of
incorporation, each stockholder shall, at each meeting of the stockholders, be
entitled to one vote in person or by proxy for each share of stock of the
Corporation held by him and registered in his name on the books of the
Corporation on the date fixed pursuant to the provisions of Section 5 of Article
VII of these by-laws as the record date for the determination of stockholders
who shall be entitled to notice of and to vote at such meeting. Shares of the
Corporation's stock belonging to the Corporation or to another Corporation or
other entity, if a majority of the shares or other ownership interests entitled
to vote in the election of directors or equivalent position of such other
Corporation or other entity is held directly or indirectly by the Corporation,
shall not be entitled to vote. Any vote by stock of the Corporation may be given
at any meeting of stockholders by the stockholder entitled thereto, in person or
by his proxy appointed by an instrument in writing subscribed by such
stockholder or by his attorney thereunto duly authorized and delivered to the
Secretary of the Corporation or to the Secretary of the meeting; except that no
proxy shall be voted or acted upon after three years from its date, unless that
proxy shall provide for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and unless otherwise made
irrevocable by law. At all meetings of the stockholders, all matters, except
where other provision is made by law, the certificate of incorporation, or these
by-laws, shall be decided by the vote of a majority of the votes cast by the
stockholders present in person or by proxy and entitled to vote thereat, a
quorum being present. Unless otherwise provided by the certificate of
incorporation of the Corporation or these by-laws in accordance with Delaware
law, directors of the Corporation shall be elected by a plurality of the votes
cast by holders of outstanding shares of all classes or series of stock of the
Corporation entitled to vote in the election of directors of the Corporation.
Unless demanded by a stockholder of the Corporation present in person or by
proxy at any meeting of the stockholders and entitled to vote thereat, or so
directed by the presiding officer of the meeting, the vote thereat on any
question other than the election or the removal of directors need not be by
written ballot. Upon a demand of any such stockholder for a vote by written
ballot on any question or at the direction of such presiding officer that a vote
by written ballot be taken on any question, such vote shall be taken by written
ballot. On a vote by written ballot, each ballot shall be signed by the
stockholder voting, or by his proxy, if there be such proxy, and shall state the
number of shares voted.
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SECTION 10. List of Stockholders. It shall be the duty of the Secretary
or other officer of the Corporation who shall have charge of its stock ledger,
either directly or through another officer of the Corporation designated by him
or through a transfer agent appointed by the Board of Directors, to prepare and
make, at least ten days before every meeting of the stockholders, a complete
list of the stockholders entitled to vote thereat, 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 before 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 of record who shall be present thereat. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, such list or the books of the Corporation, or to vote
in person or by proxy at any meeting of stockholders.
SECTION 11. Inspectors of Votes. The presiding officer of the meeting
may appoint one or more inspectors of votes to act at each meeting of the
stockholders, unless the Board of Directors shall have theretofore made such
appointments. If one or more inspectors of vote are appointed, each inspector of
votes shall first subscribe an oath or affirmation faithfully to execute the
duties of an inspector of votes at the meeting with strict impartiality and
according to the best of his ability. Such inspectors of votes, if any, shall
take charge of the ballots, if any, at the meeting, and after the balloting on
any question, shall count the ballots cast and shall make a report in writing to
the Secretary of the meeting of the results of the balloting. An inspector of
votes need not be a stockholder of the Corporation, and any officer of the
Corporation may be an inspector of votes on any question other than a vote for
or against his election to any position with the Corporation or on any other
question in which he may be directly interested.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. Powers. The business and affairs of the Corporation shall be
managed by the Board of Directors, which shall have and may exercise all powers
of the Corporation and take all lawful acts as are not by statute, the
certificate of incorporation or these by-laws directed or required to be
exercised or taken by the stockholders.
SECTION 2. Number of Directors and Qualification. The authorized number
of directors shall be specified from time to time by resolution of the Board of
Directors, but shall not be less than one (1). Directors need not be residents
of the State of Delaware or stockholders of the Corporation.
SECTION 3. Term of Office. Each director, including a director elected
to fill a vacancy, shall hold office until the annual meeting of stockholders
next following his election or until a
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successor has been elected and qualified. No decrease in the authorized number
of directors shall have the effect of shortening the term of any incumbent
director.
SECTION 4. Resignations. Any director may resign at any time by giving
written notice of his resignation to the Corporation, effective at the time
specified therein or, if not specified, immediately upon its receipt by the
Corporation. Unless otherwise specified in the notice, acceptance of a
resignation shall not be necessary to make it effective.
SECTION 5. Nominations. If a person is to be elected to the Board of
Directors because of a vacancy existing on the Board of Directors, nomination
shall be made only by the Board of Directors or of a nominating committee of the
Board of Directors (the Board of Directors as a whole or such committee of the
Board of Directors being referred to herein as the "nominating committee")
pursuant to the affirmative vote of the majority of the entire membership of the
nominating committee. The nominating committee shall also make nominations for
the directors to be elected by the stockholders of the Corporation at an annual
meeting of the stockholders as provided below in this Section 5.
Only persons nominated in accordance with the procedures set
forth in this Section 5 shall be eligible for election as directors at an annual
meeting. The nominating committee shall select the management nominees for
election as directors. Except in the case of a nominee substituted as a result
of the death, incapacity, disqualification or other inability to serve as a
management nominee, the nominating committee shall deliver written nominations
to the Secretary of the Corporation at least 30 days prior to the date of the
annual meeting. Management nominees substituted as a result of the death,
incapacity, disqualification or other inability to serve as a management nominee
shall be delivered to the Secretary as promptly as practicable. If the
nominating committee selects the management nominees, no nominees for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by stockholders are made in accordance with the
provisions of this Section 5. Ballots bearing the names of all the persons
nominated for election as directors at an annual meeting in accordance with the
procedures set forth in this Section 5 by the nominating committee and by
stockholders shall be provided for use at the annual meeting. However, except in
the case of a management nominee substituted as a result of the death,
incapacity, disqualification or other inability to serve as a management
nominee, if the nominating committee shall fail or refuse to nominate a slate of
directors at least 30 days prior to the date of the annual meeting, nominations
for directors may be made at the annual meeting by any stockholder entitled to
vote and shall be voted upon. No person shall be elected as a director of the
Corporation unless nominated in accordance with the terms set forth in this
Section 5.
Nominations of persons for election to the Board of Directors
at an annual meeting of stockholders may be made by any stockholder of the
Corporation entitled to vote for the election of directors at that meeting who
complies with the procedures set forth in this Section 5. To be timely, a
stockholder's notice must be delivered or mailed to and received at the
principal executive offices of the Corporation not less than 75 days prior to
the date of the annual meeting of
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stockholders or more than 85 days prior to the date of such annual meeting;
except that if less than 75 days' notice or prior public disclosure of the date
of the annual meeting is given or made, notice by the stockholder to be timely
must be so delivered or received not later than the close of business on the
10th day following the earlier of (a) the day on which such notice of the date
of the annual meeting was mailed or (b) the day on which such public disclosure
was made. Such stockholder's notice shall set forth (i) as to each person whom
the stockholder proposes to nominate for election or re-election as a director
(A) the name, age, business address and residence address of such person, (B)
the principal occupation or employment of such person, (C) the class (and, if
applicable, the series) and number of shares of capital stock of the Corporation
that are owned of record and beneficially owned by such person on the date of
such stockholder's notice and (D) 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 Section 14 under the Securities
Exchange Act of 1934, as amended; and (ii) as to the stockholder giving the
notice (A) 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 (B) the class (and, if applicable, series) and
number of shares of capital stock of the Corporation that are owned of record
and beneficially owned by such stockholder on the date of such stockholder's
notice and by any other stockholders known by such stockholder to be supporting
such nominees on the date of such stockholder's notice.
The Board of Directors may reject any nomination by a
stockholder not made in strict accordance with the terms of this Section 5.
Alternatively, if the Board of Directors fails to consider the validity of any
nominations by a stockholder, the presiding officer of the annual meeting shall,
if the facts warrant, determine and declare at the annual meeting that a
nomination was not made in strict accordance with the terms of this Section 5,
and if he should so determine, he shall so declare at the annual meeting and the
defective nomination shall be disregarded.
SECTION 6. Removal. Any director may be removed at any time, but only
for cause, by the affirmative vote by written ballot of at least eighty percent
(80%) of the voting power of the stockholders of record of the Corporation
entitled to vote, at an annual meeting or at a special meeting of the
stockholders called for that purpose. For the purpose of this Section 6, "cause"
shall be deemed to exist only if (a) a director has been convicted of a felony
by a court of competent jurisdiction, and that conviction is no longer subject
to direct appeal, (b) a director has been found by a court of competent
jurisdiction (which finding is no longer subject to direct appeal) or by the
affirmative vote of a majority of the entire membership of the Board of
Directors (other than that director), at any meeting of the Board of Directors,
to have been grossly negligent or guilty of willful misconduct in the
performance of his duties to the Corporation in a manner of importance to the
Corporation, (c) a director has been adjudicated by a court of competent
jurisdiction to be incompetent to perform his duties as a director of the
Corporation, (d) a director has been found by a court of competent jurisdiction
(which finding is no longer subject to direct appeal) or by the affirmative vote
of a majority of the entire membership of the Board of Directors (other than
that director), at any meeting of the Board of Directors, to have breached that
director's duty of loyalty to the Corporation or its stockholders or to have
engaged in any transaction with the Corporation from which the director derived
an improper personal benefit, or (e) "cause" for removal otherwise
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exists under the Delaware General Corporation Law. Any proposal by a stockholder
of the Corporation to remove a director of the Corporation, in order to be
properly acted upon at any stockholders' meeting, must comply with Section 8 of
Article II of these by-laws.
SECTION 7. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
only by a majority of the directors then in office, even though less than a
quorum, or by a sole remaining director. Directors so chosen shall hold office
until the annual meeting next after their election or until their successors are
elected and qualified, unless sooner displaced. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute.
Meetings of the Board of Directors
SECTION 8. Time and Place of Meetings. The Board of Directors of the
Corporation may hold meetings, both regular and special, at such time and places
as it determines.
SECTION 9. Annual Meetings. The first meeting of each newly elected
Board of Directors shall be held promptly following the annual meeting of
stockholders, and no notice of such meeting to the newly elected directors shall
be necessary in order legally to constitute the meeting, provided a quorum shall
be present. If such meeting is not held promptly following the annual meeting of
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors.
SECTION 10. Regular Meetings - Notice. Regular meetings of the Board of
Directors may be held without notice.
SECTION 11. Special Meetings - Notice. Special meetings of the Board of
Directors may be called by the Chairman of the Board of Directors or at least
two directors on 48 hours' notice to each director, either personally or by
telephone or by mail, telegraph, telex, telecopy, cable, wireless or other form
of recorded or electronic communication; special meetings shall be called by the
Secretary in like manner and on like notice on the written request of the
Chairman of the Board of Directors or at least two directors. Notice of any such
meeting need not be given to any director, however, if waived by him in writing
or by telegraph, telex, telecopy, cable, wireless or other form of recorded or
electronic communication, or if he shall be present at the meeting.
SECTION 12. Quorum and Manner of Acting. At all meetings of the Board
of Directors, fifty percent (50%) of the directors at the time in office shall
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which a quorum is present shall be
the act of the Board of Directors, except as may be otherwise specifically
provided by statute or by the certificate of incorporation. If a quorum shall
not be present at any meeting of the Board of Directors, the directors present
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
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SECTION 13. Compensation. Directors of the Corporation shall be
entitled to such compensation, if any, for their services as shall be determined
by the Board of Directors.
Committees of Directors
SECTION 14. How Constituted and Powers. The Board of Directors may, by
resolution adopted by a majority of the entire membership of the Board of
Directors, designate one or more committees, with each committee to consist of
one or more of the directors of the Corporation. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. If no
alternate is so appointed, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member; provided, that
members of the Audit Committee and the Compensation Committee may only appoint a
"non-employee director" (as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended) of the Board of Directors. Subject
to the Delaware General Corporation Law and to the certificate of incorporation,
and to the extent provided in the resolution of the Board of Directors, any
committee shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation
and may authorize the seal of the Corporation to be affixed to all papers that
may require it. At any meeting of a committee, a majority of the members of the
committee shall constitute a quorum for the transaction of business, and the act
of a majority of the members present at any meeting at which a quorum is present
shall be the act of the committee.
SECTION 15. Minutes of Committees. Each committee shall keep regular
minutes of its meetings and proceedings and report the same to the Board of
Directors at the next meeting thereof.
General
SECTION 16. Actions Without a Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or the
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
the committee.
SECTION 17. Presence at Meetings by Means of Communications Equipment.
Members of the Board of Directors, or of any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or the
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear one another.
Participation in a meeting conducted pursuant to this Section 17 shall
constitute presence in person at the meeting.
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ARTICLE IV
NOTICES
SECTION 1. Type of Notice. Whenever, under the provisions of any
applicable statute, the certificate of incorporation, or these by-laws, notice
is required to be given to any director or stockholder, the requirement shall
not be construed to mean personal notice, but such notice may be given in
writing, in person or by mail, addressed to such director or stockholder at his
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when it is
deposited in the United States mail. Notice to directors may also be given in
any manner permitted by Article III hereof and shall be deemed to be given at
the time when first transmitted by the method of communication so permitted.
SECTION 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of any applicable statute, the certificate of
incorporation or these by-laws, a waiver thereof in writing, signed by the
person or persons entitled to that notice, whether before or after the time
stated therein, shall be deemed equivalent thereto, and transmission of a waiver
of notice by a director or stockholder by mail, telegraph, telex, telecopy,
cable, wireless or other form of recorded or electronic communication may
constitute such a waiver.
SECTION 3. Authorized Notices. Unless otherwise specified herein, the
Secretary of the Corporation, or such other person or persons as the Chief
Executive Officer designates, shall be authorized to give notices for the
Corporation.
ARTICLE V
OFFICERS
SECTION 1. Description. The elected officers of the Corporation shall
be a Chief executive Officer, a Chief Operating Officer, a President, and one or
more Vice Presidents, with or without such descriptive titles as the Board of
Directors shall deem appropriate, a Secretary and a Treasurer and, if the Board
of Directors so elects, a Chairman of the Board of Directors (who shall be a
director), and a Controller. The Board of Directors by resolution shall also
appoint one or more assistant secretaries, assistant treasurers, assistant
controllers and such other officers and agents as from time to time may appear
to be necessary or advisable in the conduct of the affairs of the Corporation.
Any two or more offices may be held by the same person.
SECTION 2. Election; Vacancies. The Board of Directors, at its first
meeting after each annual meeting of stockholders, shall elect and appoint the
officers to fill the positions designated in Section 1 of this Article V. Any
vacancy that occurs in any office of the Corporation elected or appointed by the
Board of Directors shall be filled by the Board of Directors. Any vacancy in any
office that is appointed by the Chief Executive Officer or any other officer
having appointment
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authority may be filled by the Chief Executive Officer or such other officer
having that appointment authority.
SECTION 3. Removal. Any officer or agent elected or appointed by the
Board of Directors or appointed by the Chief Executive Officer or any other
officer of the Corporation having appointment authority may be removed by the
Board of Directors whenever, in its judgment, the best interests of the
Corporation will be served thereby. Any officer or agent appointed by the Chief
Executive Officer or another officer of the Corporation having appointment
authority may be removed by the officer (or that officer's successor) who
appointed the officer or agent whenever, in the judgment of the appointing
officer (or that officer's successor), the best interests of the Corporation
will be served thereby. Any such removal shall be without prejudice to the
contract rights, if any, of the officer or agent so removed. Election or
appointment of officer or agent shall not of itself create any contract rights.
SECTION 4. Term. An officer of the Corporation shall hold office until
his death, resignation, retirement or removal or his successor is elected or
appointed.
SECTION 5. Duties of the Chairman of the Board. The Board of Directors
may elect or appoint, from among its members, a Chairman of the Board of
Directors of the Corporation. The Chairman of the Board, when present, shall
preside at all meetings of the stockholders of the Corporation and of the Board
of Directors. The Chairman of the Board shall perform, under the direction and
subject to the control of the Board of Directors, all duties incident to the
office of Chairman of the Board and such other duties as the Board of Directors
may assign to the Chairman of the Board from time to time. The Chairman of the
Board may execute (in facsimile or otherwise) and deliver certificates for
shares of the Corporation, any deeds, mortgages, bonds, contracts or other
instruments that the Board of Directors has authorized to be executed and
delivered, except in cases where the execution and delivery thereof shall be
expressly and exclusively delegated to one or more other officers or agents of
the Corporation by the Board of Directors or these by-laws, or where the
execution and delivery thereof shall be required by law to be executed and
delivered by another person.
SECTION 6. Duties of the Chief Executive Officer. The Chief Executive
Officer in general shall supervise and control all of the business and affairs
of the Corporation, under the direction and subject to the control of the Board
of Directors, the Chairman of the Board and such other officer or officers as
the Board of Directors or the Chairman of the Board may designate. The Chief
Executive Officer shall perform, under the direction and subject to the control
of the Board of Directors, the Chairman of the Board and such other officer or
officers as the Board of Directors or the Chairman of the Board may designate,
all duties incident to the office of Chief Executive Officer and such other
duties as the Board of Directors, the Chairman of the Board or such other
officer or officers may assign to the Chief Executive Officer from time to time.
The Chief Executive Officer may execute (in facsimile or otherwise) and deliver
certificates for shares of the Corporation, any deeds, mortgages, bonds,
contracts, or other instruments that the Board of Directors has authorized to be
executed and delivered, except in cases where the execution and delivery thereof
shall be
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expressly and exclusively delegated to one or more other officers or agents of
the Corporation by the Board of Directors or theses by-laws, or where the
execution and delivery thereof shall be required by law to be executed and
delivered by another person. The Chief Executive Officer shall have the power
and authority to appoint one or more Vice Presidents of the Corporation, which
power shall not be exclusive of any right of the Board of Directors, the
Chairman of the Board, the Vice Chairman of the Board or the President to elect
or appoint such officers.
SECTION 7. Duties of the President. The President shall be subject to
the provisions of these by-laws, shall have general supervision of the affairs
of the Corporation and shall have general and active control of all its business
under the direction and subject to the control of the Board of Directors, the
Chairman of the Board and such other officer or officers as the Board of
Directors or the Chairman of the Board may designate. In the absence of the
Chairman of the Board (if any), the Chief Executive Officer shall preside, when
present, at all meetings of the stockholders and the Board of Directors. The
President shall see that all orders and resolutions of the Board of Directors
and the stockholders are carried into effect. He shall have general authority to
execute bonds, deeds and contracts in the name of the Corporation and affix the
corporate seal thereto; to sign stock certificates; to cause the employment or
appointment of such employees and agents of the Corporation as the proper
conduct of operations may require, and to fix their compensation, subject to the
provisions of these by-laws; to remove or suspend any employee or agent who
shall have been employed or appointed under his authority or under authority of
an officer subordinate to him; to suspend for cause, pending final action by the
authority which shall have elected or appointed him, any officer subordinate to
the President; and, in general, to exercise all the powers and authority usually
appertaining to the Chief Executive Officer of a corporation, except as
otherwise provided in these by-laws, the Delaware General Corporation Law, or
the certificate of incorporation.
SECTION 8. Duties of the Chief Operating Officer. The Chief Operating
Officer shall perform, under the direction and subject to the control of the
Board of Directors, the Chairman of the Board and such other officer or officers
as the Board of Directors or the Chairman of the Board may designate, all duties
incident to the office of Chief Operating Officer and such other duties as the
Board of Directors, the Chairman of the Board or such other officer or officers
may assign to the Chief Operating Officer from time to time. The Chief Operating
Officer may execute (in facsimile or otherwise) and deliver any deeds,
mortgages, bonds, contracts or other instruments that the Board of Directors has
authorized to be executed and delivered, except in cases where the execution and
delivery thereof shall be expressly and exclusively delegated to one or more
other officers or agents of the Corporation by the Board of Directors or these
by-laws, or where the execution and delivery thereof shall be required by law to
be executed and delivered by another person.
SECTION 9. Duties of Vice President - Finance. There may be designated
a Vice President - Finance, who, if so designated, shall be the Chief Financial
Officer of the Corporation. He shall have active control of and responsibility
for all matters pertaining to the financial affairs of the Corporation. His
authority shall include the authorities of the Treasurer and Controller. He
shall be responsible for approval of all filings with governmental agencies. He
shall have the authority to execute and deliver bonds, deeds, contracts and
stock certificates of and for the Corporation, and
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to affix the corporate seal thereto by handwritten or facsimile signature and
all other powers customarily appertaining to his office, except to the extent
otherwise limited or enlarged. He shall report to the Chief Executive Officer
and the Board of Directors of the Corporation at their request on all financial
matters of the Corporation.
SECTION 10. Duties of Vice Presidents and Assistant Vice Presidents. In
the absence of the President or in the event of his inability or refusal to act,
the Vice President (or in the event there be more than one Vice President, the
Vice Presidents in the order designated by the board, or in the absence of any
designation, in the order of their election) shall perform the duties of the
President and, when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. The Vice Presidents shall perform such
other duties and have such other powers as the Board of Directors or the
President may from time to time prescribe.
SECTION 11. Duties of Secretary and Assistant Secretaries. The
Secretary or an assistant secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all proceedings of the
meetings of the stockholders 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
committees of the Board of Directors when required. The Secretary shall be under
the supervision of the Chief Executive Officer and shall perform such other
duties as may be prescribed by the Chief Executive Officer. The Secretary shall
have charge of the corporate seal of the Corporation and have authority to affix
the seal to any instrument requiring it. When so affixed, the seal shall be
attested by the signature of the Secretary or the Treasurer or an assistant
secretary or assistant treasurer, which may be a facsimile. The Secretary shall
keep and account for all books, documents, papers and records of the
Corporation, except those for which some other officer or agent is properly
accountable. The Secretary shall have authority to sign stock certificates, and
shall generally perform all the duties usually appertaining to the office of the
secretary of a Corporation.
Assistant secretaries in the order of their seniority, unless
otherwise determined by the Board of Directors, shall assist the Secretary, and
in the absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary.
SECTION 12. Duties of Treasurer and Assistant Treasurers. The Treasurer
shall have the responsibility for and custody over all assets of the
Corporation, and the responsibility for handling of the liabilities of the
Corporation. He shall cause proper entries of all receipts and disbursements of
the Corporation to be recorded in its books of account. He shall have the
responsibility for all matters pertaining to taxation and insurance. He shall
have the authority to endorse for deposit or collection, or otherwise, all
commercial paper payable to the Corporation, and to give proper receipts or
discharges for all payments to the Corporation. He shall be responsible for all
terms of credit granted by the Corporation and for the collection of all its
accounts. He shall have the authority to execute and deliver bonds, deeds,
contracts and stock certificates of and for the Corporation, and to affix the
corporate seal thereto by handwritten or facsimile signature and all other
powers customarily appertaining to his office, except to the extent otherwise
limited or enlarged. The
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Treasurer shall be under the supervision of, and shall perform such other duties
as may be prescribed to him by, the Vice President - Finance, if one be
designated.
Assistant treasurers, in the order of their seniority, shall
assist the Treasurer, and in the absence or disability of the Treasurer, perform
the duties and exercise the powers of the Treasurer.
SECTION 13. Duties of Controller and Assistant Controllers. The
Controller, if one be designated, shall be responsible for all matters
pertaining to the accounts of the Corporation, with the supervision of the books
of account, their installation, arrangement and classification. The Controller
shall maintain adequate records of all assets, liabilities and transactions; see
that an adequate system of internal audit thereof is currently and regularly
maintained; coordinate the efforts of the Corporation's independent public
accountants in its external audit program; receive, review and consolidate all
operating and financial statements of the Corporation and its various
departments; and prepare financial statements, reports and analyses. The
Controller shall have supervision of the accounting practices of the
Corporation. The Controller shall cause to be maintained an adequate system of
financial control through a program of budgets, financial planning and
interpretive reports. The Controller shall initiate and enforce accounting
measures and procedures whereby the business of the Corporation shall be
conducted with the maximum efficiency and economy. The Controller shall have all
other powers customarily appertaining to the office of controller, except to the
extent otherwise limited or enlarged. The Controller shall be under the
supervision of the Vice President - Finance, if one be designated.
