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Filed pursuant to Rule 424(b)(3)
File No. 333-60360
40,000 Shares
NETZEE, INC.
Common Stock
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The shareholders of Netzee, Inc. identified in this prospectus may offer
and sell these shares from time to time. See "Selling Shareholders." The selling
shareholders acquired their shares in connection with our acquisition of Card
Plus, Inc. on July 28, 2000.
The selling shareholders will receive all of the net proceeds from the sale
of these shares and will pay all underwriting discounts and selling commissions,
if any, applicable to the sale of these shares. We will not receive any of the
proceeds from the sale of the shares, except as otherwise described in "Use of
Proceeds."
Our common stock is quoted on the Nasdaq National Market under the symbol
"NETZD." Our trading symbol will become "NETZ" after a period of 20 trading days
beginning May 16, 2001. On May 16, 2001, the last reported sale price of our
common stock was $3.89 per share.
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INVESTING IN OUR COMMON STOCK INVOLVES MANY RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4 FOR A DISCUSSION OF THESE RISKS.
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The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
You should rely only on the information contained in this prospectus.
Neither we nor the selling shareholders have authorized anyone to provide you
with information different from that contained in this prospectus. The selling
shareholders are offering to sell, and seeking offers to buy, shares of Netzee
common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of the shares.
The date of this Prospectus is May 25, 2001
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SUMMARY
This summary highlights information contained in documents that we have
incorporated by reference into this prospectus. You should carefully read and
consider all of the information included in this prospectus and in the documents
incorporated by reference in this prospectus before deciding to invest in shares
of our common stock. See "Where You Can Find More Information."
We have adjusted all common stock share amounts and per share prices in
this prospectus to reflect a 1-for-8 reverse stock split effected on May 16,
2001. Actual post-split share amounts may vary slightly from those included in
this prospectus due to upward rounding of fractional shares.
GENERAL
We provide Internet-enabled software products to community financial
institutions in the United States with assets of less than $10 billion. Our
Internet banking product provides a cost-effective, outsourced, secure and
scalable solution that enables community financial institutions to offer their
customers a wide array of financial products and services over the Internet. We
also offer telephone banking products and services to allow community financial
institutions an additional channel for communication with their customers.
Collectively, these services are referred to as our "retail suite" of products.
To compliment our retail suite of products, we also provide a suite of
wholesale support applications that enable community financial institutions to
create internal efficiencies and provide key employees with information to
better manage banking operations. These applications include Internet-based bond
portfolio accounting and analytics and asset/liability management tools as well
as our Bank Mall(TM) product which provides access to key information and
services.
We also provide our financial institution customers with marketing and
training packages individually designed to increase the number of their
customers who use our Internet products and services.
We were incorporated in Georgia in August 1999. Our principal executive
offices are located at 6190 Powers Ferry Road, Suite 400, Atlanta, Georgia
30339, and our telephone number is (770) 850-4000. Our corporate web site
address is http://www.netzee.com. We are not incorporating the information on
our web site into this prospectus, and we do not intend to make any of that
information a part of this prospectus.
THE NETZEE STRATEGY
Our goal is to become the leading provider of Internet banking and Internet
commerce products and services to community financial institutions. Our growth
will be driven by both the adoption of our products inside community financial
institutions and the use of our retail suite by the customers of our community
financial institution customers. Our strategy includes:
- capitalizing on strategic marketing alliances with bankers' banks and
other partners;
- cross-selling additional products and services to existing customers;
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- increasing community financial institution end user adoption; and
- expanding and enhancing our products and services.
FORMATION OF NETZEE
Netzee was formed as a Georgia corporation in August 1999 to be merged with
Direct Access Interactive, Inc., a company that was formed in October 1996 to
provide Internet and telephone banking products and services. The InterCept
Group, Inc. acquired Direct Access in March 1999 as a wholly owned subsidiary.
InterCept currently owns approximately 28% of our common stock. In 1999 and
2000, we also acquired the following assets or operations:
- the Internet and telephone banking assets of SBS Corporation, which
provided automated technology products and services, including Internet
and telephone banking systems, to community financial institutions
nationwide;
- the Internet Banking Divisions of each of TIB The Independent BankersBank
and The Bankers Bank, each of which is a "bankers' bank." A bankers' bank
is a bank that exclusively serves and is owned by financial institutions;
- Call Me Bill, LLC, which provides 24-hour electronic bill payment
services to financial institutions' customers;
- Dyad Corporation, which developed, among other things, proprietary loan
application, approval and fulfillment software;
- DPSC Software, Inc., which provided regulatory reporting and support
applications for community financial institutions (these assets were sold
to InterCept in February 2001);
- Digital Visions, Inc., which provided Internet-based financial
information tools for community financial institutions;
- Card Plus, Inc., which provided outsourced software and systems
development and related consulting services; and
- the Internet banking and electronic bill payment assets of John H.
Harland Company.
RECENT DEVELOPMENTS
Disposition of Assets
On May 8, 2001, we sold certain assets of our Elizabethtown, Kentucky-based
bill payment operations to iPay, LLC as part of our continuing consolidation
program. iPay paid us approximately $1.3 million in cash for these assets and
assumed certain related operating liabilities. Proceeds from the sale were used
to pay down outstanding principal balances on our revolving credit facility.
The assets sold consisted of approximately 190 contracts with financial
institutions and multi-family apartment complexes solely to process bill payment
transactions over the Internet or the telephone, together with associated
operating software, hardware and other fixed assets. We did not provide our core
Internet banking or cash management products and services to these customers,
most of which received these services from another
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provider. During the first quarter of 2001, these contracts contributed
approximately $175,000 in revenue.
Additions to Senior Management
On April 9, 2001, Kevin R. Lee was appointed as Senior Vice President of
Operations. Mr. Lee is responsible for implementation, customer service,
technical support, product management, bill payment services, telecommunications
and data center operations. Prior to joining Netzee, from October 1999 until
April 2001, Mr. Lee was Chief Information Officer of MaxRate.com, a business
that developed an Internet-based exchange for certificates of deposit. From June
1993 to September 1999, Mr. Lee worked for Andersen Consulting LLP, providing
consulting services to the financial service industry.
On May 7, 2001, W. Todd Shiver was appointed as Senior Executive Vice
President -- Sales. Mr. Shiver will direct all of our sales efforts for both
financial institutions and end users. From July 2000 to May 2001, Mr. Shiver was
Senior Vice President -- National Bank Sales Manager of Towne Services, Inc.,
where he was in charge of acquiring bank partners for the distribution of
accounts receivable management services. From February 1996 to December 2000,
Mr. Shiver was employed by The Bankers Bank located in Atlanta, Georgia, most
recently as Senior Vice President -- Sales Manager. Mr. Shiver was responsible
for management and training of bank sales representatives, development and
introduction of new products, strategic planning and third party provider
relationships. Initially, Mr. Shiver worked in the marketing department of The
Bankers Bank, implementing all correspondent service options to over 1,200
community banks in the Southeast.
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RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
carefully consider the following risk factors, as well as the other information
presented in or incorporated by reference into this prospectus, in deciding
whether to invest in our common stock. Each of these factors could adversely
effect our operations, the market price of our common stock and our financial
results, and could result in a complete loss of your investment.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY IN A RAPIDLY EVOLVING INDUSTRY, IT
IS DIFFICULT TO EVALUATE OUR BUSINESS AND PROSPECTS
We were incorporated in August 1999 as the successor to a company which had
operated only since October 1996. We have largely grown our operations since
August 1999 through our acquisitions. See "Formation of Netzee." Because key
members of our management team came from different entities, the members of our
senior management team have only worked together for a relatively short time.
Therefore, it is difficult to evaluate us and our prospects. An investor in our
common stock must consider the risks we face as a company operating in the
rapidly evolving Internet banking and Internet-commerce markets. These risks
include our inability to:
- operate profitably;
- integrate successfully the operations we have acquired and the personnel
that have joined us as a result of these acquisitions;
- develop, test, market and sell our products and services;
- expand successfully our sales and marketing efforts;
- maintain our current, and develop new, strategic marketing alliances;
- promote acceptance of our Internet based services by our community
financial institution customers and their customers;
- respond effectively to competitive pressures; and
- continue to develop and upgrade our technology.
