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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) on Rule 14a-12
Netzee, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X] No fee required.
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(1) Title of each class of securities to which transaction applies: N/A
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): N/A
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(NETZEE LOGO)
6190 POWERS FERRY ROAD, SUITE 400
ATLANTA, GEORGIA 30339
April 24, 2001
Dear Netzee, Inc. Shareholder:
On behalf of your Board of Directors, you are cordially invited to attend
the Netzee, Inc. 2001 Annual Meeting of Shareholders to be held at The Crowne
Plaza Hotel, 6345 Powers Ferry Road, Atlanta, Georgia, on Monday, May 14, 2001,
at 9:00 a.m.
It is important that your shares are represented at the annual meeting.
Whether or not you plan to attend the annual meeting, please complete and return
the enclosed proxy card. Please note that completing the proxy card will not
prevent you from attending the meeting and voting in person.
You will find information regarding the matters to be voted on at the
annual meeting in the following pages. Our 2000 Annual Report to Shareholders is
also enclosed with these materials. Your interest in Netzee is appreciated, and
we look forward to seeing you on May 14th.
Sincerely,
/s/ Donny R. Jackson
Donny R. Jackson
Chief Executive Officer and Director
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NETZEE, INC.
6190 POWERS FERRY ROAD, SUITE 400
ATLANTA, GEORGIA 30339
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 14, 2001
---------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
Netzee, Inc., a Georgia corporation (the "Company"), will be held at The Crowne
Plaza Hotel, 6345 Powers Ferry Road, Atlanta, Georgia 30339, on Monday, May 14,
2001, at 9:00 a.m., local time, for the following purposes:
1. To elect one Class I director to hold office for a two-year term
and until his successor has been elected and qualified, to elect four Class
II directors, each to hold office for a three-year term and until his
successor has been elected and qualified, and to elect one Class III
director to hold office for a one-year term and until his successor has
been elected and qualified;
2. To approve an amendment of the Company's Articles of Incorporation,
as amended, and to authorize the Board of Directors, to effect a reverse
stock split of the Company's issued and outstanding common stock at any
ratio falling within a range between and including 1-for-3 and 1-for-8; and
3. To act upon such other matters as may properly come before the
meeting or any postponements or adjournments thereof.
ONLY HOLDERS OF RECORD OF THE COMPANY'S COMMON STOCK, NO PAR VALUE, AT THE
CLOSE OF BUSINESS ON APRIL 20, 2001 SHALL BE ENTITLED TO NOTICE OF, AND TO VOTE
AT, THE MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
You are cordially invited to attend the meeting in person. IF YOU ARE
UNABLE TO ATTEND THE MEETING, PLEASE VOTE BY SIGNING, DATING AND RETURNING THE
ACCOMPANYING PROXY AS SOON AS POSSIBLE.
By Order of the Board of Directors
/s/Richard S. Eiswirth
Richard S. Eiswirth
Secretary
Atlanta, Georgia
April 24, 2001
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NETZEE, INC.
6190 POWERS FERRY ROAD, SUITE 400
ATLANTA, GEORGIA 30339
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PROXY STATEMENT
---------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 14, 2001
---------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors and management of Netzee, Inc., a Georgia corporation
(the "Company"), of proxies for use at the Company's 2001 Annual Meeting of
Shareholders (the "Annual Meeting") to be held at The Crowne Plaza Hotel, 6345
Powers Ferry Road, Atlanta, Georgia 30339, on Monday, May 14, 2001, at 9:00
a.m., local time, and at any and all postponements or adjournments thereof, for
the purposes set forth in the accompanying Notice of Annual Meeting.
This Proxy Statement, the Notice of Annual Meeting and the accompanying
proxy card, together with the Company's 2000 Annual Report to Shareholders, are
intended to be sent or given to shareholders on or about April 24, 2001.
Only holders of record of the Company's common stock, no par value (the
"Common Stock"), at the close of business on April 20, 2001 (the "Record Date")
will be entitled to notice of the Annual Meeting and to vote the shares of
Common Stock held by them on such date at the Annual Meeting or any and all
postponements or adjournments thereof. The Company has 70,000,000 shares of
Common Stock and 5,000,000 shares of preferred stock authorized. As of the
Record Date, 26,867,960 shares of Common Stock were outstanding and entitled to
vote at the Annual Meeting. In addition, 500,000 shares of Series B 8%
Convertible Preferred Stock, no par value (the "Preferred Stock") were issued
and outstanding as of the Record Date. Holders of shares of Preferred Stock are
not entitled to vote at the Annual Meeting.
Each share of Common Stock entitles the holder thereof to cast one vote on
each matter to be voted upon at the Annual Meeting. The presence at the Annual
Meeting, in person or by proxy, of a majority of the outstanding shares of
Common Stock entitled to vote as of the Record Date, will constitute a quorum.
In voting on the election of directors (Proposal 1), shareholders may vote in
favor of all nominees or withhold their votes as to some or all nominees. In
voting to amend the Company's Articles of Incorporation, as amended (the
"Articles of Incorporation"), to effect a reverse stock split of the Common
Stock (Proposal 2), shareholders may vote FOR, AGAINST or ABSTAIN with respect
to the proposal.
A favorable vote of a plurality of the shares represented and voted at the
Annual Meeting shall be required for the election of directors (Proposal 1). The
amendment to the Articles of Incorporation (Proposal 2) will require the
affirmative vote of a majority of the issued and outstanding shares of Common
Stock. Abstentions and broker non-votes are counted for purposes of determining
the presence or absence of a quorum for the transaction of business and are not
counted for purposes of the election of directors (Proposal 1). However, for
purposes of the amendment to the Company's Articles of Incorporation (Proposal
2), abstentions and broker non-votes will count as a vote against such proposal.
None of the actions to be voted upon at the Annual Meeting shall create
dissenters' rights under the Georgia Business Corporation Code. Shareholders of
the Company do not have any right to cumulate their votes for the election of
directors.
If the accompanying proxy card is properly signed and returned to the
Company and not revoked, it will be voted in accordance with the instructions
contained therein. Unless contrary instructions are given, the persons
designated as proxy holders in the accompanying proxy card will vote FOR
Proposal 1, the election of the Board of Directors' nominees as directors, FOR
Proposal 2, the amendment of the Articles of Incorporation to effect a reverse
stock split of the Common Stock, and as recommended by the Board of
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Directors with regard to all other matters as may properly come before the
Annual Meeting or, if no such recommendation is given, in their own discretion.
Each such proxy granted may be revoked by the shareholder giving such proxy at
any time before it is exercised by filing with the Secretary of the Company a
revoking instrument or a duly executed proxy bearing a later date. The powers of
the proxy holders with respect to a proxy will be suspended if the person
executing such proxy attends the Annual Meeting in person and so requests.
Attendance at the Annual Meeting will not, in itself, constitute revocation of
the proxy.
The cost of soliciting proxies in the form enclosed herewith will be borne
by the Company. In addition to the solicitation of proxies by mail, the Company,
through its directors, officers, employees and agents, may also solicit proxies
personally or by telephone, but such persons will not be specifically
compensated for such services. The Company will also request persons, firms and
corporations holding shares in their names or in the names of their nominees,
which are beneficially owned by others, to send proxy materials to and obtain
proxies from such beneficial owners, and the Company will reimburse such holders
for their reasonable expenses in doing so.
BENEFICIAL OWNERSHIP OF
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth the number of shares and percentage of the
Common Stock beneficially owned as of March 15, 2001 by (i) each person known by
the Company to be the beneficial owner of more than 5% of the outstanding shares
of Common Stock, (ii) each director and director nominee, individually, (iii)
the executive officers of the Company named in the Summary Compensation Table in
this Proxy Statement, individually, and (iv) all executive officers and
directors of the Company as a group. As of March 15, 2001, there were 26,867,960
shares of Common Stock issued and outstanding.
A person is deemed to be a beneficial owner of a security if that person
has or shares "voting power," which includes the power to vote or to direct the
voting of a security, or "investment power," which includes the power to dispose
of or to direct the disposition of a security. For purposes of this table, a
person or group of persons is also deemed to have beneficial ownership of any
shares that the person or group has the right to acquire within 60 days after
March 15, 2001. Except as otherwise indicated, and subject to applicable
community property laws, the persons named below have sole voting and investment
power with respect to all shares of Common Stock beneficially owned by them.
Unless otherwise indicated, the address of each beneficial owner below is 6190
Powers Ferry Road, Suite 400, Atlanta, Georgia 30339.
PERCENTAGE
NAME OF BENEFICIAL OWNER NUMBER OF SHARES BENEFICIALLY OWNED
------------------------ ---------------- ------------------
The InterCept Group, Inc.(1)................................ 7,557,673 28.1%
3150 Holcomb Bridge Road, Suite 200
Norcross, GA 30071
John H. Harland Company(2).................................. 4,400,000 16.4%
2939 Miller Road
Decatur, GA 30035
Community Financial Services, Inc........................... 1,361,000 5.1%
2410 Paces Ferry Road
600 Paces Summit
Atlanta, GA 30339-4098
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PERCENTAGE
NAME OF BENEFICIAL OWNER NUMBER OF SHARES BENEFICIALLY OWNED
------------------------ ---------------- ------------------
C. Michael Bowers(3)........................................ 295,056 1.1%
Jon R. Burke(4)(5).......................................... 33,333 *
Charles B. Carden(6)........................................ 0 0%
John W. Collins(4)(7)....................................... 825,926 3.1%
Gayle M. Earls(9)........................................... 21,666 *
Richard S. Eiswirth(10)..................................... 257,733 1.0%
Donny R. Jackson(4)(11)..................................... 381,951 1.4%
Stiles A. Kellett, Jr.(8)(12)............................... 521,000 1.9%
Jefferson B. A. Knox, Sr.(8)................................ 20,000 *
Bruce P. Leonard(13)........................................ 35,874 *
Timothy M. Leveque(14)...................................... 2,600 *
Michael E. Murphy(15)....................................... 184,563 *
John E. O'Malley(6)......................................... 0 0%
Catherine G. Silver(16)..................................... 57,805 *
Glenn W. Sturm(4)(17)....................................... 858,722 3.2%
A. Jay Waite(7)(18)......................................... 94,100 *
All directors and executive officers as a group
(15 persons)(19).......................................... 3,410,992 12.3%
---------------
* Less than 1% of the outstanding Common Stock.
(1) Includes 767 shares of Common Stock held by First Union National Bank
("First Union"), as escrow agent. All 7,557,673 shares of Common Stock
beneficially owned by The InterCept Group, Inc. ("InterCept") have been
pledged by InterCept as collateral to a lender to secure debt for money
borrowed.
(2) Includes 4,400,000 shares of Common Stock owned indirectly by John H.
Harland Company ("Harland") through wholly-owned subsidiaries.
(3) Includes 216,666 shares of Common Stock underlying options that are
immediately exercisable or exercisable within 60 days after March 15, 2001.
(4) Excludes 7,557,673 shares of Common Stock held by InterCept as to which Mr.
Burke, Mr. Jackson and Mr. Sturm, directors of InterCept, and Mr. Collins,
the Chairman and Chief Executive Officer of InterCept, each disclaims
beneficial ownership.
(5) Includes 33,333 shares of Common Stock underlying options that are
immediately exercisable or exercisable within 60 days after March 15, 2001.
(6) Excludes 4,400,000 shares of Common Stock beneficially owned by Harland, as
to which beneficial ownership is disclaimed.
(7) Includes (a) 10,366 shares of Common Stock held by First Union, as escrow
agent, (b) 118,932 shares of Common Stock held indirectly through FDS, LLC,
in which Mr. Collins owns a 60% membership interest and (c) 78,332 shares
of Common Stock underlying options that are immediately exercisable or
exercisable within 60 days after March 15, 2001.
(8) Includes 20,000 shares of Common Stock underlying options that are
immediately exercisable or exercisable within 60 days after March 15, 2001.
(9) Includes 21,666 shares of Common Stock underlying options that are
immediately exercisable, but excludes 969,792 shares of Common Stock held
by Independent Bankers Financial Corporation ("IBFC"), as to which Mr.
Earls, President and Chief Executive Officer of IBFC, disclaims beneficial
ownership.
(10) Includes 220,000 shares of Common Stock underlying options that are
immediately exercisable or exercisable within 60 days after March 15, 2001.
(11) Includes (a) 2,302 shares of Common Stock held by First Union, as escrow
agent, and (b) 118,932 shares of Common Stock held indirectly through FDS,
LLC, in which Mr. Jackson owns a 20% membership interest.
(12) Includes 493,000 shares of Common Stock held by Kellett Partners, L.P.
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(13) Includes 34,999 shares of Common Stock underlying options that are
immediately exercisable or exercisable within 60 days after March 15, 2001,
but excludes 1,361,000 shares of Common Stock held by Community Financial
Services, Inc. ("CFSI") as to which Mr. Leonard, President and Chief
Executive Officer of CFSI, disclaims beneficial ownership.
(14) Upon election to the Board of Directors, Mr. Leveque will be entitled to
receive an option to purchase 40,000 shares of Common Stock, 10,000 shares
of which will be immediately exercisable as of the date of grant. See
"Executive Compensation -- Compensation of Directors."