The assistant controllers, in the order of their seniority,
shall assist the Controller, and if the Controller is unavailable, perform the
duties and exercise the powers of the Controller.
ARTICLE VI
INDEMNIFICATION
SECTION 1. Actions Other than by or in the Right of the Corporation.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action, suit, or proceeding by or in the right of the
Corporation) (collectively referred to in this Article VI as an "Action"), by
reason of the fact that he is or was a director or officer of the Corporation,
against expenses (including, without limitation, attorneys' fees), judgments,
fines, and amounts paid in settlement (collectively, "Expenses") actually and
reasonably incurred by him in connection with such Action, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal Action, had no
reasonable cause to believe his conduct was unlawful. The Corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any Action by reason of the fact that he is or was an 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
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corporation, partnership, joint venture, trust, or other enterprise (each such
person being hereinafter referred to in this Article VI as a "Corporate
Functionary"), against Expenses actually and reasonably incurred by him in
connection with such Action, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal Action, had no reasonable cause to
believe his conduct was unlawful. The termination of any Action by judgment,
order, settlement, or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation or, with respect to any
criminal Action, that he had reasonable cause to believe that his conduct was
unlawful. In this Article VI, an "other enterprise" includes, without
limitation, an employee benefit plan, and a "fine" includes, without limitation,
any excise tax imposed with respect to an employee benefit plan.
SECTION 2. Actions by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action, suit, or
proceeding by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that he is or was a director or officer of the
Corporation against Expenses actually and reasonably incurred by him in
connection with the defense or settlement of such action, suit, or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, except that no indemnification
shall be made in respect of any claim, issue, or matter as to which such person
shall have been adjudged to be liable to the Corporation, unless and only to the
extent that the Court of Chancery or the court in which such action, suit, or
proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper. The Corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action, suit, or proceeding by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a Corporate Functionary against Expenses actually and
reasonably incurred by him in connection with the defense or settlement of such
action, suit, or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such Corporate Functionary shall have been
adjudged to be liable to the Corporation, unless and only to the extent that the
Court of Chancery or the court in which such action, suit, or proceeding was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such Corporate
Functionary is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
SECTION 3. Determination of Right to Indemnification. Any
indemnification under Section 1 or Section 2 of this Article VI (unless ordered
by a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director or officer or of
the Corporate Functionary is proper in the circumstances because such person has
met
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the applicable standard of conduct set forth in Section 1 or Section 2 of this
Article VI. Such determination shall be made (a) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit, or proceeding, (b) if such a quorum is not obtainable, or, even if
obtainable if a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (c) by the stockholders.
SECTION 4. Right to Indemnification. Notwithstanding the other
provisions of this Article VI, to the extent that a director, officer, or
Corporate Functionary has been successful on the merits or otherwise in defense
of any action, suit, or proceeding referred to in Section 1 or Section 2 of this
Article VI (including, without limitation, the dismissal of an action, suit, or
proceeding without prejudice or the settlement of an action, suit, or proceeding
without admission of liability), or in defense of any claim, issue, or matter
therein, the Corporation shall indemnify him against expenses (including,
without limitation, attorneys' fees) actually and reasonably incurred by him in
connection therewith.
SECTION 5. Advancement of Expenses. Expenses incurred by a director or
officer of the Corporation in defending an Action shall be paid by the
Corporation in advance of the final disposition of such Action, upon receipt of
an undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article VI. Expenses incurred by a director or
officer in defending an action, suit or proceeding by or in the right of the
Corporation to procure a judgment in its favor, or incurred by a Corporate
Functionary in defending any civil or criminal action, suit, or proceeding
(including, without limitation, an Action), may be paid by the Corporation in
advance of the final disposition of such action, suit, or proceeding, upon (a)
receipt of an undertaking by or on behalf of such person to repay such amount if
it shall ultimately be determined he is not entitled to be indemnified by the
Corporation as authorized in this Article VI and (b) such other terms and
conditions, if any, as the Board of Directors deems appropriate.
SECTION 6. Indemnification upon Application; Procedure upon
Application.
(a) Any indemnification of a director or officer of the Corporation
under Sections 1, 2, and 4, or any mandatory advance to a director or officer of
the Corporation under Section 5, of this Article VI shall be made promptly upon,
and in any event within 60 days after, the written request of the director or
officer. The right to indemnification or to a mandatory advance of expenses
granted by this Article VI shall be enforceable by the director or officer of
the Corporation in any court of competent jurisdiction if his claim is not paid
in full within 60 days. The expenses of the director or officer incurred in
connection with successfully establishing his right to indemnification or to a
mandatory advance of expenses, in whole or in part, in any such proceeding shall
also be indemnified by the Corporation.
(b) Within 60 days after receipt of a written application by any
Corporate Functionary for indemnification in his capacity as such under any of
Sections 1, 2, and 4, or any advance under Section 5, of this Article VI, (a) a
determination shall be made under Section 3 of this Article VI as
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<PAGE> 20
to whether indemnification shall be made, or (b) if the request is for an
advance of expenses, the Board of Directors, by majority vote of a quorum
consisting of disinterested directors, shall determine whether such advance
shall be made. Within 60 days after receipt of a written application by any
director or officer for any non-mandatory advance under Section 5 of this
Article VI, the Board of Directors, by majority vote of a quorum consisting of
disinterested directors, shall determine whether such advance shall be made. In
the cases described in the preceding sentences, if no quorum of disinterested
directors is obtainable, the Board of Directors shall promptly direct
independent legal counsel to decide whether the requested indemnification or
advance shall be made. The expenses of the Corporate Functionary incurred in
connection with successfully requesting indemnification or advancement of
expenses, or of the director or officer incurred in connection with successfully
requesting a non-mandatory advancement of expenses, in any such proceeding shall
be reimbursed by the Corporation, but no such expenses in connection with an
unsuccessful or only partially successful request shall be reimbursed.
(c) In any suit brought by the director, officer or Corporate
Functionary to enforce a right to indemnification under this Article VI (but not
in a suit brought to enforce a right to an advance of expenses), it shall be a
defense that the director, officer or Corporate Functionary has not met the
applicable standard of conduct for indemnification under Section 1 or Section 2
of this Article VI. In any suit by the Corporation to recover expenses advanced
to the director, officer or Corporate Functionary pursuant to the terms of an
undertaking, the Corporation shall be entitled to recover those expenses upon a
final adjudication that the director, officer or Corporate Functionary has not
met the applicable standard of conduct for indemnification under Section 1 or
Section 2 of this Article VI. In any suit by the director, officer or Corporate
Functionary to enforce a right to indemnification or to an advance of expenses
under this Article VI, or by the Corporation to recover expenses advanced
pursuant to the terms of an undertaking, the burden of proof shall be on the
Corporation.
SECTION 7. Other Rights and Remedies. The indemnification and
advancement of expenses provided by or granted pursuant to this Article VI shall
not be deemed exclusive of any other rights to which any person seeking
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer or
Corporate Functionary and shall inure to the benefit of the heirs, executors and
administrators of such a person. Any repeal or modification of these by-laws or
relevant provisions of the Delaware General Corporation Law and other applicable
law, if any, shall not affect any then existing rights of a director, officer or
Corporate Functionary to indemnification or advancement of expenses.
SECTION 8. Insurance. Upon resolution adopted by the Board of
Directors, the Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, or Corporate Functionary against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have
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the power to indemnify him against such liability under the provisions of this
Article VI or the Delaware General Corporation Law.
SECTION 9. Mergers. For purposes of this Article VI, references to "the
Corporation" shall include, in addition to the resulting or surviving
corporation, any constituent corporation (including, without limitation, any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees or agents, so that any person who
is or was a director, officer, employee or agent of such constituent corporation
or is or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise shall stand in the same position under the
provisions of this Article VI with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
SECTION 10. Savings Provision. If this Article VI or any portion hereof
shall be invalidated on any ground by a court of competent jurisdiction, the
Corporation shall nevertheless indemnify each director and officer of the
Corporation as to expenses (including, without limitation, attorneys' fees),
judgments, fines and amounts paid in settlement with respect to any action,
suit, proceeding or investigation, whether civil, criminal or administrative,
including a grand jury proceeding or action or suit brought by or in the right
of the Corporation, to the full extent permitted by any applicable portion of
this Article VI that shall not have been invalidated.
ARTICLE VII
CERTIFICATES REPRESENTING STOCK
SECTION 1. Right to Certificate. Every holder of capital stock of the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board (if any), the Chief Executive
Officer, Chief Operating Officer, the President or a Vice President and by the
Secretary or an assistant secretary or the Treasurer or an assistant Treasurer
of the Corporation, certifying the number of shares owned by him in the
Corporation. If the Corporation shall then be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof, and the qualifications, limitations or
restrictions of such preferences or rights, shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, that, except as
otherwise provided in Section 202 of the Delaware General Corporation Law, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate that the Corporation shall issue to represent such class or
series of stock a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences or rights.
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SECTION 2. Facsimile Signatures. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed, or whose facsimile signature has been placed upon, a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. New Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation and alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate or certificates alleged to have been lost,
stolen or destroyed or the issuance of such new certificate.
SECTION 4. Transfers. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation, subject to any proper
restrictions on transfer, to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
SECTION 5. Record Date. The Board of Directors may fix, in advance, a
record date for stockholders' meetings or for any other lawful purpose, which
shall be no fewer than ten or more than 60 days before the date of the meeting
or other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; except that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 6. Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not provided by the laws of
the State of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. Dividends. Dividends upon the capital stock of the
Corporation, if any, may be declared by the Board of Directors (but not any
committee thereof) at any regular meeting, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock or other
securities.
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SECTION 2. Reserves. 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,
thinks proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall think conducive to the
best interests of the Corporation, and the Board of Directors may modify or
abolish any such reserve in the manner in which it was created.
SECTION 3. Sale, Transfer, etc., of Securities Sales, transfers,
endorsements, and assignments of shares of stocks, bonds, and other securities
owned by or standing in the name of the Corporation, and the execution and
delivery on behalf of the Corporation of any and all instruments in writing
incident to any such sale, transfer, endorsement, or assignment, shall be
effected by the Chief Executive Officer, or any Vice-President, together with
the Secretary, or by any officer or agent thereunto authorized by the Board of
Directors.
SECTION 4. Annual Statement. The Board of Directors shall present at
each annual meeting, and at any special meeting of the stockholders when called
for by vote of the stockholders, a full and clear statement of the business and
condition of the Corporation.
SECTION 5. Checks. All checks or demands for money and promissory 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 prescribe.
SECTION 6. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
SECTION 7. Corporate Seal. The corporate seal, if any, of the
Corporation shall have inscribed thereon the name of the Corporation, the year
of its organization, and the word "Delaware." The seal may be used by causing it
or a facsimile thereof to be impressed, affixed, reproduced or otherwise.
SECTION 8. Certificate of Incorporation. These by-laws are subject to
the terms of the certificate of incorporation of the Corporation.
ARTICLE IX
AMENDMENTS
Unless otherwise specified in the certificate of incorporation, these
by-laws may be amended or repealed, or new by-laws adopted, from time to time
either (a) by a majority of the entire membership of the Board of Directors, or
(b) by the stockholders of the Corporation. Any proposal by a stockholder of the
Corporation to amend or repeal these by-laws or to adopt new by-laws, in
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order to be properly acted upon at any stockholders' meeting, must comply with
Section 8 of Article II of these by-laws.
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CERTIFICATION
I, Hulene Bridgman-Works, Secretary of StarNet Financial, Inc., a
Delaware corporation, hereby certify that the foregoing is a true and complete
copy of the By-Laws of StarNet Financial, Inc., as amended and restated by its
Board of Directors as of October 29, 1999.
/s/ Hulene Bridgman-Works
---------------------------------
Hulene Bridgman-Works, Secretary
21
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), effective as of October 15, 1999
(the "Effective Date"), is between STARNET FINANCIAL, INC., a Delaware
corporation (the "Company"), and KENNETH F. URBANUS ("Urbanus"). The Company and
Urbanus are collectively referred to in this Agreement as the "Parties."
Background
The Company wishes to employ Urbanus as its President and Chief Operating
Officer, and the Parties desire to provide for the employment of Urbanus as of
the Effective Date in accordance with the terms of this Agreement.
Terms of Agreement
The Parties agree as follows:
1. EMPLOYMENT. The Company employs Urbanus to devote his personal services to
the business and affairs of the Company, and Urbanus accepts such employment, on
the terms and conditions stated in this Agreement.
1.1. Duties. Urbanus' title and position shall be President and Chief
Operating Officer of the Company. Urbanus' duties will be those customarily
performed by persons acting in that capacity and those that may be designated
by the Board of Directors and the Chief Executive Officer of the Company
consistent with the title and position of President and Chief Operating
Officer of the Company. Urbanus shall report directly to the Company's Chief
Executive Officer. Urbanus shall also serve, upon request and without
additional compensation, as an officer or a director, or both, of any
subsidiary, division, or affiliate of the Company or any other entity in
which the Company holds an equity interest or which it sponsors.
1.2. Full-Time Employee. Urbanus shall devote his full time (except for
reasonable vacation time and absence for any disability), attention, and best
efforts to the performance of his duties described in Article 1.1.
2. TERM. The term of Urbanus' employment under this Agreement (the "Term") shall
commence on the Effective Date and shall continue until terminated pursuant to
Article 5.
3. COMPENSATION. As compensation for the services rendered by Urbanus under this
Agreement, the Company shall, during the Term, pay or provide Urbanus the
following:
<PAGE> 2
3.1. Base Salary. The Company shall pay Urbanus during the Term a base salary
equal to Two Hundred Forty Thousand Dollars ($240,000.00) per fiscal year of
the Company ("Base Salary"). Base Salary shall be paid in equal installments
every two weeks, in arrears, at the Company's regular and routine payroll
dates, or at such intervals as may otherwise be agreed upon by the Parties,
and in accordance with any other payroll procedures of the Company. Base
Salary shall be prorated in any fiscal year during which Urbanus is employed
under this Agreement for less than the entire fiscal year, in accordance with
the number of days in that fiscal year during which Urbanus is so employed.
Base Salary shall also be prorated (on a daily basis) for any partial payroll
period of employment under this Agreement.
3.2. Option. Urbanus shall be eligible to participate in any stock option,
performance share, phantom stock, or similar long-term stock-based incentive
plan adopted by the Company for its employees in effect during the Term,
including the Option Plan. The extent to which Urbanus shall participate in
any such plan will be determined by the Company's Board of Directors (the
"Board") or the Compensation Committee of the Board.
3.3. Savings and Retirement Plans. Urbanus shall be eligible to participate
in any bonus, savings, deferred compensation, retirement or pension, or death
benefit plan adopted by the Company for its employees generally in effect
during the Term.
3.4. Welfare Benefit Plans. Urbanus shall be eligible to participate in any
life insurance, medical, dental, and hospitalization insurance, disability
insurance benefit, or other similar employee welfare benefit plan or program
adopted by the Company covering its employees generally in effect during the
Term.
3.5. Paid Time Off. Urbanus shall be entitled to fifteen (15) days of paid
vacation or time off ("PTO") per fiscal year of the Company, in accordance
with the Company's PTO policies, practices, and procedures in effect during
the Term. Such PTO shall, however, be prorated in any fiscal year during
which Urbanus is employed under this Agreement for less than the entire
fiscal year, in accordance with the number of days in that fiscal year during
which Urbanus is so employed.
3.6. Transportation Allowance. During the Term, the Company shall pay Urbanus
a transportation allowance equal to One Thousand Dollars ($1,000) per month
("Transportation Allowance"). The Transportation Allowance shall be payable
in equal installments together with the payments of Base Salary.
3.7. Tax Withholding. The Company may deduct from any compensation or other
amount payable to Urbanus under this Agreement (including under Article 5)
social
EMPLOYMENT AGREEMENT -
KENNETH F. URBANUS
2
<PAGE> 3
security (FICA) taxes and all federal, state, municipal, and other taxes or
governmental charges as may, in the Company's judgment, be required.
3.8. Participation in Compensation and Benefit Plans. Urbanus' participation
during the Term in any or all of the plans or programs adopted by the Company
described in Articles 3.2 through 3.4 ("Compensation and Benefit Plans") will
be subject to the terms and conditions of those Compensation and Benefit
Plans as they now exist or may hereafter be adopted, amended, restated, or
discontinued by the Company, including the satisfaction of all applicable
eligibility requirements and vesting provisions of those Compensation and
Benefit Plans. The Company shall have no obligation under this Agreement to
continue any or all of the Compensation and Benefit Plans that now exist or
are hereafter adopted. To the extent that Urbanus is eligible to participate
in any Compensation and Benefit Plan existing on the date of this Agreement
for which a plan description or plan materials are available, the Company has
provided to Urbanus, and Urbanus hereby acknowledges receipt of, a copy of
the correct and complete written plan description or plan materials
distributed to participants or prospective participants.
4. EXPENSE REIMBURSEMENT. During the Term, Urbanus may incur, and shall be
reimbursed by the Company for, reasonable, ordinary and necessary, and
documented business expenses to the extent that Urbanus complies with, and
reimbursement is permitted by, the Company's policies, practices, and
procedures.
5. EMPLOYMENT TERMINATION. Either Party may terminate Urbanus' employment under
this Agreement by giving written notice of termination to the other Party. If
the Company is terminating, it shall include in that notice a statement whether
the termination is because of Disability or for Cause or without Cause. The
Parties' respective rights and obligations upon the termination of Urbanus'
employment under this Agreement are as follows:
5.1. Termination Generally. Upon any termination of Urbanus' employment under
this Agreement, the Company shall pay or provide Urbanus the following:
5.1.a. Any amount of Base Salary and Transportation Allowance earned by,
but not yet paid to, Urbanus through the effective date of termination
of employment, as further described below (the "Termination Date");
5.1.b. All benefits that have been earned by or vested in, and are
payable to, Urbanus under, and subject to the terms (including all
eligibility requirements) of, the Compensation and Benefit Plans in
which Urbanus participated through the Termination Date;
5.1.c. All reimbursable expenses due, but not yet paid, to Urbanus as of
the Termination Date under Article 4; and
EMPLOYMENT AGREEMENT -
KENNETH F. URBANUS
3
<PAGE> 4
5.1.d. An amount equal to all accrued and unused PTO, calculated in
accordance with the Company's PTO policies, practices, and procedures
(including authorized deductions and the deductions required by law),
through the Termination Date.
The amount of Base Salary and Transportation Allowance due under Section
5.1.a shall be paid no later than thirty (30) business days after the
Termination Date; the amounts or benefits due under Section 5.1.b shall be
paid or provided in accordance with the terms of the Compensation and Benefit
Plans under which such amounts or benefits are due to Urbanus; and the
amounts due under Sections 5.1.c and 5.1.d shall be paid in accordance with
the terms of the Company's policies, practices, and procedures regarding
reimbursable expenses and PTO, respectively. Except as expressly provided
below in this Article 5, upon paying or providing Urbanus the preceding
amounts or benefits, the Company shall have no further obligation or
liability under this Agreement for base salary or any other cash compensation
or for any benefits under any of the Compensation and Benefit Plans. Upon
termination of Urbanus' employment, Urbanus shall be deemed to have resigned
from any position as an officer or director, or both, of any subsidiary,
division, or affiliate of the Company or any other entity in which the
Company holds an equity interest or which it sponsors that Urbanus then
holds; no written resignation need be given or delivered to the Company.
In this Agreement, the Termination Date shall be (i) the date of Urbanus'
death, (ii) the third business day after the date on which the Company gives
notice of termination because of Disability, or (iii) the date of termination
specified in any other notice of termination, or if not specified in the
notice of termination, the date that notice of termination is given.
In this Agreement, "Disability" means Urbanus' permanent and total
disability, which shall be deemed to exist if he is unable reasonably to
perform his duties under this Agreement because of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for at least ninety (90)
consecutive days. Any Disability shall be determined by the Board or an
authorized committee or representative thereof ("Representative"), in its
sole and absolute discretion, upon receipt of competent medical advice from a
qualified physician selected by or acceptable to the Board or its
Representative. Urbanus shall, if there is any question about his Disability,
submit to a physical examination by a qualified physician selected by the
Board or its Representative.
In this Agreement, "Cause" means any of the following: (i) Urbanus' failure
to substantially perform his duties under this Agreement, other than any such
failure resulting from his incapacity due to physical or mental illness or
Disability; (ii) Urbanus' engaging in any action which, or omitting to engage
in any action the omission of which, has been, is, or is reasonably expected
to be substantially injurious (monetarily or
EMPLOYMENT AGREEMENT -
KENNETH F. URBANUS
4
<PAGE> 5
otherwise) to the Company or its business or reputation; (iii) Urbanus'
performance of any act or omission constituting dishonesty that results,
directly or indirectly, in significant gain or enrichment of Urbanus or his
family or affiliates at the expense of the Company; or (iv) any breach by
Urbanus of any obligation under any of Articles 6, 7, 8, and 9. Whether an
event or circumstance constituting Cause exists will be determined in good
faith by the Board or its Representative. If the Company believes that Cause
for termination exists under clause (i) above in this paragraph, the Company
shall notify Urbanus of that belief, and that notice shall describe the event
or circumstance believed to constitute Cause for termination. If that event
or circumstance may reasonably be remedied or corrected, Urbanus shall have
thirty (30) days to effect that correction or remedy. If not corrected or
remedied within that thirty (30) day period, Cause for termination shall
immediately be deemed to exist, and Urbanus' employment shall be deemed
terminated. If the Company believes that Cause for termination exists under
any of clauses (ii), (iii), and (iv) above in this paragraph, the Company
shall notify Urbanus of that belief, and that notice shall constitute
immediate termination of Urbanus' employment.
Urbanus may voluntarily terminate his employment under this Agreement only by
giving at least thirty (30) days' prior written notice to the Company.
Urbanus shall not be liable to the Company for breach of this Agreement
because of his termination of employment in accordance with the preceding
sentence.
5.2. Termination Without Cause or Upon Death or Disability. If Urbanus'
employment is terminated by death or by the Company because of Disability or
without Cause, Urbanus (or his legal representative, estate, or heirs) shall
be entitled to receive from the Company, as liquidated damages:
5.2.a. The continued payment of Base Salary, at the rate in effect at
the Termination Date, and Transportation Allowance for twelve (12)
consecutive months following the Termination Date (the "Severance
Payments"); and
5.2.b. if Urbanus elects and maintains continued coverage under the
Consolidated Omnibus Benefits Reconciliation Act of 1985 and
corresponding regulations ("COBRA"), then for up to the twelve (12)
consecutive months immediately after the Termination Date, payments in
an amount equal to the difference between (i) the premiums paid or
payable by Urbanus for coverage under COBRA for himself and his
dependents (if any) and (ii) the premiums that he would have paid for
comparable coverage under the Company's then current group insurance
plan or plans if his employment under this Agreement had not ceased (the
"Insurance Payments"); except that the Insurance Payments shall expire
or terminate immediately upon Urbanus' becoming eligible for coverage
under another employer's plan or policy.
EMPLOYMENT AGREEMENT -
KENNETH F. URBANUS
5
<PAGE> 6
The Severance Payments shall be paid at the dates on which Urbanus' Base
Salary would have been payable if his employment under this Agreement had not
been terminated. The Company will commence the Severance Payments and the
Insurance Payments within ten (10) business days after the first business day
on which the release executed and delivered in accordance with Section 5.3.a
becomes irrevocable by Urbanus (or his legal representative, estate, or
heirs). The Company's obligations for the Insurance Payments are not intended
to negate or impair any obligation of the Company or right of Urbanus under
COBRA. The Severance Payments and the Insurance Payments shall be in addition
to the amounts or benefits to which Urbanus is entitled under Article 5.1.