We may not succeed in achieving any or all of these goals. We may never
achieve or sustain profitability.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE LOSSES IN THE FUTURE, AND WE MAY
NEVER BECOME PROFITABLE
We incurred net losses of approximately $97.2 million for the year ended
December 31, 2000 and $20.4 million for the three months ended March 31, 2001.
We may incur significant operating losses in the foreseeable future. We will
need to generate significant revenues to achieve and maintain profitability, and
we cannot give assurances that we will be able to do so. Our revenues for the
year ended December 31, 2000 and the three months ended March 31, 2001 were
approximately $19.9 million and $7.5 million, respectively, and our cash
operating expenses, excluding restructuring costs, for the year ended December
31, 2000 and the three months ended March 31, 2001 were approximately $34.4
million and $10.1 million, respectively. If our revenues grow more
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slowly than we anticipate or if we cannot reduce our operating expenses as
expected, our financial performance will be adversely affected.
WE ARE CURRENTLY EXPERIENCING A PERIOD OF SIGNIFICANT OPERATIONAL REDUCTIONS
THAT MAY PLACE A STRAIN ON OUR ABILITY TO ACHIEVE REVENUE GROWTH AND
PROFITABILITY
We previously experienced significant growth in our operations through
acquisitions in 1999 and 2000. Our recent reorganization and the resulting
reduction in personnel and facilities is placing and will continue to place
additional demands on our management and operational ability. Our current
management, sales, technical and accounting resources may not be adequate to
support our anticipated revenue growth. Our future operating results will
substantially depend on the ability of our management to handle changing
business conditions and to implement and improve our systems. To manage these
changes effectively, we must:
- predict accurately the growth in the demand for our products and related
services and our capacity to address that demand;
- motivate, manage and retain key employees;
- transfer and install equipment in different facilities as a result of the
consolidation of our facilities;
- continue to integrate our management team;
- integrate the operations and personnel of any other businesses we
acquire; and
- respond effectively to changes in the industry.
OUR RELATIONSHIPS WITH INTERCEPT AND HARLAND MAY PRESENT POTENTIAL CONFLICTS OF
INTEREST, WHICH MAY RESULT IN DECISIONS THAT FAVOR INTERCEPT AND HARLAND OVER
OUR OTHER SHAREHOLDERS
Because Netzee, InterCept and Harland are engaged in the sale of electronic
commerce products and services to community financial institutions, numerous
potential conflicts of interest exist between our companies or their affiliates.
We compete with each other when offering some products and services to potential
customers. Our bylaws contain provisions addressing potential conflicts of
interest between us and InterCept and the allocation of transactions that,
absent such allocation, could constitute corporate opportunities of both
companies. See "Description of Capital Stock -- Relationship with InterCept."
Under these provisions, InterCept may take advantage of a corporate opportunity
rather than presenting that opportunity to us, absent a clear indication that
the opportunity was directed to us rather than to InterCept.
Our existing and future agreements and relationships with InterCept have
not resulted and will not necessarily result from arms-length negotiations.
InterCept currently owns approximately 28% of our common stock. Our Chairman,
our Vice Chairman and two of our other directors are directors and significant
shareholders of InterCept. In addition, John W. Collins, our Chairman, serves as
Chief Executive Officer of InterCept. When the interests of InterCept diverge
from our interests, InterCept's officers and directors may exercise their
influence in InterCept's best interests. Therefore, our agreements and
relationships with InterCept may be less favorable to us than those that we
could obtain from unaffiliated third parties. Moreover, many of the transactions
between us and InterCept do not lend themselves to precise allocations of costs
and benefits. Thus, the
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value of these transactions will be left to the discretion of the parties, who
are subject to potentially conflicting interests.
Other than the provisions of our bylaws relating to corporate opportunities
with InterCept, there is no mechanism in place to resolve these conflicts of
interest, except that it is our policy that transactions with affiliated parties
be approved by a majority of our disinterested directors. Nevertheless, due to
the extensive relationships between InterCept and us, we may make decisions that
potentially favor InterCept or its affiliates at the expense of our
shareholders. Furthermore, Georgia law may prohibit a shareholder from
successfully challenging these decisions, if the decision received the
affirmative vote of a majority, but not less than two, of our disinterested
directors who received full disclosure of the existence and nature of the
conflict.
There is no mechanism in place to resolve conflicts of interest with
Harland, except as described above. Our existing agreements and relationships
with Harland have resulted, but future agreements will not necessarily result,
from arms-length negotiations. Harland currently owns approximately 16% of our
common stock. Two of our directors were appointed by Harland, and those
appointees are also executive officers of Harland or its subsidiaries. When the
interests of Harland diverge from our interests, these individuals may exercise
their influence in Harland's best interests. Therefore, our agreements and
relationships with Harland may be less favorable to us than those that we could
obtain from unaffiliated third parties.
OUR BUSINESS AND PROSPECTS WILL SUFFER IF END USERS DO NOT ACCEPT AND USE OUR
PRODUCTS AND SERVICES
We derive substantially all of our revenues from products and services
provided to community financial institutions, their customers and other
participants in the financial services industry. Our future success depends
significantly upon the willingness of community financial institutions to offer
technological innovations such as Internet and telephone banking and upon their
customers' demand for and acceptance of these technological innovations and the
willingness of these financial institutions to use our wholesale support
applications. If community financial institutions and their customers do not
readily accept these technological innovations as reflected in our products and
services, we will experience reduced demand for our products and services.
We may not be able to be successful in marketing these products and
services or other integrated products and services. In addition, changes in
economic conditions and unforeseen events, including recession, inflation or
other adverse occurrences, may result in a significant decline in the
utilization of community financial institution services or demand for our
products and services. Any event that results in decreased consumer or corporate
use of community financial institution services, or increased pressures on
community financial institutions toward the in-house development of
Internet-based systems, could have a material adverse effect on our business,
financial condition and results of operations.
Because we offer Internet-based products and services, our business would
be adversely affected if Internet use does not continue to grow or grows more
slowly than expected. Internet usage may be inhibited for a number of reasons,
including inadequate network infrastructure, security concerns, inconsistent
quality of service and unavailability of cost effective, high-speed access to
the Internet. If the market for Internet-based financial services fails to grow,
grows more slowly than anticipated or becomes saturated
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with competitors, our business, financial condition and results of operations
likely would be materially adversely affected.
WE MAY EXPERIENCE DELAYS IN PRODUCT DEVELOPMENT, AND THESE DELAYS MAY ADVERSELY
AFFECT US
The electronic banking and financial services industry is characterized by
rapidly changing technology, evolving industry standards, emerging competition
and frequent new product and service introductions. Our future success will
depend on our ability to develop, test, sell and support new and integrated
products and services that will keep pace with technological advances and
industry standards and satisfy the evolving needs of both financial institutions
and their customers. Our inability to develop and introduce new and integrated
products and services in a timely manner could limit the marketability of our
products and services and could render them obsolete, which would adversely
affect us. Further, we cannot predict the time required and costs involved in
developing new and integrated products and services. Actual development costs
could substantially exceed budgeted amounts, and estimated product development
schedules could require extensions. In these cases, our business, financial
condition and results of operations may be materially adversely affected.
IF OUR ACQUISITION STRATEGY IS NOT SUCCESSFUL, WE MAY LOSE OUR COMPETITIVE
POSITION, AND OUR BUSINESS AND FINANCIAL RESULTS MAY SUFFER
We intend to continue to evaluate potential acquisition candidates within
our industry, and we may acquire complementary technologies or businesses in the
future. Due to consolidation trends within the on-line services industry,
failure to adopt and to implement successfully a long-term acquisition strategy
could damage our competitive position. Future acquisitions may involve large,
one-time write-offs and amortization expenses related to goodwill and other
intangible assets. Any of these factors could adversely affect our business,
financial condition or results of operations. An acquisition involves numerous
risks, including:
- assimilating effectively the operations, products and services,
technology, information systems and personnel of the acquired company
into our operations;
- diverting our management's attention from other business concerns;
- impairing relationships with our employees, affiliates, strategic
marketing alliances and content providers;
- failing to maintain uniform standards, controls, procedures and policies;
- entering markets in which we have no direct prior experience; and
- losing key employees of the acquired company.