(15) Includes 102,549 shares of Common Stock underlying options that are
immediately exercisable or exercisable within 60 days after March 15, 2001.
(16) Ms. Silver resigned as the Company's President and General Manager
effective November 15, 2000.
(17) Includes (a) 8,989 shares of Common Stock held by First Union, as escrow
agent, and (b) 133,333 shares of Common Stock underlying options that are
immediately exercisable or exercisable within 60 days after March 15, 2001.
(18) Includes 10,000 shares of Common Stock held by Waite Family Fund Ltd., a
limited partnership in which Mr. Waite is the sole general partner.
(19) Includes a total of 900,878 shares of Common Stock underlying options that
are immediately exercisable or exercisable within 60 days after March 15,
2001.
Donny R. Jackson is a director and shareholder of InterCept, as well as the
Chief Executive Officer and a director of the Company. John W. Collins is the
Chief Executive Officer, the Chairman of the Board of Directors and a
shareholder of InterCept, as well as the Chairman of the Board of Directors of
the Company. Glenn W. Sturm is a director and shareholder of InterCept, as well
as a director of the Company. Bruce P. Leonard is the President and Chief
Executive Officer of CFSI and a director of the Company. Jon R. Burke is a
director of both the Company and InterCept. Charles B. Carden is the Vice
President and Chief Financial Officer of Harland, as well as a director of the
Company. John E. O'Malley is the President of Harland Financial Solutions, Inc.,
a wholly-owned subsidiary of Harland, as well as a director of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
any person who beneficially owns more than 10% of the Company's Common Stock, to
file with the Securities and Exchange Commission (the "Commission") initial
reports of beneficial ownership and reports of changes in beneficial ownership
of Common Stock. Such persons are required by regulations of the Commission to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely upon on a review of copies of Section 16(a) filings received
by the Company during and with respect to fiscal 2000 and certain written
representations of its officers and directors with respect to the filing of
annual reports of changes in beneficial ownership on Form 5, the Company
believes that each filing required to be made pursuant to Section 16(a) of the
Exchange Act during fiscal 2000 and for prior fiscal years has been filed in a
timely manner, except as previously set forth under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's 2000 Proxy
Statement.
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PROPOSAL ONE
ELECTION OF DIRECTORS
The following table sets forth information with respect to the continuing
directors, director nominees and executive officers of the Company as of March
15, 2001.
NAME AGE POSITION
---- --- --------
Donny R. Jackson........................... 52 Chief Executive Officer and Class I
Director
C. Michael Bowers.......................... 53 Chief Administrative Officer
Richard S. Eiswirth........................ 32 Senior Executive Vice President, Chief
Financial Officer and Secretary
Michael E. Murphy.......................... 52 Chief Technology Officer
L. Dan Anderson............................ 46 Senior Vice President of Sales
John W. Collins............................ 53 Chairman of the Board of Directors and
Class III Director
Glenn W. Sturm............................. 47 Vice Chairman of the Board of Directors and
Class I Director
Jon R. Burke............................... 53 Class II Director
Charles B. Carden.......................... 56 Class II Director
Gayle M. Earls............................. 64 Class III Director
Stiles A. Kellett, Jr...................... 57 Class I Director
Jefferson B. A. Knox, Sr................... 38 Class II Director
Bruce P. Leonard........................... 47 Class III Director
Timothy M. Leveque......................... 58 Class I Director Nominee
John E. O'Malley........................... 44 Class III Director
A. Jay Waite............................... 52 Class II Director
In accordance with Article IX of the Articles of Incorporation, the Board
of Directors of the Company is divided into three classes, designated Class I,
Class II and Class III. The maximum number of members of the Board of Directors
is currently set at 12, and there are presently 11 members of the Board of
Directors. Messrs. Jackson, Kellett and Sturm currently serve as Class I
directors until the 2003 annual meeting. Messrs. Burke, Carden, Knox and Waite
currently serve as Class II directors and have been nominated for election at
the Annual Meeting. Messrs. Collins, Earls and Leonard currently serve as Class
III directors until the 2002 annual meeting. Because Mr. O'Malley was elected by
the Board of Directors as a Class III director to fill a newly created
directorship, under Georgia law his term must expire on the date of the Annual
Meeting. For this reason, Mr. O'Malley has been nominated for election at the
Annual Meeting. If he is so elected, he would serve as a Class III director
until the 2002 annual meeting, when the Class III directors next come up for
election. Timothy M. Leveque has been nominated for election as a Class I
director to fill an existing vacancy resulting from the resignation of Joseph F.
Quinlan, Jr. If he is so elected, Mr. Leveque will serve as a Class I director
until the 2003 annual meeting, when the Class I directors next come up for
election.
Each of Messrs. Burke, Carden, Knox, Leveque, O'Malley and Waite has
consented to serve on the Board and the Board has no reason to believe that they
will not serve if elected, but if any of them should become unavailable to serve
as a director, and if the Board shall have designated a substitute nominee or
nominees, the persons named as proxies will vote for the substitute nominee or
nominees designated by the Board. Each of Messrs. Burke, Carden, Knox, Leveque,
O'Malley and Waite must receive a plurality of the votes cast at the Annual
Meeting to be elected as directors.
NOMINEE FOR CLASS I DIRECTOR
The biography set forth below is submitted for consideration regarding the
nomination of Mr. Leveque for election as a Class I director.
TIMOTHY M. LEVEQUE has been nominated for election as a Class I director to
serve until the 2003 annual meeting of shareholders. Since March 1999, Mr.
Leveque has served as the President, Chief Executive Officer
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and a director of Pacific Coast Bankers' Bank ("PCBB"), a bankers' bank
headquartered in San Francisco, California. From January 1997 until March 1999,
Mr. Leveque served as the Chief Credit Officer for PCBB. From June 1992 until
January 1997, Mr. Leveque served as the Chief Credit Officer for Golden Gate
Bank, a community bank located in San Francisco, California.
NOMINEES FOR CLASS II DIRECTORS
The biographies set forth below are submitted for consideration regarding
the nomination of Messrs. Burke, Carden, Knox and Waite for election as Class II
directors.
JON R. BURKE has served as a Class II director of the Company since October
1999. Since 1995, Mr. Burke has served as a principal with Brown, Burke Capital
Partners, Inc., a financial consulting firm for companies involved in mergers
and acquisitions. Mr. Burke also serves as the general managing member of
Capital Appreciation Management Company, L.L.C., the managing general partner of
an Atlanta-based merchant-banking fund. From 1973 to 1995, he was employed by
The Robinson-Humphrey Company, Inc., most recently serving as a Senior Vice
President in the Research Department. Mr. Burke currently serves on the Board of
Directors of InterCept, a Norcross, Georgia-based provider of technology
products and services to financial institutions, HealthTronics, Inc., a provider
of medical treatment solutions, and United Companies Financial Corporation, a
financial services holding company engaged in commercial lending.
CHARLES B. CARDEN has served as a Class II director of the Company since
November 2000. Since 1999, Mr. Carden has been the Vice President and Chief
Financial Officer of Harland, a publicly traded financial printing, software and
educational testing systems company located in Decatur, Georgia. From 1996 to
1999, Mr. Carden served as Executive Vice President and Chief Financial Officer
of Mariner Post-Acute Network, a healthcare company located in Atlanta, Georgia.
JEFFERSON B. A. KNOX, SR. has served as a Class II director of the Company
since April 2000. Since April 1998, Mr. Knox has been the Executive Director of
The Knox Foundation, a private charitable foundation. From 1992 to 1998, Mr.
Knox was the President of the Columbia County, Georgia division of Allied Bank
of Georgia, which was acquired by Regions Bank of Georgia in 1997. From 1987 to
1992, Mr. Knox served as the President of The Bank of Columbia County, which at
that time was a wholly owned subsidiary of Allied Bankshares, Inc. Mr. Knox is
currently a member of the Board of Directors of Regions Bank of Central Georgia
in Thomson, Georgia and of Merry Land Properties, Inc. in Augusta, Georgia. Mr.
Knox is the son of Boone A. Knox, a director of InterCept.
A. JAY WAITE has served as a Class II director of the Company since
September 1999. Mr. Waite is currently a private investor. From 1989 to 1998,
Mr. Waite served as the Chairman of the Board of Reily Electrical Supply, Inc.,
an electrical equipment distributor located in New Orleans, Louisiana.
NOMINEE FOR CLASS III DIRECTOR
The biography set forth below is submitted for consideration regarding the
nomination of Mr. O'Malley for election as a Class III director.
JOHN E. O'MALLEY has served as a Class III director of the Company since
November 2000. Since July 1999, Mr. O'Malley has been a Vice President of
Harland. Since September 2000, Mr. O'Malley has served as the President of
Harland Financial Solutions, Inc., a software company that is a wholly-owned
subsidiary of Harland. From June 1996 to June 1999, Mr. O'Malley was the
President of the CBS Division of Fiserv, Inc., a data processing and information
management company.
CONTINUING CLASS I DIRECTORS
DONNY R. JACKSON has served as the Chief Executive Officer and a director
of the Company since October 2000. He also served as the President and a
director of Direct Access Interactive, Inc. ("Direct Access"), the predecessor
to the Company, from March 1999 until its merger into the Company in September
1999. He also served as a director of the Company from its inception until April
2000. Mr. Jackson was a co-
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founder of InterCept and served as its President and Chief Operating Officer
from its inception in April 1996 to October 2000. Mr. Jackson has also served as
a director of InterCept since its inception.
STILES A. KELLETT, JR. has served a Class I director of the Company since
October 1999. Since March 1996, Mr. Kellett has been the owner and Chairman of
the Board of Directors of Kellett Investment Corp., a privately held investment
firm. From 1976 to 1995, Mr. Kellett was co-owner and served as Chairman of the
Board of Directors of Convalescent Services, Inc., a long-term health care
company located in Atlanta, Georgia. Mr. Kellett also serves as a director and a
member of the Compensation Committee of MCI WORLDCOM, Inc. and as a director of
1st Virtual, Inc., an Internet bank based in Palm Beach Gardens, Florida.
GLENN W. STURM has served as a Class I director since the Company's
inception in August 1999 and has served as Vice Chairman since October 2000. Mr.
Sturm also served as the Company's Chief Executive Officer from August 1999
until October 2000. Since 1997, Mr. Sturm has served as a director of InterCept.
Since 1992, Mr. Sturm has been a partner in the law firm of Nelson Mullins Riley
& Scarborough, L.L.P. ("Nelson Mullins"), where he served as Corporate Chairman
until 1999 and serves as a member of the Executive Committee. From 1997 until
1999, Mr. Sturm also served as a director of WebMD, Inc. Mr. Sturm serves on the
board of directors of Towne Services, Inc., a publicly traded provider of sales
and financing transactions products and services, and insci-statements.com,
corp., a publicly traded developer of document management software for use with
optical disk storage systems.
CONTINUING CLASS III DIRECTORS
JOHN W. COLLINS has served as the Company's Chairman of the Board of
Directors since its inception. Mr. Collins was the co-founder of InterCept and
has served as its Chairman of the Board and Chief Executive Officer since 1996.
Prior to co-founding InterCept, Mr. Collins served as a director and executive
officer of several of its predecessor companies and affiliates since 1986. Mr.
Collins is also a director of Towne Services, Inc. and several privately held
companies.
GAYLE M. EARLS has served as a Class III director of the Company since
September 1999. Since 1986, Mr. Earls has served as the President, Chief
Executive Officer and a director of TIB The Independent BankersBank ("TIB"), a
bankers' bank located in Dallas, Texas, and its parent company, IBFC. Mr. Earls
served for six years as a director of the Federal Reserve Bank of Dallas. Mr.
Earls has served for eight years as a director of Independent Community Bankers
of America and is currently an advisory director of Independent Bankers
Association of Texas.
BRUCE P. LEONARD has served as a Class III director of the Company since
September 1999. Since 1990, Mr. Leonard has served as the President, Chief
Executive Officer and Chairman of the Board of Directors of The Bankers Bank, a
bankers' bank located in Atlanta, Georgia, and its parent company, CFSI. From
1987 to 1990, he was Senior Vice President -- Marketing of The Bankers Bank. He
has served as past Chairman of the U.S. Bankers' Banks CEO Council and as a
board member of the Independent Bankers Association of America. He is currently
a board member of the Southeastern Bankcard Association.
In connection with the Company's acquisition of the Internet banking
divisions of each of TIB and The Bankers Bank, the Company agreed to cause
Messrs. Earls and Leonard to be elected as the Company's Class III directors,
and to cause Mr. Earls to be appointed to the Company's Nominating Committee, if
one is established. Mr. Earls is the President and Chief Executive Officer of
TIB, one of the Company's strategic marketing partners. Mr. Leonard is the
President and Chief Executive Officer of The Bankers Bank, another strategic
marketing partner.
Under the terms of a Line of Credit Agreement by and between the Company
and Kellett Partners, L.P. ("Kellett Partners"), the Company agreed to cause a
representative of Kellett Partners to be elected to the Board of Directors.
Stiles A. Kellett, Jr. has been designated by Kellett Partners as its
representative to serve on the Board of Directors and was elected to the Board
of Directors on October 19, 1999. Although the Line of Credit Agreement was
terminated on December 15, 1999, Mr. Kellett remains as a member of the Board of
Directors.