Any Severance Payments or Insurance Payments (or both) under this Article 5.2
shall not be deemed the continuation of Urbanus' employment for any purpose.
5.3. Conditions to Severance Payments. Except as provided in Section 5.2.b
and below in this Article 5.3, none of the Severance Payments and the
Insurance Payments under Article 5.2 will be subject to reduction as the
result of future compensation earned or received by Urbanus (including by
self-employment), and Urbanus shall have no duty to mitigate his damages. The
Severance Payments and the Insurance Payments shall, however, be conditioned
upon:
5.3.a. The Company's receipt of a Settlement Agreement, General Release,
and Covenant Not to Sue executed and performed by Urbanus (or his legal
representative, estate, or heirs) in substantially the form of Exhibit
"A" to this Agreement (the "Release Agreement"); and
5.3.b. the compliance by Urbanus (or his legal representative, estate,
or heirs) with Articles 6, 7, 8, and 9 after the Termination Date as
specified in those Articles, as well as with the Release Agreement.
The Company may cease or reduce the Severance Payments or the Insurance
Payments (or both) if, and the Company shall be entitled to a return of the
Severance Payments and the Insurance Payments (or both) made to the extent
that, there is or has been any material violation by Urbanus (or his legal
representatives, estate, or heirs) of any of Articles 6, 7, 8, and 9 or of
the Release Agreement.
5.4. Termination for Cause or by Urbanus. If Urbanus' employment is
terminated by the Company for Cause or is voluntarily terminated by Urbanus,
then Urbanus shall not be entitled to any payments under this Agreement other
than the amounts or benefits to which he is entitled under Article 5.1.
5.5. Post-Termination Survival. The provisions of this Article 5 shall
survive the termination of Urbanus' employment by the Company and its
subsidiaries to the extent
EMPLOYMENT AGREEMENT -
KENNETH F. URBANUS
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<PAGE> 7
necessary to effect the post-termination payments or benefits to which
Urbanus is entitled under the terms of this Article 5.
6. CONFIDENTIAL INFORMATION. The Company shall provide to Urbanus, during the
Term, access to various trade secrets, confidential information, and proprietary
information of the Company (which, in this Article 6 as well as in Articles 7,
8, and 9, shall include the Company's subsidiaries and affiliates) which are
valuable and unique to the Company ("Confidential Information"). Confidential
Information includes the Company's plans, policies, and procedures as well as
the plans, policies and procedures of other persons having relationships that
are material to the Company's business and affairs. Urbanus shall not, either
while in the employ of the Company or at any time thereafter, (i) use any of the
Confidential Information, or (ii) disclose any of the Confidential Information
to any person not an employee of the Company or not engaged to render services
to the Company, except (in either case) to perform his duties under this
Agreement or otherwise with the Company's prior written consent. Nothing in this
Article 6 shall preclude Urbanus from the use or disclosure of information
generally known to the public or not considered confidential by the Company or
from any disclosure to the extent required by law or court order (though Urbanus
must give the Company prior notice of any such required disclosure and must
cooperate with any reasonable requests of the Company to obtain a protective
order regarding, or to narrow the scope of, the Confidential Information
required to be disclosed). All files, records, documents, information, data, and
similar items relating to the business or affairs of the Company, whether
prepared by Urbanus or otherwise coming into his possession, shall remain the
exclusive property of the Company and shall not be removed from the premises
from the Company, except in the ordinary course of business as part of Urbanus'
performance of his duties under this Agreement, and (in any event) shall be
promptly returned or delivered to the Company (without Urbanus' retaining any
copies) upon the termination of employment under this Agreement.
7. NONCOMPETITION. Urbanus acknowledges that, in addition to his access to and
possession of Confidential Information, during the Term he will acquire valuable
experience and special training regarding the Company's business and that the
knowledge, experience, and training he will acquire would enable him to injure
the Company if he were to engage in any business that is competitive with the
business of the Company. Therefore, Urbanus shall not, at any time during the
Term and for the sixty (60) consecutive months immediately after the Termination
Date, directly or indirectly (as an employee, employer, consultant, agent,
principal, partner, shareholder, officer, director, or manager or in any other
individual or representative capacity), engage, invest, or participate in any
business in direct competition with the business of the Company within a fifty
(50)-mile radius of each location, or set or group of locations, (i) at, from,
or to which the Company conducts or has conducted business or renders, provides,
or delivers, or has rendered, provided, or delivered, services or products
during the Measurement Period (as defined below) or (ii) that is or has been,
during the Measurement Period, the subject of a Proposal (as defined below) to
conduct business or render, provide, or deliver services or products thereat,
therefrom, or thereto. "Measurement Period" means, with respect to Urbanus'
EMPLOYMENT AGREEMENT -
KENNETH F. URBANUS
7
<PAGE> 8
activity (A) at any time during the Term, the Term, and (B) at any time on or
after the Termination Date, the six (6) consecutive months preceding, and
including, the Termination Date. "Proposal" means a written or formal proposal,
bid, arrangement, understanding, or agreement by the Company to or with another
person that reflects or contains negotiated or substantive terms, but does not
include any marketing contact by the Company where the other person has not
solicited that contact or indicated any interest in doing business with the
Company. (Urbanus shall not be prohibited, however, from owning, as a passive
investor, less than five percent (5%) of the publicly traded stock or other
securities of any entity engaged in a business competitive with that of the
Company.) Urbanus represents and agrees that (x) the Company has agreed to
provide him, and he will receive from the Company, special experience and
knowledge, including Confidential Information, (y) because the Confidential
Information is valuable to the Company, its protection (particularly from any
competitive business) constitutes a legitimate interest to be protected by the
Company by enforcement of the restriction in this Article 7, and (z) the
enforcement of the restriction in this Article 7 would not be unduly burdensome
to Urbanus and that, in order to induce the Company to enter into this Agreement
(which contains various benefits to Urbanus and obligations of the Company with
respect to Urbanus' employment), Urbanus is willing and able to engage, invest,
or participate in business after the Termination Date so as not to violate this
Article 7. The Parties agree that the restrictions in this Article 7 regarding
scope of activity, duration, and geographic area are reasonable; however, if any
court should determine that any of those restrictions is unenforceable, that
restriction shall not thereby be terminated, but shall be deemed amended to the
extent required to render it enforceable.
8. NONSOLICITATION. Urbanus shall not, at any time within the sixty (60)
consecutive months immediately after the Termination Date, either directly or
indirectly:
8.1. Disclose Contact Information. Make known to any person the names and
addresses, or other contact information, of any of the customers, suppliers,
or other persons having significant business relationships with the Company
within the information technology industry, so that such person could affect,
or attempt to affect, any of those relationships to the detriment of the
Company; or
8.2. Solicit Employees. Solicit, recruit, or hire, or attempt to solicit,
recruit, or hire, any employee or consultant of the Company, or in any other
manner attempt to induce any employee or consultant of the Company to leave
the employ of the Company or cease his or her consulting or similar business
relationship with the Company. References in this Article 8.2 to "any
employee or consultant" shall include any person who was an employee or
consultant of the Company at any time within the six (6) consecutive months
preceding, and including, the Termination Date.
9. DEVELOPMENTS. Urbanus shall promptly disclose to the Company all inventions,
discoveries, improvements, processes, formulas, ideas, know-how, methods,
research,
EMPLOYMENT AGREEMENT -
KENNETH F. URBANUS
8
<PAGE> 9
compositions, and other developments, whether or not patentable or
copyrightable, that Urbanus, by himself or in conjunction with any other person,
conceives, makes, develops, or acquires during the Term which (i) are or relate
to the properties, assets, or existing or contemplated business or research
activities of the Company, (ii) are suggested by, arise out of, or result from,
directly or indirectly, Urbanus' association with the Company, or (iii) arise
out of or result from, directly or indirectly, the use of the Company's time,
labor, materials, facilities, or other resources ("Developments").
Urbanus hereby assigns, transfers, and conveys to the Company, and hereby agrees
to assign, transfer, and convey to the Company during or after the Term, all of
his right and title to and interest in all Developments. Urbanus shall, from
time to time upon the request of the Company during or after the Term, execute
and deliver any and all instruments and documents and take any and all other
actions which, in the judgment of the Company or its counsel, are or may be
necessary or desirable to document any such assignment, transfer, and conveyance
to the Company or to enable the Company to file and process applications for,
and to acquire, maintain, and enforce, any and all patents, trademarks,
registrations, or copyrights with respect to any of the Developments, or to
obtain any extension, validation, re-issue, continuance, or renewal of any such
patent, trademark, registration, or copyright. The Company will be responsible
for the preparation of any such instrument or document and for the
implementation of any such proceedings and will reimburse Urbanus for all
reasonable expenses incurred by him in complying with this Article 9.
10. INDEMNIFICATION. To the extent Urbanus is an officer or director of the
Company, the Company shall include Urbanus under any existing or future (i)
directors' and officers' liability insurance policy that the Company obtains and
maintains or (ii) indemnification agreements between the Company and other
executives of the Company. Subject to the foregoing sentence, the Company will
indemnify Urbanus to the fullest extent permitted by the laws of the Company's
state of incorporation in effect at that time or by the articles or certificate
of incorporation and by-laws of the Company, whichever affords the greater
protection to Urbanus.
11. CERTAIN REMEDIES. Any breach or violation by Urbanus of any of Articles 6,
7, 8, and 9 shall entitle the Company, as a matter of right, to an injunction
issued by any court of competent jurisdiction, restraining any further or
continued breach or violation, or to specific performance requiring the
compliance with Urbanus' covenants. This right to an injunction or other
equitable relief shall be in addition to, and not in lieu of, any other remedies
to which the Company may be entitled. The existence of any claim or cause of
action of Urbanus against the Company, or any subsidiary or affiliate of the
Company, whether based on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of Urbanus' covenants in any of
Articles 6, 7, 8, and 9. The covenants in Articles 6, 7, 8, and 9 and in this
Article 11 shall survive the termination of Urbanus' employment under this
Agreement.
EMPLOYMENT AGREEMENT -
KENNETH F. URBANUS
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12. BINDING AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, and shall inure to the benefit of, the Company and Urbanus and their
respective legal representatives, heirs, executors, administrators, and
successors and assigns (as permitted by this Article 12), including any
successor to the Company by merger, consolidation, or reorganization and any
other person that acquires all or substantially all of the business and assets
of the Company. The Company shall have the right, without the need for any
consent from Urbanus, to assign its rights, benefits, remedies, and obligations
under this Agreement to one or more other persons. The rights, benefits,
remedies, and obligations of Urbanus under this Agreement are personal to
Urbanus, however, and may not be assigned or delegated by him; except that this
shall not preclude (i) Urbanus from designating one or more beneficiaries to
receive any amount or benefit that may be paid or provided after Urbanus' death
or (ii) the legal representative of Urbanus' estate from assigning any right or
benefit under this Agreement to the person or persons entitled thereto under
Urbanus' will or the laws of intestacy applicable to Urbanus' estate, as the
case may be.
13. SEVERABILITY. If any provision of this Agreement is found to be invalid or
unenforceable for any reason, then (i) that provision shall be severed from this
Agreement, (ii) this Agreement shall be construed and enforced as if that
invalid or unenforceable provision never constituted a part of this Agreement,
and (iii) the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
applicable law. Further, in lieu of that invalid or unenforceable provision,
there shall be added to this Agreement a provision as similar in its terms to
that invalid or unenforceable provision as may be possible and be valid and
enforceable.
14. NOTICES. Any notice, request, or other communication to be given by either
Party under this Agreement by to the other shall be in writing and either (i)
delivered in person, (ii) delivered by prepaid same-day or overnight courier
service, (iii) sent by certified mail, postage prepaid with return receipt
requested, or (iv) transmitted by facsimile, in any case addressed to the other
Party as follows:
To the Company: StarNet Financial, Inc.
17000 Preston Road
Suite 350
Dallas, Texas 75248
Attention: Daniel L. Jackson, Chief Executive Officer
Facsimile: (972) 239-2893
EMPLOYMENT AGREEMENT -
KENNETH F. URBANUS
10
<PAGE> 11
with a copy (which shall not constitute notice) to:
Gardere & Wynne, L.L.P.
3000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201-4761
Attn: I. Bobby Majumder, Esq.
Facsimile: (214) 969-4667
To Urbanus: Kenneth F. Urbanus
-----------------------------
-----------------------------
or to such other address or facsimile number as the Party to be notified may
have designated by notice previously given in accordance with this Article 14.
Communications delivered in person or by courier service or transmitted by
facsimile shall be deemed given and received as of actual receipt (or refusal)
by the addressee. Communications mailed as described above in this Article 14
shall be deemed given and received three (3) business days after mailing or upon
actual receipt, whichever is earlier.
15. CERTAIN DEFINED TERMS. In this Agreement, (i) "person" means an individual
or any corporation, partnership, trust, unincorporated association, limited
liability company, or other legal entity, whether acting in an individual,
fiduciary, or other capacity, and any government, court, or governmental agency,
(ii) "include" and "including" do not signify any limitation, (iii) "Article"
and "Section" means any Article and any Section, respectively, of this
Agreement, unless otherwise indicated, (iv) an "affiliate" of a person means any
other person controlling, controlled by, or under common control with that
person, and (v) "business day" means any Monday through Friday, other than any
such weekday on which the executive offices of the Company are closed. In
addition, the use in this Agreement of "year," "annual," "month," or "monthly"
(or similar terms) to indicate a measurement period shall not itself be deemed
to grant rights to Urbanus for employment or compensation for that period.
16. ENTIRE AGREEMENT. This Agreement, with Exhibit "A", constitutes the entire
agreement between the Company and Urbanus with respect to the subject matter
hereof and supersedes any prior agreement between the Company and Urbanus with
respect to the same subject matter.
17. MODIFICATION AND WAIVER. No amendment to or modification of this Agreement,
or waiver of any term, provision, or condition of this Agreement, will be
binding upon a Party unless the amendment, modification, or waiver is in writing
and signed by the Party to be bound. Any waiver by a Party of a breach or
violation of any provision of this Agreement by the other Party shall not be
deemed a waiver of any other provision or of any subsequent breach or violation.
EMPLOYMENT AGREEMENT -
KENNETH F. URBANUS
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18. GENDER. Whenever the context requires in this Agreement, words denoting
gender in this Agreement include the masculine, feminine, and neuter.
19. GOVERNING LAW; VENUE. This Agreement, and the rights, remedies, obligations,
and duties of the Parties under this Agreement, shall be governed by, construed
in accordance with, and enforced under the laws of the State of Texas. The
exclusive venue of any action or proceeding relating to this Agreement or its
subject matter shall be in Dallas County, Texas.
20. COUNTERPARTS. This Agreement may be executed in counterparts, each of which
constitutes an original, but all of which constitute one and the same document.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
EMPLOYMENT AGREEMENT -
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The Parties have executed this Agreement to be effective as of the date stated
in the first paragraph.
THE COMPANY: URBANUS:
STARNET FINANCIAL, INC.,
a Delaware corporation
By: /s/ Daniel L. Jackson /s/ Kenneth F. Urbanus
------------------------------ -----------------------
DANIEL L. JACKSON, KENNETH F. URBANUS
Chief Executive Officer
EMPLOYMENT AGREEMENT -
KENNETH F. URBANUS
13
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), effective as of November 1, 1999
(the "Effective Date"), is between STARNET FINANCIAL, INC., a Delaware
corporation (the "Company"), and MICHAEL J. GULINSON ("Gulinson"). The Company
and Gulinson are collectively referred to in this Agreement as the "Parties."
Background
The Company wishes to employ Gulinson as its Executive Vice President--Finance
and Chief Financial Officer, and the Parties desire to provide for the
employment of Gulinson as of the Effective Date in accordance with the terms of
this Agreement.
Terms of Agreement
The Parties agree as follows:
1. EMPLOYMENT. The Company employs Gulinson to devote his personal services to
the business and affairs of the Company, and Gulinson accepts such employment,
on the terms and conditions stated in this Agreement.
1.1. Duties. Gulinson's title and position shall be Executive Vice
President-Finance and Chief Financial Officer of the Company. Gulinson's
duties will be those customarily performed by persons acting in that capacity
and those that may be designated by the Board of Directors, the Chief
Executive Officer and the President of the Company consistent with the title
and position of Executive Vice President-Finance and Chief Financial Officer
of the Company. Gulinson shall report directly to the Company's President.
Gulinson shall also serve, upon request and without additional compensation,
as an officer or a director, or both, of any subsidiary, division, or
affiliate of the Company or any other entity in which the Company holds an
equity interest or which it sponsors.
1.2. Full-Time Employee. Gulinson shall devote his full time (except for
reasonable vacation time and absence for any disability), attention, and best
efforts to the performance of his duties described in Article 1.1.
2. TERM. The term of Gulinson's employment under this Agreement (the "Term")
shall commence on the Effective Date and shall continue for five (5) years or
until terminated pursuant to Article 5.
3. COMPENSATION. As compensation for the services rendered by Gulinson under
this Agreement, the Company shall, during the Term, pay or provide Gulinson the
following:
<PAGE> 2
3.1. Base Salary. The Company shall pay Gulinson during the Term a base
salary equal to One Hundred Thirty Thousand Dollars ($130,000.00) per fiscal
year of the Company ("Base Salary"). Base Salary shall be paid in equal
installments every two weeks, in arrears, at the Company's regular and
routine payroll dates, or at such intervals as may otherwise be agreed upon
by the Parties, and in accordance with any other payroll procedures of the
Company. Base Salary shall be prorated in any fiscal year during which
Gulinson is employed under this Agreement for less than the entire fiscal
year, in accordance with the number of days in that fiscal year during which
Gulinson is so employed. Base Salary shall also be prorated (on a daily
basis) for any partial payroll period of employment under this Agreement.
3.2. Option. Gulinson shall be eligible to participate in any stock option,
performance share, phantom stock, or similar long-term stock-based incentive
plan adopted by the Company for its employees in effect during the Term,
including the Option Plan. The extent to which Gulinson shall participate in
any such plan will be determined by the Company's Board of Directors (the
"Board") or the Compensation Committee of the Board.
3.3. Savings and Retirement Plans. Gulinson shall be eligible to participate
in any bonus, savings, deferred compensation, retirement or pension, or death
benefit plan adopted by the Company for its employees generally in effect
during the Term.
3.4. Welfare Benefit Plans. Gulinson shall be eligible to participate in any
life insurance, medical, dental, and hospitalization insurance, disability
insurance benefit, or other similar employee welfare benefit plan or program
adopted by the Company covering its employees generally in effect during the
Term.
3.5. Paid Time Off. Gulinson shall be entitled to fifteen (15) days of paid
vacation or time off ("PTO") per fiscal year of the Company, in accordance
with the Company's PTO policies, practices, and procedures in effect during
the Term. Such PTO shall, however, be prorated in any fiscal year during
which Gulinson is employed under this Agreement for less than the entire
fiscal year, in accordance with the number of days in that fiscal year during
which Gulinson is so employed.
3.6. Transportation Allowance. During the Term, the Company shall pay
Gulinson a transportation allowance equal to Five Hundred Dollars ($500.00)
per month ("Transportation Allowance"). The Transportation Allowance shall be
payable in equal installments together with the payments of Base Salary.
3.7. Tax Withholding. The Company may deduct from any compensation or other
amount payable to Gulinson under this Agreement (including under Article 5)
social
EMPLOYMENT AGREEMENT -
MICHAEL J. GULINSON
2
<PAGE> 3
security (FICA) taxes and all federal, state, municipal, and other taxes or
governmental charges as may, in the Company's judgment, be required.
3.8. Participation in Compensation and Benefit Plans. Gulinson's
participation during the Term in any or all of the plans or programs adopted
by the Company described in Articles 3.2 through 3.4 ("Compensation and
Benefit Plans") will be subject to the terms and conditions of those
Compensation and Benefit Plans as they now exist or may hereafter be adopted,
amended, restated, or discontinued by the Company, including the satisfaction
of all applicable eligibility requirements and vesting provisions of those
Compensation and Benefit Plans. The Company shall have no obligation under
this Agreement to continue any or all of the Compensation and Benefit Plans
that now exist or are hereafter adopted. To the extent that Gulinson is
eligible to participate in any Compensation and Benefit Plan existing on the
date of this Agreement for which a plan description or plan materials are
available, the Company has provided to Gulinson, and Gulinson hereby
acknowledges receipt of, a copy of the correct and complete written plan
description or plan materials distributed to participants or prospective
participants.
4. EXPENSE REIMBURSEMENT. During the Term, Gulinson may incur, and shall be
reimbursed by the Company for, reasonable, ordinary and necessary, and
documented business expenses to the extent that Gulinson complies with, and
reimbursement is permitted by, the Company's policies, practices, and
procedures.
5. EMPLOYMENT TERMINATION. Either Party may terminate Gulinson's employment
under this Agreement by giving written notice of termination to the other Party.
If the Company is terminating, it shall include in that notice a statement
whether the termination is because of Disability or for Cause or without Cause.
The Parties' respective rights and obligations upon the termination of
Gulinson's employment under this Agreement are as follows:
5.1. Termination Generally. Upon any termination of Gulinson's employment
under this Agreement, the Company shall pay or provide Gulinson the
following:
5.1.a. Any amount of Base Salary and Transportation Allowance earned by,
but not yet paid to, Gulinson through the effective date of termination
of employment, as further described below (the "Termination Date");
5.1.b. All benefits that have been earned by or vested in, and are
payable to, Gulinson under, and subject to the terms (including all
eligibility requirements) of, the Compensation and Benefit Plans in
which Gulinson participated through the Termination Date;
5.1.c. All reimbursable expenses due, but not yet paid, to Gulinson as
of the Termination Date under Article 4; and
EMPLOYMENT AGREEMENT -
MICHAEL J. GULINSON
3
<PAGE> 4
5.1.d. An amount equal to all accrued and unused PTO, calculated in
accordance with the Company's PTO policies, practices, and procedures
(including authorized deductions and the deductions required by law),
through the Termination Date.
The amount of Base Salary due under Section 5.1.a shall be paid no later than
thirty (30) business days after the Termination Date; the amounts or benefits
due under Section 5.1.b shall be paid or provided in accordance with the
terms of the Compensation and Benefit Plans under which such amounts or
benefits are due to Gulinson; and the amounts due under Sections 5.1.c and
5.1.d shall be paid in accordance with the terms of the Company's policies,
practices, and procedures regarding reimbursable expenses and PTO,
respectively. Except as expressly provided below in this Article 5, upon
paying or providing Gulinson the preceding amounts or benefits, the Company
shall have no further obligation or liability under this Agreement for base
salary or any other cash compensation or for any benefits under any of the
Compensation and Benefit Plans. Upon termination of Gulinson's employment,
Gulinson shall be deemed to have resigned from any position as an officer or
director, or both, of any subsidiary, division, or affiliate of the Company
or any other entity in which the Company holds an equity interest or which it
sponsors that Gulinson then holds; no written resignation need be given or
delivered to the Company.
In this Agreement, the Termination Date shall be (i) the date of Gulinson's
death, (ii) the third business day after the date on which the Company gives
notice of termination because of Disability, or (iii) the date of termination
specified in any other notice of termination, or if not specified in the
notice of termination, the date that notice of termination is given.
In this Agreement, "Disability" means Gulinson's permanent and total
disability, which shall be deemed to exist if he is unable reasonably to
perform his duties under this Agreement because of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for at least ninety (90)
consecutive days. Any Disability shall be determined by the Board or an
authorized committee or representative thereof ("Representative"), in its
sole and absolute discretion, upon receipt of competent medical advice from a
qualified physician selected by or acceptable to the Board or its
Representative. Gulinson shall, if there is any question about his
Disability, submit to a physical examination by a qualified physician
selected by the Board or its Representative.