Some or all of these risks could result in a material adverse effect on our
business, financial condition and results of operations. In addition, we may not
be able to identify suitable acquisition candidates that are available for sale
at reasonable prices. We may also elect to finance future acquisitions with debt
financing, which would increase our debt service requirements, or through the
issuance of additional common or preferred stock, which could result in dilution
to our shareholders. There can be no assurance that we will be able to arrange
adequate financing for any acquisitions on acceptable terms or at all.
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THE UNPREDICTABILITY OF OUR FUTURE FINANCIAL RESULTS AND EVENTS BEYOND OUR
CONTROL MAY ADVERSELY AFFECT THE TRADING PRICE OF OUR COMMON STOCK
The price of our common stock has fluctuated substantially and our
financial results and stock price may fluctuate substantially in the future.
These fluctuations may be caused by numerous factors, including pricing
competition for our products and services and our ability to generate revenues
and operate profitably. Other factors which may cause our common stock to be
adversely affected and which may cause significant fluctuations in our stock
price include:
- our actual or anticipated operating results;
- our actual or anticipated growth rates, as they may change from time to
time;
- changes in analysts' estimates;
- competitors' announcements;
- regulatory actions;
- industry conditions;
- general economic conditions; and
- a variety of other factors that we have discussed elsewhere in "Risk
Factors" and the other information included in or incorporated by
reference into this prospectus.
Further, the market for Internet and technology companies has experienced
extreme price and volume volatility that have often been unrelated or
disproportionate to the operating performance of those companies. These broad
market and industry factors may materially and adversely affect our stock price,
regardless of our operating performance. The trading prices of the stock of many
Internet and technology companies are at or near historical lows and reflect
relative valuation levels substantially lower than historical levels. Because
our stock price is currently very low, small trades and changes in our stock
price can produce significant percentage changes in the value of our common
stock.
OUR CONTINUED INABILITY TO COMPLY WITH THE MAINTENANCE LISTING CRITERIA OF THE
NASDAQ NATIONAL MARKET MAY CAUSE OUR COMMON STOCK TO BE DELISTED
Our common stock is currently listed on the Nasdaq National Market. Thus,
we are subject to financial and market-related tests and other qualitative
standards established by Nasdaq to maintain our listing. On March 13, 2001, we
were notified by Nasdaq that we had failed to meet the continued $1.00 minimum
bid price rule for continued listing. We have been given until June 11, 2001 to
come into compliance with this rule. If we fail to meet this requirement (or any
of Nasdaq's other continued listing requirements), Nasdaq could delist our
common stock. If this were to happen, it may be more difficult for a shareholder
to buy or sell our stock at competitive market prices, or at all, and we may
lose support from institutional investors, brokerage firms and market makers
that currently buy and sell our stock and provide information to investors about
us. Such an event could also cause the price of our stock to decrease further.
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OUR SALES EFFORTS MAY BE DELAYED BECAUSE COMMUNITY FINANCIAL INSTITUTIONS ARE
GENERALLY SLOW TO ADOPT NEW TECHNOLOGY
Community financial institutions tend to be cautious in making purchase
decisions regarding new technologies. This requires us to provide a significant
level of education to prospective customers regarding the use and benefits of
our products and services prior to the purchase of our products and services.
Further, community financial institutions are frequently slow to approve capital
expenditures and to review new technologies that affect key operations. In
addition, our low stock price, operating losses and financial resources have
made some financial institutions reluctant to purchase our products and
services. All of this could have the affect of significantly lengthening our
sales cycle or reducing sales, thereby delaying revenue growth and adversely
affecting our business, operating results and financial condition.
OUR OPERATING RESULTS MAY ADVERSELY BE AFFECTED BECAUSE IMPLEMENTATION OF OUR
INTERNET BANKING PRODUCTS AND SERVICES BY OUR COMMUNITY FINANCIAL INSTITUTION
CUSTOMERS MAY TAKE LONGER THAN WE ANTICIPATE
During the course of an initial implementation of our Internet banking
products and services, we must integrate our Internet banking software with a
community financial institution's core processing systems. This involves the
installation of an interface to permit communication between our Internet
banking products and services and the community financial institution's core
processing systems. We may, from time to time, experience some delays in the
integration process, particularly if we do not already have an established
interface for a particular core processing system. It takes us an average of 60
to 90 days to implement our service bureau Internet banking services. A longer
integration period will increase our costs associated with the implementation
and delay the recognition of revenues. Changes to existing core software systems
by existing customers and custom implementations for future client financial
institutions may also cause integration delays in future implementations that
could have a material adverse effect on our business, operating results and
financial condition for subsequent periods. The implementation of our in-house
Internet banking product depends on the size and complexity of the financial
institution's infrastructure of systems, network structure and software.
DAMAGE TO OUR DATA CENTERS WOULD RESULT IN FAILURES OR INTERRUPTIONS IN
PROVIDING OUR PRODUCTS AND SERVICES TO OUR CUSTOMERS, WHICH COULD JEOPARDIZE OUR
BUSINESS AND CUSTOMER RELATIONSHIPS
Although we have backup facilities to provide Internet services if one or
more of our data centers fail to function, a natural disaster, such as a fire,
tornado or flood, or other unanticipated problem at one or more of our data
centers, including an extended power loss, telecommunications failure, break-in,
computer virus, hacker attack or other events beyond our control, could
nevertheless result in failures or interruptions in providing our products and
services to our customers. The occurrence of any of these events could have a
material adverse effect on our business, financial condition and results of
operations.
OUR BUSINESS COULD SUFFER IF OUR COMMUNITY FINANCIAL INSTITUTION CUSTOMERS
TERMINATE THEIR CONTRACTS WITH US
Significant consolidation is occurring in the financial services industry,
and our community financial institution customers that are involved in mergers
and acquisitions
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may terminate their agreements with us or fail to renew them when they expire.
An existing community financial institution customer may be acquired by or
merged with another financial institution that utilizes a different Internet
banking system or does not desire to continue the relationship with us for some
other reason. This could result in the new entity terminating the relationship
with us. This risk is particularly relevant to us because we target small to
mid-sized community financial institutions as customers, which are more likely
to be potential acquisition candidates. Our business, financial condition and
results of operations would suffer if community financial institution customers
terminate their relationships with us as a result of industry consolidation or
for any other reason.
IF WE CANNOT HIRE AND RETAIN QUALIFIED PERSONNEL, WE WILL NOT BE ABLE TO CONDUCT
OUR OPERATIONS SUCCESSFULLY OR AT ALL
There is significant competition for qualified employees, and high employee
turnover exists among Internet and other technology companies today. As a
result, we may experience difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. Our operating results may be
adversely affected if we experience increased expenses related to attracting,
training and retaining qualified employees. Our failure to succeed in attracting
new personnel or retaining and motivating our current personnel could adversely
affect our business, financial condition and results of operations.
NETWORK SECURITY PROBLEMS COULD HINDER THE GROWTH OF THE INTERNET AND CAUSE US
TO LOSE CUSTOMERS
To the extent that our activities involve the storage and transmission of
proprietary information, security breaches could expose us to possible liability
and damage our reputation. Any compromise of our security could harm our
business and could deter people from using the Internet to conduct transactions
that involve transmitting confidential information. We rely on standard Internet
security systems, all of which are licensed from third parties, to provide the
security and authentication necessary to effect secure transmission of data.
Nevertheless, compromises or breaches of our security measures may occur.
Our networks may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Someone who is able to circumvent our security
measures could misappropriate our proprietary information or cause interruptions
in our Internet operations. Internet and on-line service providers have in the
past experienced, and we may in the future experience, interruptions in service
as a result of the accidental or intentional actions of Internet users,
including current and former employees or others. Concerns regarding security
risks may deter community financial institutions from purchasing our products
and services and deter their customers from using our products and services. We
may need to expend significant capital or other resources to protect against the
threat of security breaches or to alleviate problems caused by breaches. These
breaches may also require us to pay money damages to others who were harmed by
them. Eliminating computer viruses and alleviating other security problems may
result in interruptions, delays or termination of service to users accessing web
sites that deliver our services, any of which could harm our business, financial
condition and results of operations.