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Pursuant to the terms of the Company's acquisition of the Internet banking
and bill payment assets of Harland, the Company agreed to cause one person
designated by Harland to be nominated for election to the Company's Board of
Directors as a Class II director at the 2001 and 2004 annual meetings of
shareholders of the Company. The Company also agreed to cause one person
designated by Harland to be nominated for election to the Company's Board of
Directors as a Class III director at the Company's 2001, 2002 and 2005 annual
meetings of shareholders. However, the Company is required to nominate both the
Class II director designated by Harland at the 2004 annual meeting of
shareholders and the Class III director designated by Harland at the 2005 annual
meeting of shareholders only if Harland or its affiliates, at the time of such
nomination, owns at least 10% of the outstanding Common Stock. The Company is
required to nominate only the Class II director designated by Harland at the
2004 annual meeting of shareholders if, at the time of such nomination, Harland
or its affiliates owns less than 10% but at least 5% of the outstanding Common
Stock. In addition, the Company agreed to appoint either the Class II director
or the Class III director designated by Harland and as specified by Harland to
serve on the Compensation Committee of the Board of Directors and the Executive
Committee, if one is established, during the tenure of such Director. Messrs.
Carden and O'Malley are Harland's designees to the Board of Directors as Class
II and Class III directors, respectively. Mr. Carden has been specified by
Harland as its designee to serve on the Compensation Committee. The Company does
not presently have an Executive Committee.
EXECUTIVE OFFICERS
Certain information relating to each executive officer of the Company
(other than Mr. Jackson) is set forth below.
C. MICHAEL BOWERS has served as the Company's Chief Administrative Officer
since October 2000. Mr. Bowers previously served as the Company's Chief
Operating Officer from August 1999 to October 2000 and as the Company's
President from August 1999 until April 2000. Mr. Bowers served as the President
and Chief Executive Officer of Dyad Corporation, a company that designed and
developed loan application and fulfillment software, from its inception in 1996
until the Company acquired it in 1999. From March 1991 to April 1996, Mr. Bowers
was the manager of management consulting for Porter Keadle Moore, LLP (formerly
Evans, Porter, Bryan & Co.), a financial institution accounting and consulting
firm located in Atlanta, Georgia. Prior to joining Porter Keadle Moore, Mr.
Bowers served in various capacities with seven community financial institutions.
RICHARD S. EISWIRTH has served as the Company's Senior Executive Vice
President, Chief Financial Officer and Secretary since August 1999. Mr. Eiswirth
is responsible for financial operations, acquisition activities, strategic
business development and investor relations. Prior to joining the Company, Mr.
Eiswirth was a certified public accountant with Arthur Andersen LLP from 1991
until 1999, where he provided audit, accounting, due diligence and consulting
services to a diverse group of clients, including companies operating in the
technology, financial services and real estate industries.
MICHAEL E. MURPHY has served as the Company's Vice President since March
2000 and as the Company's Chief Technology Officer since April 2000. Mr. Murphy
served as Chairman and Chief Executive Officer of Digital Visions, Inc.
("Digital Visions"), a provider of financial information software and processing
solutions to financial institutions, from May 1995 until the Company acquired it
in March 2000.
L. DAN ANDERSON has served as the Company's Senior Vice President of Sales
since October 2000. Mr. Anderson has responsibility for managing all of the
Company's sales efforts and customer relationships. From January 1977 until
October 2000, Mr. Anderson held numerous positions with Compass Bank, located in
Birmingham, Alabama, where he most recently served as Senior Executive Vice
President managing the institutional investment sales department.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Company does not have a Nominating Committee.
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Audit Committee
Certain of the information contained in this subsection, including the
Audit Committee charter attached hereto as Appendix A, shall not be deemed to be
"soliciting material" or to be "filed" with the Commission, nor shall such
information be incorporated by reference into any future filing under the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
except to the extent that the Company specifically incorporates it by reference
into such filing.
Composition of Audit Committee. The Audit Committee consists of Messrs.
Earls, Leonard and Waite. The Audit Committee reviews (i) the scope and timing
of audit services provided to the Company and any other services the Company's
independent auditors are asked to perform, (ii) the auditors' report on the
Company's financial statements following completion of such audit and (iii) the
auditors' policies and procedures with respect to internal accounting and
financial controls. In addition, the Audit Committee will make annual
recommendations to the Board of Directors of the appointment of independent
auditors for the following year. Each of the members of the Audit Committee is
independent as defined under Rule 4200(a)(14) of the Marketplace Rules of the
Nasdaq Stock Market, Inc. The Audit Committee operates under a written charter
adopted by the Board of Directors, a copy of which is attached to this proxy
statement as Appendix A. The Audit Committee held four meetings in fiscal year
2000.
Audit Committee Report. The Audit Committee has reviewed and discussed
with management the audited financial statements for the fiscal year ended
December 31, 2000. In addition, the Audit Committee has discussed with the
Company's independent auditors, Arthur Andersen LLP ("Arthur Andersen"), the
matters required by Statement on Auditing Standards No. 61, Communication with
Audit Committees, which includes, among other things, matters related to the
conduct of the audit of the Company's financial statements. The Audit Committee
also has received the written disclosures and the letter from Arthur Andersen
required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, and has discussed with Arthur Andersen its
independence from the Company. The Audit Committee has discussed with management
of the Company and with the Company's independent accountants such other matters
and received such assurances from them as the Audit Committee deemed
appropriate.
Based on the foregoing reviews and discussions and in reliance thereupon,
the Audit Committee has recommended to the Company's Board of Directors the
inclusion of the audited financial statements in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000.
Gayle M. Earls
Bruce P. Leonard
A. Jay Waite
Compensation Committee
The Compensation Committee consists of Messrs. Carden, Kellett and Waite.
The Compensation Committee reviews and evaluates the compensation and benefits
of all of the Company's officers, reviews general policy matters relating to
compensation and benefits of the Company's employees and makes recommendations
concerning these matters to the Board of Directors. The Compensation Committee
also administers the Netzee, Inc. 1999 Stock Option and Incentive Plan (the
"Plan"), although the Board of Directors must approve all awards under the Plan
to executive officers and directors of the Company. The Compensation Committee
held four meetings in fiscal year 2000.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company held 13 meetings during fiscal year
2000. During fiscal 2000, each incumbent director attended at least 75% of the
total number of meetings of the Board of Directors and of its committees that
they were eligible to attend.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Carden is an executive officer of Harland. In November 2000, the
Company purchased from certain of Harland's subsidiaries assets valued at $17.6
million, net of certain assumed liabilities. As a result of this transaction,
Harland is presently the beneficial owner of approximately 16% of the Common
Stock. Further, Harland has agreed to lend the Company up to $5,000,000 under a
joint $20,000,000 credit facility with InterCept and Harland.
On October 18, 1999, the Company entered into a Line of Credit Agreement
with Kellett Partners, L.P. Stiles A. Kellett, Jr., who became a director of the
Company as a result of this transaction, is an affiliate of Kellett Partners.
Pursuant to this agreement, Kellett Partners agreed to loan up to $3,000,000 to
the Company on a revolving basis at an interest rate equal to the prime rate.
The Company terminated this line of credit on December 15, 1999.
In connection with the line of credit, the Company issued to Kellett
Partners a warrant to purchase up to 461,876 shares of Common Stock at an
exercise price of $3.25 per share. On March 2, 2000, the holders of these
warrants exercised the warrants in full.
For a description of certain transactions with members of the Board of
Directors or their affiliates, see "Certain Relationships and Related
Transactions."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE
DIRECTOR NOMINEES SET FORTH IN PROPOSAL ONE.
PROPOSAL TWO
AUTHORIZATION OF THE BOARD OF DIRECTORS TO EFFECT A REVERSE STOCK SPLIT OF THE
OUTSTANDING COMMON STOCK AT ANY RATIO WITHIN A RANGE BETWEEN AND INCLUDING
1-FOR-3 AND 1-FOR-8
On March 27, 2001, the Board of Directors unanimously recommended that the
Articles of Incorporation be amended, and that the Board of Directors be
authorized to effect a reverse stock split of the issued and outstanding Common
Stock, at any ratio within a range between and including 1-for-3 and 1-for-8
(the "Reverse Stock Split"). Pursuant to the Reverse Stock Split as appropriate
and depending upon market and other conditions, each three to eight of the
outstanding shares of Common Stock on the date of the Reverse Stock Split (the
"Old Shares") will be automatically converted into one share of Common Stock
(the "New Shares"). The Reverse Stock Split will not alter the number of shares
of Common Stock authorized for issuance, but will simply reduce the number of
shares of Common Stock issued and outstanding. This amendment and the Reverse
Stock Split, if authorized by the shareholders, will be effected only upon a
determination by the Board of Directors that the Reverse Stock Split is in the
best interest of the Company and its shareholders and thereupon the Board of
Directors will select at its discretion the ratio of the Reverse Stock Split,
which will fall within a range between and including 1-for-3 and 1-for-8. The
Reverse Stock Split will become effective upon the filing of Articles of
Amendment (the "Articles of Amendment") to the Articles of Incorporation with
the Secretary of State of Georgia, and the Board of Directors reserves the right
not to make such filing if it deems it appropriate not to do so. The form of
Articles of Amendment to effect the Reverse Stock Split is set forth under
"-- Proposed Form of Amendment to Articles of Incorporation."
PURPOSE AND EFFECT OF THE REVERSE STOCK SPLIT
The Board believes the Reverse Stock Split is desirable because it will
assist the Company in meeting the requirements for continued listing on the
Nasdaq National Market or, if necessary, to convert its listing to the Nasdaq
Small Cap Market ("Nasdaq") by helping to raise the trading price of the Common
Stock. One of the key requirements for continued listing on Nasdaq is that the
Common Stock must maintain a minimum bid price above $1.00 per share. The
Company was notified by Nasdaq on March 13, 2001 that it was not in compliance
with the continued listing requirements because the closing minimum bid price
per share of Common Stock had remained below $1.00 for 30 consecutive trading
days. Nasdaq has given the Company until June 11, 2001 to come into compliance
with this requirement.
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The Board of Directors believes that delisting from Nasdaq of the Common
Stock could adversely affect the ability of the Company to attract new
investors, may result in decreased liquidity of the outstanding shares of Common
Stock and, consequently, could reduce the price at which such shares trade and
increase the transaction costs inherent in trading such shares. In addition, the
Board of Directors believes that delisting of the Common Stock could deter
broker-dealers from making a market in or otherwise seeking or generating
interest in the Common Stock, and might deter certain persons from investing in
the Common Stock. There can be no assurance, however, that (1) approval and
implementation of the Reverse Stock Split will succeed in maintaining the bid
price of the Common Stock above $1.00 per share, (2) even if Nasdaq's minimum
bid price maintenance standard were satisfied, the Company would be able to meet
its other quantitative continued listing criteria, or (3) the Common Stock would
not be delisted by Nasdaq for other reasons.
Even though the Reverse Stock Split, by itself, would not impact the
Company's assets or prospects, the Reverse Stock Split could be followed by a
decrease in the aggregate market value of the Common Stock. The Board of
Directors, however, believes that this risk is offset by the prospect that the
Reverse Stock Split will improve the likelihood that the Company will be able to
maintain its Nasdaq listing and may, by increasing the per share price, make an
investment in the Common Stock more attractive to certain investors. If the
Company's securities are delisted from Nasdaq, trading of the Company's
securities would thereafter have to be conducted in the over-the-counter
markets. In such event, an investor could find it more difficult to dispose of,
or to obtain accurate quotations as to the market value of, the Common Stock. In
addition, if the Common Stock were to become delisted from Nasdaq and the
trading price of the Common Stock were to remain below $5.00 per share, trading
in the Common Stock would also be subject to the requirements of certain rules
promulgated under the Exchange Act that require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
"penny stock." The additional burdens imposed upon broker-dealers by such
requirements could discourage broker-dealers from effecting transactions in the
Common Stock, which could severely limit the market liquidity of the Common
Stock and the ability of investors to trade the Common Stock.
The purpose of the Reverse Stock Split is to increase the per share market
value of the Common Stock. The Board of Directors intends to effect the Reverse
Stock Split only if it believes that a decrease in the number of shares
outstanding is likely to improve the market price of the Common Stock and
improve the likelihood that the Company will be allowed to maintain its listing
on Nasdaq. If the Reverse Stock Split is authorized by the shareholders, the
Board of Directors will have the discretion to implement the Reverse Stock
Split, or to decide not to effect the Reverse Stock Split at all. The Board of
Directors has proposed an exchange ratio range in order to give it the
flexibility to select an exchange ratio that it believes will cause the per
share trading price of the Common Stock to reach and maintain a level well above
$1.00. In determining the appropriate exchange ratio, the Board of Directors may
consider, among other factors:
- the per share price of the Common Stock immediately prior to its
determination of the split exchange ratio;
- the historical fluctuations or patterns in the trading price and volume
of the Common Stock;
- projections for the Company's financial condition and results of
operations in both the short-term and long-term; and
- other facts and circumstances the Board of Directors may deem relevant to
increase the per share trading price of the Common Stock well above the
$1.00 level.