In this Agreement, "Cause" means any of the following: (i) Gulinson's failure
to substantially perform his duties under this Agreement, other than any such
failure resulting from his incapacity due to physical or mental illness or
Disability; (ii) Gulinson's intentionally engaging in any action which, or
omitting to engage in any action the omission of which, has been, is, or is
reasonably expected to be substantially injurious (monetarily or otherwise)
to the Company or its business or reputation; (iii) Gulinson's
EMPLOYMENT AGREEMENT -
MICHAEL J. GULINSON
4
<PAGE> 5
performance of any act or omission constituting dishonesty that results,
directly or indirectly, in significant gain or enrichment of Gulinson or his
family or affiliates at the expense of the Company; or (iv) any breach by
Gulinson of any obligation under any of Articles 6, 7, 8, and 9. Whether an
event or circumstance constituting Cause exists will be determined in good
faith by the Board or its Representative. If the Company believes that Cause
for termination exists under clause (i) above in this paragraph, the Company
shall notify Gulinson of that belief, and that notice shall describe the
event or circumstance believed to constitute Cause for termination. If that
event or circumstance may reasonably be remedied or corrected, Gulinson shall
have thirty (30) days to effect that correction or remedy. If not corrected
or remedied within that thirty (30) day period, Cause for termination shall
immediately be deemed to exist, and Gulinson's employment shall be deemed
terminated. If the Company believes that Cause for termination exists under
any of clauses (ii), (iii), and (iv) above in this paragraph, the Company
shall notify Gulinson of that belief, and that notice shall constitute
immediate termination of Gulinson's employment.
Gulinson may voluntarily terminate his employment under this Agreement only
by giving at least thirty (30) days' prior written notice to the Company.
Gulinson shall not be liable to the Company for breach of this Agreement
because of his termination of employment in accordance with the preceding
sentence.
5.2. Termination Without Cause or Upon Death or Disability. If Gulinson's
employment is terminated by death or by the Company because of Disability or
without Cause, Gulinson (or his legal representative, estate, or heirs) shall
be entitled to receive from the Company, as liquidated damages:
5.2.a. The continued payment of Base Salary, at the rate in effect at
the Termination Date, for twelve (12) consecutive months following the
Termination Date (the "Severance Payments"); and
5.2.b. if Gulinson elects and maintains continued coverage under the
Consolidated Omnibus Benefits Reconciliation Act of 1985 and
corresponding regulations ("COBRA"), then for up to the twelve (12)
consecutive months immediately after the Termination Date, payments in
an amount equal to the difference between (i) the premiums paid or
payable by Gulinson for coverage under COBRA for himself and his
dependents (if any) and (ii) the premiums that he would have paid for
comparable coverage under the Company's then current group insurance
plan or plans if his employment under this Agreement had not ceased (the
"Insurance Payments"); except that the Insurance Payments shall expire
or terminate immediately upon Gulinson's becoming eligible for coverage
under another employer's plan or policy.
EMPLOYMENT AGREEMENT -
MICHAEL J. GULINSON
5
<PAGE> 6
The Severance Payments shall be paid at the dates on which Gulinson's Base
Salary would have been payable if his employment under this Agreement had not
been terminated. The Company will commence the Severance Payments and the
Insurance Payments within ten (10) business days after the first business day
on which the release executed and delivered in accordance with Section 5.3.a
becomes irrevocable by Gulinson (or his legal representative, estate, or
heirs). The Company's obligations for the Insurance Payments are not intended
to negate or impair any obligation of the Company or right of Gulinson under
COBRA. The Severance Payments and the Insurance Payments shall be in addition
to the amounts or benefits to which Gulinson is entitled under Article 5.1.
Any Severance Payments or Insurance Payments (or both) under this Article 5.2
shall not be deemed the continuation of Gulinson's employment for any
purpose.
5.3. Conditions to Severance Payments. Except as provided in Section 5.2.b
and below in this Article 5.3, none of the Severance Payments and the
Insurance Payments under Article 5.2 will be subject to reduction as the
result of future compensation earned or received by Gulinson (including by
self-employment), and Gulinson shall have no duty to mitigate his damages.
The Severance Payments and the Insurance Payments shall, however, be
conditioned upon:
5.3.a. The Company's receipt of a Settlement Agreement, General Release,
and Covenant Not to Sue executed and performed by Gulinson (or his legal
representative, estate, or heirs) in substantially the form of Exhibit
"A" to this Agreement (the "Release Agreement"); and
5.3.b. the compliance by Gulinson (or his legal representative, estate,
or heirs) with Articles 6, 7, 8, and 9 after the Termination Date as
specified in those Articles, as well as with the Release Agreement.
The Company may cease or reduce the Severance Payments or the Insurance
Payments (or both) if, and the Company shall be entitled to a return of the
Severance Payments and the Insurance Payments (or both) made to the extent
that, there is or has been any material violation by Gulinson (or his legal
representatives, estate, or heirs) of any of Articles 6, 7, 8, and 9 or of
the Release Agreement.
5.4. Termination for Cause or by Gulinson. If Gulinson's employment is
terminated by the Company for Cause or is voluntarily terminated by Gulinson,
then Gulinson shall not be entitled to any payments under this Agreement
other than the amounts or benefits to which he is entitled under Article 5.1.
5.5. Post-Termination Survival. The provisions of this Article 5 shall
survive the termination of Gulinson's employment by the Company and its
subsidiaries to the extent
EMPLOYMENT AGREEMENT -
MICHAEL J. GULINSON
6
<PAGE> 7
necessary to effect the post-termination payments or benefits to which
Gulinson is entitled under the terms of this Article 5.
6. CONFIDENTIAL INFORMATION. The Company shall provide to Gulinson, during the
Term, access to various trade secrets, confidential information, and proprietary
information of the Company (which, in this Article 6 as well as in Articles 7,
8, and 9, shall include the Company's subsidiaries and affiliates) which are
valuable and unique to the Company ("Confidential Information"). Confidential
Information includes the Company's plans, policies, and procedures as well as
the plans, policies and procedures of other persons having relationships that
are material to the Company's business and affairs. Gulinson shall not, either
while in the employ of the Company or at any time thereafter, (i) use any of the
Confidential Information, or (ii) disclose any of the Confidential Information
to any person not an employee of the Company or not engaged to render services
to the Company, except (in either case) to perform his duties under this
Agreement or otherwise with the Company's prior written consent. Nothing in this
Article 6 shall preclude Gulinson from the use or disclosure of information
generally known to the public or not considered confidential by the Company or
from any disclosure to the extent required by law or court order (though
Gulinson must give the Company prior notice of any such required disclosure and
must cooperate with any reasonable requests of the Company to obtain a
protective order regarding, or to narrow the scope of, the Confidential
Information required to be disclosed). All files, records, documents,
information, data, and similar items relating to the business or affairs of the
Company, whether prepared by Gulinson or otherwise coming into his possession,
shall remain the exclusive property of the Company and shall not be removed from
the premises from the Company, except in the ordinary course of business as part
of Gulinson's performance of his duties under this Agreement, and (in any event)
shall be promptly returned or delivered to the Company (without Gulinson's
retaining any copies) upon the termination of employment under this Agreement.
7. NONCOMPETITION. Gulinson acknowledges that, in addition to his access to and
possession of Confidential Information, during the Term he will acquire valuable
experience and special training regarding the Company's business and that the
knowledge, experience, and training he will acquire would enable him to injure
the Company if he were to engage in any business that is competitive with the
business of the Company. Therefore, Gulinson shall not, at any time during the
Term and for the twelve (12) consecutive months immediately after the
Termination Date, directly or indirectly (as an employee, employer, consultant,
agent, principal, partner, shareholder, officer, director, or manager or in any
other individual or representative capacity), engage, invest, or participate in
any business in direct competition with the business of the Company within a
fifty (50)-mile radius of each location, or set or group of locations, (i) at,
from, or to which the Company conducts or has conducted business or renders,
provides, or delivers, or has rendered, provided, or delivered, services or
products during the Measurement Period (as defined below) or (ii) that is or has
been, during the Measurement Period, the subject of a Proposal (as defined
below) to conduct business or render, provide, or deliver services or products
thereat, therefrom, or thereto. "Measurement Period" means, with respect to
Gulinson'
EMPLOYMENT AGREEMENT -
MICHAEL J. GULINSON
7
<PAGE> 8
activity (A) at any time during the Term, the Term, and (B) at any time on or
after the Termination Date, the six (6) consecutive months preceding, and
including, the Termination Date. "Proposal" means a written or formal proposal,
bid, arrangement, understanding, or agreement by the Company to or with another
person that reflects or contains negotiated or substantive terms, but does not
include any marketing contact by the Company where the other person has not
solicited that contact or indicated any interest in doing business with the
Company. (Gulinson shall not be prohibited, however, from owning, as a passive
investor, less than five percent (5%) of the publicly traded stock or other
securities of any entity engaged in a business competitive with that of the
Company.) Gulinson represents and agrees that (x) the Company has agreed to
provide him, and he will receive from the Company, special experience and
knowledge, including Confidential Information, (y) because the Confidential
Information is valuable to the Company, its protection (particularly from any
competitive business) constitutes a legitimate interest to be protected by the
Company by enforcement of the restriction in this Article 7, and (z) the
enforcement of the restriction in this Article 7 would not be unduly burdensome
to Gulinson and that, in order to induce the Company to enter into this
Agreement (which contains various benefits to Gulinson and obligations of the
Company with respect to Gulinson's employment), Gulinson is willing and able to
engage, invest, or participate in business after the Termination Date so as not
to violate this Article 7. The Parties agree that the restrictions in this
Article 7 regarding scope of activity, duration, and geographic area are
reasonable; however, if any court should determine that any of those
restrictions is unenforceable, that restriction shall not thereby be terminated,
but shall be deemed amended to the extent required to render it enforceable.
8. NONSOLICITATION. Gulinson shall not, at any time within the twelve (12)
consecutive months immediately after the Termination Date, either directly or
indirectly:
8.1. Disclose Contact Information. Make known to any person the names and
addresses, or other contact information, of any of the customers, suppliers,
or other persons having significant business relationships with the Company
within the information technology industry, so that such person could affect,
or attempt to affect, any of those relationships to the detriment of the
Company; or
8.2. Solicit Employees. Solicit, recruit, or hire, or attempt to solicit,
recruit, or hire, any employee or consultant of the Company, or in any other
manner attempt to induce any employee or consultant of the Company to leave
the employ of the Company or cease his or her consulting or similar business
relationship with the Company. References in this Article 8.2 to "any
employee or consultant" shall include any person who was an employee or
consultant of the Company at any time within the six (6) consecutive months
preceding, and including, the Termination Date.
9. DEVELOPMENTS. Gulinson shall promptly disclose to the Company all inventions,
discoveries, improvements, processes, formulas, ideas, know-how, methods,
research,
EMPLOYMENT AGREEMENT -
MICHAEL J. GULINSON
8
<PAGE> 9
compositions, and other developments, whether or not patentable or
copyrightable, that Gulinson, by himself or in conjunction with any other
person, conceives, makes, develops, or acquires during the Term which (i) are or
relate to the properties, assets, or existing or contemplated business or
research activities of the Company, (ii) are suggested by, arise out of, or
result from, directly or indirectly, Gulinson's association with the Company, or
(iii) arise out of or result from, directly or indirectly, the use of the
Company's time, labor, materials, facilities, or other resources
("Developments").
Gulinson hereby assigns, transfers, and conveys to the Company, and hereby
agrees to assign, transfer, and convey to the Company during or after the Term,
all of his right and title to and interest in all Developments. Gulinson shall,
from time to time upon the request of the Company during or after the Term,
execute and deliver any and all instruments and documents and take any and all
other actions which, in the judgment of the Company or its counsel, are or may
be necessary or desirable to document any such assignment, transfer, and
conveyance to the Company or to enable the Company to file and process
applications for, and to acquire, maintain, and enforce, any and all patents,
trademarks, registrations, or copyrights with respect to any of the
Developments, or to obtain any extension, validation, re-issue, continuance, or
renewal of any such patent, trademark, registration, or copyright. The Company
will be responsible for the preparation of any such instrument or document and
for the implementation of any such proceedings and will reimburse Gulinson for
all reasonable expenses incurred by him in complying with this Article 9.
10. INDEMNIFICATION. To the extent Gulinson is an officer or director of the
Company, the Company shall include Gulinson under any existing or future (i)
directors' and officers' liability insurance policy that the Company obtains and
maintains or (ii) indemnification agreements between the Company and other
executives of the Company. Subject to the foregoing sentence, the Company will
indemnify Gulinson to the fullest extent permitted by the laws of the Company's
state of incorporation in effect at that time or by the articles or certificate
of incorporation and by-laws of the Company, whichever affords the greater
protection to Gulinson.
11. CERTAIN REMEDIES. Any breach or violation by Gulinson of any of Articles 6,
7, 8, and 9 shall entitle the Company, as a matter of right, to an injunction
issued by any court of competent jurisdiction, restraining any further or
continued breach or violation, or to specific performance requiring the
compliance with Gulinson's covenants. This right to an injunction or other
equitable relief shall be in addition to, and not in lieu of, any other remedies
to which the Company may be entitled. The existence of any claim or cause of
action of Gulinson against the Company, or any subsidiary or affiliate of the
Company, whether based on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of Gulinson's covenants in any of
Articles 6, 7, 8, and 9. The covenants in Articles 6, 7, 8, and 9 and in this
Article 11 shall survive the termination of Gulinson's employment under this
Agreement.
EMPLOYMENT AGREEMENT -
MICHAEL J. GULINSON
9
<PAGE> 10
12. BINDING AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, and shall inure to the benefit of, the Company and Gulinson and their
respective legal representatives, heirs, executors, administrators, and
successors and assigns (as permitted by this Article 12), including any
successor to the Company by merger, consolidation, or reorganization and any
other person that acquires all or substantially all of the business and assets
of the Company. The Company shall have the right, without the need for any
consent from Gulinson, to assign its rights, benefits, remedies, and obligations
under this Agreement to one or more other persons. The rights, benefits,
remedies, and obligations of Gulinson under this Agreement are personal to
Gulinson, however, and may not be assigned or delegated by him; except that this
shall not preclude (i) Gulinson from designating one or more beneficiaries to
receive any amount or benefit that may be paid or provided after Gulinson's
death or (ii) the legal representative of Gulinson's estate from assigning any
right or benefit under this Agreement to the person or persons entitled thereto
under Gulinson's will or the laws of intestacy applicable to Gulinson's estate,
as the case may be.
13. SEVERABILITY. If any provision of this Agreement is found to be invalid or
unenforceable for any reason, then (i) that provision shall be severed from this
Agreement, (ii) this Agreement shall be construed and enforced as if that
invalid or unenforceable provision never constituted a part of this Agreement,
and (iii) the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
applicable law. Further, in lieu of that invalid or unenforceable provision,
there shall be added to this Agreement a provision as similar in its terms to
that invalid or unenforceable provision as may be possible and be valid and
enforceable.
14. NOTICES. Any notice, request, or other communication to be given by either
Party under this Agreement by to the other shall be in writing and either (i)
delivered in person, (ii) delivered by prepaid same-day or overnight courier
service, (iii) sent by certified mail, postage prepaid with return receipt
requested, or (iv) transmitted by facsimile, in any case addressed to the other
Party as follows:
If to the Company: StarNet Financial, Inc.
1700 Preston Road
Suite 350
Dallas, Texas 75248
Attention: Kenneth F. Urbanus, President
Facsimile: (972) 239-2893
EMPLOYMENT AGREEMENT -
MICHAEL J. GULINSON
10
<PAGE> 11
With a copy (which shall
not constitute notice) to: Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201-4761
Attention: I. Bobby Majumder, Esq.
Facsimile: (214) 969-4667
If to Gulinson: Michael J. Gulinson
----------------------------------
----------------------------------
or to such other address or facsimile number as the Party to be notified may
have designated by notice previously given in accordance with this Article 14.
Communications delivered in person or by courier service or transmitted by
facsimile shall be deemed given and received as of actual receipt (or refusal)
by the addressee. Communications mailed as described above in this Article 14
shall be deemed given and received three (3) business days after mailing or upon
actual receipt, whichever is earlier.
15. CERTAIN DEFINED TERMS. In this Agreement, (i) "person" means an individual
or any corporation, partnership, trust, unincorporated association, limited
liability company, or other legal entity, whether acting in an individual,
fiduciary, or other capacity, and any government, court, or governmental agency,
(ii) "include" and "including" do not signify any limitation, (iii) "Article"
and "Section" means any Article and any Section, respectively, of this
Agreement, unless otherwise indicated, (iv) an "affiliate" of a person means any
other person controlling, controlled by, or under common control with that
person, and (v) "business day" means any Monday through Friday, other than any
such weekday on which the executive offices of the Company are closed. In
addition, the use in this Agreement of "year," "annual," "month," or "monthly"
(or similar terms) to indicate a measurement period shall not itself be deemed
to grant rights to Gulinson for employment or compensation for that period.
16. ENTIRE AGREEMENT. This Agreement, with Exhibit "A", constitutes the entire
agreement between the Company and Gulinson with respect to the subject matter
hereof and supersedes any prior agreement between the Company and Gulinson with
respect to the same subject matter.
17. MODIFICATION AND WAIVER. No amendment to or modification of this Agreement,
or waiver of any term, provision, or condition of this Agreement, will be
binding upon a Party unless the amendment, modification, or waiver is in writing
and signed by the Party to be bound. Any waiver by a Party of a breach or
violation of any provision of this Agreement by the other Party shall not be
deemed a waiver of any other provision or of any subsequent breach or violation.
EMPLOYMENT AGREEMENT -
MICHAEL J. GULINSON
11
<PAGE> 12
18. GENDER. Whenever the context requires in this Agreement, words denoting
gender in this Agreement include the masculine, feminine, and neuter.
19. GOVERNING LAW; VENUE. This Agreement, and the rights, remedies, obligations,
and duties of the Parties under this Agreement, shall be governed by, construed
in accordance with, and enforced under the laws of the State of Texas. The
exclusive venue of any action or proceeding relating to this Agreement or its
subject matter shall be in Dallas County, Texas.
20. COUNTERPARTS. This Agreement may be executed in counterparts, each of which
constitutes an original, but all of which constitute one and the same document.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
EMPLOYMENT AGREEMENT -
MICHAEL J. GULINSON
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The Parties have executed this Agreement to be effective as of the date
stated in the first paragraph.
STARNET FINANCIAL, INC.,
a Delaware Corporation
By: /s/ Kenneth F. Urbanus
-----------------------------------
KENNETH F. URBANUS,
President
/s/ Michael J. Gulinson
------------------------------------
MICHAEL J. GULINSON
EMPLOYMENT AGREEMENT -
MICHAEL J. GULINSON
13
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), effective as of October 1, 1999
(the "Effective Date"), is between STARNET FINANCIAL, INC., a Delaware
corporation (the "Company"), and EDWARD P. DAYTON ("Dayton"). The Company and
Dayton are collectively referred to in this Agreement as the "Parties."
Background
The Company wishes to employ Dayton as its Executive Vice President--Operations,
and the Parties desire to provide for the employment of Dayton as of the
Effective Date in accordance with the terms of this Agreement.
Terms of Agreement
The Parties agree as follows:
1. EMPLOYMENT. The Company employs Dayton to devote his personal services to the
business and affairs of the Company, and Dayton accepts such employment, on the
terms and conditions stated in this Agreement.
1.1. Duties. Dayton's title and position shall be Executive Vice
President--Operations of the Company. Dayton's duties will be those
customarily performed by persons acting in that capacity and those that may
be designated by the Board of Directors, the Chief Executive Officer and the
President of the Company consistent with the title and position of Executive
Vice President--Operations of the Company. Dayton shall report directly to
the Company's President. Dayton shall also serve, upon request and without
additional compensation, as an officer or a director, or both, of any
subsidiary, division, or affiliate of the Company or any other entity in
which the Company holds an equity interest or which it sponsors.
1.2. Full-Time Employee. Dayton shall devote his full time (except for
reasonable vacation time and absence for any disability), attention, and best
efforts to the performance of his duties described in Article 1.1.
2. TERM. The term of Dayton's employment under this Agreement (the "Term") shall
commence on the Effective Date and shall continue for five years (5) or until
terminated pursuant to Article 5.
3. COMPENSATION. As compensation for the services rendered by Dayton under this
Agreement, the Company shall, during the Term, pay or provide Dayton the
following:
<PAGE> 2
3.1. Base Salary. The Company shall pay Dayton during the Term a base salary
equal to Seventy Five Thousand Dollars ($75,000.00) per fiscal year of the
Company ("Base Salary"). Base Salary shall be paid in equal installments
every two weeks, in arrears, at the Company's regular and routine payroll
dates, or at such intervals as may otherwise be agreed upon by the Parties,
and in accordance with any other payroll procedures of the Company. Base
Salary shall be prorated in any fiscal year during which Dayton is employed
under this Agreement for less than the entire fiscal year, in accordance with
the number of days in that fiscal year during which Dayton is so employed.
Base Salary shall also be prorated (on a daily basis) for any partial payroll
period of employment under this Agreement.
3.2. Option. Dayton shall be eligible to participate in any stock option,
performance share, phantom stock, or similar long-term stock-based incentive
plan adopted by the Company for its employees in effect during the Term,
including the Option Plan. The extent to which Dayton shall participate in
any such plan will be determined by the Company's Board of Directors (the
"Board") or the Compensation Committee of the Board.
3.3. Savings and Retirement Plans. Dayton shall be eligible to participate in
any bonus, savings, deferred compensation, retirement or pension, or death
benefit plan adopted by the Company for its employees generally in effect
during the Term.
3.4. Welfare Benefit Plans. Dayton shall be eligible to participate in any
life insurance, medical, dental, and hospitalization insurance, disability
insurance benefit, or other similar employee welfare benefit plan or program
adopted by the Company covering its employees generally in effect during the
Term.
3.5. Paid Time Off. Dayton shall be entitled to fifteen (15) days of paid
vacation or time off ("PTO") per fiscal year of the Company, in accordance
with the Company's PTO policies, practices, and procedures in effect during
the Term. Such PTO shall, however, be prorated in any fiscal year during
which Dayton is employed under this Agreement for less than the entire fiscal
year, in accordance with the number of days in that fiscal year during which
Dayton is so employed.
3.6. Transportation Allowance. During the Term, the Company shall pay Dayton
a transportation allowance equal to Five Hundred Dollars ($500.00) per month
("Transportation Allowance"). The Transportation Allowance shall be payable
in equal installments together with the payments of Base Salary.
3.7. Tax Withholding. The Company may deduct from any compensation or other
amount payable to Dayton under this Agreement (including under Article 5)
social
EMPLOYMENT AGREEMENT -
EDWARD P. DAYTON
2
<PAGE> 3
security (FICA) taxes and all federal, state, municipal, and other taxes or
governmental charges as may, in the Company's judgment, be required.
3.8. Participation in Compensation and Benefit Plans. Dayton's participation
during the Term in any or all of the plans or programs adopted by the Company
described in Articles 3.2 through 3.4 ("Compensation and Benefit Plans") will
be subject to the terms and conditions of those Compensation and Benefit
Plans as they now exist or may hereafter be adopted, amended, restated, or
discontinued by the Company, including the satisfaction of all applicable
eligibility requirements and vesting provisions of those Compensation and
Benefit Plans. The Company shall have no obligation under this Agreement to
continue any or all of the Compensation and Benefit Plans that now exist or
are hereafter adopted. To the extent that Dayton is eligible to participate
in any Compensation and Benefit Plan existing on the date of this Agreement
for which a plan description or plan materials are available, the Company has
provided to Dayton, and Dayton hereby acknowledges receipt of, a copy of the
correct and complete written plan description or plan materials distributed
to participants or prospective participants.
4. EXPENSE REIMBURSEMENT. During the Term, Dayton may incur, and shall be
reimbursed by the Company for, reasonable, ordinary and necessary, and
documented business expenses to the extent that Dayton complies with, and
reimbursement is permitted by, the Company's policies, practices, and
procedures. Further, the Company agrees to reimburse Dayton for charges incurred
in connection with the use of one cellular phone.