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DEFECTS IN SOFTWARE PRODUCTS THAT WE USE IN OUR PRODUCTS AND OUR INABILITY TO
SUSTAIN A HIGH VOLUME OF TRAFFIC MAY MATERIALLY AND ADVERSELY AFFECT OUR
BUSINESS
The software used by our systems, products and services may contain errors,
defects or bugs. Although we have not suffered significant harm from any errors
or defects to date, we may discover significant errors or defects in the future
that we may or may not be able to correct. We have recently introduced and will
be continually introducing new products in the market and have not experienced
any product liability claims to date, but the sale and support of our products
and services may entail the risk of these claims. A product liability claim
brought against us could have a material adverse effect on our business,
financial condition and results of operations.
Furthermore, as the volume of traffic and transactions on our system
increases substantially, we could experience periodic temporary capacity
constraints, which may cause unanticipated system disruptions, slower response
times and lower levels of customer service. We may be unable to project
accurately the rate or timing of increases, if any, in the use of our services
or expand and upgrade our systems and infrastructure in a timely manner to
accommodate these increases. Any inability to do so could harm our business.
INCREASED COMPETITION MAY INCREASE PRICING PRESSURES, REDUCE MARGINS AND CREATE
A LOSS OF MARKET SHARE
The market for our products and services is highly competitive. We compete
with a variety of third parties, including other providers of Internet banking
systems, as well as systems developed internally by financial institutions. We
also expect competition in our markets to increase significantly as new
companies enter our market and current competitors expand their product lines
and services. These new competitors may include non-bank financial institutions,
such as brokerage firms, on-line service providers and data processing vendors,
among others. In many instances, these entities are dominant competitors and may
enjoy substantial competitive advantages, including:
- greater name recognition;
- greater financial, technical and marketing resources to devote to the
development, promotion and sale of their services;
- longer operating histories; and
- a larger base of client financial institutions.
Any pricing pressures, reduced margins or loss of market share resulting
from our failure to compete effectively would materially and adversely affect
our business, financial condition and operating results.
INFRINGEMENT BY OTHERS UPON OUR PROPRIETARY TECHNOLOGY COULD HARM OUR ABILITY TO
ESTABLISH AND PROTECT OUR PROPRIETARY RIGHTS, WHICH COULD ADVERSELY AFFECT OUR
BUSINESS
Our inability to protect our proprietary rights adequately could have a
material adverse effect on the acceptance of our brand names and on our
business, financial condition and operating results. We rely on a combination of
copyright, trademark and trade secret laws and contractual provisions to
establish and protect our proprietary rights. Further, we have pending patent
applications in the United States and Canada with respect to our PALMS(TM)
asset/liability management software.
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There can be no assurance that the steps we have taken, and will take in
the future, to protect our proprietary rights will be adequate or that third
parties will not infringe upon or misappropriate our copyrights, trademarks,
service marks, domain names and similar proprietary rights. In addition,
effective copyright and trademark protection may be unenforceable or limited in
foreign countries, and the global nature of the Internet makes it impossible to
control the ultimate destination of our services. Our competitors or others may
adopt product or service names similar to ours, thereby impeding our ability to
build brand identity and possibly leading to customer confusion. Moreover,
because Internet domain names derive value from the individual's ability to
remember these names, we cannot guarantee that our Internet domain names will
maintain their value if, for example, users begin to rely on mechanisms other
than Internet domain names to access on-line resources.
Furthermore, we may become involved in litigation or other proceedings
regarding our trade secrets, copyrights and other intellectual property rights.
An adverse determination in intellectual property litigation could result in the
loss of proprietary rights, subject us to significant liabilities, require us to
seek licenses from third parties or prevent us from selling our products and
services. There can be no assurance that we would be able to obtain licenses, if
necessary, on commercially reasonable terms, or at all. In addition, litigation
would divert management resources and be expensive. Any of these results could
have a material adverse effect on the acceptance of our brand names and on our
business, financial condition and operating results.
OUR GROWTH MAY BE ADVERSELY AFFECTED BY GOVERNMENT REGULATION AND LEGAL
UNCERTAINTIES THAT COULD ADD ADDITIONAL COSTS TO DOING BUSINESS ON THE INTERNET
Other than the Gramm-Leach-Bliley Act discussed below, there are currently
few laws or regulations that specifically regulate communications or commerce on
the Internet. However, laws and regulations may be adopted in the future that
address issues, including user privacy, pricing, and the characteristics and
quality of products and services. For example, the Telecommunications Act sought
to prohibit transmitting various types of information and content over the
Internet. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and on-line
service providers in a manner similar to long distance telephone carriers and to
impose access fees on those companies. This could increase the cost of
transmitting data over the Internet. Moreover, it may take years to determine
the extent to which existing laws relating to issues such as property ownership,
libel and personal privacy issues apply to the Internet. Any new laws or
regulations relating to the Internet or the manner in which existing laws are
applied to the Internet could adversely affect our business.
Our primary customers are community financial institutions, which are
heavily regulated. In addition, financial institution regulators can effectively
control and mandate the standards for the required security systems,
communication technologies and other features of our products and services.
There can be no assurance that federal, state or foreign governmental
authorities will not adopt new regulations addressing electronic financial
institution operations that could require us to modify our current or future
products and services.
For example, the U.S. Congress enacted the Gramm-Leach-Bliley Act in
November 1999. This law restricts or prohibits our ability to offer third
parties access to non-public personal information generated by our Internet
banking products and services. Further,
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with respect to the information of each particular individual that does business
with a community financial institution, we will be required to comply with the
privacy policies that are adopted by each financial institution. Pursuant to
this law, the federal banking authorities, the Securities and Exchange
Commission and the Federal Trade Commission have adopted rules and regulations
implementing this law. Finally, this law specifically permits states to adopt
financial privacy laws that are more restrictive than federal law. This law or
the adoption of other laws or regulations affecting our business or our
community financial institution customers' businesses could reduce our growth
rate or could otherwise have a material adverse effect on our business,
financial condition and operating results.
TAXATION OF OUR INTERNET PRODUCTS AND SERVICES COULD AFFECT OUR PRICING POLICIES
AND REDUCE DEMAND FOR OUR PRODUCTS AND SERVICES
Any legislation that substantially impairs the growth of Internet commerce
could have a material adverse effect on our business, financial condition and
operating results. The tax treatment of the Internet and Internet commerce is
currently unsettled. A number of proposals at the federal, state and local
levels in the United States and before foreign governments would, if enacted,
impose taxes on the sale of goods and services provided over the Internet. A
recently enacted law places a temporary moratorium on some forms of taxation on
Internet commerce. We cannot predict the effect of current attempts to tax or
regulate commerce over the Internet.
TO EXECUTE OUR STRATEGY, WE MAY REQUIRE ADDITIONAL FUNDING THAT MAY NOT BE
AVAILABLE ON FAVORABLE TERMS OR AT ALL, AND A LACK OF FUNDS COULD SUBSTANTIALLY
IMPAIR OUR ABILITY TO OPERATE, GROW AND BE PROFITABLE
We do not have sustained earnings or positive cash flow, and our business
strategy currently requires us to incur significant expenses to operate
competitively and to grow our business. We do not currently have adequate cash
flow from operations to fund these expenses, although we expect to achieve
positive cash flow from operations by the end of 2001. Until that time, we will
be funding our operations from balances available on our credit facility. If we
should need additional financing, it may not be available on favorable terms or
at all. If we cannot raise adequate funds to satisfy our operating and capital
requirements, we may have to limit our operations significantly or cease
operations altogether. Our future operating and capital requirements depend upon
many factors, including:
- our ability to achieve our cost savings measures;
- the response of customers to our product and service offerings;
- the extent to which we expand our products and services;
- the extent to which we develop and upgrade our technology and data
network infrastructure; and
- the occurrence, timing, size and successful integration of acquisitions.
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OUR STOCK VALUE MAY BE ADVERSELY AFFECTED BECAUSE OUR MANAGEMENT AND AFFILIATES
BENEFICIALLY OWN APPROXIMATELY 60% OF OUR COMMON STOCK, AND THUS NO CORPORATE
ACTIONS REQUIRING SHAREHOLDER APPROVAL CAN BE TAKEN WITHOUT THEIR APPROVAL
Our officers, directors and affiliated persons beneficially own
approximately 60% of our common stock. As a result, our officers, directors and
affiliated persons effectively are able to:
- elect, or defeat the election of, our directors;
- amend or prevent amendment of our articles of incorporation or bylaws;
- effect or prevent a merger, sale of assets or other corporate
transaction; and
- control the outcome of any other matter submitted to the shareholders for
vote.