If the trading price of the Common Stock increases before the Annual
Meeting, the Reverse Stock Split may not be necessary, or the Board of Directors
may determine that such increase in the stock price would necessitate a lower
ratio than if the trading price had decreased or remained constant. No further
action on the part of the shareholders would be required to either effect or
abandon the Reverse Stock Split.
PRINCIPAL EFFECTS OF THE REVERSE STOCK SPLIT
Except to the extent that the Reverse Stock Split results in a shareholder
of the Company owning a fractional share, the Reverse Stock Split will affect
all shareholders uniformly and will not affect any
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shareholder's percentage ownership interest in the Company or proportionate
voting power. A shareholder may hold less than 100 shares of Common Stock after
the Reverse Stock Split is effected and as a consequence may incur greater costs
associated with selling such shares.
After the Reverse Stock Split, the number of shares of issued and
outstanding Common Stock will be reduced. The per share loss and net book value
of the Common Stock will be increased because there will be fewer shares of
Common Stock outstanding. However, there will be no adjustment to the aggregate
number of shares of Common Stock authorized.
The table below depicts the effects of the Reverse Stock Split upon the
number of shares of Common Stock outstanding, the number of shares of Common
Stock reserved for future issuance and the number of authorized but unissued
shares of Common Stock. Due to the issuance of additional New Shares to
eliminate fractional shares, the actual outstanding, reserved and unissued but
authorized amounts may be different from the amounts set forth below. See
"-- Fractional Shares."
UNISSUED AND
COMMON STOCK RESERVED AUTHORIZED
REVERSE STOCK SPLIT OUTSTANDING(1) SHARES(2) COMMON STOCK(3)
------------------- -------------- ---------- ---------------
Before Split.................................. 26,867,960 7,277,018 43,132,040
1-for-3..................................... 8,955,987 2,425,673 61,044,013
1-for-4..................................... 6,716,990 1,819,255 63,283,010
1-for-5..................................... 5,373,592 1,455,404 64,626,408
1-for-6..................................... 4,477,993 1,212,836 65,522,007
1-for-7..................................... 3,838,280 1,039,574 66,161,720
1-for-8..................................... 3,358,495 909,627 66,641,505
---------------
(1) As of March 15, 2001. No adjustment to the number of shares of Common Stock
outstanding has been made for the amount of reserved shares shown in this
table.
(2) Includes (a) 6,323,233 shares of Common Stock reserved for potential
issuance pursuant to the Plan, (b) 542,706 shares of Common Stock reserved
for potential issuance in 2001 in connection with some of the Company's
acquisitions upon the attainment of certain performance goals and (c)
411,079 shares of Common Stock reserved for potential issuance upon the
conversion in full of the outstanding shares of Preferred Stock.
(3) Equals the total number of shares of Common Stock authorized less shares
outstanding.
IN CONNECTION WITH THE APPROVAL OF THE REVERSE STOCK SPLIT, SHAREHOLDERS OF
THE COMPANY WILL NOT HAVE A RIGHT TO DISSENT AND OBTAIN PAYMENT FOR THEIR SHARES
UNDER THE DISSENTERS' RIGHTS PROVISIONS CONTAINED IN SECTION 14-2-1301 ET SEQ.
OF THE GEORGIA BUSINESS CORPORATION CODE.
OUTSTANDING OPTIONS AND PREFERRED STOCK
On the Split Effective Date (as defined below), all outstanding options and
future or contingent rights to acquire Common Stock, as well as shares of
Preferred Stock convertible into Common Stock, will be adjusted to reflect the
Reverse Stock Split. With respect to outstanding options to purchase Common
Stock, the number of shares of Common Stock that such holders may purchase upon
exercise of such options will decrease, and the exercise prices of such options
will increase, in proportion to the fraction by which the number of shares of
Common Stock underlying such options are reduced as a result of the Reverse
Stock Split. The number of shares of Common Stock to be received pursuant to
outstanding contingent rights, as well pursuant to the conversion of outstanding
shares of Preferred Stock, will also be adjusted proportionally to reflect the
Reverse Stock Split.
MANNER OF EFFECTING THE REVERSE STOCK SPLIT AND EXCHANGE OF STOCK CERTIFICATES
In the event of the approval of the Reverse Stock Split by the Company's
shareholders, and following the determination by the Board of Directors of the
appropriate ratio for the Reverse Stock Split, the Reverse Stock Split will be
effected by the filing with the Secretary of State of Georgia the Articles of
Amendment.
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See "-- Proposed Form of Amendment to the Articles of Incorporation." The
Reverse Stock Split will become effective on the Split Effective Date set forth
in such Articles of Amendment. As soon as practicable after the Split Effective
Date, the Company will send a letter of transmittal to each holder of record of
Old Shares outstanding on the Split Effective Date. The letter of transmittal
will contain instructions for the surrender of certificates representing the Old
Shares. Upon proper completion and execution of the letter of transmittal and
return thereof, together with certificates representing Old Shares, the holder
of record will be entitled to receive a certificate representing the number of
New Shares into which such holder's Old Shares have been reclassified as a
result of the Reverse Stock Split. SHAREHOLDERS SHOULD NOT SUBMIT ANY
CERTIFICATES UNTIL REQUESTED TO DO SO. No new certificate will be issued to a
holder of record until such holder has surrendered all outstanding certificates
together with the properly completed and executed letter of transmittal. Until
so surrendered, each outstanding certificate representing Old Shares will be
deemed for all corporate purposes after the Split Effective Date to evidence
ownership of New Shares in the appropriately reduced number. No fees or other
commissions will be charged to shareholders to effect the exchange of Old Shares
for New Shares.
FRACTIONAL SHARES
As a result of the Reverse Stock Split, the reclassification of a
shareholder's Old Shares into New Shares as described above may result in the
creation of fractional shares. For instance, if the reverse split ratio is 1-
for-3, a shareholder who owns 100 Old Shares would be entitled to receive after
the Split Effective Date 33 1/3 New Shares. The one-third share is a fractional
share. Fractional shares will be rounded upward to the nearest whole share. New
Shares issued due to upward rounding will be issued solely to save the expense
and inconvenience of issuing fractional shares and do not represent separately
bargained for consideration. Thus, after the Split Effective Date, the
shareholder in the previous example would receive a certificate representing 34
New Shares.
PROPOSED FORM OF AMENDMENT TO THE ARTICLES OF INCORPORATION
If the shareholders approve the Reverse Stock Split and the Board of
Directors decides to effect the Reverse Stock Split, the Company will amend the
existing provision of the Articles of Incorporation relating to the Company's
authorized Common Stock. Accordingly, the first paragraph of Article III of the
Articles of Incorporation will be amended to include the following at the end
thereof:
Each ( ) shares of the Common Stock issued
as of the date and time immediately preceding [INSERT DATE
UPON WHICH ARTICLES OF AMENDMENT ARE FILED], the effective
date of a reverse stock split (the "Split Effective Date"),
shall be automatically changed and reclassified, as of the
Split Effective Date and without further action, into one (1)
fully paid and nonassessable share of the Common Stock;
provided, however, that any fractional interest resulting from
such change and reclassification shall be rounded upward to
the nearest whole share. Share interests due to rounding are
given solely to save expense and inconvenience of issuing
fractional shares and do not represent separately bargained
for consideration. Each holder of record of a certificate or
certificates which immediately prior to the Split Effective
Date represents outstanding shares of Common Stock (the "Old
Certificates," whether one or more) shall be entitled to
receive upon surrender of such Old Certificates to the
Corporation's transfer agent for cancellation, a certificate
or certificates (the "New Certificates," whether one or more)
representing the number of whole shares of Common Stock into
and for which the shares of the Common Stock formerly
represented by such Old Certificates so surrendered, are
reclassified under the terms hereof. From and after the Split
Effective Date, Old Certificates shall represent only the
right to receive New Certificates pursuant to the provisions
hereof.
If the shareholders approve the Reverse Stock Split, the above amendment
(as completed to account for the split exchange ratio and the Split Effective
Date) to the Articles of Incorporation would become effective
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upon the Board of Directors' decision to implement the Reverse Stock Split and
the filing of such amendment with the Secretary of State of Georgia.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Company believes that the Federal income tax consequences of the
Reverse Stock Split to holders of Old Shares and holders of New Shares will be
as follows:
1. No gain or loss will be recognized by a shareholder on the
surrender of the Old Shares or receipt of a certificate representing New
Shares.
2. The aggregate tax basis of the New Shares will equal the aggregate
tax basis of the Old Shares exchanged therefor.
3. The holding period of the New Shares will include the holding
period of the Old Shares if such Old Shares were held as capital assets on
the date of the exchange.
4. The conversion of the Old Shares into the New Shares will produce
no gain or loss to the Company.
The Company's opinion is not binding upon the Internal Revenue Service or
the courts, and there can be no assurance that the Internal Revenue Service or
the courts will accept the positions expressed above.
This summary does not purport to be complete and does not address the tax
consequences to holders that are subject to special tax rules, such as banks,
insurance companies, regulated investment companies, personal holding companies,
foreign entities, non-resident foreign individuals, broker-dealers and tax
exempt entities.
The state and local tax consequences of the Reverse Stock Split may vary
significantly as to each shareholder, depending upon the state in which the
shareholder resides.
The foregoing summary is included for general information only.
Accordingly, shareholders are urged to consult their own tax advisors with
respect to the Federal, state and local tax consequences of the Reverse Stock
Split.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors will offer the following resolution for approval at
the Annual Meeting:
RESOLVED, that the Board of Directors is authorized in its discretion
without further action of the shareholders of the Company, to file an
amendment to the Articles of Incorporation of the Company, as amended,
in the form set forth in the Proxy Statement dated April 24, 2001, to
effect a reverse stock split of the Company's outstanding shares of
common stock, no par value, at a ratio within a range between and
including 1-for-3 and 1-for-8, and that the Chief Executive Officer, the
Chief Financial Officer or other officer designated by either of them
are, and each of them hereby is, empowered to take any and all action
necessary to effectuate the foregoing.
Approval of the amendment to the Articles of Incorporation and the Reverse
Stock Split will require the affirmative vote of a majority of the issued and
outstanding shares of Common Stock. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE "FOR" APPROVAL OF THE REVERSE STOCK SPLIT.
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EXECUTIVE COMPENSATION
The following table sets forth as of December 31, 2000 all compensation
paid by the Company during fiscal years 1999 and 2000 to (i) all of the persons
who served during fiscal year 2000 as the Company's Chief Executive Officer and
(ii) the four other most highly compensated executive officers, including one
former executive officer, whose total annual salary and bonus for fiscal year
2000 exceeds $100,000 (collectively, the "Named Executive Officers"). Because
none of the Company's current executive officers were employed by the Company or
any of its predecessors prior to July 1999, the Company has omitted information
in this table for fiscal year 1998. In addition, because Messrs. Jackson and
Murphy were hired in 2000, no information has been provided for them for fiscal
year 1999. Pursuant to the rules of the Commission, the compensation described
in this table does not include the value of medical insurance, group life
insurance or other benefits received by any Named Executive Officer that are
available generally to all salaried employees of the Company.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
----------------------------
ANNUAL COMPENSATION AWARDS
----------------------------------- ----------------------------
VALUE OF NUMBER OF
RESTRICTED SECURITIES
FISCAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS COMPENSATION
--------------------------- ------ -------- ------- ------------ ------------ ------------ ------------
Donny R. Jackson........... 2000 $ 45,833 $ -- $ 860(1) $ -- 1,000,000 $ --
Chief Executive Officer
Glenn W. Sturm............. 2000 12(3) --(3) -- -- 100,000(4) --
Former Chief Executive 1999 1(3) --(3) -- -- 310,000(4) --
Officer (2)
Catherine G. Silver........ 2000 171,336 50,000 20,380(6) -- 100,000 104,800(7)
Former President and 1999 -- -- 72,500(8) 1,125,000(9) 75,000 --
General Manager (5)
C. Michael Bowers.......... 2000 200,000 -- 22,500(10) -- -- --
Chief Administrative 1999 52,083 -- 6,000(10) -- 300,000 --
Officer
Richard S. Eiswirth........ 2000 166,042 -- 16,167(11) -- 75,000 --
Senior Executive Vice 1999 35,000 15,000 5,400(11) -- 270,000(12) --
President, Chief
Financial Officer and
Secretary
Michael E. Murphy.......... 2000 153,583 -- -- -- 202,549(13) --
Chief Technology Officer
---------------
(1) Includes $860 in automobile allowance payments.
(2) Mr. Sturm resigned as Chief Executive Officer in October 2000.
(3) In 1999 and 2000, Mr. Sturm waived the receipt of all salary and bonus owed
to him by the Company, except as otherwise shown.
(4) Upon his resignation as Chief Executive Officer, Mr. Sturm forfeited to the
Company options to purchase in the aggregate 200,000 shares of Common
Stock. These options were granted in 1999 and 2000.
(5) Ms. Silver resigned as President and General Manager in November 2000.
(6) Includes $9,600 in automobile allowance payments and $10,780 in employer
matching 401(k) contributions. The amount of employer matching 401(k)
contributions includes 7,805 shares of Common Stock with a fair market
value of $2,927 as of December 31, 2000.