5. EMPLOYMENT TERMINATION. Either Party may terminate Dayton's employment under
this Agreement by giving written notice of termination to the other Party. If
the Company is terminating, it shall include in that notice a statement whether
the termination is because of Disability or for Cause or without Cause. The
Parties' respective rights and obligations upon the termination of Dayton's
employment under this Agreement are as follows:
5.1. Termination Generally. Upon any termination of Dayton's employment under
this Agreement, the Company shall pay or provide Dayton the following:
5.1.a. Any amount of Base Salary and Transportation Allowance earned by,
but not yet paid to, Dayton through the effective date of termination of
employment, as further described below (the "Termination Date");
5.1.b. All benefits that have been earned by or vested in, and are
payable to, Dayton under, and subject to the terms (including all
eligibility requirements) of, the Compensation and Benefit Plans in
which Dayton participated through the Termination Date;
EMPLOYMENT AGREEMENT -
EDWARD P. DAYTON
3
<PAGE> 4
5.1.c. All reimbursable expenses due, but not yet paid, to Dayton as of
the Termination Date under Article 4; and
5.1.d. An amount equal to all accrued and unused PTO, calculated in
accordance with the Company's PTO policies, practices, and procedures
(including authorized deductions and the deductions required by law),
through the Termination Date.
The amount of Base Salary and Transportation Allowance due under Section
5.1.a shall be paid no later than thirty (30) business days after the
Termination Date; the amounts or benefits due under Section 5.1.b shall be
paid or provided in accordance with the terms of the Compensation and Benefit
Plans under which such amounts or benefits are due to Dayton; and the amounts
due under Sections 5.1.c and 5.1.d shall be paid in accordance with the terms
of the Company's policies, practices, and procedures regarding reimbursable
expenses and PTO, respectively. Except as expressly provided below in this
Article 5, upon paying or providing Dayton the preceding amounts or benefits,
the Company shall have no further obligation or liability under this
Agreement for base salary or any other cash compensation or for any benefits
under any of the Compensation and Benefit Plans. Upon termination of Dayton's
employment, Dayton shall be deemed to have resigned from any position as an
officer or director, or both, of any subsidiary, division, or affiliate of
the Company or any other entity in which the Company holds an equity interest
or which it sponsors that Dayton then holds; no written resignation need be
given or delivered to the Company.
In this Agreement, the Termination Date shall be (i) the date of Dayton's
death, (ii) the third business day after the date on which the Company gives
notice of termination because of Disability, or (iii) the date of termination
specified in any other notice of termination, or if not specified in the
notice of termination, the date that notice of termination is given.
In this Agreement, "Disability" means Dayton's permanent and total
disability, which shall be deemed to exist if he is unable reasonably to
perform his duties under this Agreement because of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for at least ninety (90)
consecutive days. Any Disability shall be determined by the Board or an
authorized committee or representative thereof ("Representative"), in its
sole and absolute discretion, upon receipt of competent medical advice from a
qualified physician selected by or acceptable to the Board or its
Representative. Dayton shall, if there is any question about his Disability,
submit to a physical examination by a qualified physician selected by the
Board or its Representative.
In this Agreement, "Cause" means any of the following: (i) Dayton's failure
to substantially perform his duties under this Agreement, other than any such
failure
EMPLOYMENT AGREEMENT -
EDWARD P. DAYTON
4
<PAGE> 5
resulting from his incapacity due to physical or mental illness or
Disability; (ii) Dayton's engaging in any action which, or omitting to engage
in any action the omission of which, has been, is, or is reasonably expected
to be substantially injurious (monetarily or otherwise) to the Company or its
business or reputation; (iii) Dayton's performance of any act or omission
constituting dishonesty that results, directly or indirectly, in significant
gain or enrichment of Dayton or his family or affiliates at the expense of
the Company; or (iv) any breach by Dayton of any obligation under any of
Articles 6, 7, 8, and 9. Whether an event or circumstance constituting Cause
exists will be determined in good faith by the Board or its Representative.
If the Company believes that Cause for termination exists under clause (i)
above in this paragraph, the Company shall notify Dayton of that belief, and
that notice shall describe the event or circumstance believed to constitute
Cause for termination. If that event or circumstance may reasonably be
remedied or corrected, Dayton shall have thirty (30) days to effect that
correction or remedy. If not corrected or remedied within that thirty (30)
day period, Cause for termination shall immediately be deemed to exist, and
Dayton's employment shall be deemed terminated. If the Company believes that
Cause for termination exists under any of clauses (ii), (iii), and (iv) above
in this paragraph, the Company shall notify Dayton of that belief, and that
notice shall constitute immediate termination of Dayton's employment.
Dayton may voluntarily terminate his employment under this Agreement only by
giving at least thirty (30) days' prior written notice to the Company. Dayton
shall not be liable to the Company for breach of this Agreement because of
his termination of employment in accordance with the preceding sentence.
5.2. Termination Without Cause or Upon Death or Disability. If Dayton's
employment is terminated by death or by the Company because of Disability or
without Cause, Dayton (or his legal representative, estate, or heirs) shall
be entitled to receive from the Company, as liquidated damages:
5.2.a. The continued payment of Base Salary, at the rate in effect at
the Termination Date, and Transportation Allowance for twelve (12)
consecutive months following the Termination Date (the "Severance
Payments"); and
5.2.b. if Dayton elects and maintains continued coverage under the
Consolidated Omnibus Benefits Reconciliation Act of 1985 and
corresponding regulations ("COBRA"), then for up to the twelve (12)
consecutive months immediately after the Termination Date, payments in
an amount equal to the difference between (i) the premiums paid or
payable by Dayton for coverage under COBRA for himself and his
dependents (if any) and (ii) the premiums that he would have paid for
comparable coverage under the Company's then current group insurance
plan or plans if his employment under this Agreement had not ceased (the
"Insurance Payments"); except that the Insurance Payments shall expire
or terminate
EMPLOYMENT AGREEMENT -
EDWARD P. DAYTON
5
<PAGE> 6
immediately upon Dayton's becoming eligible for coverage under another
employer's plan or policy.
The Severance Payments shall be paid at the dates on which Dayton's Base
Salary would have been payable if his employment under this Agreement had not
been terminated. The Company will commence the Severance Payments and the
Insurance Payments within ten (10) business days after the first business day
on which the release executed and delivered in accordance with Section 5.3.a
becomes irrevocable by Dayton (or his legal representative, estate, or
heirs). The Company's obligations for the Insurance Payments are not intended
to negate or impair any obligation of the Company or right of Dayton under
COBRA. The Severance Payments and the Insurance Payments shall be in addition
to the amounts or benefits to which Dayton is entitled under Article 5.1. Any
Severance Payments or Insurance Payments (or both) under this Article 5.2
shall not be deemed the continuation of Dayton's employment for any purpose.
5.3. Conditions to Severance Payments. Except as provided in Section 5.2.b
and below in this Article 5.3, none of the Severance Payments and the
Insurance Payments under Article 5.2 will be subject to reduction as the
result of future compensation earned or received by Dayton (including by
self-employment), and Dayton shall have no duty to mitigate his damages. The
Severance Payments and the Insurance Payments shall, however, be conditioned
upon:
5.3.a. The Company's receipt of a Settlement Agreement, General Release,
and Covenant Not to Sue executed and performed by Dayton (or his legal
representative, estate, or heirs) in substantially the form of Exhibit
"A" to this Agreement (the "Release Agreement"); and
5.3.b. the compliance by Dayton (or his legal representative, estate, or
heirs) with Articles 6, 7, 8, and 9 after the Termination Date as
specified in those Articles, as well as with the Release Agreement.
The Company may cease or reduce the Severance Payments or the Insurance
Payments (or both) if, and the Company shall be entitled to a return of the
Severance Payments and the Insurance Payments (or both) made to the extent
that, there is or has been any material violation by Dayton (or his legal
representatives, estate, or heirs) of any of Articles 6, 7, 8, and 9 or of
the Release Agreement.
5.4. Termination for Cause or by Dayton. If Dayton's employment is terminated
by the Company for Cause or is voluntarily terminated by Dayton, then Dayton
shall not be entitled to any payments under this Agreement other than the
amounts or benefits to which he is entitled under Article 5.1.
EMPLOYMENT AGREEMENT -
EDWARD P. DAYTON
6
<PAGE> 7
5.5. Post-Termination Survival. The provisions of this Article 5 shall
survive the termination of Dayton's employment by the Company and its
subsidiaries to the extent necessary to effect the post-termination payments
or benefits to which Dayton is entitled under the terms of this Article 5.
6. CONFIDENTIAL INFORMATION. The Company shall provide to Dayton, during the
Term, access to various trade secrets, confidential information, and proprietary
information of the Company (which, in this Article 6 as well as in Articles 7,
8, and 9, shall include the Company's subsidiaries and affiliates) which are
valuable and unique to the Company ("Confidential Information"). Confidential
Information includes the Company's plans, policies, and procedures as well as
the plans, policies and procedures of other persons having relationships that
are material to the Company's business and affairs. Dayton shall not, either
while in the employ of the Company or at any time thereafter, (i) use any of the
Confidential Information, or (ii) disclose any of the Confidential Information
to any person not an employee of the Company or not engaged to render services
to the Company, except (in either case) to perform his duties under this
Agreement or otherwise with the Company's prior written consent. Nothing in this
Article 6 shall preclude Dayton from the use or disclosure of information
generally known to the public or not considered confidential by the Company or
from any disclosure to the extent required by law or court order (though Dayton
must give the Company prior notice of any such required disclosure and must
cooperate with any reasonable requests of the Company to obtain a protective
order regarding, or to narrow the scope of, the Confidential Information
required to be disclosed). All files, records, documents, information, data, and
similar items relating to the business or affairs of the Company, whether
prepared by Dayton or otherwise coming into his possession, shall remain the
exclusive property of the Company and shall not be removed from the premises
from the Company, except in the ordinary course of business as part of Dayton's
performance of his duties under this Agreement, and (in any event) shall be
promptly returned or delivered to the Company (without Dayton's retaining any
copies) upon the termination of employment under this Agreement.
7. NONCOMPETITION. Dayton acknowledges that, in addition to his access to and
possession of Confidential Information, during the Term he will acquire valuable
experience and special training regarding the Company's business and that the
knowledge, experience, and training he will acquire would enable him to injure
the Company if he were to engage in any business that is competitive with the
business of the Company. Therefore, Dayton shall not, at any time during the
Term and for the thirty-six (36) consecutive months immediately after the
Termination Date, directly or indirectly (as an employee, employer, consultant,
agent, principal, partner, shareholder, officer, director, or manager or in any
other individual or representative capacity), engage, invest, or participate in
any business in direct competition with the business of the Company within a
fifty (50)-mile radius of each location, or set or group of locations, (i) at,
from, or to which the Company conducts or has conducted business or renders,
provides, or delivers, or has rendered, provided, or delivered, services or
products during the Measurement Period (as defined below) or (ii) that is or has
been, during the Measurement Period, the subject of
EMPLOYMENT AGREEMENT -
EDWARD P. DAYTON
7
<PAGE> 8
a Proposal (as defined below) to conduct business or render, provide, or deliver
services or products thereat, therefrom, or thereto. "Measurement Period" means,
with respect to Dayton' activity (A) at any time during the Term, the Term, and
(B) at any time on or after the Termination Date, the six (6) consecutive months
preceding, and including, the Termination Date. "Proposal" means a written or
formal proposal, bid, arrangement, understanding, or agreement by the Company to
or with another person that reflects or contains negotiated or substantive
terms, but does not include any marketing contact by the Company where the other
person has not solicited that contact or indicated any interest in doing
business with the Company. (Dayton shall not be prohibited, however, from
owning, as a passive investor, less than five percent (5%) of the publicly
traded stock or other securities of any entity engaged in a business competitive
with that of the Company.) Dayton represents and agrees that (x) the Company has
agreed to provide him, and he will receive from the Company, special experience
and knowledge, including Confidential Information, (y) because the Confidential
Information is valuable to the Company, its protection (particularly from any
competitive business) constitutes a legitimate interest to be protected by the
Company by enforcement of the restriction in this Article 7, and (z) the
enforcement of the restriction in this Article 7 would not be unduly burdensome
to Dayton and that, in order to induce the Company to enter into this Agreement
(which contains various benefits to Dayton and obligations of the Company with
respect to Dayton's employment), Dayton is willing and able to engage, invest,
or participate in business after the Termination Date so as not to violate this
Article 7. The Parties agree that the restrictions in this Article 7 regarding
scope of activity, duration, and geographic area are reasonable; however, if any
court should determine that any of those restrictions is unenforceable, that
restriction shall not thereby be terminated, but shall be deemed amended to the
extent required to render it enforceable.
8. NONSOLICITATION. Dayton shall not, at any time within the thirty-six (36)
consecutive months immediately after the Termination Date, either directly or
indirectly:
8.1. Disclose Contact Information. Make known to any person the names and
addresses, or other contact information, of any of the customers, suppliers,
or other persons having significant business relationships with the Company
within the information technology industry, so that such person could affect,
or attempt to affect, any of those relationships to the detriment of the
Company; or
8.2. Solicit Employees. Solicit, recruit, or hire, or attempt to solicit,
recruit, or hire, any employee or consultant of the Company, or in any other
manner attempt to induce any employee or consultant of the Company to leave
the employ of the Company or cease his or her consulting or similar business
relationship with the Company. References in this Article 8.2 to "any
employee or consultant" shall include any person who was an employee or
consultant of the Company at any time within the six (6) consecutive months
preceding, and including, the Termination Date.
EMPLOYMENT AGREEMENT -
EDWARD P. DAYTON
8
<PAGE> 9
9. DEVELOPMENTS. Dayton shall promptly disclose to the Company all inventions,
discoveries, improvements, processes, formulas, ideas, know-how, methods,
research, compositions, and other developments, whether or not patentable or
copyrightable, that Dayton, by himself or in conjunction with any other person,
conceives, makes, develops, or acquires during the Term which (i) are or relate
to the properties, assets, or existing or contemplated business or research
activities of the Company, (ii) are suggested by, arise out of, or result from,
directly or indirectly, Dayton's association with the Company, or (iii) arise
out of or result from, directly or indirectly, the use of the Company's time,
labor, materials, facilities, or other resources ("Developments").
Dayton hereby assigns, transfers, and conveys to the Company, and hereby agrees
to assign, transfer, and convey to the Company during or after the Term, all of
his right and title to and interest in all Developments. Dayton shall, from time
to time upon the request of the Company during or after the Term, execute and
deliver any and all instruments and documents and take any and all other actions
which, in the judgment of the Company or its counsel, are or may be necessary or
desirable to document any such assignment, transfer, and conveyance to the
Company or to enable the Company to file and process applications for, and to
acquire, maintain, and enforce, any and all patents, trademarks, registrations,
or copyrights with respect to any of the Developments, or to obtain any
extension, validation, re-issue, continuance, or renewal of any such patent,
trademark, registration, or copyright. The Company will be responsible for the
preparation of any such instrument or document and for the implementation of any
such proceedings and will reimburse Dayton for all reasonable expenses incurred
by him in complying with this Article 9.
10. INDEMNIFICATION. To the extent Dayton is an officer or director of the
Company, the Company shall include Dayton under any existing or future (i)
directors' and officers' liability insurance policy that the Company obtains and
maintains or (ii) indemnification agreements between the Company and other
executives of the Company. Subject to the foregoing sentence, the Company will
indemnify Dayton to the fullest extent permitted by the laws of the Company's
state of incorporation in effect at that time or by the articles or certificate
of incorporation and by- laws of the Company, whichever affords the greater
protection to Dayton.
11. CERTAIN REMEDIES. Any breach or violation by Dayton of any of Articles 6, 7,
8, and 9 shall entitle the Company, as a matter of right, to an injunction
issued by any court of competent jurisdiction, restraining any further or
continued breach or violation, or to specific performance requiring the
compliance with Dayton's covenants. This right to an injunction or other
equitable relief shall be in addition to, and not in lieu of, any other remedies
to which the Company may be entitled. The existence of any claim or cause of
action of Dayton against the Company, or any subsidiary or affiliate of the
Company, whether based on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of Dayton's covenants in any of
Articles 6, 7, 8, and 9. The covenants in Articles 6, 7, 8, and 9 and in this
Article 11 shall survive the termination of Dayton's employment under this
Agreement.
EMPLOYMENT AGREEMENT -
EDWARD P. DAYTON
9
<PAGE> 10
12. BINDING AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, and shall inure to the benefit of, the Company and Dayton and their
respective legal representatives, heirs, executors, administrators, and
successors and assigns (as permitted by this Article 12), including any
successor to the Company by merger, consolidation, or reorganization and any
other person that acquires all or substantially all of the business and assets
of the Company. The Company shall have the right, without the need for any
consent from Dayton, to assign its rights, benefits, remedies, and obligations
under this Agreement to one or more other persons. The rights, benefits,
remedies, and obligations of Dayton under this Agreement are personal to Dayton,
however, and may not be assigned or delegated by him; except that this shall not
preclude (i) Dayton from designating one or more beneficiaries to receive any
amount or benefit that may be paid or provided after Dayton's death or (ii) the
legal representative of Dayton's estate from assigning any right or benefit
under this Agreement to the person or persons entitled thereto under Dayton's
will or the laws of intestacy applicable to Dayton's estate, as the case may be.
13. SEVERABILITY. If any provision of this Agreement is found to be invalid or
unenforceable for any reason, then (i) that provision shall be severed from this
Agreement, (ii) this Agreement shall be construed and enforced as if that
invalid or unenforceable provision never constituted a part of this Agreement,
and (iii) the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
applicable law. Further, in lieu of that invalid or unenforceable provision,
there shall be added to this Agreement a provision as similar in its terms to
that invalid or unenforceable provision as may be possible and be valid and
enforceable.
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EMPLOYMENT AGREEMENT -
EDWARD P. DAYTON
10
<PAGE> 11
14. NOTICES. Any notice, request, or other communication to be given by either
Party under this Agreement by to the other shall be in writing and either (i)
delivered in person, (ii) delivered by prepaid same-day or overnight courier
service, (iii) sent by certified mail, postage prepaid with return receipt
requested, or (iv) transmitted by facsimile, in any case addressed to the other
Party as follows:
If to the Company: StarNet Financial, Inc.
1700 Preston Road
Suite 350
Dallas, Texas 75248
Attention: Daniel L. Jackson, Chief Executive
Officer
Facsimile: (972) 239-2893
With a copy (which shall
not constitute notice) to: Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201-4761
Attention: I. Bobby Majumder, Esq.
Facsimile: (214) 969-4667
If to Dayton: Edward P. Dayton
----------------------------------
----------------------------------
or to such other address or facsimile number as the Party to be notified may
have designated by notice previously given in accordance with this Article 14.
Communications delivered in person or by courier service or transmitted by
facsimile shall be deemed given and received as of actual receipt (or refusal)
by the addressee. Communications mailed as described above in this Article 14
shall be deemed given and received three (3) business days after mailing or upon
actual receipt, whichever is earlier.
15. CERTAIN DEFINED TERMS. In this Agreement, (i) "person" means an individual
or any corporation, partnership, trust, unincorporated association, limited
liability company, or other legal entity, whether acting in an individual,
fiduciary, or other capacity, and any government, court, or governmental agency,
(ii) "include" and "including" do not signify any limitation, (iii) "Article"
and "Section" means any Article and any Section, respectively, of this
Agreement, unless otherwise indicated, (iv) an "affiliate" of a person means any
other person controlling, controlled by, or under common control with that
person, and (v) "business day" means any Monday through Friday, other than any
such weekday on which the executive offices of the Company are closed. In
addition, the use in this Agreement of "year," "annual," "month," or "monthly"
(or similar terms) to indicate a measurement period shall not itself be deemed
to grant rights to Dayton for employment or compensation for that period.
16. ENTIRE AGREEMENT. This Agreement, with Exhibit "A", constitutes the entire
agreement between the Company and Dayton with respect to the subject matter
hereof and
EMPLOYMENT AGREEMENT -
EDWARD P. DAYTON
11
<PAGE> 12
supersedes any prior agreement between the Company and Dayton with respect to
the same subject matter.
17. MODIFICATION AND WAIVER. No amendment to or modification of this Agreement,
or waiver of any term, provision, or condition of this Agreement, will be
binding upon a Party unless the amendment, modification, or waiver is in writing
and signed by the Party to be bound. Any waiver by a Party of a breach or
violation of any provision of this Agreement by the other Party shall not be
deemed a waiver of any other provision or of any subsequent breach or violation.
18. GENDER. Whenever the context requires in this Agreement, words denoting
gender in this Agreement include the masculine, feminine, and neuter.
19. GOVERNING LAW; VENUE. This Agreement, and the rights, remedies, obligations,
and duties of the Parties under this Agreement, shall be governed by, construed
in accordance with, and enforced under the laws of the State of Texas. The
exclusive venue of any action or proceeding relating to this Agreement or its
subject matter shall be in Dallas County, Texas.
20. COUNTERPARTS. This Agreement may be executed in counterparts, each of which
constitutes an original, but all of which constitute one and the same document.
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EMPLOYMENT AGREEMENT -
EDWARD P. DAYTON
12
<PAGE> 13
The Parties have executed this Agreement to be effective as of the date
stated in the first paragraph.
STARNET FINANCIAL, INC.,
a Delaware Corporation
By: /s/ Daniel L. Jackson
----------------------------------
DANIEL L. JACKSON,
Chief Executive Officer
/s/ Edward P. Dayton
----------------------------------
EDWARD P. DAYTON
EMPLOYMENT AGREEMENT -
EDWARD P. DAYTON
13
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), effective as of October 1, 1999
(the "Effective Date"), is between STARNET FINANCIAL, INC., a Delaware
corporation (the "Company"), and THOMAS DEUTSCH ("Deutsch"). The Company and
Deutsch are collectively referred to in this Agreement as the "Parties."
Background
The Company wishes to employ Deutsch as its Executive Vice President--National
Production, and the Parties desire to provide for the employment of Deutsch as
of the Effective Date in accordance with the terms of this Agreement.
Terms of Agreement
The Parties agree as follows:
1. EMPLOYMENT. The Company employs Deutsch to devote his personal services to
the business and affairs of the Company, and Deutsch accepts such employment, on
the terms and conditions stated in this Agreement.
1.1. Duties. Deutsch's title and position shall be Executive Vice
President--National Production of the Company. Deutsch's duties will be
those customarily performed by persons acting in that capacity and
those that may be designated by the Board of Directors, the Chief
Executive Officer and the President of the Company consistent with the
title and position of Executive Vice President--National Production.
Deutsch shall report directly to the Company's President. Deutsch shall
also serve, upon request and without additional compensation, as an
officer or a director, or both, of any subsidiary, division, or
affiliate of the Company or any other entity in which the Company holds
an equity interest or which it sponsors.
1.2. Full-Time Employee. Deutsch shall devote his full time (except for
reasonable vacation time and absence for any disability), attention,
and best efforts to the performance of his duties described in Article
1.1.
2. TERM. The term of Deutsch's employment under this Agreement (the "Term")
shall commence on the Effective Date and shall continue for five (5) years or
until terminated pursuant to Article 5.
3. COMPENSATION. As compensation for the services rendered by Deutsch under this
Agreement, the Company shall, during the Term, pay or provide Deutsch the
following:
<PAGE> 2
3.1. Base Salary. The Company shall pay Deutsch during the Term a base
salary equal to One Hundred Eight Thousand Dollars ($108,000.00) per
fiscal year of the Company ("Base Salary"). Base Salary shall be paid
in equal installments every two weeks, in arrears, at the Company's
regular and routine payroll dates, or at such intervals as may
otherwise be agreed upon by the Parties, and in accordance with any
other payroll procedures of the Company. Base Salary shall be prorated
in any fiscal year during which Deutsch is employed under this
Agreement for less than the entire fiscal year, in accordance with the
number of days in that fiscal year during which Deutsch is so employed.
Base Salary shall also be prorated (on a daily basis) for any partial
payroll period of employment under this Agreement.