Our public shareholders, for so long as they hold less than a majority of
the outstanding shares of our common stock, are unable to control the outcome of
any shareholder vote. Management's stock ownership may discourage a potential
acquiror from offering to purchase or otherwise attempting to obtain control of
Netzee, which in turn could reduce our stock price or prevent our shareholders
from realizing a premium over our stock price.
FUTURE SALES OF OUR COMMON STOCK WILL DILUTE CURRENT SHAREHOLDER OWNERSHIP AND
MAY DEPRESS OUR STOCK PRICE
To carry out our growth strategies, we plan to acquire other businesses and
products using a combination of our stock and cash, and we may also sell
additional shares of our stock to raise money for expanding our operations. We
may issue more shares of stock, both common and preferred, in future
acquisitions or in sales of our stock, which would dilute current shareholder
ownership interest in Netzee.
If our shareholders sell substantial amounts of our common stock, including
shares issuable upon the conversion of shares of preferred stock and the
exercise of outstanding options, the market price of our common stock could
fall. These sales also might make it more difficult for us to sell equity
securities in the future at a time and price that we deem appropriate. As of
April 30, 2001, we had 3,345,153 shares of common stock outstanding, 51,384
shares of common stock reserved for issuance upon the conversion of preferred
stock we issued, and options outstanding to acquire 480,032 shares of common
stock. In connection with our acquisition of Digital Visions, we also agreed to
issue to the former shareholders of Digital Visions up to 39,267 shares of our
common stock upon the attainment by the Digital Visions operations of revenue
goals in fiscal year 2001. Additionally, in connection with the acquisition of
substantially all of the assets of Card Plus, we granted to Card Plus the right
to receive up to 28,572 additional shares of common stock upon the attainment of
certain revenue, EBITDA and employee retention goals for the period from July 1,
2000 to June 30, 2001. Additionally, Card Plus has the right to receive all
28,572 additional shares of common stock if our common stock is priced below
$36.00 per share on June 29, 2001, regardless of the attainment of these
performance goals.
In addition, we may be required to register up to 927,655 shares of common
stock that we issued in connection with some of our acquisitions, subject to the
terms and conditions of applicable registration rights agreements. Further, we
have reserved a total of
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790,405 shares of our common stock for issuance under our stock option plan. The
plan provides that this amount will be automatically increased on January 1 of
each year to an amount equal to 20% of the fully diluted shares of our common
stock on the preceding December 31, provided, however, that the number of shares
available for issuance shall not be less than 437,500. As of April 30, 2001, we
have outstanding options to purchase a total of 480,032 shares of common stock
under this plan. We have registered 790,405 of the shares presently issuable
under this plan for sale in the public market.
OUR FUTURE EARNINGS WILL BE REDUCED BECAUSE WE HAVE A SIGNIFICANT AMOUNT OF
INTANGIBLE ASSETS
As of March 31, 2001, approximately $58.1 million, or 82%, of our total
assets were intangible assets. These intangible assets primarily represent
amounts attributable to the issuance of stock in acquisitions accounted for as
purchases. We will likely record additional intangible assets in the future if
we acquire additional businesses. Additionally, we currently amortize intangible
assets over a useful life that management believes is reasonable and is
allowable under generally accepted accounting principles, or GAAP. GAAP can
change in the future and affect the amortization period and therefore our future
results. Additionally, any additional impairment in the value of these
intangible assets could have a material adverse effect on our business,
financial condition and operating results.
OUR ARTICLES OF INCORPORATION AND BYLAWS, AS WELL AS GEORGIA CORPORATE LAW, MAY
PREVENT OR DELAY THIRD PARTIES FROM BUYING YOUR STOCK AND RESULT IN A DECREASE
IN THE STOCK PRICE
Our articles of incorporation, bylaws and Georgia law could make it more
difficult for a third party to acquire us, even if a change in control would be
beneficial to our shareholders. For example, our articles of incorporation and
bylaws provide, among other things, that:
- the board of directors, without shareholder approval, has the authority
to issue preferred stock with rights superior to the rights of the
holders of common stock, and we have already issued a series of preferred
stock in connection with one of our acquisitions;
- our directors may only be removed for cause, and only upon the vote of
the holders of at least 66 2/3% of our voting stock;
- the board of directors is divided into three classes and directors have
staggered terms; and
- the shareholders may call a special meeting only upon request of 75% of
votes entitled to be cast on an issue.
Georgia law also contains "business combination" and "fair price"
provisions. Our board of directors may adopt these provisions and other
"anti-takeover" measures without shareholder approval, the effect of which may
be to delay, deter or prevent a change in control of Netzee.
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FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this prospectus and in the
information incorporated by reference into this prospectus. These statements
represent our future expectations or projections for Netzee. You can generally
identify forward-looking statements by the use of the words "may," "will,"
"plans," "anticipates," "expects," "intends," "predicts," "estimates,"
"believes," and other similar words. These forward-looking statements are made
only as of the date of this prospectus, or, if incorporated by reference into
this prospectus from one of our SEC filings, the date on which the filing is
made.
Forward-looking statements include statements regarding:
- our business strategies and goals;
- our future sources of revenues and potential for growth and
profitability;
- our ability to maintain our listing on the Nasdaq National Market;
- our relationship with InterCept and Harland;
- our ability to develop our existing products and services and to enhance
or expand our product offerings;
- trends and conditions in our industry and the economy generally;
- development of our sales and marketing efforts;
- our ability to integrate our previous and future acquisitions; and
- other statements that are not of historical fact.
We believe that it is important to communicate our expectations for the
future to our investors, and we believe that the expectations expressed in our
forward-looking statements are reasonable and accurate based upon information we
currently have or may have at the time the statement is made. However, our
expectations may not prove to be correct due to future events we have not
accurately predicted or over which we have no control. Important factors that
could cause actual results to differ from our expectations are disclosed under
"Risk Factors" in this prospectus and in our SEC filings that we incorporate by
reference into this prospectus. You should also consider the cautionary
statements that may be provided with information contained in filings that are
incorporated by reference into this prospectus. We do not have a duty to update
any of the forward-looking statements after the date of this prospectus to
conform those statements to actual results.
Unaudited pro forma financial information that may be incorporated by
reference into this prospectus does not purport to represent what our results of
operations or financial position would actually have been. You should not rely
on the pro forma financial information as being representative of our future
results of operations or financial position.
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USE OF PROCEEDS
All 40,000 shares of common stock to be offered pursuant to this prospectus
are being offered by the selling shareholders. Except as provided in the next
paragraph, we will not receive any proceeds from the sale of these shares by the
selling shareholders.
All 40,000 shares of common stock to be offered pursuant to this prospectus
were received by the selling shareholders pursuant to our acquisition of Card
Plus on July 28, 2000. At the closing of this acquisition, all of these shares
were placed in escrow until August 20, 2001 to satisfy indemnification
obligations of the selling shareholders to Netzee. Any shares that are sold by
the selling shareholders will be released from the provisions of the escrow,
provided that the selling shareholders will immediately return all proceeds of
the sale to the escrow. Thus, we may indirectly receive some or all of the
proceeds of this offering as a result of the selling shareholders'
indemnification obligations to us. In the event that any of these proceeds are
released to us from the escrow, they will be used by us for working capital
requirements, to pay down our credit facility and for general corporate
purposes. At this time, we cannot determine the amount of proceeds, if any, that
we may be entitled to receive from the escrow. As of the date of this
prospectus, we have not made any claims for indemnification against the escrow.
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SELLING SHAREHOLDERS
On July 28, 2000, we purchased substantially all of the assets of Card
Plus, which provided outsourced software and systems development as well as
related consulting services. In connection with this acquisition, we issued
40,000 shares of our common stock to the three shareholders of Card Plus. All of
these shares were placed in escrow to satisfy indemnification obligations of the
Card Plus shareholders to Netzee. Any shares that are sold by the selling
shareholders will be released from the provisions of the escrow, provided that
the selling shareholders will immediately return all proceeds of the sale to the
escrow. The escrow period ends August 20, 2001. See "Use of Proceeds." The
shareholders of Card Plus also have the right to require us to register up to
28,572 shares of common stock that may be issued upon the attainment of certain
performance-related goals in 2001, or if our common stock price is below $36.00
per share on June 29, 2001. None of the former shareholders of Card Plus are
officers or directors of Netzee.