(7) Represents amounts accrued or paid in connection with Ms. Silver's
resignation in November 2000. This amount includes severance compensation
and COBRA health insurance coverage premiums accrued in fiscal year 2000 by
the Company.
(8) Represents payments made under a consulting arrangement prior to Ms.
Silver's employment with the Company.
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(9) Ms. Silver was granted a restricted stock award of 75,000 shares of Common
Stock in November 1999. The award was valued at $15.00 per share and vested
in three equal installments over a period of three years. One third of this
award vested in November 2000. Upon her resignation, the Company
accelerated the vesting of the second portion of this award in exchange for
the cancellation of the third portion.
(10) Includes $12,000 and $4,000 in automobile allowance payments and $10,500
and $2,000 in employer matching 401(k) contributions in 2000 and 1999,
respectively. The amount of employer matching 401(k) contributions in 2000
includes 9,333 shares of Common Stock with a fair market value of $3,500 as
of December 31, 2000.
(11) Includes $12,000 and $4,000 in automobile allowance payments and $4,167 and
$1,400 in employer matching 401(k) contributions in 2000 and 1999,
respectively. The amount of employer matching 401(k) contributions in 2000
includes 3,733 shares of Common Stock with a fair market value of $1,400 as
of December 31, 2000.
(12) Represents options granted by the Company in 1999, excluding options to
purchase 30,000 shares of common stock of Direct Access, the Company's
predecessor, which were exercised in August 1999 by Mr. Eiswirth prior to
the Company's merger with Direct Access.
(13)Includes options to purchase 2,549 shares of Common Stock that were granted
in exchange for options to purchase 2,549 shares of Digital Visions common
stock held by Mr. Murphy immediately prior to the Company's acquisition of
Digital Visions in March 2000.
EMPLOYMENT AGREEMENTS
All of the Company's executive officers were hired in 1999, except for Mr.
Murphy, who was hired in March 2000, and Messrs. Anderson and Jackson, who were
hired in October 2000. The Company entered into separate Employment Agreements
with each of Messrs. Sturm, Bowers and Eiswirth on September 1, 1999, and the
Company amended the Employment Agreement with Mr. Eiswirth on March 1, 2000. Mr.
Sturm terminated his Employment Agreement with the Company in October 2000. The
Employment Agreements with these executive officers provide for minimum annual
salaries as follows: Mr. Sturm, $250,000; Mr. Bowers, $200,000; and Mr.
Eiswirth, $140,000. However, Mr. Sturm elected to waive substantially all of his
salary and bonus for fiscal year 1999 and for fiscal year 2000. In addition,
each of these Employment Agreements provide, among other things:
- for a term of two years, subject to extension by the Company for an
additional two years;
- for incentive compensation based upon achievement of targeted levels of
performance and other criteria that may be established by the Board of
Directors from time to time;
- that the executive is eligible to participate in all of the Company's
management incentive programs, and in the Company's stock, retirement and
similar plans, that the Company will pay for the executive's club dues
and that the Company will provide him with an automobile allowance,
permit him to use the Company's assets free of charge and provide him
with other benefits;
- for termination upon death or disability or for cause;
- that the executive may terminate the Employment Agreement following a
change in control of the Company;
- if the Employment Agreement is terminated by the Company without cause or
by the executive after the Company's breach or after a change in control:
- the executive will receive as a lump sum accrued compensation and bonus,
and his annual base salary, bonus and certain benefits for the remainder
of the term of the Employment Agreement (or if the remainder of the term
is less than one year, his salary for one year);
- options and other stock awards held by the executive vest and become
immediately exercisable;
- that the executive will have piggyback registration rights to have his
shares included in any registered offering the Company completes, subject
to various limitations and conditions;
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- that the executive will be permitted to participate in venture capital
and other investments whether or not the Company participates in the
particular investment; and
- if the executive is required to pay Federal excise taxes by reason of a
"golden parachute payment," the Company will reimburse him for those
excise taxes.
Mr. Sturm's Employment Agreement permitted him to continue to provide legal
and other consulting services and to serve a director or advisor to other
organizations, provided that such activities did not materially interfere with
his duties as the Company's Chief Executive Officer and were not materially
adverse to the Company's interests. He was entitled to keep all compensation
paid to him for rendering legal or consulting services or serving as a director
or advisor.
On February 28, 2000, the Company entered into a two-year Employment
Agreement with Mr. Murphy that provides him with a base salary of $185,000 per
year. Pursuant to the terms of this Employment Agreement, the Company also
granted Mr. Murphy an option under the Plan to purchase up to 100,000 shares of
Common Stock. This option has an exercise price of $22.125 per share. One-half
of the option vested after 12 months of employment and the remaining one-half of
the option will vest after 24 months of employment, except that the option shall
vest in full immediately upon a transfer of control of the Company. If the
Employment Agreement is terminated by the Company without cause, Mr. Murphy will
receive payment of his base salary for the greater of 12 months or the remainder
of the term. The agreement also prohibits Mr. Murphy from competing with the
Company or soliciting its customers, employees or consultants during the term of
the Employment Agreement. Thereafter, the Company may extend these prohibitions
for up to 18 months after the Employment Agreement expires. However, if the
Company extends these prohibitions, the Company must pay Mr. Murphy the amount
of his last monthly salary during each month that such prohibitions are
extended.
On October 9, 2000, the Company entered into a one-year Employment
Agreement with Mr. Anderson that provides him with a base salary of $150,000 per
year. This Agreement may be renewed from year to year upon notice of renewal for
successive one-year terms. Mr. Anderson is also entitled to receive quarterly
commission payments equal to 0.5% of the revenue derived from the Company's
continuing operations (excluding revenue obtained as a result of acquisitions)
up to the Company's revenue budget, and 0.75% of any such revenue over budget,
in each case from all sources directly under Mr. Anderson's control on the first
day of the quarter. Mr. Anderson is eligible to participate in any other
management incentive programs established by the Company and to receive
incentive compensation based upon the achievement of targeted levels of
performance and such other criteria as the Chief Executive Officer or the
Compensation Committee may establish from time to time. The Company has also
granted Mr. Anderson an option under the Plan to purchase up to 50,000 shares of
Common Stock at an exercise price of $4.00 per share. This option vests in three
annual installments beginning on October 9, 2001; provided, however, that upon a
change in control, one-half of such option shall vest immediately. If the
Employment Agreement is terminated by the Company without cause, by Mr. Anderson
after the Company's material breach of the Employment Agreement or after a
change in control wherein his position is eliminated, Mr. Anderson will receive
a lump sum cash payment equal to all accrued compensation and bonus, plus an
amount equal to one year's base salary. The Agreement also prohibits Mr.
Anderson from soliciting the Company's customers, employees or consultants for a
period of two years from the date of termination.
On October 10, 2000, the Company entered into a three-year Employment
Agreement with Mr. Jackson that provides him with a base salary of $275,000 per
year. Unless earlier terminated, the term of this Employment Agreement is
automatically extended each day for an additional day so that the remaining term
shall continue to be three years; provided, however, that either party may at
any time, by written notice to the other, fix the term to a finite term of three
years, without further automatic extension, commencing with the date of such
notice. Mr. Jackson is eligible to participate in all of the Company's bonus,
incentive, retirement and insurance programs, as well as other benefit programs
which are generally available to similar executives of the Company.
In addition to his base salary, the Company also granted Mr. Jackson an
option under the Plan to purchase up to 1,000,000 shares of Common Stock. This
option has an exercise price of $3.9375 per share.
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This option shall vest and become exercisable in six installments of 100,000
shares each on the first through sixth anniversaries of the date of grant, with
the remaining 400,000 shares to vest and become exercisable on the seventh
anniversary of the date of grant. In addition, and notwithstanding the
foregoing, 150,000 shares underlying this option shall vest and become
exercisable in full upon the date that the closing price of a share of the
Common Stock is greater than or equal to $10.00 for a period of 30 consecutive
trading days, an additional 200,000 shares underlying this option shall vest and
become exercisable in full upon the date that the closing price of a share of
Common Stock is greater than or equal to $15.00 for a period of 30 consecutive
trading days, and an additional 350,000 shares underlying this option shall vest
and become exercisable in full upon the date that the closing price of a share
of Common Stock is greater than or equal to $20.00 for a period of 30
consecutive trading days. Further, all of the shares underlying this option
shall vest and become exercisable upon a change of control of the Company, as
defined in the Employment Agreement.
If the Employment Agreement is terminated by the Company without cause, Mr.
Jackson will receive payment of his base salary for the greater of 12 months or
the remainder of the term. The Agreement also prohibits Mr. Jackson from
competing with the Company or soliciting its customers, employees or consultants
during the term of the Employment Agreement and for a period of 12 months
thereafter. The Agreement does not prevent Mr. Jackson from remaining an
employee of InterCept so long as only minimal time is spent on matters for
InterCept and such employment does not interfere with Mr. Jackson's performance
of his duties under the Employment Agreement.
In November 2000, the Company entered into a Severance Agreement with
Catherine G. Silver pursuant to which her Employment Agreement with the Company
was terminated. Ms. Silver agreed that from November 15, 2000 to May 15, 2001,
Ms. Silver would continue to be employed with the Company, but she was not
required to report to work after November 15, 2000, except to remain available
thereafter as needed by the Company for up to five hours per week. The Company
will continue to pay Ms. Silver's salary of $16,667 per month through May 15,
2001, and Ms. Silver will continue to participate in the Company's employee
health benefit plans through May 15, 2001. From May 15, 2001 to November 15,
2002, the Company has agreed to continue Ms. Silver's health insurance coverage
by making COBRA payments. With respect to Ms. Silver's 75,000 share restricted
stock award, the Company agreed to give her 50,000 shares subject to that award
in exchange for her forfeiture of the remaining 25,000 shares subject to that
award.
The Company has also entered into agreements with other employees who are
not executive officers.
COMPENSATION OF DIRECTORS
Neither employee nor non-employee directors receive cash compensation for
services performed in their capacity as directors. The Company reimburses each
director for reasonable out-of-pocket expenses incurred in attending meetings of
the Board of Directors and any of its committees. In addition, directors are
eligible to receive grants of awards under the Plan. In September 1999, the
Board of Directors approved a one-time grant of options to purchase 40,000
shares of Common Stock to each then existing director of the Company and to each
person who thereafter became elected to the Board of Directors. One fourth of
each of these options vests immediately on the date of election and the
remainder of the option vests in equal installments over the next three
anniversaries of the grant date. Upon being elected to the Board of Directors,
Messrs. Carden and O'Malley were unable to accept their one-time grant of
options due to their obligations to Harland.
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STOCK OPTIONS
The following table sets forth information regarding the grant of stock
options in fiscal year 2000 to each of the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------------------------------
PERCENT OF PER SHARE
NUMBER OF TOTAL FAIR MARKET
SECURITIES OPTIONS/SARS PER SHARE VALUE OF
UNDERLYING GRANTED TO EXERCISE OR STOCK ON
OPTIONS/SARS EMPLOYEES IN BASE DATE OF
NAME GRANTED FISCAL YEAR PRICE GRANT EXPIRATION DATE
---- ------------ ------------ ----------- ----------- -----------------
Donny R. Jackson........ 1,000,000(1) 42.0% $3.9375 $3.9375 October 9, 2010
Glenn W. Sturm.......... 100,000(2) 4.2 9.75 9.75 April 17, 2010
Catherine G. Silver..... 100,000(3) 4.2 9.75 9.75 April 17, 2010
C. Michael Bowers....... -- -- -- -- --
Richard S. Eiswirth..... 50,000(4) 2.1 9.75 9.75 April 17, 2010
25,000(5) 1.0 1.25 1.25 November 28, 2010
Michael E. Murphy....... 100,000(6) 4.2 22.125 22.125 March 7, 2010
1,961(7) 0.1 10.20 22.125 (8)
588(7) < 0.1 17.08 22.125 (9)
100,000(10) 4.2 9.75 9.75 April 17, 2010
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM
------------------------------------
NAME 0% 5% 10%
---- ------- ---------- ------------
Donny R. Jackson........ $ -- $2,476,273 $ 6,275,361
Glenn W. Sturm.......... -- 613,172(2) 1,553,899(2)
Catherine G. Silver..... -- 613,172(3) 1,553,899(3)
C. Michael Bowers....... -- -- --
Richard S. Eiswirth..... -- 306,586 776,949
-- 19,653 49,804
Michael E. Murphy....... -- 1,391,744 3,526,952
23,395 30,037 37,398
2,969 6,217 10,071
-- 613,172 1,553,899
---------------
(1) The shares of Common Stock subject to this option shall vest and become
exercisable in six installments of 100,000 shares each on the first through
sixth anniversaries on the date of grant, with the remaining 400,000 shares
to vest and become exercisable on the seventh anniversary of the date of
grant. However, in addition, up to 700,000 shares of Common Stock subject
to this option shall vest and become exercisable in full upon the
attainment of certain price targets for the Common Stock. Further, all
remaining shares of Common Stock subject to this option shall vest and
become exercisable upon a change of control, as defined in Mr. Jackson's
Employment Agreement.
(2) This option was forfeited by Mr. Sturm to the Company in connection with
his resignation in October 2000.