3.2. Incentive Bonus. The Company shall also pay Deutsch a sum equal to
two basis points of funded loans of StarNet Mortgage for the first
$10,000,000 during a month and four basis points of funded loans of
StarNet Mortgage over $10,000,000 during a month. This sum will be
paid, in arrears, on the 15th of each month.
3.3. Option. Deutsch shall be eligible to participate in any stock
option, performance share, phantom stock, or similar long-term
stock-based incentive plan adopted by the Company for its employees in
effect during the Term, including the Option Plan. The extent to which
Deutsch shall participate in any such plan will be determined by the
Company's Board of Directors (the "Board") or the Compensation
Committee of the Board.
3.4. Savings and Retirement Plans. Deutsch shall be eligible to
participate in any bonus, savings, deferred compensation, retirement or
pension, or death benefit plan adopted by the Company for its employees
generally in effect during the Term.
3.5. Welfare Benefit Plans. Deutsch shall be eligible to participate in
any life insurance, medical, dental, and hospitalization insurance,
disability insurance benefit, or other similar employee welfare benefit
plan or program adopted by the Company covering its employees generally
in effect during the Term.
3.6. Paid Time Off. Deutsch shall be entitled to fifteen (15) days of
paid vacation or time off ("PTO") per fiscal year of the Company, in
accordance with the Company's PTO policies, practices, and procedures
in effect during the Term. Such PTO shall, however, be prorated in any
fiscal year during which Deutsch is employed under this Agreement for
less than the entire fiscal year, in accordance with the number of days
in that fiscal year during which Deutsch is so employed.
3.7. Transportation Allowance. During the Term, the Company shall pay
Deutsch a transportation allowance equal to Seven Hundred Fifty Dollars
($750.00) per month
EMPLOYMENT AGREEMENT -
THOMAS DEUTSCH 2
<PAGE> 3
("Transportation Allowance"). The Transportation Allowance shall be
payable in equal installments together with the payments of Base
Salary.
3.8. Tax Withholding. The Company may deduct from any compensation or
other amount payable to Deutsch under this Agreement (including under
Article 5) social security (FICA) taxes and all federal, state,
municipal, and other taxes or governmental charges as may, in the
Company's judgment, be required.
3.9. Participation in Compensation and Benefit Plans. Deutsch's
participation during the Term in any or all of the plans or programs
adopted by the Company described in Articles 3.3 through 3.6
("Compensation and Benefit Plans") will be subject to the terms and
conditions of those Compensation and Benefit Plans as they now exist or
may hereafter be adopted, amended, restated, or discontinued by the
Company, including the satisfaction of all applicable eligibility
requirements and vesting provisions of those Compensation and Benefit
Plans. The Company shall have no obligation under this Agreement to
continue any or all of the Compensation and Benefit Plans that now
exist or are hereafter adopted. To the extent that Deutsch is eligible
to participate in any Compensation and Benefit Plan existing on the
date of this Agreement for which a plan description or plan materials
are available, the Company has provided to Deutsch, and Deutsch hereby
acknowledges receipt of, a copy of the correct and complete written
plan description or plan materials distributed to participants or
prospective participants.
4. EXPENSE REIMBURSEMENT. During the Term, Deutsch may incur, and shall be
reimbursed by the Company for, reasonable, ordinary and necessary, and
documented business expenses to the extent that Deutsch complies with, and
reimbursement is permitted by, the Company's policies, practices, and
procedures.
5. EMPLOYMENT TERMINATION. Either Party may terminate Deutsch's employment under
this Agreement by giving written notice of termination to the other Party. If
the Company is terminating, it shall include in that notice a statement whether
the termination is because of Disability or for Cause or without Cause. The
Parties' respective rights and obligations upon the termination of Deutsch's
employment under this Agreement are as follows:
5.1. Termination Generally. Upon any termination of Deutsch's
employment under this Agreement, the Company shall pay or provide
Deutsch the following:
5.1.a. Any amount of Base Salary and Transportation Allowance
earned by, but not yet paid to, Deutsch through the effective
date of termination of employment, as further described below
(the "Termination Date");
5.1.b. All benefits that have been earned by or vested in, and
are payable to, Deutsch under, and subject to the terms
(including all eligibility requirements) of,
EMPLOYMENT AGREEMENT -
THOMAS DEUTSCH 3
<PAGE> 4
the Compensation and Benefit Plans in which Deutsch
participated through the Termination Date;
5.1.c. All reimbursable expenses due, but not yet paid, to
Deutsch as of the Termination Date under Article 4; and
5.1.d. An amount equal to all accrued and unused PTO,
calculated in accordance with the Company's PTO policies,
practices, and procedures (including authorized deductions and
the deductions required by law), through the Termination Date.
The amount of Base Salary and Transportation Allowance due under
Section 5.1.a shall be paid no later than thirty (30) business days
after the Termination Date; the amounts or benefits due under Section
5.1.b shall be paid or provided in accordance with the terms of the
Compensation and Benefit Plans under which such amounts or benefits are
due to Deutsch; and the amounts due under Sections 5.1.c and 5.1.d
shall be paid in accordance with the terms of the Company's policies,
practices, and procedures regarding reimbursable expenses and PTO,
respectively. Except as expressly provided below in this Article 5,
upon paying or providing Deutsch the preceding amounts or benefits, the
Company shall have no further obligation or liability under this
Agreement for base salary or any other cash compensation or for any
benefits under any of the Compensation and Benefit Plans. Upon
termination of Deutsch's employment, Deutsch shall be deemed to have
resigned from any position as an officer or director, or both, of any
subsidiary, division, or affiliate of the Company or any other entity
in which the Company holds an equity interest or which it sponsors that
Deutsch then holds; no written resignation need be given or delivered
to the Company.
In this Agreement, the Termination Date shall be (i) the date of
Deutsch's death, (ii) the third business day after the date on which
the Company gives notice of termination because of Disability, or (iii)
the date of termination specified in any other notice of termination,
or if not specified in the notice of termination, the date that notice
of termination is given.
In this Agreement, "Disability" means Deutsch's permanent and total
disability, which shall be deemed to exist if he is unable reasonably
to perform his duties under this Agreement because of any medically
determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for at
least ninety (90) consecutive days. Any Disability shall be determined
by the Board or an authorized committee or representative thereof
("Representative"), in its sole and absolute discretion, upon receipt
of competent medical advice from a qualified physician selected by or
acceptable to the Board or its Representative. Deutsch shall, if there
is any question about his Disability, submit to a physical examination
by a qualified physician selected by the Board or its Representative.
EMPLOYMENT AGREEMENT -
THOMAS DEUTSCH 4
<PAGE> 5
In this Agreement, "Cause" means any of the following: (i) Deutsch's
failure to substantially perform his duties under this Agreement, other
than any such failure resulting from his incapacity due to physical or
mental illness or Disability; (ii) Deutsch's engaging in any action
which, or omitting to engage in any action the omission of which, has
been, is, or is reasonably expected to be substantially injurious
(monetarily or otherwise) to the Company or its business or reputation;
(iii) Deutsch's performance of any act or omission constituting
dishonesty that results, directly or indirectly, in significant gain or
enrichment of Deutsch or his family or affiliates at the expense of the
Company; or (iv) any breach by Deutsch of any obligation under any of
Articles 6, 7, 8, and 9. Whether an event or circumstance constituting
Cause exists will be determined in good faith by the Board or its
Representative. If the Company believes that Cause for termination
exists under clause (i) above in this paragraph, the Company shall
notify Deutsch of that belief, and that notice shall describe the event
or circumstance believed to constitute Cause for termination. If that
event or circumstance may reasonably be remedied or corrected, Deutsch
shall have thirty (30) days to effect that correction or remedy. If not
corrected or remedied within that thirty (30) day period, Cause for
termination shall immediately be deemed to exist, and Deutsch's
employment shall be deemed terminated. If the Company believes that
Cause for termination exists under any of clauses (ii), (iii), and (iv)
above in this paragraph, the Company shall notify Deutsch of that
belief, and that notice shall constitute immediate termination of
Deutsch's employment.
Deutsch may voluntarily terminate his employment under this Agreement
only by giving at least thirty (30) days' prior written notice to the
Company. Deutsch shall not be liable to the Company for breach of this
Agreement because of his termination of employment in accordance with
the preceding sentence.
5.2. Termination Without Cause or Upon Death or Disability. If
Deutsch's employment is terminated by death or by the Company because
of Disability or without Cause, Deutsch (or his legal representative,
estate, or heirs) shall be entitled to receive from the Company, as
liquidated damages:
5.2.a. The continued payment of Base Salary, at the rate in
effect at the Termination Date, for twelve (12) consecutive
months following the Termination Date (the "Severance
Payments"); and
5.2.b. If Deutsch elects and maintains continued coverage
under the Consolidated Omnibus Benefits Reconciliation Act of
1985 and corresponding regulations ("COBRA"), then for up to
the twelve (12) consecutive months immediately after the
Termination Date, payments in an amount equal to the
difference between (i) the premiums paid or payable by Deutsch
for coverage under COBRA for himself and his dependents (if
any) and (ii) the premiums that he would have paid for
comparable coverage under the Company's then current group
insurance plan or
EMPLOYMENT AGREEMENT -
THOMAS DEUTSCH 5
<PAGE> 6
plans if his employment under this Agreement had not ceased
(the "Insurance Payments"); except that the Insurance Payments
shall expire or terminate immediately upon Deutsch's becoming
eligible for coverage under another employer's plan or policy.
The Severance Payments shall be paid at the dates on which Deutsch's
Base Salary would have been payable if his employment under this
Agreement had not been terminated. The Company will commence the
Severance Payments and the Insurance Payments within ten (10) business
days after the first business day on which the release executed and
delivered in accordance with Section 5.3.a becomes irrevocable by
Deutsch (or his legal representative, estate, or heirs). The Company's
obligations for the Insurance Payments are not intended to negate or
impair any obligation of the Company or right of Deutsch under COBRA.
The Severance Payments and the Insurance Payments shall be in addition
to the amounts or benefits to which Deutsch is entitled under Article
5.1. Any Severance Payments or Insurance Payments (or both) under this
Article 5.2 shall not be deemed the continuation of Deutsch's
employment for any purpose.
5.3. Conditions to Severance Payments. Except as provided in Section
5.2.b and below in this Article 5.3, none of the Severance Payments and
the Insurance Payments under Article 5.2 will be subject to reduction
as the result of future compensation earned or received by Deutsch
(including by self-employment), and Deutsch shall have no duty to
mitigate his damages. The Severance Payments and the Insurance Payments
shall, however, be conditioned upon:
5.3.a. The Company's receipt of a Settlement Agreement,
General Release, and Covenant Not to Sue executed and
performed by Deutsch (or his legal representative, estate, or
heirs) in substantially the form of Exhibit "A" to this
Agreement (the "Release Agreement"); and
5.3.b. the compliance by Deutsch (or his legal representative,
estate, or heirs) with Articles 6, 7, 8, and 9 after the
Termination Date as specified in those Articles, as well as
with the Release Agreement.
The Company may cease or reduce the Severance Payments or the Insurance
Payments (or both) if, and the Company shall be entitled to a return of
the Severance Payments and the Insurance Payments (or both) made to the
extent that, there is or has been any material violation by Deutsch (or
his legal representatives, estate, or heirs) of any of Articles 6, 7,
8, and 9 or of the Release Agreement.
5.4. Termination for Cause or by Deutsch. If Deutsch's employment is
terminated by the Company for Cause or is voluntarily terminated by
Deutsch, then Deutsch shall not be
EMPLOYMENT AGREEMENT -
THOMAS DEUTSCH 6
<PAGE> 7
entitled to any payments under this Agreement other than the amounts or
benefits to which he is entitled under Article 5.1.
5.5. Post-Termination Survival. The provisions of this Article 5 shall
survive the termination of Deutsch's employment by the Company and its
subsidiaries to the extent necessary to effect the post-termination
payments or benefits to which Deutsch is entitled under the terms of
this Article 5.
6. CONFIDENTIAL INFORMATION. The Company shall provide to Deutsch, during the
Term, access to various trade secrets, confidential information, and proprietary
information of the Company (which, in this Article 6 as well as in Articles 7,
8, and 9, shall include the Company's subsidiaries and affiliates) which are
valuable and unique to the Company ("Confidential Information"). Confidential
Information includes the Company's plans, policies, and procedures as well as
the plans, policies and procedures of other persons having relationships that
are material to the Company's business and affairs. Deutsch shall not, either
while in the employ of the Company or at any time thereafter, (i) use any of the
Confidential Information, or (ii) disclose any of the Confidential Information
to any person not an employee of the Company or not engaged to render services
to the Company, except (in either case) to perform his duties under this
Agreement or otherwise with the Company's prior written consent. Nothing in this
Article 6 shall preclude Deutsch from the use or disclosure of information
generally known to the public or not considered confidential by the Company or
from any disclosure to the extent required by law or court order (though Deutsch
must give the Company prior notice of any such required disclosure and must
cooperate with any reasonable requests of the Company to obtain a protective
order regarding, or to narrow the scope of, the Confidential Information
required to be disclosed). All files, records, documents, information, data, and
similar items relating to the business or affairs of the Company, whether
prepared by Deutsch or otherwise coming into his possession, shall remain the
exclusive property of the Company and shall not be removed from the premises
from the Company, except in the ordinary course of business as part of Deutsch's
performance of duties under this Agreement, and (in any event) shall be promptly
returned or delivered to the Company (without Deutsch's retaining any copies)
upon the termination of employment under this Agreement.
7. NONCOMPETITION. Deutsch acknowledges that, in addition to his access to and
possession of Confidential Information, during the Term he will acquire valuable
experience and special training regarding the Company's business and that the
knowledge, experience, and training he will acquire would enable him to injure
the Company if he were to engage in any business that is competitive with the
business of the Company. Therefore, Deutsch shall not, at any time during the
Term and for the twenty-four (24) consecutive months immediately after the
Termination Date, directly or indirectly (as an employee, employer, consultant,
agent, principal, partner, shareholder, officer, director, or manager or in any
other individual or representative capacity), engage, invest, or participate in
any business in direct competition with the business of the Company within a
fifty (50)-mile radius of each location, or set or group of locations, (i) at,
EMPLOYMENT AGREEMENT -
THOMAS DEUTSCH 7
<PAGE> 8
from, or to which the Company conducts or has conducted business or renders,
provides, or delivers, or has rendered, provided, or delivered, services or
products during the Measurement Period (as defined below) or (ii) that is or has
been, during the Measurement Period, the subject of a Proposal (as defined
below) to conduct business or render, provide, or deliver services or products
thereat, therefrom, or thereto. "Measurement Period" means, with respect to
Deutsch's activity (A) at any time during the Term, the Term, and (B) at any
time on or after the Termination Date, the six (6) consecutive months preceding,
and including, the Termination Date. "Proposal" means a written or formal
proposal, bid, arrangement, understanding, or agreement by the Company to or
with another person that reflects or contains negotiated or substantive terms,
but does not include any marketing contact by the Company where the other person
has not solicited that contact or indicated any interest in doing business with
the Company. (Deutsch shall not be prohibited, however, from owning, as a
passive investor, less than five percent (5%) of the publicly traded stock or
other securities of any entity engaged in a business competitive with that of
the Company.) Deutsch represents and agrees that (x) the Company has agreed to
provide him, and he will receive from the Company, special experience and
knowledge, including Confidential Information, (y) because the Confidential
Information is valuable to the Company, its protection (particularly from any
competitive business) constitutes a legitimate interest to be protected by the
Company by enforcement of the restriction in this Article 7, and (z) the
enforcement of the restriction in this Article 7 would not be unduly burdensome
to Deutsch and that, in order to induce the Company to enter into this Agreement
(which contains various benefits to Deutsch and obligations of the Company with
respect to Deutsch's employment), Deutsch is willing and able to engage, invest,
or participate in business after the Termination Date so as not to violate this
Article 7. The Parties agree that the restrictions in this Article 7 regarding
scope of activity, duration, and geographic area are reasonable; however, if any
court should determine that any of those restrictions is unenforceable, that
restriction shall not thereby be terminated, but shall be deemed amended to the
extent required to render it enforceable.
8. NONSOLICITATION. Deutsch shall not, at any time within the twenty-four (24)
consecutive months immediately after the Termination Date, either directly or
indirectly:
8.1. Disclose Contact Information. Make known to any person
the names and addresses, or other contact information, of any
of the customers, suppliers, or other persons having
significant business relationships with the Company within the
information technology industry, so that such person could
affect, or attempt to affect, any of those relationships to
the detriment of the Company; or
8.2. Solicit Employees. Solicit, recruit, or hire, or attempt
to solicit, recruit, or hire, any employee or consultant of
the Company, or in any other manner attempt to induce any
employee or consultant of the Company to leave the employ of
the Company or cease his or her consulting or similar business
relationship with the Company. References in this Article 8.2
to "any employee or consultant" shall include any person who
was an employee or consultant of the Company at any
EMPLOYMENT AGREEMENT -
THOMAS DEUTSCH 8
<PAGE> 9
time within the six (6) consecutive months preceding, and
including, the Termination Date.
9. DEVELOPMENTS. Deutsch shall promptly disclose to the Company all inventions,
discoveries, improvements, processes, formulas, ideas, know-how, methods,
research, compositions, and other developments, whether or not patentable or
copyrightable, that Deutsch, by himself or in conjunction with any other person,
conceives, makes, develops, or acquires during the Term which (i) are or relate
to the properties, assets, or existing or contemplated business or research
activities of the Company, (ii) are suggested by, arise out of, or result from,
directly or indirectly, Deutsch's association with the Company, or (iii) arise
out of or result from, directly or indirectly, the use of the Company's time,
labor, materials, facilities, or other resources ("Developments").
Deutsch hereby assigns, transfers, and conveys to the Company, and hereby agrees
to assign, transfer, and convey to the Company during or after the Term, all of
his right and title to and interest in all Developments. Deutsch shall, from
time to time upon the request of the Company during or after the Term, execute
and deliver any and all instruments and documents and take any and all other
actions which, in the judgment of the Company or its counsel, are or may be
necessary or desirable to document any such assignment, transfer, and conveyance
to the Company or to enable the Company to file and process applications for,
and to acquire, maintain, and enforce, any and all patents, trademarks,
registrations, or copyrights with respect to any of the Developments, or to
obtain any extension, validation, re-issue, continuance, or renewal of any such
patent, trademark, registration, or copyright. The Company will be responsible
for the preparation of any such instrument or document and for the
implementation of any such proceedings and will reimburse Deutsch for all
reasonable expenses incurred by him in complying with this Article 9.
10. INDEMNIFICATION. To the extent Deutsch is an officer or director of the
Company, the Company shall include Deutsch under any existing or future (i)
directors' and officers' liability insurance policy that the Company obtains and
maintains or (ii) indemnification agreements between the Company and other
executives of the Company. Subject to the foregoing sentence, the Company will
indemnify Deutsch to the fullest extent permitted by the laws of the Company's
state of incorporation in effect at that time or by the articles or certificate
of incorporation and by-laws of the Company, whichever affords the greater
protection to Deutsch.
11. CERTAIN REMEDIES. Any breach or violation by Deutsch of any of Articles 6,
7, 8, and 9 shall entitle the Company, as a matter of right, to an injunction
issued by any court of competent jurisdiction, restraining any further or
continued breach or violation, or to specific performance requiring the
compliance with Deutsch's covenants. This right to an injunction or other
equitable relief shall be in addition to, and not in lieu of, any other remedies
to which the Company may be entitled. The existence of any claim or cause of
action of Deutsch against the Company, or any subsidiary or affiliate of the
Company, whether based on this Agreement or
EMPLOYMENT AGREEMENT -
THOMAS DEUTSCH 9
<PAGE> 10
otherwise, shall not constitute a defense to the enforcement by the Company of
Deutsch's covenants in any of Articles 6, 7, 8, and 9. The covenants in Articles
6, 7, 8, and 9 and in this Article 11 shall survive the termination of Deutsch's
employment under this Agreement.
12. BINDING AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, and shall inure to the benefit of, the Company and Deutsch and their
respective legal representatives, heirs, executors, administrators, and
successors and assigns (as permitted by this Article 12), including any
successor to the Company by merger, consolidation, or reorganization and any
other person that acquires all or substantially all of the business and assets
of the Company. The Company shall have the right, without the need for any
consent from Deutsch, to assign its rights, benefits, remedies, and obligations
under this Agreement to one or more other persons. The rights, benefits,
remedies, and obligations of Deutsch under this Agreement are personal to
Deutsch, however, and may not be assigned or delegated by him; except that this
shall not preclude (i) Deutsch from designating one or more beneficiaries to
receive any amount or benefit that may be paid or provided after Deutsch's death
or (ii) the legal representative of Deutsch's estate from assigning any right or
benefit under this Agreement to the person or persons entitled thereto under
Deutsch's will or the laws of intestacy applicable to Deutsch's estate, as the
case may be.
13. SEVERABILITY. If any provision of this Agreement is found to be invalid or
unenforceable for any reason, then (i) that provision shall be severed from this
Agreement, (ii) this Agreement shall be construed and enforced as if that
invalid or unenforceable provision never constituted a part of this Agreement,
and (iii) the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
applicable law. Further, in lieu of that invalid or unenforceable provision,
there shall be added to this Agreement a provision as similar in its terms to
that invalid or unenforceable provision as may be possible and be valid and
enforceable.
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EMPLOYMENT AGREEMENT -
THOMAS DEUTSCH 10
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14. NOTICES. Any notice, request, or other communication to be given by either
Party under this Agreement by to the other shall be in writing and either (i)
delivered in person, (ii) delivered by prepaid same-day or overnight courier
service, (iii) sent by certified mail, postage prepaid with return receipt
requested, or (iv) transmitted by facsimile, in any case addressed to the other
Party as follows:
If to the Company: StarNet Financial, Inc.
1700 Preston Road
Suite 350
Dallas, Texas 75248
Attention: Daniel L. Jackson,
Chief Executive Officer
Facsimile: (972) 239-2893
With a copy (which shall
not constitute notice) to: Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201-4761
Attention: I. Bobby Majumder, Esq.
Facsimile: (214) 969-4667
If to Deutsch: Thomas Deutsch
-----------------------------
-----------------------------
or to such other address or facsimile number as the Party to be notified may
have designated by notice previously given in accordance with this Article 14.
Communications delivered in person or by courier service or transmitted by
facsimile shall be deemed given and received as of actual receipt (or refusal)
by the addressee. Communications mailed as described above in this Article 14
shall be deemed given and received three (3) business days after mailing or upon
actual receipt, whichever is earlier.
15. CERTAIN DEFINED TERMS. In this Agreement, (i) "person" means an individual
or any corporation, partnership, trust, unincorporated association, limited
liability company, or other legal entity, whether acting in an individual,
fiduciary, or other capacity, and any government, court, or governmental agency,
(ii) "include" and "including" do not signify any limitation, (iii) "Article"
and "Section" means any Article and any Section, respectively, of this
Agreement, unless otherwise indicated, (iv) an "affiliate" of a person means any
other person controlling, controlled by, or under common control with that
person, and (v) "business day" means any Monday through Friday, other than any
such weekday on which the executive offices of the Company are closed. In
addition, the use in this Agreement of "year," "annual," "month," or "monthly"
(or similar terms) to indicate a measurement period shall not itself be deemed
to grant rights to Deutsch for employment or compensation for that period.
EMPLOYMENT AGREEMENT -
THOMAS DEUTSCH 11
<PAGE> 12
16. ENTIRE AGREEMENT. This Agreement, with Exhibit "A", constitutes the entire
agreement between the Company and Deutsch with respect to the subject matter
hereof and supersedes any prior agreement between the Company and Deutsch with
respect to the same subject matter.
17. MODIFICATION AND WAIVER. No amendment to or modification of this Agreement,
or waiver of any term, provision, or condition of this Agreement, will be
binding upon a Party unless the amendment, modification, or waiver is in writing
and signed by the Party to be bound. Any waiver by a Party of a breach or
violation of any provision of this Agreement by the other Party shall not be
deemed a waiver of any other provision or of any subsequent breach or violation.