The following table sets forth information regarding the beneficial
ownership of our common stock held by each selling shareholder as of May 1,
2001, and as adjusted to reflect the sale of common stock offered by each
selling shareholder. The information in the table is based on information from
the named persons regarding their ownership of our common stock. Except as
otherwise indicated, and subject to applicable community property laws, each of
the selling shareholders has sole voting power and investment power over the
shares beneficially owned. As of April 30, 2001, there were 3,345,153 shares of
common stock outstanding.
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED AFTER THE
PRIOR TO THE OFFERING OFFERING
---------------------- NUMBER OF -------------------
NAME OF SELLING SHAREHOLDER NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
--------------------------- -------- -------- -------------- ------ -------
Kenneth G. Ambellan....... 20,000 * 20,000 0 0%
Robert W. Boylston,
Jr.(1).................. 18,000 * 18,000 0 0
Tonya H. Boylston(1)...... 2,000 * 2,000 0 0
-------------------------
* Less than 1% of the outstanding common stock.
(1) Each of Robert W. Boylston, Jr. and Tonya H. Boylston, who are husband and
wife, are deemed to beneficially own the shares held by the other.
Therefore, each of them may be deemed to beneficially own and be offering
for sale 20,000 shares of common stock, which is the total number of shares
owned by both of them.
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is only a summary and is
subject to the provisions of applicable law and the provisions of our articles
of incorporation and bylaws, as amended, which are incorporated by reference
into the registration statement of which this prospectus forms a part.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our articles of incorporation authorize the board of directors to issue
70,000,000 shares of common stock without par value and 5,000,000 shares of
preferred stock without par value, in one or more classes or series and to
determine the voting rights, preferences as to dividends and in liquidation, and
conversion and other rights of each series. We have authorized 500,000 shares of
Series A 8% Convertible Preferred Stock and 500,000 shares of Series B 8%
Convertible Preferred Stock. As of April 30, 2001, 3,345,153 shares of common
stock were issued and outstanding and held by approximately 245 shareholders of
record, and 500,000 shares of Series B preferred stock were outstanding and held
by one shareholder of record. No shares of Series A preferred stock are
outstanding.
Common Stock
Under the articles of incorporation, holders of common stock are entitled
to receive dividends as the board of directors may legally declare. Each
shareholder is entitled to one vote per share on all matters to be voted upon
and is not entitled to cumulate votes for the election of directors. Holders of
common stock do not have preemptive, redemption or conversion rights and, upon
liquidation, dissolution or winding up of Netzee, will be entitled to share
ratably in the net assets of Netzee available for distribution to common
shareholders. The rights, preferences and privileges of holders of common stock
are subject to the rights, preferences and privileges of holders of any classes
or series of preferred stock that we have issued or may issue in the future.
Preferred Stock
On December 15, 1999, we issued 500,000 shares of Series A preferred stock
in connection with the acquisition of substantially all the assets and the
assumption of certain of the liabilities of DPSC relating to its business of
developing, marketing and distributing financial institution software and
related products and services. The Series A preferred stock entitled the holder
thereof to receive cumulative cash dividends when, as and if declared by the
board of directors at the rate of 8% per year. Dividends accrued each day and
had to be paid in full before any dividend was paid on any stock ranking junior
to the Series A preferred stock, including the common stock. The Series A
preferred stock was also entitled to receive a preferential liquidation payment
upon the liquidation, dissolution or winding up of Netzee for any reason. This
payment had to be made before the payment or distribution of any assets of
Netzee in liquidation to the holders of any stock ranking junior to the Series A
preferred stock, including the common stock. The shares of Series A preferred
stock were immediately convertible into an aggregate of 51,384 shares of common
stock, subject to certain anti-dilution adjustments. The Series A preferred
stock would also have been redeemable at our option if the average closing price
of the common stock for any four week period had equaled or exceeded $208.00 per
share. This condition to our redemption option with respect to the Series A
preferred stock was never met. Further, on or after June 15, 2002, the holders
of the Series A preferred stock had the
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right to require us to purchase all shares of Series A preferred stock owned by
such holders at a price equal to $13.00 per share, plus all accrued and unpaid
dividends.
On September 29, 2000, we issued 500,000 shares of Series B preferred stock
in exchange for all 500,000 shares of Series A preferred stock that we had
issued to DPSC in December 1999. No commission or other remuneration was paid or
given in connection with this exchange. The exchange was entered into in order
to reflect the original intent of the parties to the acquisition of the DPSC
assets. The shares of Series B preferred stock have substantially identical
rights, preferences and limitations as the shares of Series A preferred stock,
except as follows:
- Upon conversion of the Series B preferred stock, a holder is entitled to
receive all accrued but unpaid dividends thereupon. Under the terms of
the Series A preferred stock, Netzee was not obligated to pay such
dividends upon conversion.
- Upon liquidation of Netzee, a holder of the Series B preferred stock is
entitled to receive all accrued but unpaid dividends thereupon. Under the
terms of the Series A preferred stock, Netzee was only obligated to pay
such dividends to the extent that they were declared but unpaid.
Pursuant to the terms of the Series A preferred stock, these shares were
retired upon our reacquisition of them and may not be reissued.
CLASSIFIED BOARD OF DIRECTORS
The articles of incorporation provide that the board of directors shall
consist of not less than three members, unless the articles of incorporation are
amended to delete the classification of the board of directors. The board of
directors is divided into three classes of directors, as nearly equal in number
as possible, serving staggered three-year terms. As a result, approximately
one-third of the members of the board of directors are elected at each annual
meeting of shareholders. The classification of directors permits the remaining
directors to fill any vacancies on the board of directors and has the effect of
making it more difficult for shareholders to change the composition of the board
of directors. As a result, at least two annual meetings of shareholders may be
required for the shareholders to change a majority of the directors, whether or
not any change in the board of directors would be beneficial to us and our
shareholders and whether or not a majority of our shareholders believes that
such a change would be desirable. We believe, however, that the longer time
required to elect a majority of a classified board of directors will help to
ensure the continuity and stability of our management and policies. Currently,
the terms of class I directors expire upon the date of the 2003 annual meeting
of shareholders, the terms of class II directors expire upon the date of the
2004 annual meeting of shareholders, and the terms of class III directors expire
upon the date of the 2002 annual meeting of shareholders.
REMOVAL OF DIRECTORS AND FILLING VACANCIES
The bylaws provide that, unless the board of directors otherwise
determines, any vacancies, including vacancies resulting from an increase in the
number of directors, will be filled by the affirmative vote of a majority of the
remaining directors, even if less than a quorum. Directors elected to fill a
vacancy shall hold office until the next election of the class for which they
were chosen, or if the vacancy occurs from an increase in the size of the Board,
until the next annual meeting of shareholders. Directors may only be removed
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for cause, and then only by the affirmative vote of the holders of at least
66 2/3% of our voting stock.
SPECIAL MEETINGS AND ACTION OF SHAREHOLDERS BY WRITTEN CONSENT
Under the bylaws, the holders of shares representing 75% or more of the
votes entitled to be cast may call a special meeting of shareholders. This
provision makes it more difficult for shareholders to call special meetings of
shareholders. Further, under the articles of incorporation, the shareholders may
act without a meeting and by written consent, if the written consent is signed
by all of the shareholders of Netzee. This provision makes it more difficult for
shareholders to take action outside of a duly called annual or special meeting.