(3) This option was forfeited by Ms. Silver to the Company in connection with
her resignation in November 2000.
(4) The shares of Common Stock subject to this option shall vest and become
exercisable in 36 equal monthly installments, with the first installment
having vested on May 17, 2000.
(5) The shares of Common Stock subject to this option shall vest and become
exercisable in three equal installments, with the first installment to vest
on November 28, 2001 and subsequent installments to vest on November 28,
2002 and 2003, respectively.
(6) The shares of Common Stock subject to this option shall vest and become
exercisable in two equal installments, with the first installment having
vested March 7, 2001 and the remainder to vest on March 7, 2002.
(7) In connection with the Company's acquisition of Digital Visions in March
2000, the Company issued these options in exchange for options to purchase
Digital Visions stock held by Mr. Murphy immediately prior to such
acquisition.
(8) This option shall expire as to one-tenth of the shares subject to such
option on each of the following dates: October 1, 2001, March 26, 2002,
September 1, 2002, October 1, 2002, January 1, 2003, April 1, 2003, July 1,
2003, October 1, 2003, December 31, 2003 and March 1, 2004.
(9) This option shall expire in three equal installments on each of the
following dates: July 1, 2004, September 30, 2004 and December 30, 2004.
(10) The shares of Common Stock subject to this option shall vest and become
exercisable in two equal installments, with the first installment having
vested on April 17, 2001 and the remainder to vest on April 17, 2002.
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No options were exercised in fiscal year 2000 by any of the Named Executive
Officers. The following table sets forth information concerning the value at
December 31, 2000 of unexercised options held by each of the Named Executive
Officers.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/SARS
YEAR-END AT FISCAL YEAR-END(1)
--------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Donny R. Jackson............................ -- 1,000,000 $ -- $ --
Glenn W. Sturm.............................. 133,333(2) 76,667(2) -- --
Catherine G. Silver......................... --(3) --(3) -- --
C. Michael Bowers........................... 216,666 83,334 -- --
Richard S. Eiswirth......................... 214,445 130,555 -- --
Michael E. Murphy........................... 2,549 200,000 -- --
---------------
(1) Based upon a per share price of $0.375, the closing price of a share of
Common Stock on December 31, 2000, as reported by the Nasdaq National
Market.
(2) Reflects the forfeiture of options to purchase 200,000 shares of Common
Stock in connection with Mr. Sturm's resignation in October 2000.
(3) Reflects the forfeiture of options to purchase 175,000 shares of Common
Stock in connection with Ms. Silver's resignation in November 2000.
NETZEE, INC. 1999 STOCK OPTION AND INCENTIVE PLAN
Effective August 5, 1999, the Board of Directors and shareholders of the
Company approved the Plan. Under the Plan, the Company may grant to eligible
persons, including employees, directors, consultants and advisors of the
Company, incentive stock options, non-qualified stock options, restricted stock
awards and stock appreciation rights. The Compensation Committee believes that
the Plan is an important part of the Company's overall compensation program. The
Plan supports the Company's ongoing efforts to attract and retain talented
employees and directors and gives the Company the ability to provide employees
and others with incentives that are directly linked to the Company's financial
results and increases in shareholder value. In addition, the Company may grant
options outside of the Plan.
Eligibility. The Compensation Committee determines the persons eligible to
receive awards under the Plan. These persons may include, without limitation,
employees, directors, key consultants or advisors of the Company.
Administration. The Compensation Committee administers the Plan, except
that with respect to options or awards granted to the Company's executive
officers or directors, the full Board of Directors or a committee comprised
solely of two or more non-employee directors (if the Compensation Committee is
not so comprised) is responsible for granting awards. The Compensation Committee
will determine the terms of any awards granted under the Plan, within
limitations specified in the Plan.
Shares Reserved. The maximum number of shares of Common Stock that
currently may be subject to outstanding awards, determined immediately after the
grant of any award, is 6,323,233 shares, subject to adjustments for stock
splits, dividends and other dilution events. The Plan provides that the number
of shares of Common Stock available for issuance under the Plan shall be
increased on the first day of each calendar year so that the maximum number of
shares available for the issuance of options is equal to 20% of the number of
shares of Common Stock outstanding on the preceding trading day, as determined
on a fully-diluted basis, but in no case will the number of shares be less than
3,500,000, and in no event shall the total number of incentive stock options
granted under the Plan exceed 3,500,000.
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Stock-Based Awards. The Plan permits the Company to grant incentive stock
options, which qualify for special tax treatment, and non-qualified stock
options, as well as restricted stock awards and stock appreciation rights. The
exercise price for incentive stock options cannot be less than the fair market
value of Common Stock on the date of grant, as determined under the Plan, or,
with respect to a shareholder owning more than 10% of the total combined voting
power of all classes of the Company's stock, not less than 110% of the fair
market value of the Common Stock on the date of grant. The term of an incentive
stock option may not exceed 10 years, or five years if granted to a shareholder
owning more than 10% of the total combined voting power of all classes of stock.
The number of shares subject to options granted to a person in a year may not
exceed 1,000,000. Incentive stock options may not be granted under the Plan
after August 5, 2009.
Under the Plan, the Company may also award shares of restricted Common
Stock. Each award agreement will set forth conditions that must be satisfied
before the restricted stock vests and becomes transferable. Restricted stock
awards may be forfeited if, for example, the recipient's employment terminates
before the award vests. Except as specified at the time of grant, holders of
restricted stock will have voting rights and the right to receive dividends on
such stock.
The shares of Common Stock subject to any award that terminates, expires or
is cashed out without payment being made in the form of Common Stock will again
be available for issuance under the Plan.
As of March 15, 2001, the Company has granted options to purchase an
aggregate of 2,892,549 shares of Common Stock to persons who are currently
executive officers and directors of the Company, at per share exercise prices
ranging from $2.00 to $22.125, of which options to purchase 240,000 shares have
been canceled or forfeited. All such canceled or forfeited options are available
for reissuance under the Plan. The following executive officers and directors
have received grants of options to purchase the specified amount of shares of
Common Stock as of March 15, 2001:
AMOUNT OF SHARES
UNDERLYING
EXECUTIVE OFFICER OR DIRECTOR OPTIONS GRANTED
----------------------------- ----------------
Donny R. Jackson............................................ 1,000,000(1)
Richard S. Eiswirth......................................... 345,000(2)
C. Michael Bowers........................................... 300,000
John W. Collins............................................. 215,000
Glenn W. Sturm.............................................. 210,000(3)
Michael E. Murphy........................................... 202,549
Bruce P. Leonard............................................ 85,000
Jon R. Burke................................................ 80,000
L. Dan Anderson............................................. 50,000
Gayle M. Earls.............................................. 45,000
A. Jay Waite................................................ 40,000
Jefferson B.A. Knox, Sr..................................... 40,000
Stiles A. Kellett, Jr....................................... 40,000
---------------
(1)Reflects the forfeiture to the Company of options to purchase 40,000 shares
of Common Stock in April 2000.
(2) Does not include options to purchase 30,000 shares of Direct Access common
stock that were exercised by Mr. Eiswirth in August 1999 prior to the
assumption of such options by the Company.
(3) Reflects the forfeiture to the Company of options to purchase 200,000 shares
of Common Stock in November 2000.
All options granted to the Company's executive officers and directors vest
in equal installments over a three-year period from the date of grant except:
- 50,000 shares subject to Mr. Eiswirth's options were immediately
exercisable when granted, 30,000 shares of which were exercised by Mr.
Eiswirth;
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- 2,549 shares subject to Mr. Murphy's options were immediately exercisable
on March 7, 2000, 100,000 shares subject to Mr. Murphy's options became
exercisable in 2001, and the remaining 100,000 shares subject to Mr.
Murphy's options will become exercisable in two equal installments on
March 7, 2002 and April 17, 2002, respectively;
- 50,000 shares subject to an option held by Mr. Eiswirth become
exercisable in 36 equal monthly installments, with the first installment
having vested on May 17, 2000;
- 20,000 shares subject to options held by each of Messrs. Burke, Collins,
Earls, Kellett, Knox, Leonard, Sturm and Waite are currently vested; and
- 85,000 shares subject to Mr. Sturm's options, 175,000 shares subject to
Mr. Bowers' options and 150,000 of the remaining 250,000 shares subject
to Mr. Eiswirth's options, vested on November 15, 1999, the date the
Company completed its initial public offering.
In addition, options to purchase 2,305,368 shares of Common Stock have been
granted to other employees and consultants of the Company as of March 15, 2001
at per share exercise prices ranging from $.01 to $17.08, of which options to
purchase 14,167 shares have been exercised and options to purchase 1,012,812
shares have been canceled or forfeited. All such canceled or forfeited options
are available for reissuance under the Plan.
The Board of Directors has approved a one-time grant of options to purchase
40,000 shares to each director as of the date the director is first elected to
the board of directors, one-fourth of which vests immediately and the remainder
of which vests in equal portions over the three anniversaries of the date of
grant. See "-- Compensation of Directors."
On November 15, 1999, an award of 75,000 shares of restricted stock was
granted to Ms. Silver, who at the time was a consultant to the Company. The
award provided for vesting in three equal installments beginning November 15,
2000. Ms. Silver became an employee of the Company in December 1999. In April
2000, Ms. Silver became the President and General Manager of the Company. In
connection with Ms. Silver's resignation in November 2000, she received 50,000
shares of stock in exchange for the forfeiture of the remaining 25,000 shares.
There have not been any other awards of restricted stock.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The information contained in the following report shall not be deemed to be
"soliciting material" or to be "filed" with the Commission, nor shall such
information be incorporated by reference into any future filing under the
Securities Act or the Exchange Act, except to the extent that the Company
specifically incorporates it by reference into such filing.
The compensation and benefit practices of the Company are addressed by the
Compensation Committee, which is presently comprised of three directors. The
Compensation Committee establishes the general compensation policy of the
Company, establishes the compensation of the Chief Executive Officer of the
Company, approves the compensation of other executive officers of the Company
and administers the Plan, except that the Board of Directors must approve all
awards under the Plan to executive officers and directors of the Company.
Compensation Philosophy. The Compensation Committee has determined that
the Company's compensation program should be directed to rewarding performance
that creates value for shareholders. The Compensation Committee's policies focus
on attracting, motivating and assisting in the retention of key employees who
demonstrate high levels of ability and talent. The compensation program looks
both to the short and long term, balancing compensation to reward executive
officers for past performance of the Company with incentives for contributions
to a superior future performance of the Company over the long term. The
Compensation Committee utilizes base salary, cash bonuses and grants of stock
options and other incentive awards as part of its compensation program.
Base Salary Program. Base salaries were initially determined primarily by
evaluating the responsibilities of the position held by, and the experience of,
each executive officer in addition to competitive comparisons
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with like industries and companies in the geographic area. Annual salary
adjustments are determined by evaluating the competitive marketplace, the
performance of the Company, the performance of the executive and any increased
responsibilities assumed by the executive.
Bonus Compensation Program. Executive officers are eligible to receive
annual cash bonuses based upon criteria established by the Compensation
Committee based upon the operating performance of the Company.
Equity-Based Incentive Awards. Awards of equity-based compensation,
including stock options, restricted stock and stock appreciation rights under
the Plan are intended to reward contributions by executive officers and
employees to the Company's performance and to align the long-term interests of
such persons with those of the shareholders. The Compensation Committee also
considers equity-based compensation to be an important method of providing an
incentive for executive officers to remain with, and to continue to make
significant contributions to, the Company. In awarding equity-based
compensation, the Compensation Committee considers the number of shares
underlying the award and the value of the award held by each executive officer
that will vest in future periods and seeks to maintain equitable relationships
among executive officers who have similar levels of responsibility.
Compensation of Chief Executive Officers. Mr. Sturm, the Company's Chief
Executive Officer until October 2000, was eligible to earn an annual base salary
of $250,000 in fiscal year 2000 pursuant to the terms of an Employment Agreement
dated September 1, 1999. However, Mr. Sturm waived the receipt of all salary and
bonus owed to him by the Company in fiscal 2000, except for $12. In April 2000,
Mr. Sturm received options under the Plan to purchase 100,000 shares of Common
Stock, which option was to vest in 12 equal monthly installments beginning on
May 17, 2000. However, in connection with Mr. Sturm's resignation in October
2000, Mr. Sturm forfeited 200,000 of his 410,000 options to the Company,
including the option granted to him in April 2000. The Board of Directors
concluded that Mr. Sturm's 2000 annual base salary as stated in his Employment
Agreement and the grants of options to Mr. Sturm under the Plan were reasonable
in amount and consistent with industry practices.
Mr. Jackson, the Company's Chief Executive Officer since October 2000, was
eligible to earn an annual base salary of $275,000 pursuant to the terms of an
Employment Agreement dated October 10, 2000. Mr. Jackson also received options
under the Plan to purchase up to 1,000,000 shares of Common Stock. See
"-- Employment Agreements." The Board of Directors concluded that Mr. Jackson's
2000 annual base salary as stated in his Employment Agreement and the grant of
options to Mr. Jackson under the Plan are reasonable in amount and consistent
with industry practices. The Compensation Committee may consider additional long
term compensation awards to Mr. Jackson based upon his achievement of the
Company's operational and financial objectives.