18. GENDER. Whenever the context requires in this Agreement, words denoting
gender in this Agreement include the masculine, feminine, and neuter.
19. GOVERNING LAW; VENUE. This Agreement, and the rights, remedies, obligations,
and duties of the Parties under this Agreement, shall be governed by, construed
in accordance with, and enforced under the laws of the State of Texas. The
exclusive venue of any action or proceeding relating to this Agreement or its
subject matter shall be in Dallas County, Texas.
20. COUNTERPARTS. This Agreement may be executed in counterparts, each of which
constitutes an original, but all of which constitute one and the same document.
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EMPLOYMENT AGREEMENT -
THOMAS DEUTSCH 12
<PAGE> 13
The Parties have executed this Agreement to be effective as of the date
stated in the first paragraph.
STARNET FINANCIAL, INC.,
a Delaware Corporation
By: /s/ Daniel L.Jackson
----------------------------------
DANIEL L. JACKSON,
Chief Executive Officer
/s/ Thomas Deutsch
----------------------------------
THOMAS DEUTSCH
EMPLOYMENT AGREEMENT -
THOMAS DEUTSCH 13
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), effective as of October 1, 1999
(the "Effective Date"), is between STARNET FINANCIAL, INC., a Delaware
corporation (the "Company"), and JENNIFER SALSBURY ("Salsbury"). The Company and
Salsbury are collectively referred to in this Agreement as the "Parties."
Background
The Company wishes to employ Salsbury as its Executive Vice President--Secondary
Marketing, and the Parties desire to provide for the employment of Salsbury as
of the Effective Date in accordance with the terms of this Agreement.
Terms of Agreement
The Parties agree as follows:
1. EMPLOYMENT. The Company employs Salsbury to devote her personal services to
the business and affairs of the Company, and Salsbury accepts such employment,
on the terms and conditions stated in this Agreement.
1.1. Duties. Salsbury's title and position shall be Executive Vice
President--Secondary Marketing of the Company. Salsbury's duties will be
those customarily performed by persons acting in that capacity and those that
may be designated by the Board of Directors, the Chief Executive Officer and
the President of the Company consistent with the title and position of
Executive Vice President--Secondary Marketing. Salsbury shall report directly
to the Company's President. Salsbury shall also serve, upon request and
without additional compensation, as an officer or a director, or both, of any
subsidiary, division, or affiliate of the Company or any other entity in
which the Company holds an equity interest or which it sponsors.
1.2. Full-Time Employee. Salsbury shall devote her full time (except for
reasonable vacation time and absence for any disability), attention, and best
efforts to the performance of her duties described in Article 1.1.
2. TERM. The term of Salsbury's employment under this Agreement (the "Term")
shall commence on the Effective Date and shall continue for five (5) years or
until terminated pursuant to Article 5.
3. COMPENSATION. As compensation for the services rendered by Salsbury under
this Agreement, the Company shall, during the Term, pay or provide Salsbury the
following:
<PAGE> 2
3.1. Base Salary. The Company shall pay Salsbury during the Term a base
salary equal to One Hundred Forty-Four Thousand Dollars ($144,000.00) per
fiscal year of the Company ("Base Salary"). Base Salary shall be paid in
equal installments every two weeks, in arrears, at the Company's regular and
routine payroll dates, or at such intervals as may otherwise be agreed upon
by the Parties, and in accordance with any other payroll procedures of the
Company. Base Salary shall be prorated in any fiscal year during which
Salsbury is employed under this Agreement for less than the entire fiscal
year, in accordance with the number of days in that fiscal year during which
Salsbury is so employed. Base Salary shall also be prorated (on a daily
basis) for any partial payroll period of employment under this Agreement.
3.2. Incentive Bonus. The Company shall also pay Salsbury a sum equal to 1.5
basis points of the net gain on the loans that are sold by StarNet Mortgage
each month. This sum will be determined on a monthly basis and the bonus
amount paid, in arrears, on the 15th of each month.
3.3. Option. Salsbury shall be eligible to participate in any stock option,
performance share, phantom stock, or similar long-term stock-based incentive
plan adopted by the Company for its employees in effect during the Term,
including the Option Plan. The extent to which Salsbury shall participate in
any such plan will be determined by the Company's Board of Directors (the
"Board") or the Compensation Committee of the Board.
3.4. Savings and Retirement Plans. Salsbury shall be eligible to participate
in any bonus, savings, deferred compensation, retirement or pension, or death
benefit plan adopted by the Company for its employees generally in effect
during the Term.
3.5. Welfare Benefit Plans. Salsbury shall be eligible to participate in any
life insurance, medical, dental, and hospitalization insurance, disability
insurance benefit, or other similar employee welfare benefit plan or program
adopted by the Company covering its employees generally in effect during the
Term.
3.6. Paid Time Off. Salsbury shall be entitled to fifteen (15) days of paid
vacation or time off ("PTO") per fiscal year of the Company, in accordance
with the Company's PTO policies, practices, and procedures in effect during
the Term. Such PTO shall, however, be prorated in any fiscal year during
which Salsbury is employed under this Agreement for less than the entire
fiscal year, in accordance with the number of days in that fiscal year during
which Salsbury is so employed.
3.7. Transportation Allowance. During the Term, the Company shall pay
Salsbury a transportation allowance equal to Five Hundred Dollars ($500.00)
per month
EMPLOYMENT AGREEMENT -
JENNIFER SALSBURY
2
<PAGE> 3
("Transportation Allowance"). The Transportation Allowance shall be payable
in equal installments together with the payments of Base Salary.
3.8. Tax Withholding. The Company may deduct from any compensation or other
amount payable to Salsbury under this Agreement (including under Article 5)
social security (FICA) taxes and all federal, state, municipal, and other
taxes or governmental charges as may, in the Company's judgment, be required.
3.9. Participation in Compensation and Benefit Plans. Salsbury's
participation during the Term in any or all of the plans or programs adopted
by the Company described in Articles 3.3 through 3.6 ("Compensation and
Benefit Plans") will be subject to the terms and conditions of those
Compensation and Benefit Plans as they now exist or may hereafter be adopted,
amended, restated, or discontinued by the Company, including the satisfaction
of all applicable eligibility requirements and vesting provisions of those
Compensation and Benefit Plans. The Company shall have no obligation under
this Agreement to continue any or all of the Compensation and Benefit Plans
that now exist or are hereafter adopted. To the extent that Salsbury is
eligible to participate in any Compensation and Benefit Plan existing on the
date of this Agreement for which a plan description or plan materials are
available, the Company has provided to Salsbury, and Salsbury hereby
acknowledges receipt of, a copy of the correct and complete written plan
description or plan materials distributed to participants or prospective
participants.
4. EXPENSE REIMBURSEMENT. During the Term, Salsbury may incur, and shall be
reimbursed by the Company for, reasonable, ordinary and necessary, and
documented business expenses to the extent that Salsbury complies with, and
reimbursement is permitted by, the Company's policies, practices, and
procedures.
5. EMPLOYMENT TERMINATION. Either Party may terminate Salsbury's employment
under this Agreement by giving written notice of termination to the other Party.
If the Company is terminating, it shall include in that notice a statement
whether the termination is because of Disability or for Cause or without Cause.
The Parties' respective rights and obligations upon the termination of
Salsbury's employment under this Agreement are as follows:
5.1. Termination Generally. Upon any termination of Salsbury's employment
under this Agreement, the Company shall pay or provide Salsbury the
following:
5.1.a. Any amount of Base Salary and Transportation Allowance earned by,
but not yet paid to, Salsbury through the effective date of termination
of employment, as further described below (the "Termination Date");
5.1.b. All benefits that have been earned by or vested in, and are
payable to, Salsbury under, and subject to the terms (including all
eligibility requirements) of,
EMPLOYMENT AGREEMENT -
JENNIFER SALSBURY
3
<PAGE> 4
the Compensation and Benefit Plans in which Salsbury participated
through the Termination Date;
5.1.c. All reimbursable expenses due, but not yet paid, to Salsbury as
of the Termination Date under Article 4; and
5.1.d. An amount equal to all accrued and unused PTO, calculated in
accordance with the Company's PTO policies, practices, and procedures
(including authorized deductions and the deductions required by law),
through the Termination Date.
The amount of Base Salary and Transportation Allowance due under Section
5.1.a shall be paid no later than thirty (30) business days after the
Termination Date; the amounts or benefits due under Section 5.1.b shall be
paid or provided in accordance with the terms of the Compensation and Benefit
Plans under which such amounts or benefits are due to Salsbury; and the
amounts due under Sections 5.1.c and 5.1.d shall be paid in accordance with
the terms of the Company's policies, practices, and procedures regarding
reimbursable expenses and PTO, respectively. Except as expressly provided
below in this Article 5, upon paying or providing Salsbury the preceding
amounts or benefits, the Company shall have no further obligation or
liability under this Agreement for base salary or any other cash compensation
or for any benefits under any of the Compensation and Benefit Plans. Upon
termination of Salsbury's employment, Salsbury shall be deemed to have
resigned from any position as an officer or director, or both, of any
subsidiary, division, or affiliate of the Company or any other entity in
which the Company holds an equity interest or which it sponsors that Salsbury
then holds; no written resignation need be given or delivered to the Company.
In this Agreement, the Termination Date shall be (i) the date of Salsbury's
death, (ii) the third business day after the date on which the Company gives
notice of termination because of Disability, or (iii) the date of termination
specified in any other notice of termination, or if not specified in the
notice of termination, the date that notice of termination is given.
In this Agreement, "Disability" means Salsbury's permanent and total
disability, which shall be deemed to exist if she is unable reasonably to
perform her duties under this Agreement because of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for at least ninety (90)
consecutive days. Any Disability shall be determined by the Board or an
authorized committee or representative thereof ("Representative"), in its
sole and absolute discretion, upon receipt of competent medical advice from a
qualified physician selected by or acceptable to the Board or its
Representative. Salsbury shall, if there is any question about her
Disability, submit to a physical examination by a qualified physician
selected by the Board or its Representative.
EMPLOYMENT AGREEMENT -
JENNIFER SALSBURY
4
<PAGE> 5
In this Agreement, "Cause" means any of the following: (i) Salsbury's failure
to substantially perform her duties under this Agreement, other than any such
failure resulting from her incapacity due to physical or mental illness or
Disability; (ii) Salsbury's engaging in any action which, or omitting to
engage in any action the omission of which, has been, is, or is reasonably
expected to be substantially injurious (monetarily or otherwise) to the
Company or its business or reputation; (iii) Salsbury's performance of any
act or omission constituting dishonesty that results, directly or indirectly,
in significant gain or enrichment of Salsbury or her family or affiliates at
the expense of the Company; or (iv) any breach by Salsbury of any obligation
under any of Articles 6, 7, 8, and 9. Whether an event or circumstance
constituting Cause exists will be determined in good faith by the Board or
its Representative. If the Company believes that Cause for termination exists
under clause (i) above in this paragraph, the Company shall notify Salsbury
of that belief, and that notice shall describe the event or circumstance
believed to constitute Cause for termination. If that event or circumstance
may reasonably be remedied or corrected, Salsbury shall have thirty (30) days
to effect that correction or remedy. If not corrected or remedied within that
thirty (30) day period, Cause for termination shall immediately be deemed to
exist, and Salsbury's employment shall be deemed terminated. If the Company
believes that Cause for termination exists under any of clauses (ii), (iii),
and (iv) above in this paragraph, the Company shall notify Salsbury of that
belief, and that notice shall constitute immediate termination of Salsbury's
employment.
Salsbury may voluntarily terminate her employment under this Agreement only
by giving at least thirty (30) days' prior written notice to the Company.
Salsbury shall not be liable to the Company for breach of this Agreement
because of her termination of employment in accordance with the preceding
sentence.
5.2. Termination Without Cause or Upon Death or Disability. If Salsbury's
employment is terminated by death or by the Company because of Disability or
without Cause, Salsbury (or her legal representative, estate, or heirs) shall
be entitled to receive from the Company, as liquidated damages:
5.2.a. The continued payment of Base Salary, at the rate in effect at
the Termination Date, for twelve (12) consecutive months following the
Termination Date (the "Severance Payments"); and
5.2.b. If Salsbury elects and maintains continued coverage under the
Consolidated Omnibus Benefits Reconciliation Act of 1985 and
corresponding regulations ("COBRA"), then for up to the twelve (12)
consecutive months immediately after the Termination Date, payments in
an amount equal to the difference between (i) the premiums paid or
payable by Salsbury for coverage under COBRA for herself and her
dependents (if any) and (ii) the premiums that
EMPLOYMENT AGREEMENT -
JENNIFER SALSBURY
5
<PAGE> 6
she would have paid for comparable coverage under the Company's then
current group insurance plan or plans if her employment under this
Agreement had not ceased (the "Insurance Payments"); except that the
Insurance Payments shall expire or terminate immediately upon Salsbury's
becoming eligible for coverage under another employer's plan or policy.
The Severance Payments shall be paid at the dates on which Salsbury's Base
Salary would have been payable if her employment under this Agreement had not
been terminated. The Company will commence the Severance Payments and the
Insurance Payments within ten (10) business days after the first business day
on which the release executed and delivered in accordance with Section 5.3.a
becomes irrevocable by Salsbury (or her legal representative, estate, or
heirs). The Company's obligations for the Insurance Payments are not intended
to negate or impair any obligation of the Company or right of Salsbury under
COBRA. The Severance Payments and the Insurance Payments shall be in addition
to the amounts or benefits to which Salsbury is entitled under Article 5.1.
Any Severance Payments or Insurance Payments (or both) under this Article 5.2
shall not be deemed the continuation of Salsbury's employment for any
purpose.
5.3. Conditions to Severance Payments. Except as provided in Section 5.2.b
and below in this Article 5.3, none of the Severance Payments and the
Insurance Payments under Article 5.2 will be subject to reduction as the
result of future compensation earned or received by Salsbury (including by
self-employment), and Salsbury shall have no duty to mitigate her damages.
The Severance Payments and the Insurance Payments shall, however, be
conditioned upon:
5.3.a. The Company's receipt of a Settlement Agreement, General Release,
and Covenant Not to Sue executed and performed by Salsbury (or her legal
representative, estate, or heirs) in substantially the form of Exhibit
"A" to this Agreement (the "Release Agreement"); and
5.3.b. the compliance by Salsbury (or her legal representative, estate,
or heirs) with Articles 6, 7, 8, and 9 after the Termination Date as
specified in those Articles, as well as with the Release Agreement.
The Company may cease or reduce the Severance Payments or the Insurance
Payments (or both) if, and the Company shall be entitled to a return of the
Severance Payments and the Insurance Payments (or both) made to the extent
that, there is or has been any material violation by Salsbury (or her legal
representatives, estate, or heirs) of any of Articles 6, 7, 8, and 9 or of
the Release Agreement.
5.4. Termination for Cause or by Salsbury. If Salsbury's employment is
terminated by the Company for Cause or is voluntarily terminated by Salsbury,
then Salsbury shall not
EMPLOYMENT AGREEMENT -
JENNIFER SALSBURY
6
<PAGE> 7
be entitled to any payments under this Agreement other than the amounts or
benefits to which she is entitled under Article 5.1.
5.5. Post-Termination Survival. The provisions of this Article 5 shall
survive the termination of Salsbury's employment by the Company and its
subsidiaries to the extent necessary to effect the post-termination payments
or benefits to which Salsbury is entitled under the terms of this Article 5.
6. CONFIDENTIAL INFORMATION. The Company shall provide to Salsbury, during the
Term, access to various trade secrets, confidential information, and proprietary
information of the Company (which, in this Article 6 as well as in Articles 7,
8, and 9, shall include the Company's subsidiaries and affiliates) which are
valuable and unique to the Company ("Confidential Information"). Confidential
Information includes the Company's plans, policies, and procedures as well as
the plans, policies and procedures of other persons having relationships that
are material to the Company's business and affairs. Salsbury shall not, either
while in the employ of the Company or at any time thereafter, (i) use any of the
Confidential Information, or (ii) disclose any of the Confidential Information
to any person not an employee of the Company or not engaged to render services
to the Company, except (in either case) to perform her duties under this
Agreement or otherwise with the Company's prior written consent. Nothing in this
Article 6 shall preclude Salsbury from the use or disclosure of information
generally known to the public or not considered confidential by the Company or
from any disclosure to the extent required by law or court order (though
Salsbury must give the Company prior notice of any such required disclosure and
must cooperate with any reasonable requests of the Company to obtain a
protective order regarding, or to narrow the scope of, the Confidential
Information required to be disclosed). All files, records, documents,
information, data, and similar items relating to the business or affairs of the
Company, whether prepared by Salsbury or otherwise coming into her possession,
shall remain the exclusive property of the Company and shall not be removed from
the premises from the Company, except in the ordinary course of business as part
of Salsbury's performance of duties under this Agreement, and (in any event)
shall be promptly returned or delivered to the Company (without Salsbury's
retaining any copies) upon the termination of employment under this Agreement.
7. NONCOMPETITION. Salsbury acknowledges that, in addition to her access to and
possession of Confidential Information, during the Term she will acquire
valuable experience and special training regarding the Company's business and
that the knowledge, experience, and training she will acquire would enable her
to injure the Company if she were to engage in any business that is competitive
with the business of the Company. Therefore, Salsbury shall not, at any time
during the Term and for the twenty-four (24) consecutive months immediately
after the Termination Date, directly or indirectly (as an employee, employer,
consultant, agent, principal, partner, shareholder, officer, director, or
manager or in any other individual or representative capacity), engage, invest,
or participate in any business in direct competition with the business of the
Company within a fifty (50)-mile radius of each location, or set or group of
locations, (i) at,
EMPLOYMENT AGREEMENT -
JENNIFER SALSBURY
7
<PAGE> 8
from, or to which the Company conducts or has conducted business or renders,
provides, or delivers, or has rendered, provided, or delivered, services or
products during the Measurement Period (as defined below) or (ii) that is or has
been, during the Measurement Period, the subject of a Proposal (as defined
below) to conduct business or render, provide, or deliver services or products
thereat, therefrom, or thereto. "Measurement Period" means, with respect to
Salsbury's activity (A) at any time during the Term, the Term, and (B) at any
time on or after the Termination Date, the six (6) consecutive months preceding,
and including, the Termination Date. "Proposal" means a written or formal
proposal, bid, arrangement, understanding, or agreement by the Company to or
with another person that reflects or contains negotiated or substantive terms,
but does not include any marketing contact by the Company where the other person
has not solicited that contact or indicated any interest in doing business with
the Company. (Salsbury shall not be prohibited, however, from owning, as a
passive investor, less than five percent (5%) of the publicly traded stock or
other securities of any entity engaged in a business competitive with that of
the Company.) Salsbury represents and agrees that (x) the Company has agreed to
provide her, and she will receive from the Company, special experience and
knowledge, including Confidential Information, (y) because the Confidential
Information is valuable to the Company, its protection (particularly from any
competitive business) constitutes a legitimate interest to be protected by the
Company by enforcement of the restriction in this Article 7, and (z) the
enforcement of the restriction in this Article 7 would not be unduly burdensome
to Salsbury and that, in order to induce the Company to enter into this
Agreement (which contains various benefits to Salsbury and obligations of the
Company with respect to Salsbury's employment), Salsbury is willing and able to
engage, invest, or participate in business after the Termination Date so as not
to violate this Article 7. The Parties agree that the restrictions in this
Article 7 regarding scope of activity, duration, and geographic area are
reasonable; however, if any court should determine that any of those
restrictions is unenforceable, that restriction shall not thereby be terminated,
but shall be deemed amended to the extent required to render it enforceable.
8. NONSOLICITATION. Salsbury shall not, at any time within the twenty-four (24)
consecutive months immediately after the Termination Date, either directly or
indirectly:
8.1. Disclose Contact Information. Make known to any person the names
and addresses, or other contact information, of any of the customers,
suppliers, or other persons having significant business relationships
with the Company within the information technology industry, so that
such person could affect, or attempt to affect, any of those
relationships to the detriment of the Company; or
8.2. Solicit Employees. Solicit, recruit, or hire, or attempt to
solicit, recruit, or hire, any employee or consultant of the Company, or
in any other manner attempt to induce any employee or consultant of the
Company to leave the employ of the Company or cease his or her
consulting or similar business relationship with the Company. References
in this Article 8.2 to "any employee or consultant" shall include any
person who was an employee or consultant of the Company at any
EMPLOYMENT AGREEMENT -
JENNIFER SALSBURY
8
<PAGE> 9
time within the six (6) consecutive months preceding, and including, the
Termination Date.
9. DEVELOPMENTS. Salsbury shall promptly disclose to the Company all inventions,
discoveries, improvements, processes, formulas, ideas, know-how, methods,
research, compositions, and other developments, whether or not patentable or
copyrightable, that Salsbury, by herself or in conjunction with any other
person, conceives, makes, develops, or acquires during the Term which (i) are or
relate to the properties, assets, or existing or contemplated business or
research activities of the Company, (ii) are suggested by, arise out of, or
result from, directly or indirectly, Salsbury's association with the Company, or
(iii) arise out of or result from, directly or indirectly, the use of the
Company's time, labor, materials, facilities, or other resources
("Developments").
Salsbury hereby assigns, transfers, and conveys to the Company, and hereby
agrees to assign, transfer, and convey to the Company during or after the Term,
all of her right and title to and interest in all Developments. Salsbury shall,
from time to time upon the request of the Company during or after the Term,
execute and deliver any and all instruments and documents and take any and all
other actions which, in the judgment of the Company or its counsel, are or may
be necessary or desirable to document any such assignment, transfer, and
conveyance to the Company or to enable the Company to file and process
applications for, and to acquire, maintain, and enforce, any and all patents,
trademarks, registrations, or copyrights with respect to any of the
Developments, or to obtain any extension, validation, re-issue, continuance, or
renewal of any such patent, trademark, registration, or copyright. The Company
will be responsible for the preparation of any such instrument or document and
for the implementation of any such proceedings and will reimburse Salsbury for
all reasonable expenses incurred by her in complying with this Article 9.
10. INDEMNIFICATION. To the extent Salsbury is an officer or director of the
Company, the Company shall include Salsbury under any existing or future (i)
directors' and officers' liability insurance policy that the Company obtains and
maintains or (ii) indemnification agreements between the Company and other
executives of the Company. Subject to the foregoing sentence, the Company will
indemnify Salsbury to the fullest extent permitted by the laws of the Company's
state of incorporation in effect at that time or by the articles or certificate
of incorporation and by-laws of the Company, whichever affords the greater
protection to Salsbury.
11. CERTAIN REMEDIES. Any breach or violation by Salsbury of any of Articles 6,
7, 8, and 9 shall entitle the Company, as a matter of right, to an injunction
issued by any court of competent jurisdiction, restraining any further or
continued breach or violation, or to specific performance requiring the
compliance with Salsbury's covenants. This right to an injunction or other
equitable relief shall be in addition to, and not in lieu of, any other remedies
to which the Company may be entitled. The existence of any claim or cause of
action of Salsbury against the Company, or any subsidiary or affiliate of the
Company, whether based on this Agreement or
EMPLOYMENT AGREEMENT -
JENNIFER SALSBURY
9
<PAGE> 10
otherwise, shall not constitute a defense to the enforcement by the Company of
Salsbury's covenants in any of Articles 6, 7, 8, and 9. The covenants in
Articles 6, 7, 8, and 9 and in this Article 11 shall survive the termination of
Salsbury's employment under this Agreement.