ADVANCE NOTIFICATION OF DIRECTOR NOMINATIONS AND NEW BUSINESS
Our bylaws require shareholders to notify us in advance of their
nominations of candidates for election to the board of directors who are not
nominated by the board of directors. This provision also requires advance
notification of shareholder proposals to be presented at the annual meeting of
shareholders. Without compliance with these provisions, any director nominations
or proposals to be presented by shareholders without the approval of the board
of directors cannot be considered by the shareholders at a meeting.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The articles of incorporation eliminate, subject to certain exceptions, the
personal liability of a director to us or our shareholders for monetary damage
for breaches of such director's duty of care or other duties as a director. The
articles of incorporation do not provide for the elimination of or any
limitation on the personal liability of a director for (1) any appropriation, in
violation of the director's duties, of any business opportunity of ours, (2)
acts or omissions that involve intentional misconduct or a knowing violation of
law, (3) unlawful corporate distributions, or (4) any transactions from which
the director derived an improper personal benefit. The articles of incorporation
further provide that if the Georgia Business Corporation Code is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director shall be eliminated or
limited to the fullest extent permitted by the Georgia Business Corporation
Code, as amended, without further action by the shareholders. These provisions
of the articles of incorporation will limit the remedies available to a
shareholder in the event of breaches of any director's duties to the shareholder
or to us.
Our bylaws require us to indemnify and hold harmless any director who was
or is a party or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative, including any action or suit by or in the right of Netzee,
because he or she is or was a director of Netzee, against expenses (including,
but not limited to, attorney's fees and disbursements, court costs and expert
witness fees), and against judgments, fines, penalties, and amounts paid in
settlement incurred by him or her in connection with the action, suit or
proceeding. Indemnification would be disallowed under any circumstances where
indemnification may not be authorized by action of the board of directors, the
shareholders or otherwise. The board of directors has the power to cause us to
indemnify our (1) officers, employees and agents, and (2) any director, officer,
employee or agent of Netzee who is or was serving at
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our request as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise. In order to provide this indemnification, the board of
directors must adopt a resolution identifying the person or persons to be
indemnified and specifying the particular rights to be provided, which may be
different for each person.
We have entered into indemnification agreements with each of our executive
officers and directors that indemnify them to the fullest extent permitted by
the Georgia Business Corporation Code.
To the extent that we have funds reasonably available to be used, we shall
advance to any Netzee director, and may advance to any officer, employee or
agent of Netzee (but only if so provided by a resolution of the board of
directors), expenses incurred in defending any proceeding for which
indemnification is applicable, even before the final disposition of the
proceeding. However, the indemnified party must provide a written affirmation of
his or her good faith belief that he or she has met the standard of conduct
required for indemnification and a written undertaking to repay any advances
made if it is determined that the person is not entitled to indemnification. At
present, the board of directors has not adopted any indemnification resolutions
although it may do so at any time.
Our bylaws also permit us to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of Netzee, or
who, while serving in that capacity, is also or was also serving at our request
as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, whether or not we were required to indemnify the person by any bylaw
provision or resolution of the board of directors. We have purchased a policy of
insurance providing reimbursement of liabilities incurred by directors and
officers in their capacities as such.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Netzee pursuant
to the foregoing provisions, we have been informed that in the opinion of the
SEC, this indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
BUSINESS COMBINATION PROVISIONS OF GEORGIA LAW
The Georgia Business Corporation Code generally restricts a corporation
from entering into certain business combinations with an interested shareholder,
which is defined as any person or entity that is the beneficial owner of at
least 10% of the company's voting stock, or its affiliates, for a period of five
years after the date on which the shareholder became an interested shareholder,
unless:
- the transaction is approved by the board of directors of the corporation
prior to the date such person became an interested shareholder,
- the interested shareholder acquires 90% of the corporation's voting stock
in the same transaction in which it exceeds 10%, or
- subsequent to becoming an interested shareholder, the shareholder
acquires 90% of the corporation's voting stock and the business
combination is approved by the holders of a majority of the voting stock
entitled to vote on the transaction.
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The "fair price" provisions of the Georgia Business Corporation Code
further restrict business combination transactions with 10% or greater
shareholders. These provisions require that the consideration paid for stock
acquired in the business combination must meet specified tests, which are
designed to ensure that shareholders receive at least fair market value for
their shares in the business combination.
The interested shareholder and fair price provisions of the Georgia
Business Corporation Code do not apply to a corporation unless the bylaws of the
corporation specifically provide that these provisions are applicable to the
corporation. Netzee has not elected to be covered by these provisions, but it
could do so by action of the board of directors at any time.
RELATIONSHIP WITH INTERCEPT
Our bylaws address potential conflicts of interest between us and
InterCept, which beneficially owns approximately 28% of our common stock. These
bylaw provisions are designed to make clear to all persons who may purchase our
shares from time to time that the undertaking by InterCept of specific corporate
transactions that might otherwise be deemed to be corporate opportunities of
both ours and InterCept will not constitute a usurpation of corporate
opportunities. These provisions also clarify that a director or officer has
fulfilled his or her fiduciary and other duties to us and has not derived an
improper benefit if he or she acts consistently with the following policy:
- A corporate opportunity offered to any person who is an officer of
Netzee, and is also a director but not an officer of InterCept, shall
belong to Netzee, if the opportunity is expressly offered to that person
in working solely in his or her capacity as an officer of Netzee.
Otherwise, the opportunity shall belong to InterCept.
- A corporate opportunity offered to any person who is a director but not
an officer of Netzee, and who is also a director or officer of InterCept,
shall belong to Netzee, if the opportunity is expressly offered to that
person in working solely in his or her capacity as a director of Netzee.
Otherwise, the opportunity shall belong to InterCept.
- A corporate opportunity offered to any person who is an officer of both
Netzee and InterCept shall belong to Netzee, if the opportunity is
expressly offered to that person in working solely in his or her capacity
as an officer of Netzee. Otherwise, the opportunity shall belong to
InterCept.
Additionally, these bylaw provisions provide that a corporate opportunity
offered to a person under circumstances where it is unclear whether it was
offered primarily in that person's capacity as an officer or director of us or
of InterCept may be presented to whichever company the director or officer deems
appropriate under the circumstances in his or her sole discretion exercised in
good faith. These bylaw provisions will expire on the first day on which (1)
InterCept does not own at least 10% of the voting power of Netzee and (2) no
person who is an officer or director of Netzee is also a director or officer of
InterCept.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is SunTrust Bank,
Atlanta.
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PLAN OF DISTRIBUTION
We are registering the shares offered under this prospectus on behalf of
the selling shareholders and their pledgees, donees, transferees and successors
in interest. We will not receive any proceeds from the sale of the shares,
except as described in "Use of Proceeds." The selling shareholders and their
pledgees, donees, transferees or successors in interest may sell or distribute
these shares from time to time. These sales may be made by the selling
shareholders directly or through brokers or dealers or underwriters who may act
solely as agents, or who may acquire shares as principals. Sales may be made at
market prices prevailing at the time of sale, at prices related to the
prevailing market prices, at negotiated prices or at fixed prices, which may be
changed. The selling shareholders have the right to accept or reject, in whole
or in part, any proposed purchase of these shares, whether the purchase is to be
made directly or through agents.
The shares may be sold in one or more of the following types of
transactions, or in any combination of the following types of transactions:
(a) a cross or block trade, including a transaction in which the broker or
dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate
the transaction;
(b) purchases by a broker, dealer or underwriter as principal and resale by
such broker, dealer or underwriter for its account under this
prospectus;
(c) an exchange distribution in accordance with the rules of such exchange;
(d) ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
(e) in transactions "at the market" to or through market makers of our
common stock or into an existing market for the common stock;
(f) in other ways not involving market makers or established trading
markets, including direct sales of the shares to purchasers or sales of
the shares effected through agents;
(g) through transactions in options, swaps or other derivatives that may
not be listed on an exchange;
(h) in privately negotiated transactions; or
(i) in transactions to cover short sales.
In effecting sales, brokers or dealers engaged by the selling shareholders
may arrange for other brokers or dealers to participate in the resales. In
addition, any securities covered by this prospectus that qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
prospectus. Under Rule 144, a shareholder may sell shares held more than one
year, provided the shareholder meets various manner of sale, notice and other
requirements set forth in Rule 144.
From time to time after the date of this prospectus, the selling
shareholders may pledge or grant a security interest in some or all of the
shares offered under this prospectus. If a selling shareholder defaults in
performance of the obligations secured by these shares, the pledgees or secured
parties may offer and sell the shares from time to time by this prospectus. The
selling shareholders also may transfer and donate these shares
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in other circumstances. The number of shares beneficially owned by the selling
shareholders will decrease as and when the selling shareholders transfer or
donate these shares or default in performing any obligations secured by these
shares. The plan of distribution for shares offered and sold under this
prospectus will otherwise remain unchanged, except that the transferees, donees,
pledgees, secured parties or other successors in interest will be selling
shareholders for purposes of this prospectus. These matters are subject to the
escrow provisions previously described.