Compliance with Section 162(m) of the Internal Revenue Code. Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), generally
disallows a tax deduction to public companies for compensation over $1 million
that is paid to the public company's chief executive officer and its four other
most highly compensated executive officers. Qualified performance-based
compensation under Section 162(m) of the Code and the applicable regulations is
not subject to the deduction limit if certain requirements are met. The
Compensation Committee believes that incentive awards granted under the Plan
have been exempt from the limitations as performance-based compensation as a
result of certain transition rules adopted under Section 162(m) and because the
Plan was effective prior to the Company's initial public offering. The Company
intends to take all actions necessary so that these awards continue to qualify
for treatment under the transitional rules or as performance-based compensation
and would therefore continue to be exempt from the Section 162(m) limit in
accordance with the regulations adopted under Section 162(m). The Company
believes that compensation expected to be paid in fiscal year 2001 to its
executive officers will not exceed the Section 162(m) limitations.
Charles B. Carden
Stiles A. Kellett, Jr.
A. Jay Waite
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PERFORMANCE OF THE COMPANY'S COMMON STOCK
The information contained in this section shall not be deemed to be
"soliciting material" or to be "filed" with the Commission, nor shall such
information be incorporated by reference into any future filing under the
Securities Act or the Exchange Act, except to the extent that the Company
specifically incorporates it by reference into such filing.
The following performance graph compares the cumulative shareholder return
on the Common Stock to the cumulative total return of the Nasdaq Stock Market
(U.S. Companies) and the Nasdaq Computer & Data Processing Index (formerly the
Nasdaq Computer Index) over the period from November 8, 2000, the date the
Common Stock was registered under the Exchange Act, to December 31, 2000. The
graph assumes that the value of the investment in the Common Stock and each
index was $100 at November 8, 1999 and that all dividends paid through such
period were reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN
NOVEMBER 8, 1999 TO DECEMBER 31, 2000
NASDAQ STOCK MARKET NASDAQ COMPUTER & DATA
NETZEE, INC. INDEX (U.S. COMPANIES) PROCESSING INDEX
------------ ---------------------- ----------------------
November 8, 1999 $ 100.00 $ 100.00 $ 100.00
December 31, 1999 $ 118.75 $ 119.06 $ 108.84
December 31, 2000 $ 2.68 $ 73.42 $ 62.31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company believes that all of the following transactions were made on
terms no less favorable to the Company than would have been obtained from
unaffiliated third parties on an arm's length basis. All transactions with the
Company's shareholders, officers and directors or their affiliates, if any, are
subject to the approval of a majority of the Company's independent and
disinterested outside directors and are conducted on terms no less favorable to
the Company than could be obtained from unaffiliated third parties on an arm's
length basis.
ACQUISITIONS
In March and November 2000, the Company acquired in separate transactions
Digital Visions and the Internet banking and bill payment operations of certain
of Harland's subsidiaries. The following table summarizes the total number of
shares of Common Stock that the Company issued to persons who became executive
officers, directors or more than 5% shareholders of the Company as a result of
such transactions. The shares issued to Digital Visions were issued at a price
of $22.125 per share, and the shares issued to Harland
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were issued at a price of $4.00 per share. Of the shares shown with respect to
the Digital Visions acquisition, 10% were placed in escrow for one year from the
date of acquisition for indemnification purposes.
ACQUISITION NAME OF RELATED PARTY NUMBER OF SHARES ISSUED
----------- --------------------- -----------------------
Digital Visions Michael E. Murphy 82,014(1)
Internet banking and bill payment
assets of Harland's subsidiaries Harland's subsidiaries 4,400,000
---------------
(1) Does not include (a) any shares that may be issued to Digital Visions
pursuant to the attainment of revenue targets in fiscal year 2001 or (b)
options to purchase 102,549 shares of Common Stock that were granted to Mr.
Murphy in connection with the acquisition of Digital Visions.
RELATIONSHIPS WITH INTERCEPT
Common and Related Officers and Directors
InterCept currently owns approximately 28% of the Common Stock. The
Company's Chairman of the Board of Directors, John W. Collins, is the Chairman
and Chief Executive Officer of InterCept, and Donny R. Jackson, who is the Chief
Executive Officer and a director of the Company, is a director of InterCept. In
addition, the Company's Vice Chairman, Glenn W. Sturm, is also a director of
InterCept, and Jon R. Burke is a director of both the Company and InterCept.
Boone A. Knox, the father of Jefferson B. A. Knox, Sr., a director of the
Company, is a director of InterCept.
Marketing and Vendor Arrangements
The Company has entered into a marketing arrangement with InterCept under
which the Company sells InterCept's products and services and InterCept sells
the Company's products and services. Under this arrangement, the Company pays a
commission to InterCept for each sale of the Company's products and services
made by InterCept and for each referral by InterCept to the Company's sales
force that results in a sale. InterCept correspondingly pays the Company for
sales and referrals by the Company's salespersons. Net payments to InterCept
under this relationship were $357,000 in fiscal year 2000.
During 2000, the Company utilized InterCept's vendor relationships to
purchase certain hardware and software used in connection with the Company's
Internet and telephone banking products. By utilizing these vendor
relationships, the Company was able to take advantage of purchasing discounts
that the Company would have been unable to obtain on its own. In addition,
InterCept assisted the Company in managing the ordering and inventory process
related to this equipment. During 2000, the Company incurred approximately
$435,000 in costs to InterCept to purchase this equipment, which included a fee
to InterCept for its services.
Shared Facilities
During 2000, the Company shared some of its facilities with InterCept. The
Company incurred approximately $163,000 of costs related to these shared
facilities during 2000.
Sale of Regulatory and Reporting Products to InterCept
On February 2, 2001, the Company sold to InterCept certain of its
regulatory and reporting assets acquired from DPSC Software, Inc. in December
1999, and InterCept assumed approximately $2,400,000 in related operating
liabilities, for total consideration of approximately $16,500,000. The Company
received cash proceeds of approximately $14,100,000, of which $250,000 was
placed in escrow for indemnification and other purposes. The amount of the
consideration was determined based upon arm's length negotiations.
Borrowings from InterCept
In May 2000, the Company entered into a $15,000,000 line of credit
agreement with InterCept. At that time, the outstanding principal balance due
under a promissory note issued by the Company to InterCept was
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transferred to the line of credit. The line of credit bore interest at a rate of
prime plus 2% and was secured by substantially all of the Company's assets.
Accrued interest under the line of credit was payable quarterly beginning July
1, 2000. The principal balance was payable at maturity on May 31, 2003. The line
of credit provided for earnings, tangible net worth and other affirmative and
negative covenants and provided for various other conditions and restrictions.
As of December 31, 2000, the Company was out of compliance with certain of these
covenants. However, InterCept waived such noncompliance as of December 31, 2000.
Borrowings under the line of credit were used to fund working capital
requirements.
In conjunction with the sale of the Company's regulatory and reporting
products to InterCept in February 2001, the Company converted the $15,000,000
line of credit with InterCept and a $5,000,000 promissory note issued to Harland
into a joint $20,000,000 credit facility, of which $15,000,000 is funded by
InterCept and $5,000,000 is funded by Harland. See "-- Relationship with
Harland." The terms of this credit facility remain consistent with the terms of
the former InterCept line of credit and the Harland promissory note, except that
both InterCept and Harland now have the right (instead of just InterCept) to
enforce the covenants contained in the line of credit agreement. A substantial
part of the proceeds from the disposition of the regulatory and reporting
products were utilized to pay down this facility.
During 2000, the Company incurred approximately $1,100,000 in interest
expense associated with its borrowings from InterCept.
RELATIONSHIPS WITH HARLAND
On September 29, 2000, the Company entered into an acquisition agreement
with Harland to acquire the Internet banking and bill payment businesses owned
by certain of Harland's subsidiaries. Simultaneously therewith, the Company
borrowed $5,000,000 from Harland pursuant to a promissory note. The note bore
interest at a rate of prime plus 2% and was secured by substantially all of the
Company's assets. Such security was pari passu in priority to the security given
to InterCept with respect to the line of credit. Accrued interest under the note
was payable quarterly beginning January 1, 2001. The principal balance was
payable at maturity on September 29, 2005. Subsequent to September 29, 2002,
Harland had the right to demand full payment of the note and all accrued
interest with 30 days' notice. The proceeds from the note were used to fund
working capital requirements. The Company incurred approximately $148,000 of
interest expense associated with the note for the year ended December 31, 2000.
In conjunction with the sale of the Company's regulatory and reporting
assets to InterCept in February 2001, the Company converted the $15,000,000 line
of credit with InterCept and the $5,000,000 promissory note to Harland into a
joint $20,000,000 credit facility. See "-- Relationships with InterCept."
In connection with the acquisition of assets from Harland, beginning in
November 2000, the Company subleased its Connecticut and Oregon facilities from
Harland. The Company incurred approximately $135,000 in expenses during 2000
associated with these subleases. Additionally, the Company incurred costs
totaling approximately $322,000 related to the usage of certain of Harland's
employees, administrative support and equipment during the post-acquisition
transition.
LICENSE OF CASH MANAGEMENT SOFTWARE TO TIB AND THE BANKERS BANK
In March 2000, the Company entered into a Master Agreement with each of TIB
and The Bankers Bank to allow these bankers' banks to utilize the Company's
Internet-based, bank-to-bank cash management software with their financial
institution customers. This software allows customers of the bankers' banks to
communicate electronically with the bankers' banks and to perform a given set of
electronic banking and cash management transactions. In 2000, the Company
recognized approximately $950,000 in revenues from each of TIB and The Bankers
Bank associated with the license and support of this cash management software.
In connection with the Master Agreements, each bankers' bank paid the Company
for the implementation, training, maintenance and support of the software during
the initial one-year term.
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RELATIONSHIPS WITH DIRECTORS AND OFFICERS
On July 1, 1999, Messrs. Collins, Sturm and Jackson entered into
substantially similar full-recourse promissory notes with Direct Access as
lender. These notes were given as consideration for the issuance of shares of
Common Stock to these individuals. Mr. Collins borrowed $1,100,000, Mr. Sturm
borrowed $1,300,000 and Mr. Jackson borrowed $400,000. Each of these notes bears
interest at 7% per year, and interest must be paid on each June 30 and December
31 until the note is paid in full. These notes mature on June 30, 2002. As of
December 31, 2000, Messrs. Collins, Sturm and Jackson have repaid approximately
$180,000, $1,383,000 and $440,000, respectively, of the principal and interest
due under these notes. Mr. Jackson's and Mr. Sturm's notes were paid in full as
of December 31, 2000.
On August 5, 1999, Mr. Eiswirth borrowed $93,300 from Direct Access and
signed a full-recourse promissory note evidencing this loan. He borrowed this
money to exercise an option to purchase 30,000 shares of Direct Access common
stock. This loan bears interest at a rate of 7% per year. Interest is payable on
each June 30 and December 31 until the note is paid in full. This note matures
on August 4, 2002.
On October 18, 1999, the Company entered into a $1,300,000 non-recourse
term loan with a bank to secure the purchase of equipment that was used by the
Company in connection with its operations. The loan was secured by such
equipment, and each of Mr. Collins and Mr. Sturm personally guaranteed the
Company's obligations under the loan. This loan bore interest at LIBOR plus 2%
per year and was payable in 60 monthly installments beginning on November 1,
1999. On August 22, 2000, the loan was refinanced due to upgrades to the
equipment. As a result, the loan amount was increased to $1,650,000, resulting
in net proceeds to the Company of approximately $400,000. As of December 31,
2000, the outstanding loan balance was $1,599,821.
In December 2000, the Company determined that it no longer needed this
equipment and decided to prepare it for sale. Subsequently, the Company
determined that the fair market value of the equipment was less than the
outstanding balance of the loan securing the equipment. Therefore, on March 1,
2001, the loan was assumed by W-II Investments, Inc. ("W-II"), a corporation
controlled by Messrs. Collins and Sturm. In exchange, the equipment was
transferred from the Company to such entity. As a result of the assumption of
the loan, the Company is no longer responsible for payments under the loan.
The Company's former Chief Executive Officer and current Vice Chairman of
the Board of Directors is a partner at Nelson Mullins, a law firm that provided
legal services to the Company in fiscal year 2000. The Company paid
approximately $425,000 during fiscal year 2000 to this firm for legal services.
LINE OF CREDIT AGREEMENT AND WARRANT
On October 18, 1999, the Company entered into a Line of Credit Agreement
with Kellett Partners, L.P. Stiles A. Kellett, Jr., who became a director of the
Company as a result of this transaction, is an affiliate of Kellett Partners.
Pursuant to this agreement, Kellett Partners agreed to loan up to $3,000,000 to
the Company on a revolving basis at an interest rate equal to the prime rate.
The Company terminated this line of credit on December 15, 1999.
In connection with the line of credit, the Company issued to Kellett
Partners a warrant to purchase up to 461,876 shares of Common Stock at an
exercise price of $3.25 per share. On March 2, 2000, the warrant was exercised
in full.