12. BINDING AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, and shall inure to the benefit of, the Company and Salsbury and their
respective legal representatives, heirs, executors, administrators, and
successors and assigns (as permitted by this Article 12), including any
successor to the Company by merger, consolidation, or reorganization and any
other person that acquires all or substantially all of the business and assets
of the Company. The Company shall have the right, without the need for any
consent from Salsbury, to assign its rights, benefits, remedies, and obligations
under this Agreement to one or more other persons. The rights, benefits,
remedies, and obligations of Salsbury under this Agreement are personal to
Salsbury, however, and may not be assigned or delegated by her; except that this
shall not preclude (i) Salsbury from designating one or more beneficiaries to
receive any amount or benefit that may be paid or provided after Salsbury's
death or (ii) the legal representative of Salsbury's estate from assigning any
right or benefit under this Agreement to the person or persons entitled thereto
under Salsbury's will or the laws of intestacy applicable to Salsbury's estate,
as the case may be.
13. SEVERABILITY. If any provision of this Agreement is found to be invalid or
unenforceable for any reason, then (i) that provision shall be severed from this
Agreement, (ii) this Agreement shall be construed and enforced as if that
invalid or unenforceable provision never constituted a part of this Agreement,
and (iii) the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
applicable law. Further, in lieu of that invalid or unenforceable provision,
there shall be added to this Agreement a provision as similar in its terms to
that invalid or unenforceable provision as may be possible and be valid and
enforceable.
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EMPLOYMENT AGREEMENT -
JENNIFER SALSBURY
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14. NOTICES. Any notice, request, or other communication to be given by either
Party under this Agreement by to the other shall be in writing and either (i)
delivered in person, (ii) delivered by prepaid same-day or overnight courier
service, (iii) sent by certified mail, postage prepaid with return receipt
requested, or (iv) transmitted by facsimile, in any case addressed to the other
Party as follows:
If to the Company: StarNet Financial, Inc.
1700 Preston Road
Suite 350
Dallas, Texas 75248
Attention: Daniel L. Jackson, Chief
Executive Officer
Facsimile: (972) 239-2893
With a copy (which shall
not constitute notice) to: Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201-4761
Attention: I. Bobby Majumder, Esq.
Facsimile: (214) 969-4667
If to Salsbury: Jennifer Salsbury
------------------------------------
------------------------------------
or to such other address or facsimile number as the Party to be notified may
have designated by notice previously given in accordance with this Article 14.
Communications delivered in person or by courier service or transmitted by
facsimile shall be deemed given and received as of actual receipt (or refusal)
by the addressee. Communications mailed as described above in this Article 14
shall be deemed given and received three (3) business days after mailing or upon
actual receipt, whichever is earlier.
15. CERTAIN DEFINED TERMS. In this Agreement, (i) "person" means an individual
or any corporation, partnership, trust, unincorporated association, limited
liability company, or other legal entity, whether acting in an individual,
fiduciary, or other capacity, and any government, court, or governmental agency,
(ii) "include" and "including" do not signify any limitation, (iii) "Article"
and "Section" means any Article and any Section, respectively, of this
Agreement, unless otherwise indicated, (iv) an "affiliate" of a person means any
other person controlling, controlled by, or under common control with that
person, and (v) "business day" means any Monday through Friday, other than any
such weekday on which the executive offices of the Company are closed. In
addition, the use in this Agreement of "year," "annual," "month," or "monthly"
(or similar terms) to indicate a measurement period shall not itself be deemed
to grant rights to Salsbury for employment or compensation for that period.
EMPLOYMENT AGREEMENT -
JENNIFER SALSBURY
11
<PAGE> 12
16. ENTIRE AGREEMENT. This Agreement, with Exhibit "A", constitutes the entire
agreement between the Company and Salsbury with respect to the subject matter
hereof and supersedes any prior agreement between the Company and Salsbury with
respect to the same subject matter.
17. MODIFICATION AND WAIVER. No amendment to or modification of this Agreement,
or waiver of any term, provision, or condition of this Agreement, will be
binding upon a Party unless the amendment, modification, or waiver is in writing
and signed by the Party to be bound. Any waiver by a Party of a breach or
violation of any provision of this Agreement by the other Party shall not be
deemed a waiver of any other provision or of any subsequent breach or violation.
18. GENDER. Whenever the context requires in this Agreement, words denoting
gender in this Agreement include the masculine, feminine, and neuter.
19. GOVERNING LAW; VENUE. This Agreement, and the rights, remedies, obligations,
and duties of the Parties under this Agreement, shall be governed by, construed
in accordance with, and enforced under the laws of the State of Texas. The
exclusive venue of any action or proceeding relating to this Agreement or its
subject matter shall be in Dallas County, Texas.
20. COUNTERPARTS. This Agreement may be executed in counterparts, each of which
constitutes an original, but all of which constitute one and the same document.
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EMPLOYMENT AGREEMENT -
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The Parties have executed this Agreement to be effective as of the date
stated in the first paragraph.
STARNET FINANCIAL, INC.,
a Delaware Corporation
By: /s/ Daniel L. Jackson
------------------------------------
DANIEL L. JACKSON,
Chief Executive Officer
/s/ Jennifer Salsbury
---------------------------------------
JENNIFER SALSBURY
EMPLOYMENT AGREEMENT -
JENNIFER SALSBURY
13
<PAGE> 1
EXHIBIT 10.6
STARNET FINANCIAL, INC.
1999 STOCK OPTION PLAN
On October 4, 1999, the Board of Directors of StarNet Financial, Inc.
adopted the following 1999 Stock Option Plan:
1. PURPOSE. The purpose of the Plan is to provide Key Employees,
non-employee directors, independent contractors and consultants with a
proprietary interest in the Company through the granting of Options which will:
(a) increase the interest of the Key Employees, non-employee directors,
independent contractors and consultants in the Company's welfare;
(b) furnish an incentive to the Key Employees, non-employee directors,
independent contractors and consultants to continue their services for the
Company; and
(c) provide a means through which the Company may attract able persons
to enter its employ, serve on its Board and render services to it.
2. ADMINISTRATION. The Plan will be administered by the Committee.
3. PARTICIPANTS. The Committee may, from time to time, select the
particular Key Employees, non-employee directors, independent contractors and
consultants of the Company and its Subsidiaries to whom Options are to be
granted, and who will, upon such grant, become Participants in the Plan. The
Committee has the authority, in its complete discretion, to grant Options to
Participants. A Participant may be granted more than one Option under the Plan,
and Options may be granted at any time or times during the term of the Plan.
<PAGE> 2
4. STOCK OWNERSHIP LIMITATION. No Incentive Option may be granted to an
Employee who owns more than 10% of the voting power of all classes of stock of
the Company or its Parent or Subsidiaries. This limitation will not apply if the
Option price is at least 110% of the fair market value of the Common Stock at
the time the Incentive Option is granted and the Incentive Option is not
exercisable more than five years from the date it is granted.
5. SHARES SUBJECT TO PLAN. The Committee may not grant Options under the
Plan for more than 5,000,000 shares of Common Stock and may not grant Options to
any Participant for more than 5,000,000 shares of Common Stock, but these
numbers may be adjusted to reflect, if deemed appropriate by the Committee, any
stock dividend, stock split, share combination, recapitalization or the like of
or by the Company. Shares to be optioned and sold may be made available from
either authorized but unissued Common Stock or Common Stock held by the Company
in its treasury. Shares that by reason of the expiration of an Option or
otherwise are no longer subject to purchase pursuant to an Option granted under
the Plan may be re-offered under the Plan.
6. LIMITATION ON AMOUNT. The aggregate fair market value (determined at
the date of grant) of the shares of Common Stock which any Key Employee is first
eligible to purchase in any calendar year by exercise of Incentive Options
granted under the Plan and all incentive stock option plans (within the meaning
of Section 422 of the Code) of the Company or its Parent or Subsidiaries shall
not exceed $100,000. For this purpose, the fair market value (determined at the
date of grant of each option) of the stock purchasable by exercise of an
Incentive Option (or an installment thereof) shall be counted against the
$100,000 annual limitation for a Key Employee only for the calendar year such
stock is first purchasable under the terms of the Incentive Option.
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<PAGE> 3
7. ALLOTMENT OF SHARES. The Committee shall determine the number of
shares of Common Stock to be offered from time to time by grant of Options to
Key Employees, non-employee directors, independent contractors and consultants
of the Company or its Subsidiaries. The grant of an Option to an individual
shall not be deemed either to entitle the individual to, or to disqualify the
individual from, participation in any other grant of Options under the Plan.
8. GRANT OF OPTIONS. The Committee is authorized to grant Incentive
Options, Nonqualified Options, or a combination of both, under the Plan;
provided, however, Incentive Options may be granted only to Key Employees. The
grant of Options shall be evidenced by Option Agreements containing such terms
and provisions as are approved by the Committee, but not inconsistent with the
Plan, including (without limitation) provisions that may be necessary to assure
that any Option that is intended to be an Incentive Option will comply with
Section 422 of the Code. The Company shall execute Option Agreements upon
instructions from the Committee. Except as provided otherwise in Sections 5 and
14 of the Plan, the terms of any Option Agreement executed by the Company shall
not be amended, modified or changed without the written consent of the Company
and the Participant.
An Option Agreement may provide that the Participant may request
approval from the Committee to exercise an Option or a portion thereof by
tendering Qualifying Shares at the fair market value per share on the date of
exercise in lieu of cash payment of the Option price.
The Plan shall be submitted to the Company's shareholders for approval.
Options may be granted under the Plan before the shareholders of the Company
approve the Plan, and those Options will be effective when granted; but if for
any reason the shareholders of the Company do not approve the plan before one
year from the date of adoption of the Plan by the Board (the "Shareholder
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<PAGE> 4
Approval Deadline"), all Incentive Options granted under the Plan before the
Shareholder Approval Deadline will be deemed to have been granted as
Nonqualified Options. No Option granted before shareholder approval may be
exercised, in whole or in part, before approval of the Plan by the shareholders
of the Company.
9. OPTION PRICE. The Option price for an Incentive Option shall not be
less than 100% of the fair market value per share of the Common Stock (or 110%
of such amount as required by Section 4 of the Plan), and at least the par value
per share of Common Stock, on the date the Option is granted. The Option price
for a Nonqualified Option shall be, as determined by the Committee, any price
per share of the Common Stock that is greater than par value per share of the
Common Stock. For purposes of the Plan, the fair market value of a share of the
Common Stock shall be (i) if the Common Stock is traded in the over-the-counter
market or on any securities exchange, the closing price or, if applicable, the
average of the closing bid and ask prices per share of such Common Stock for the
last business day immediately before the date the Option is granted, and (ii) if
the Common Stock is not so traded, an amount determined by the Committee in good
faith using any reasonable valuation method and based on such factors as it
deems relevant to such determination.
10. OPTION PERIOD. The Option Period will begin on the date the Option
is granted, which will be the date the Committee authorizes the Option unless
the Committee specifies a later date. No Option may terminate later than ten
years (or five years as required by Section 4 of the Plan) from the date the
Option is granted. The Committee may provide for the exercise of Options in
installments and, subject to the provisions hereof, upon such terms, conditions
and restrictions as it may determine. The Committee may provide for termination
of the Option in the case of
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<PAGE> 5
termination of employment, directorship or independent contractor or consultant
relationship, or any other reason.
11. RIGHTS IN EVENT OF DEATH OR DISABILITY. If a Participant dies or
becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to
termination of his right to exercise an Option in accordance with the provisions
of his Option Agreement, the Option Agreement may provide that it may be
exercised, to the extent of the shares with respect to which the Option could
have been exercised by the Participant on the date of his death or disability,
(i) in the case of death, by the Participant's estate or by the person who
acquired the right to exercise the Option by bequest or inheritance or by reason
of the death of the Participant, or (ii) in the case of disability, by the
Participant or his personal representative, provided the Option is exercised
prior to the date of its expiration or not more than one year from the date of
the Participant's death or disability, whichever first occurs. The date of
disability of a Participant shall be determined by the Committee.
12. PAYMENT. Full payment for shares purchased upon exercising an Option
shall be made in cash or by check or, if the Option Agreement so permits and no
legal or regulatory requirement imposed on the Company or covenant made by the
Company is violated, by tendering Qualifying Shares at the fair market value per
share at the time of exercise, or on such other terms as are set forth in the
applicable Option Agreement. If the Common Stock is traded in the over-the-
counter market or upon any securities exchange, the Committee may permit a
Participant exercising an Option to simultaneously exercise the Option and sell
a portion of the shares acquired, pursuant to a brokerage or similar arrangement
approved in advance by the Committee, and use the proceeds from the sale as
payment of the Option price of the Common Stock being acquired by exercise of
-5-
<PAGE> 6
the Option. In addition, the Participant shall tender payment of the amount as
may be requested by the Company, if any, for the purpose of satisfying its
statutory liability to withhold federal, state or local income or other taxes
incurred by reason of the exercise of an Option. No shares may be issued until
full payment of the purchase price therefor has been made, and a Participant
will have none of the rights of a shareholder with respect to those shares until
those shares are issued to him.
13. EXERCISE OF OPTION. Options granted under the Plan may be exercised
during the Option Period, at such times, in such amounts, in accordance with
such terms and subject to such restrictions as are set forth in the applicable
Option Agreements. In no event may an Option be exercised or shares be issued
pursuant to an Option if any requisite action, approval or consent of any
governmental authority of any kind having jurisdiction over the exercise of
Options shall not have been taken or secured.
14. CAPITAL ADJUSTMENTS AND REORGANIZATIONS.
(a) The number of shares of Common Stock covered by each outstanding
Option granted under the Plan and the Option price may be adjusted to reflect,
as deemed appropriate by the Board, any stock dividend, stock split, share
combination, exchange of shares, recapitalization, merger, consolidation,
separation, reorganization, liquidation or the like of or by the Company that is
effected without receipt of consideration by the Company. For this purpose, the
term "effected without receipt of consideration" shall not include conversion or
exchange of any convertible or exchangeable securities of the Company.
(b) In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Participant at least 20 days prior to such
proposed action. To the extent that
-6-
<PAGE> 7
an Option has not been previously exercised, such Option shall terminate
immediately before consummation of such proposed dissolution or liquidation.
(c) If (i) the Company shall sell all or substantially all of its
assets to an entity that is not an "affiliate," as defined in Rule 405
promulgated under the Securities Act of 1933, as amended, of the Company
immediately before that sale, (ii) the Company consummates a merger,
consolidation, share exchange, or reorganization with another corporation or
other entity and, as a result of such merger, consolidation, share exchange, or
reorganization, less than a majority of the combined voting power of the
outstanding securities of the surviving entity (whether the Company or another
entity) immediately after such transaction is held in the aggregate by the
holders of securities of the Company that were entitled to vote generally in the
election of directors of the Company (or its successor) ("Voting Stock")
immediately before such transaction, or (iii) when the Common Stock is traded in
the over-the-counter market or on any securities exchange, pursuant to a tender
offer or exchange offer for securities of the Company, or in any other manner,
any person or group within the meaning of the Securities Exchange Act of 1934,
as amended (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or any of its affiliates), acquires beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended) of more than 50% of the Voting Stock (the
surviving corporation or purchaser described in this paragraph, the "Purchaser,"
and any such event described in this paragraph, a "Change of Control"), then the
Company shall negotiate in good faith to reach an agreement with the Purchaser
that the Purchaser will either assume the obligations of the Company under the
outstanding Options or convert the outstanding Options into options of at least
equal value as to capital stock of the Purchaser; but if such an agreement is
not reached, then the
-7-
<PAGE> 8
Options shall become fully vested and exercisable and the Company shall notify
each Participant, not later than 20 days before the effective date of such
Change of Control (except that in the case of a Change of Control under clause
(iii), notice shall be given as soon as practicable after the Change of
Control), that his Option has become fully vested and exercisable, whether or
not such Option shall then be exercisable under the terms of his Option
Agreement. Any such arrangement relating to Incentive Options shall comply with
the requirements of Section 422 of the Code and the regulations thereunder. To
the extent that the Participants exercise the Options before or on the effective
date of the Change of Control, the Company shall issue all Common Stock
purchased by exercise of those Options, and those shares of Common Stock shall
be treated as issued and outstanding for purposes of the Change of Control. Upon
a Change of Control, where the outstanding Options are not assumed by the
surviving corporation or the acquiring corporation, the Plan shall terminate,
and any unexercised Options outstanding under the Plan at that date shall
terminate.
15. TAX WITHHOLDING. The Committee may establish such rules and
procedures as it considers desirable in order to satisfy any obligation of the
Company to withhold the statutorily prescribed minimum amount of federal income
taxes or other taxes with respect to the exercise of any Option granted under
the Plan. If the Common Stock is traded in the over-the-counter market or upon
any securities exchange, such rules and procedures may provide that the
withholding obligation shall be satisfied by the Company withholding shares of
Common Stock otherwise issuable upon exercise of an Option in shares of Common
Stock in an amount equal to the statutorily prescribed minimum withholding
applicable to the ordinary income resulting from the exercise of that Option.
-8-
<PAGE> 9
16. NON-ASSIGNABILITY. Unless otherwise permitted by the Code and Rule
16b-3 under the Securities Exchange Act of 1934, as amended (if applicable), and
expressly permitted in the Option Agreement, an Option may not be transferred
other than by will or by the laws of descent and distribution. Except in the
case of the death or disability of a Participant, Options granted to a
Participant may be exercised only by the Participant.
17. INTERPRETATION. The Committee shall interpret the Plan and shall
prescribe such rules and regulations in connection with the operation of the
Plan as it determines to be advisable for the administration of the Plan. The
Committee may rescind and amend its rules and regulations.
18. AMENDMENT OR DISCONTINUANCE. The Plan may be amended or discontinued
by the Board or the Committee without the approval of the shareholders of the
Company, except that any amendment that would either materially increase the
number of securities that may be issued under the Plan or materially modify the
requirements of eligibility for participation in the Plan must be approved by
the shareholders of the Company.
19. EFFECT OF PLAN. Neither the adoption of the Plan nor any action of
the Board or the Committee shall be deemed to give any Employee, non-employee
director, independent contractor or consultant any right to be granted an Option
to purchase Common Stock or any other rights except as may be evidenced by the
Option Agreement, or any amendment thereto, duly authorized by the Committee and
executed on behalf of the Company, and then only to the extent and on the terms
and conditions expressly set forth therein. The existence of the Plan and the
Options granted hereunder shall not affect in any way the right of the Board,
the Committee or the shareholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of
-9-
<PAGE> 10
the Company, any issue of bonds, debentures, or shares of preferred stock ahead
of or affecting Common Stock or the rights thereof, the dissolution or
liquidation of the Company or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding. Nothing contained
in the Plan or in any Option Agreement shall confer upon any Employee,
non-employee director, independent contractor or consultant any right to (i)
continue in the employ of the Company or any of its Subsidiaries, or continue as
a director, independent contractor or consultant to the Company or any of its
Subsidiaries, or (ii) interfere in any way with the right of the Company or any
of its Subsidiaries to terminate his employment, directorship or independent
contractor or consultant relationship at any time.
20. TERM. Unless sooner terminated by action of the Board, this Plan
will terminate on October 3, 2009. The Committee may not grant Options under the
Plan after that date, but Options granted before that date will continue to be
effective in accordance with their terms.
21. DEFINITIONS. For the purpose of the Plan, unless the context
requires otherwise, the following terms shall have the meanings indicated:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the committee of the Board appointed to administer
the Plan or, in the absence of such a Committee, means the Board.
(d) "Common Stock" means the Common Stock which the Company is currently
authorized to issue or may in the future be authorized to issue (as long as the
common stock varies from that currently authorized, if at all, only in amount of
par value).
(e) "Company" means StarNet Financial, Inc., a Delaware corporation.
-10-
<PAGE> 11
(f) "Employee" means an individual who is employed, within the meaning
of Section 3401 of the Code, by the Company or by a Subsidiary. The Committee
shall determine when an Employee's period of employment terminates and when such
period of employment is deemed to be continued during an approved leave of
absence.
(g) "Incentive Option" means an Option granted under the Plan which
meets the requirements of Section 422 of the Code.
(h) "Key Employee" means any Employee whose performance and
responsibilities are determined by the Committee to have a direct and
significant effect on the performance of the Company and its Subsidiaries.
(i) "Nonqualified Option" means an Option granted under the Plan which
is not intended to be an Incentive Option.
(j) "Option" means an option granted pursuant to the Plan to purchase
shares of Common Stock, whether granted as an Incentive Option or as a
Nonqualified Option.
(k) "Option Agreement" means, with respect to each Option granted to a
Participant, the signed written agreement between the Participant and the
Company setting forth the terms and conditions of the Option.
(l) "Option Period" means the period during which an Option may be
exercised.
(m) "Parent" means any corporation in an unbroken chain of corporations
ending with the Company if, at the time of granting of the Option, each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in the chain.
(n) "Participant" means an individual to whom an Option has been granted
under the Plan.
-11-
<PAGE> 12
(o) "Plan" means this StarNet Financial, Inc. 1999 Stock Option Plan, as
set forth herein and as it may be amended from time to time.
(p) "Qualifying Shares" means shares of Common Stock which either (i)
have been owned by the Participant for more than six months and have been "paid
for" within the meaning of Rule 144 promulgated under the Securities Act of
1933, as amended, or (ii) were obtained by the Participant in the public market.
(q) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of the granting of the
Option, each of the corporations other than the last corporation in the unbroken
chain owns stock possessing 80% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain, and
"Subsidiaries" means more than one of any of such corporations.
-12-
<PAGE> 1
EXHIBIT 11.1
Earnings per Share Computation
Nine Months ended December 31, 1999
(Pro Forma, Unaudited) (1)
<TABLE>
<CAPTION>
Income Shares Per Share
----------- ---------- -----------
<S> <C> <C> <C>
Net Income $(2,760,874)
Net Income Available
To Common Stockholders $(2,760,874) 11,469,018 $ (.24)
Effect of Dilutive Securities -- --
Net Income Available to
Common Stockholders
Assuming Conversions $(2,760,874) 11,469,018 $ (.24)
</TABLE>
(1) The information provided above gives effect to the acquisitions of
Occidental Mortgage Corporation and Residential Lenders, Inc., and the
disposition of The GM Group, Inc. as if they were effective April 1,
1999.
As of December 31, 1999, warrants to purchase 750,000 shares of common stock had
been issued and were outstanding. As of December 31, 1999, options to purchase
780,000 shares of common stock had been granted in connection with the 1999
Stock Option Plan with exercise prices ranging from $.01 to $3.75 per share
vesting over periods ranging from immediate to five years. A warrant to purchase
200,000 shares of common stock, issued May 14, 1999 was exercised on September
30, 1999. Except when exercised, these warrants and options were not included in
the computation of diluted earnings per share because the warrants and options
had an anti-dilutive effect on earnings per share.
As of October 1, 1999, the Company issued 250,000 shares in connection with its
acquisition of Residential Lenders, Inc. In the Pro Forma information above,
these shares were considered as issued on April 1, 1999.
Fully diluted weighted average shares outstanding on a Pro Forma basis are
12,135,054. This number of shares gives effect to warrants and options when
issued, except for warrants to purchase 300,000 shares issued in connection with
the acquisition of Occidental Mortgage Corporation, which in this calculation
were considered issued on April 1, 1999.
<PAGE> 1
EXHIBIT 22.1
SUBSIDIARIES
StarNet Mortgage, Inc., a Delaware corporation
StarNet TRAkkER, Inc., a Delaware corporation
Residential Lenders, Inc., a Florida corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 951,455
<SECURITIES> 0
<RECEIVABLES> 684,750
<ALLOWANCES> 0
<INVENTORY> 24,475,459
<CURRENT-ASSETS> 26,111,664
<PP&E> 672,000
<DEPRECIATION> 57,459
<TOTAL-ASSETS> 28,455,830
<CURRENT-LIABILITIES> 26,413,134
<BONDS> 0
0
0
<COMMON> 149,015
<OTHER-SE> 1,893,681
<TOTAL-LIABILITY-AND-EQUITY> 28,455,830
<SALES> 0
<TOTAL-REVENUES> 2,447,106
<CGS> 0
<TOTAL-COSTS> 3,595,081
<OTHER-EXPENSES> 29,230
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,234,664)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,234,664)
<EPS-BASIC> (.08)
<EPS-DILUTED> 0
</TABLE>