In connection with distributions of the shares or otherwise, the selling
shareholders may enter into hedging transactions with brokers or dealers. In
connection with such transactions, brokers or dealers may engage in short sales
of the shares registered hereunder in the course of hedging the positions they
assume, including positions assumed in connection with distributions of these
shares by such brokers or dealers. The selling shareholders may also sell shares
short and redeliver the shares to close out such short positions. The selling
shareholders may also enter into option or other transactions with brokers or
dealers which require the delivery to the brokers or dealers of the shares
registered hereunder, which the brokers or dealers may resell or otherwise
transfer under this prospectus. The selling shareholders may also loan or pledge
the shares to brokers or dealers and the brokers or dealers may sell the shares
so loaned, or, upon a default, the brokers or dealers may effect sales of the
pledged shares under this prospectus. These matters are subject to the escrow
provisions previously described.
The selling shareholders have advised us that they have not entered into
any agreements, understandings or arrangements with any underwriters, brokers or
dealers regarding the sale of these shares, nor is there an underwriter or
coordinating broker or dealer acting in connection with the proposed sale of
these shares. However, the selling shareholders may use brokers, dealers,
underwriters or agents to sell these shares, who may receive compensation in the
form of commissions, discounts or concessions. This compensation may be paid by
the selling shareholders or the purchasers of the shares for whom such persons
may act as agent, or to whom they may sell as principal, or both. The
compensation as to a particular person may be less than or in excess of
customary commissions.
Because the selling shareholders and such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales, they will be
subject to the prospectus delivery requirements of the Securities Act. In
addition, any commission, discount, concession or profit they realize with
respect to the resale of these shares while acting as principals may be deemed
to be underwriting discounts or commissions under the Securities Act. Neither we
nor the selling shareholders can presently estimate the amount of such
compensation. The aggregate proceeds to the selling shareholders from the sale
of the shares will be the purchase price of the common stock sold less the
aggregate agents' commissions, if any, and other expenses of issuance and
distribution not paid by us.
If the selling shareholders sell these shares in an underwritten offering,
the underwriters may acquire these shares for their own account and resell the
shares from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. In such event, we will set forth in a supplement to this
prospectus the names of the underwriters and the terms of the transactions,
including any underwriting discounts, concessions or commissions and other items
constituting compensation of the underwriters and brokers or dealers. The
underwriters from time to time may change any public offering price and any
discounts,
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concessions or commissions allowed or reallowed or paid to brokers or dealers.
Unless otherwise set forth in a supplement, the obligations of the underwriters
to purchase the shares will be subject to certain conditions, and the
underwriters will be obligated to purchase all of the shares specified in the
supplement if they purchase any of the shares.
If the selling shareholders notify us that they have entered into any
material arrangement with a broker or dealer for the sale of these shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, we will file a supplement to
this prospectus, if required, disclosing:
(a) the name of each selling shareholder and of the participating broker or
dealer(s);
(b) the number of shares involved;
(c) the price at which such shares were sold;
(d) the commissions paid or discounts or concessions allowed to such broker
or dealer(s), where applicable; and
(e) other facts material to the transaction.
In addition, we will file a supplement to this prospectus if we are notified
that a donee or pledgee that is not already identified as a selling shareholder
intends to sell more than 500 shares.
We have advised the selling shareholders that during such time as they may
be engaged in a distribution of these shares, they are required to comply with
Regulation M under the Exchange Act. With certain exceptions, Regulation M
prohibits the selling shareholders, any affiliated purchasers and other persons
who participate in such a distribution from bidding for or purchasing, or
attempting to induce any person to bid for or purchase, any security which is
the subject of the distribution until the entire distribution is complete.
We have agreed to bear certain expenses of registration of the common stock
under the federal and state securities laws and of any offering and sale
hereunder, except for commissions of dealers or agents, fees attributable to the
sale of the shares and some other expenses. We have agreed to indemnify the
selling shareholders, and we may agree to indemnify any agent, dealer or broker
that participates in transactions involving sales of these shares, against
certain liabilities, including potential liabilities under the Securities Act.
The selling shareholders have agreed to indemnify us for certain liabilities,
including potential liabilities arising under the Securities Act. The selling
shareholders may also agree to indemnify any broker or dealer or agent that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act.
The registration statement for this offering was filed under the terms of a
Registration Rights Agreement dated July 28, 2000 among Netzee, Card Plus and
each of Kenneth G. Ambellan, Robert W. Boylston, Jr. and Tonya H. Boylston, the
former shareholders of Card Plus, and the registration and indemnification
rights of the selling shareholders are subject to the terms of that agreement. A
copy of that agreement has been filed as Exhibit 4.1 to the registration
statement for this offering. This offering will terminate on the earlier of (a)
90 days from the effective date of the registration statement for this offering,
or (b) the date on which the selling shareholders have sold all of the shares
offered hereby.
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There can be no assurance that the selling shareholders will sell any or
all of the shares of common stock offered by them under this prospectus. It is
possible that a significant number of these shares could be sold at the same
time. Such sales, or the perception that such sales could occur, may adversely
affect prevailing market prices for our common stock.
WHERE YOU CAN FIND MORE INFORMATION
We are required by the Securities Exchange Act of 1934, as amended, to file
reports, proxy statements and other information with the SEC. Our SEC filings
are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also review any document we have filed with the SEC
at its Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549
and may obtain copies of such filings from the public reference room at
prescribed rates. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330.
INFORMATION INCORPORATED BY REFERENCE
We filed a registration statement on Form S-3 to register with the SEC the
shares of common stock to be offered and sold by this prospectus. This
prospectus forms a part of that registration statement. As allowed by the SEC's
rules, this prospectus does not contain all of the information you can find in
the registration statement or the exhibits to the registration statement. The
SEC allows us to "incorporate by reference" into this prospectus the information
we have filed with the SEC. The information incorporated by reference is an
important part of this prospectus and the information that we file subsequently
with the SEC will automatically update this prospectus. Absent unusual
circumstances, we will have no obligation to amend this prospectus, other than
by filing subsequent information with the SEC. The historical and future
information that is incorporated by reference in this prospectus is considered
to be a part of this prospectus and can be obtained as described above. We also
incorporate by reference any filings we make with the SEC under sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the initial filing of the
registration statement until the earlier of (a) 90 days from the effective date
of the Registration Statement, or (b) the date the selling shareholders sell all
of the shares. We incorporate by reference into this prospectus the following
documents that we have filed with the SEC:
- our annual report on Form 10-K for the fiscal year ended December 31,
2000 (File No. 0-27925), as filed with the SEC on April 2, 2001;
- our quarterly report on Form 10-Q for the quarter ended March 31, 2001
(File No. 0-27925), as filed with the SEC on May 15, 2001; and
- the description of our capital stock contained in our Registration
Statement on Form 8-A (File No. 0-27925), as filed with the SEC on
September 3, 1999, as amended by the section "Description of Capital
Stock" contained in this prospectus.
You may request a copy of these filings, at no cost, by visiting our
website at http://www.netzee.com or by writing or telephoning us at Netzee,
Inc., 6190 Powers Ferry Road, Suite 400, Atlanta, Georgia 30339, telephone
number (770) 850-4000, attention Richard S. Eiswirth, Senior Executive Vice
President, Chief Financial Officer and Secretary.
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EXPERTS
The financial statements and schedules incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of that firm as experts in giving said reports.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, Atlanta, Georgia, will issue an opinion
regarding the validity of the shares of common stock offered under this
prospectus. Attorneys at Sutherland Asbill & Brennan LLP may own shares of
Netzee common stock.
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TABLE OF CONTENTS
PAGE
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Summary............................. 1
Risk Factors........................ 4
Forward-Looking Statements.......... 16
Use of Proceeds..................... 17
Selling Shareholders................ 18
Description of Capital Stock........ 19
Plan of Distribution................ 24
Where You Can Find More
Information....................... 27
Information Incorporated by
Reference......................... 27
Experts............................. 28
Legal Matters....................... 28
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40,000 Shares
NETZEE, INC.
Common Stock
PROSPECTUS
May 25, 2001
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