SHAREHOLDER PROPOSALS
Shareholders who intend to submit proposals to the Company for inclusion in
the Company's Proxy Statement for the 2002 Annual Meeting of Shareholders must
submit such proposals so that they are received by the Company no later than
December 25, 2001. Such proposals must comply with Rule 14a-8 promulgated under
the Exchange Act and all other applicable proxy rules relating to shareholder
proposals in order to be included in the Company's proxy materials.
Shareholders who wish to submit a proposal for consideration at the
Company's 2002 Annual Meeting of Shareholders, but who do not wish to submit the
proposal for inclusion in the Company's Proxy Statement
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pursuant to Rule 14a-8, must submit their proposal to the Company in accordance
with the procedures set forth in the Bylaws of the Company no earlier than
January 16, 2002 and no later than February 15, 2002. Shareholders who intend to
nominate persons for election to the Board of Directors at the 2002 Annual
Meeting of Shareholders must submit such nominations to the Company, in
accordance with the procedures set forth in the Bylaws of the Company, no
earlier than February 15, 2002 and no later than March 17, 2002.
Shareholder nominations for election of directors and other proposals
should be submitted to Richard S. Eiswirth, Senior Executive Vice President,
Chief Financial Officer and Secretary, Netzee, Inc., 6190 Powers Ferry Road,
Suite 400, Atlanta, Georgia 30339.
INDEPENDENT PUBLIC ACCOUNTANTS
AUDIT FEES
The aggregate fees billed by Arthur Andersen for professional services
rendered for the audit of the Company's annual financial statements for the
fiscal year ended December 31, 2000 and the reviews of the financial statements
included in the Company's Forms 10-Q for such fiscal year were approximately
$73,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
No fees were billed in fiscal year 2000 by Arthur Andersen for professional
services related to financial information systems design and implementation, as
such services are defined in the accounting rules of the Commission.
ALL OTHER FEES
Other fees billed by Arthur Andersen for the fiscal year ended December 31,
2000 were approximately $220,000 and were incurred primarily in connection with
certain of the Company's acquisitions. The Audit Committee has considered
whether the provision of the services described above (other than the audit and
review services described in "Audit Fees" above) is compatible with maintaining
the independence of Arthur Andersen as the Company's independent auditors.
Arthur Andersen LLP, the Company's independent accountants for fiscal year
2000, shall serve as the Company's independent accountants for fiscal 2001.
Representatives of Arthur Andersen LLP may be present at the Annual Meeting to
respond to appropriate questions and to make such statements as they may desire.
OTHER MATTERS
The Board has no knowledge of any other matters that may come before the
Annual Meeting and does not intend to present any other matters. However, if any
other matters shall properly come before the Annual Meeting or any adjournment
thereof, the persons holding the proxies will have the discretion to vote on
such matters as they see fit.
If you do not plan to attend the Annual Meeting, in order that your shares
may be represented and in order to assure the required quorum, please sign, date
and return your proxy promptly. In the event you are able to attend the Annual
Meeting, at your request, the Company will cancel any proxy executed by you.
FINANCIAL INFORMATION
Detailed financial information of the Company and its subsidiaries for
fiscal year 2000 is included in the Company's Form 10-K for the fiscal year
ended December 31, 2000, including the Company's audited financial statements
and related schedules thereto, as filed with the Commission on April 2, 2001, a
copy of which is enclosed herewith. The Form 10-K included herewith does not
include any of the exhibits filed thereto. The Company undertakes to furnish
copies of any exhibit to such Form 10-K upon the written request of any
shareholder of the Company, provided that such shareholder shall reimburse the
Company for its
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reasonable expenses incurred in doing so. Written requests for copies of
exhibits to the Form 10-K should be mailed to Richard S. Eiswirth, Senior
Executive Vice President, Chief Financial Officer and Secretary, Netzee, Inc.,
6190 Powers Ferry Road, Suite 400, Atlanta, Georgia 30339.
By Order of the Board of Directors
/s/ RICHARD S. EISWIRTH
Richard S. Eiswirth
Secretary
April 24, 2001
Atlanta, Georgia
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APPENDIX A
AUDIT COMMITTEE CHARTER
The Audit Committee (the "Committee"), of the Board of Directors (the
"Board") of Netzee, Inc. (the "Company"), will have the oversight
responsibility, authority and specific duties as described below.
COMPOSITION
The Committee will be comprised of three or more directors as determined by
the Board. The members of the Committee must meet the independence and
experience requirements of The Nasdaq Stock Market, Inc.'s Marketplace Rules
(the "Marketplace Rules") and the rules of any exchange or other quotation
system upon which the Company's shares are listed or included. The members of
the Committee will be elected annually and will be listed in the annual report
to shareholders. One of the members of the Committee will be elected Committee
Chair by the Board.
RESPONSIBILITY
The Committee is a committee of the Board. Its primary function is to
assist the Board in fulfilling its oversight responsibilities with respect to
(i) the annual financial information to be provided to shareholders and the
Securities and Exchange Commission ("SEC"); (ii) the system of internal controls
that management has established; and (iii) the internal and external audit
process. In addition, the Committee provides an avenue for communication between
the internal auditors, the independent accountants, financial management and the
Board. The Committee should have a clear understanding with the independent
accountants that they must maintain an open relationship with the Committee, and
that the ultimate accountability of the independent accountants is to the Board
and the Committee. The Committee will make regular reports to the Board
concerning its activities.
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditors. It is also not the
duty of the Committee to conduct investigations, to resolve disagreements, if
any, between management and the independent auditors or to assure compliance
with laws and regulations and the Company's business conduct guidelines.
AUTHORITY
Subject to the prior approval of the Board, the Committee is granted the
authority to investigate any matter or activity involving financial accounting
and financial reporting, as well as the internal controls of the Company, and to
take any other action authorized in the "Specific Duties" section of this
Charter. In that regard, the Committee will have the authority to approve the
retention of external professionals to render advice and counsel in such
matters. All employees will be directed to cooperate with respect thereto as
requested by members of the Committee.
MEETINGS
The Committee is to meet at least four times annually and as many
additional times as the Committee deems necessary. Content of the agenda for
each meeting should be determined by the Committee Chair. The Committee is to
meet in separate executive sessions with the Board, the chief financial officer,
independent accountants and internal auditors at least once each year and at
other times when considered appropriate.
ATTENDANCE
Committee members will strive to be present at all meetings. The presence
of a majority of the members of the Committee will be required for a quorum and
for any meeting of the Committee to be held. As necessary or desirable, the
Committee Chair may request that members of management and representatives of
the independent accountants and the internal auditors be present at Committee
meetings.
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SPECIFIC DUTIES
In carrying out its oversight responsibilities, the Committee will:
1. Review and reassess the adequacy of this charter annually and recommend
any proposed changes to the Board for approval. This should be done in
compliance with applicable Marketplace Rules and all other applicable
exchange rules.
2. Review with the Company's management, internal auditors and independent
accountants the Company's internal accounting and financial reporting
controls.
3. Review with the Company's management, internal auditors and independent
accountants significant accounting and reporting principles, practices
and procedures applied by the Company in preparing its financial
statements. Discuss with the independent accountants their judgments
about the quality, in addition to the acceptability and the
aggressiveness or conservatism, of the Company's accounting principles
used in financial reporting.
4. Review the scope of the internal auditors' work plan for the year and
receive a summary report of major findings by internal auditors and how
management is addressing the conditions reported.
5. Review the scope and general extent of the independent accountants'
annual audit. The Committee's review should include an explanation from
the independent accountants of the factors considered by the
accountants in determining the audit scope, including the major risk
factors. The independent accountants should confirm to the Committee
that no limitations have been placed on the scope or nature of their
audit procedures. The Committee will review annually with management
and approve the fee arrangement with the independent accountants.
6. Inquire as to the independence of the independent accountants and
obtain periodically from the independent accountants a formal written
statement delineating all relationships between the independent
accountants and the Company as contemplated by Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees.
The Committee shall actively question the independent accountants with
respect to any disclosed relationships or services that may impact the
objectivity and independence of such accountants and shall take, or
recommend to the Board that it take, appropriate action to oversee the
independence of such accountants.
7. Have a predetermined arrangement with the independent accountants that
they will advise the Committee through the Committee Chair and
management of the Company of any matters identified through procedures
followed for interim quarterly financial statements, and that such
notification, as required under standards for communication with audit
committees, generally is to be made prior to filing Forms 10-Q. The
Committee shall review with management and the independent accountants
the Company's quarterly financial statements prior to the filing of the
Company's Form 10-Q.
8. At the completion of the annual audit, review with management, the
internal auditors and the independent accountants the following:
- The annual financial statements and related footnotes and financial
information to be included in the Company's annual report to
shareholders and Form 10-K.
- Results of the audit of the financial statements and the related
report thereon and, if applicable, a report on changes during the year
in accounting principles and their application.
- Significant changes to the audit plan, if any, and any serious
disputes or difficulties with management encountered during the audit.
Inquire about the cooperation received by the independent accountants
during their audit, including access to all requested records, data
and information. Inquire of the independent accountants whether there
have been any disagreements with management which, if not
satisfactorily resolved, would have caused them to issue a nonstandard
report on the Company's financial statements.
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- Other communications as required to be communicated by the independent
accountants by Statement of Auditing Standards (SAS) 61 as amended by
SAS 90 relating to the conduct of the audit.
If deemed appropriate after such review and discussion, recommend to the
Board that the financial statements be included in the Company's annual
report on Form 10-K.
9. After preparation by management and review by the internal auditors and
independent accountants, approve the report required under SEC rules to
be included in the Company's annual proxy statement. The Charter is to
be published as an appendix to the proxy statement once every three
years, with the first publication to occur in the Company's 2001 Proxy
Statement.
10. Discuss with the independent accountants the quality of the Company's
financial and accounting personnel. Also, elicit the comments of
management regarding the responsiveness of the independent accountants
to the Company's needs or any difficulties such accountants may have
encountered during the course of the audit work.
11. Meet with management, internal auditors and the independent accounts to
discuss any relevant significant recommendations that the independent
accountants may have, particularly those characterized as "material" or
"serious".
12. Recommend to the Board the selection, retention, replacement or
termination of the Company's independent accountants.
13. Meet with management, internal auditors and the independent accountants
in separate sessions to discuss any matters that they believe should be
discussed privately with the Committee.
14. Review the appointment and replacement of the senior internal audit
executive.
15. Review the significant reports to management prepared by the internal
auditors and management's responses, if any. Review with management,
internal auditors and the independent accountants the methods used to
establish and monitor the Company's policies with respect to unethical
or illegal activities by Company employees that may have a material
impact on the financial statements and obtain from such accountants
assurance that Section 10A of the Securities Exchange Act of 1934 has
not been implicated.
16. Generally as part of the review of the annual financial statements
receive information, at least annually, from the Company's legal
counsel concerning legal and regulatory matters that may have a
material impact on the financial statements.
17. As the Committee may deem appropriate, obtain, weigh and consider
advice from legal, accounting or other consultants as to Audit
Committee-related Marketplace Rules, related rules of any other
applicable exchange or quotation system, applicable rules of the SEC,
Statements on Auditing Standards and other accounting, legal and
regulatory provisions.
18. Make timely reports to the Board with respect to any matter of
financial accounting or reporting that, in the reasonable belief of the
Committee, should require further investigation by or on behalf of the
Board.
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NETZEE, INC.
The undersigned hereby appoints Richard S. Eiswirth and Jarett J. Janik, and
each of them, to act, with or without the other and with full power of
substitution and revocation, as proxies to appear and vote on behalf of the
undersigned at the Annual Meeting of Shareholders of Netzee, Inc. (the
"Company") to be held on May 14, 2001 at 9:00 a.m. local time, and at any
adjournments or postponements thereof, for the following purposes:
1. Election of Directors
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below). to vote for all nominees listed below.
JON R. BURKE, CHARLES B. CARDEN, JEFFERSON B. A. KNOX, SR.,
TIMOTHY M. LEVEQUE, JOHN E. O'MALLEY AND A. JAY WAITE.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE(S), WRITE
THE NAME(S) OF SUCH NOMINEE(S) IMMEDIATELY BELOW.)
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2. Approval of an amendment of the Company's Articles of Incorporation, as
amended, and authorization of the Board of Directors, to effect a reverse
stock split of the Company's common stock at any ratio falling within a
range between and including 1-for-3 and 1-for-8.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, upon such other matters in connection with the
foregoing or otherwise as may properly come before the meeting and any
adjournments or postponements thereof, all as set forth in the Notice of
Annual Meeting of Shareholders and the Proxy Statement, receipt of which is
hereby acknowledged.
(continued on reverse -- please complete other side)
(continued from other side)
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO DIRECTION IS INDICATED,
WILL BE VOTED "FOR" THE ABOVE MATTERS.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NETZEE, INC.
Dated: -----------------, 2001
------------------------------
Signature
------------------------------
Signature if held jointly
IMPORTANT: Please date this
proxy and sign exactly as your
name or names appear above. If
stock is held jointly,
signature should include both
names. Executors,
administrators, trustees,
guardians and others signing
in a representative capacity,
please give your full
title(s).
Do you plan to attend the Annual Meeting of Shareholders? [ ] Yes [ ] No
IMPORTANT: PLEASE SIGN THIS PROXY EXACTLY AS YOUR NAME OR NAMES APPEAR ABOVE.